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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1999
REGISTRATION NO. 333-79743
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ORIUS CORP.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 1731 65-0894212
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification Number)
</TABLE>
1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
WILLIAM J. MERCURIO
1401 FORUM WAY, SUITE 400
WEST PALM BEACH, FLORIDA 33401
561-687-8300
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
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COPIES TO
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<S> <C>
DONN A. BELOFF JORGE L. FREELAND
AKERMAN, SENTERFITT & EIDSON, P.A. WHITE & CASE LLP
450 EAST LAS OLAS BOULEVARD 200 S. BISCAYNE BOULEVARD
FORT LAUDERDALE, FLORIDA 33301 MIAMI, FLORIDA 33131
954-463-2700 305-371-2700
954-463-2224 (FACSIMILE) 305-358-5744 (FACSIMILE)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the earlier offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2)(3) PER SHARE OFFERING PRICE REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Common stock, par value
$.01 per share.......... 12,535,000 shs. $15.00 $188,025,000 $52,271
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</TABLE>
(1) Includes 1,635,000 shares of common stock issuable pursuant to an
over-allotment option granted to the underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) This Registration Statement also includes the rights to purchase shares of
preferred stock of the Registrant which will be attached to all shares of
common stock as of the date the Registrant adopts a Shareholder Protection
Rights Agreement, at a rate of one right for each share of common stock. The
Registrant intends to enter into the Shareholder Protection Rights Agreement
immediately prior to the closing of the offering described in this
Registration Statement. Until the occurrence of specific events described in
the Shareholder Protection Rights Agreement, the Rights are not exercisable,
are evidenced by the certificates of common stock and will be transferred
with and only with the common stock.
(4) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, JULY 28, 1999
(ORIUS LOGO)
10,900,000 SHARES
COMMON STOCK
Orius is a nationwide provider of installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry in the United States. This is our initial public offering of shares of
common stock. We are offering 7,400,000 shares and selling stockholders are
offering 3,500,000 shares. Orius will not receive any proceeds from the sale of
the shares of common stock by the selling stockholders.
No public market currently exists for our shares. Our shares have been approved
for listing on the New York Stock Exchange under the symbol "ORS." We expect
that the initial public offering price will be between $13.00 and $15.00 per
share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
UNDERWRITING PROCEEDS, PROCEEDS
PRICE TO DISCOUNTS AND BEFORE EXPENSES, TO SELLING
PUBLIC COMMISSIONS TO ORIUS STOCKHOLDERS
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<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL $ $ $ $
</TABLE>
We and the selling stockholders have granted the underwriters an option to
purchase up to 1,635,000 additional shares of common stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any.
-------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares of common stock to investors in
Baltimore, Maryland on , 1999.
DEUTSCHE BANC ALEX. BROWN BANC OF AMERICA SECURITIES LLC
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
(ORIUS MAP)
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Orius, its financial statements and the related notes
appearing elsewhere in this prospectus. Unless otherwise indicated, all
information contained in this prospectus has been adjusted to reflect a 10.3609
for one stock split to be effected immediately prior to the closing of this
offering. The information provided in this prospectus assumes that, immediately
prior to the closing of this offering, we will reincorporate Orius in the state
of Florida.
OUR COMPANY
We are a nationwide provider of installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry in the United States. We also install, design, engineer and maintain
interior wiring for integrated voice, data and video networks in commercial,
institutional and governmental facilities. Our customers utilize our services to
add capacity to their existing networks, expand their networks into new
geographic markets and maintain their existing fiber optic, coaxial and copper
cable networks.
Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Adelphia,
Jones Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox
Communications, Charter Communications and Digital Teleport. Approximately 80%
of our pro forma revenues in 1998 were generated from repeat customers, in some
cases turnkey or master service agreements. The demand for our services has
accelerated as:
- traditional telecommunications and cable television industries have
converged
- our customers have encountered rapid growth in voice and data traffic
over their networks, and
- many of our customers have identified outsourcing as an efficient means
to expand, maintain and replace their communication networks.
We were formed in August 1997 to create a nationwide provider of
comprehensive services for telecommunications providers and cable television
system operators. We have completed 13 acquisitions since March 1998 and
currently perform work nationwide. We had pro forma revenues for the year ended
December 31, 1998 of approximately $265 million, of which 47% was from services
provided to cable television system operators, 29% was from services provided to
telecommunications providers and 24% was from interior wiring and other
services.
We estimate that the market for installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry exceeded $15 billion in 1998. We believe that our industry presents
substantial growth opportunities for large companies with broad geographic
coverage, comprehensive technical capabilities, and responsive and quality
service. Growth in our industry has been driven by the following trends:
- deregulation
- increased voice and data traffic on telecommunications networks
- increased outsourcing
- consolidation of telecommunications providers and cable television system
operators
- emergence of preferred service providers, and
- consolidation of our fragmented industry.
To enhance our position as a nationwide provider of comprehensive
installation, design, engineering and maintenance services, we intend to
supplement our internal growth with selective acquisitions. The businesses we
have acquired have achieved historical revenue
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growth on a combined basis at a compound annual rate of approximately 16%
between 1996 and 1998. As the size of, and services offered by,
telecommunications providers and cable television system operators have
expanded, these operators are increasingly requiring providers of installation,
design, engineering and maintenance services to offer these services
simultaneously in multiple geographic regions. Many of the smaller companies in
our industry do not have the financial resources necessary to provide
comprehensive services over a broad geographic area or the ability to manage
multiple projects. As a result, we believe that there will continue to be
consolidation within our industry and a large number of attractive acquisition
candidates.
BACKGROUND
Our company was formed by members of our senior management team to create a
nationwide provider of comprehensive installation, design, engineering and
maintenance services to the telecommunications and cable television systems
industry. The founding members of our executive management each have an average
of 30 years of experience within our industry. In March 1998, we acquired four
businesses with operations in 28 states that provide installation, design,
engineering and maintenance services to cable television system operators. These
businesses had combined 1998 revenues of approximately $66 million. Principal
customers of these businesses include TCI, Adelphia, Time Warner, Cablevision,
Ameritech, Bell Atlantic and Jones Intercable.
In June 1998 and August 1998, we acquired four additional businesses with
operations in 16 states that expanded our geographic coverage and resources to
service cable television system operators and enabled us to broaden our customer
base to include telecommunications providers. These additional acquisitions had
combined 1998 revenues of approximately $56 million. Principal customers of
these businesses include MediaOne, Cox Communications, Falcon, Media Com and
Intermedia.
RECENT DEVELOPMENTS
Recent Acquisitions
In February 1999, we acquired four additional businesses with operations in
17 states and combined 1998 revenues of approximately $113 million. These
companies offer installation, design, engineering and maintenance services to
the telecommunications and cable television systems industry primarily to
telecommunications providers and, to a lesser extent, cable television system
operators, and interior wiring services to a variety of commercial and
government entities.
In May 1999, we acquired Texel Corporation with operations in six states
and the District of Columbia and 1998 revenues of approximately $30 million.
Texel provides interior wiring services to commercial, institutional and
government entities.
New Credit Facility
In June 1999, we received a commitment for a new revolving credit facility
in the amount of $150 million. This facility will be provided by a group of
banks and other financial institutions led by Bank of America, N.A. We expect to
enter into this facility following the closing of this offering. The facility
will mature approximately five years after the date of the closing of the
facility.
Orius is a Florida corporation and our principal executive offices are
located at 1401 Forum Way, Suite 400, West Palm Beach, Florida 33401. Our
telephone number is (561) 687-8300.
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THE OFFERING
The following information, and similar information throughout this
prospectus relating to shares to be outstanding after this offering, assumes
that (1) the underwriters do not exercise the option granted by us and the
selling stockholders to purchase up to 1,635,000 additional shares of common
stock and (2) all outstanding shares of preferred stock, the junior convertible
promissory note and 339,983 warrants are converted into shares of common stock
immediately prior to the closing of this offering. References to outstanding
shares exclude 746,773 shares of common stock issuable upon exercise of
outstanding warrants and options at a weighted average exercise price of $5.87
per share, and 2,285,098 shares reserved for future grants under our stock
option plan.
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<S> <C>
Common stock offered by Orius................ 7,400,000 shares
Common stock offered by the selling
stockholders............................... 3,500,000 shares
Total........................................ 10,900,000 shares
Common stock to be outstanding after this
offering................................... 29,264,328 shares
Use of proceeds.............................. We will use the net proceeds of this offering
to reduce existing indebtedness and for
general corporate purposes, including
possible acquisitions.
Over-allotment option........................ We and the selling stockholders have granted
the underwriters an option to purchase up to
1,635,000 additional shares of common stock.
New York Stock Exchange symbol............... ORS
</TABLE>
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
We were formed in August 1997 to create a nationwide provider of
installation, design, engineering and maintenance services to the
telecommunications and cable television systems industry. We acquired eight
businesses in 1998 and five additional businesses in 1999. While the businesses
were acquired at various dates during 1998 and 1999, the following pro forma
statements of operations are presented as if all the 1998 and 1999 acquisitions
and this offering had occurred on January 1, 1998. The following pro forma
balance sheet gives effect to the Texel acquisition and this offering as if they
had occurred on March 31, 1999.
The unaudited pro forma financial information presented below is intended
to give you a better understanding of what the results of the operations and
financial position of all of our businesses might have looked like had they been
combined as of January 1, 1998. We prepared the pro forma statements of
operations by combining the historical results of each acquired company as if it
had been acquired on January 1, 1998 with our historical financial statements.
We then adjusted the combined amounts for the effects of other pro forma
adjustments discussed in the footnotes below and the consummation of this
offering. The acquired businesses may have performed differently if they had
been combined as of January 1, 1998. You should not rely on the pro forma
information as being indicative of the historical results that we would have had
or the future results that we will experience.
You should read the summary financial data presented below in conjunction
with the information contained in "Selected Pro Forma Financial Data," "Selected
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the related notes appearing elsewhere in this prospectus.
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<CAPTION>
YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
-------------------------------- ---------------------- --------------------------------
PRO FORMA, PRO FORMA, PRO FORMA,
PRO AS PRO AS PRO AS
ACTUAL FORMA(a) ADJUSTED(b) FORMA(a) ADJUSTED(b) ACTUAL FORMA(a) ADJUSTED(b)
------ -------- ----------- -------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:................... $81,551 $264,740 $264,740 $52,519 $52,519 $46,069 $68,156 $68,156
Expenses:
Direct costs.............. 59,896 193,455 193,455 40,425 40,425 36,224 51,703 51,703
General and
administrative.......... 8,645 25,367 25,367 5,285 5,285 4,540 7,105 7,105
Depreciation and
amortization............ 3,759 12,279 12,279 3,070 3,070 1,937 3,070 3,070
------- -------- -------- ------- ------- ------- ------- -------
Total................. 72,300 231,101 231,101 48,780 48,780 42,701 61,878 61,878
Income from operations...... 9,251 33,639 33,639 3,739 3,739 3,368 6,278 6,278
Other (Income) Expense:
Interest expense, net..... 2,508 14,261 4,622 3,565 1,156 2,160 3,565 1,156
Other (income) expense.... (72) (225) (225) (70) (70) (26) 29 29
------- -------- -------- ------- ------- ------- ------- -------
Income before income tax
provision and
extraordinary charge...... 6,815 19,603 29,242 244 2,653 1,234 2,684 5,093
Provision for income taxes.. 3,328 8,900 13,276 111 1,205 540 1,175 2,230
------- -------- -------- ------- ------- ------- ------- -------
Income before extraordinary
charge.................... $ 3,487 $ 10,703 $ 15,966 $ 133 $ 1,448 $ 694 $ 1,509 $ 2,863
======= ======== ======== ======= ======= ======= ======= =======
PRO FORMA PER SHARE DATA:
Diluted earnings per share.. $ 0.54 $ 0.05 $ 0.10
Diluted shares outstanding.. 29,529 29,529 29,529
</TABLE>
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<TABLE>
<CAPTION>
AT MARCH 31, 1999
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PRO FORMA,
ACTUAL PRO FORMA(a) AS ADJUSTED(b)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ -- $ 2,126 $ 2,126
Working capital............................................ 38,153 41,356 63,177
Property and equipment, net................................ 35,314 36,324 36,324
Total assets............................................... 198,373 242,218 239,742
Long-term debt............................................. 111,329 134,779 64,916
Convertible preferred stock and redemption rights on junior
convertible subordinated note............................ 21,526 21,526 --
Total stockholders' equity................................. 8,837 21,150 131,884
</TABLE>
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(a) For an explanation of the calculation of the pro forma adjustments, see
"Selected Pro forma Financial Data."
(b) Adjusted to give effect to the sale of the shares of common stock offered by
us, the conversion of the convertible preferred stock and junior convertible
subordinated note and 339,983 warrants, and the application of the net
proceeds therefrom. See "Use of Proceeds."
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<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our operations.
If any of the following risks actually materialize, our business, financial
condition or results of operations could be materially and adversely affected,
the trading price of our common stock could decline and you may lose all or part
of your investment.
OUR HISTORICAL AND PROPOSED GROWTH BY ACQUISITION MAY ADVERSELY AFFECT OUR
OPERATING RESULTS
Acquisitions involve a number of special risks including:
- failure of the acquired businesses to achieve the results we expect
- diversion of our management's attention from operational matters
- our inability to retain key personnel of the acquired businesses
- risks associated with unanticipated events or liabilities
- the potential disruption of our business, and
- customer dissatisfaction or performance problems at the acquired
business.
If we are unable to integrate or successfully manage the companies we have
acquired or may acquire in the future, we may not realize our anticipated cost
savings and revenue growth which may result in reduced profitability or
operating losses. To manage the combined enterprise on a profitable basis, we
intend to continue to integrate the computer, accounting and financial reporting
systems, and some of the operational, administrative, banking and insurance
procedures of the businesses we have acquired or may acquire in the future.
However, we cannot be certain that we will successfully institute these common
systems and procedures without substantial costs, delays or other operational or
financial problems. In addition, we cannot be certain that our recently
assembled management group will be able to successfully manage as a combined
entity the businesses we have acquired or may acquire in the future.
We expect to face competition for acquisition candidates, which may limit
the number of our acquisition opportunities and may lead to higher acquisition
prices. The realization of all or any of these risks could materially and
adversely affect the reputation of our company and our combined results of
operations.
WE MAY NOT BE ABLE TO CONTINUE OUR GROWTH THROUGH ACQUISITIONS
We may be unable to support our growth strategy through acquisitions if we
cannot finance future acquisitions. We may use our common stock for all or a
portion of the consideration for future acquisitions. If our common stock does
not maintain a sufficient market value or potential acquisition candidates are
unwilling to accept our common stock as part of the consideration for the sale
of their businesses, we may be required to utilize more of our cash resources to
pursue our acquisition program. Using cash for acquisitions limits our financial
flexibility and makes us more likely to seek additional capital through future
debt or equity financings. If we seek more debt, we may have to agree to
financial covenants that limit our operational and financial flexibility. When
we seek additional debt or equity financings, we cannot be certain that
additional debt or equity will be available to us at all or on terms acceptable
to us. We are required to obtain the consent of our lenders for acquisitions
which exceed minimum levels of cash consideration. We cannot readily predict the
timing, size and success of our acquisition efforts or the capital we will need
for these efforts.
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ALL OF OUR CONTRACTS CAN BE CANCELED ON SHORT NOTICE
All of our contracts are cancelable upon 30, 60 or 90 days notice.
Accordingly, we cannot give assurance that our future revenues will approximate
our historical performance. If any canceled contracts are not replaced with
contracts from other customers, or if we do not receive orders under our master
service agreements, our revenues would decrease, we would be unable to meet our
fixed expenses and our profitability would be materially and adversely affected.
All of our $368 million backlog at March 31, 1999 can be canceled at any
time without penalty, except, in some cases, for the recovery of our actual
committed costs and profit on work performed up to the date of cancellation.
Cancellations of pending purchase orders or terminations or reductions of
purchase orders in progress from our customers could have a material adverse
effect on our business. Our backlog may fluctuate and does not necessarily
indicate the amount of future sales.
WE HAVE EXPERIENCED AND EXPECT TO CONTINUE TO EXPERIENCE QUARTERLY VARIATIONS IN
REVENUES AND NET INCOME
Our revenues and net income in the first quarter and the fourth quarter
have in the past been, and may in the future be, materially and negatively
affected by adverse weather conditions and the year-end budgetary spending
patterns of our customers.
Quarterly variations in our revenues and net income result from many
factors, including:
- the timing of acquisitions
- variations in the margins of projects performed during any particular
quarter
- the timing and volume of work under new agreements
- the budgetary spending patterns of customers
- the termination of existing agreements
- costs we incur to support growth internally or through acquisitions or
otherwise
- the change in mix of our customers, contracts and business
- increases in construction and design costs, and
- general economic conditions.
OUR MASTER SERVICE AGREEMENTS AND TURNKEY AGREEMENTS SUBJECT US TO UNCERTAIN
REVENUE GROWTH AND SUBSTANTIAL UNREIMBURSED EXPENDITURES
A significant decline in work assigned to us under our master service
agreements and our turnkey agreements could materially and adversely affect our
results of operations due to a decline in revenue and our inability to offset
expenditures for working capital and equipment. Under our master service
agreements, we may be one of several companies that perform services for the
customer and our customers have no obligation to undertake any installation
projects or other work with us. Therefore, despite the long-term nature of these
master service agreements, they do not give us the security that typical
long-term contracts may provide. Under our turnkey agreements, the substantial
working capital and equipment required during the initial stages of these
agreements and the fixed unit-priced nature of these agreements subject us to
additional risks.
WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES
Our ability to provide high-quality services on a timely basis requires
that we employ an adequate number of skilled engineers, equipment operators,
linemen, foremen, cable and fiber splicers and project managers. Accordingly,
our ability to increase our productivity and
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profitability will be limited by our ability to attract, train and retain
skilled personnel. We, like many of our competitors, are currently experiencing
shortages of qualified personnel. We cannot be certain that we will be able to
maintain an adequate skilled labor force necessary to operate efficiently and to
support our growth strategy or that our labor expenses will not increase as a
result of a shortage in the supply of skilled personnel.
TECHNOLOGICAL CHANGES COULD REDUCE DEMAND FOR OUR SERVICES
New technologies could reduce the need for installation, repair and
replacement of wireline services, which could reduce the demand for our
business. Our industry is subject to rapid changes in technology. Wireline
systems used for the transmission of video, voice and data are subject to
potential displacement by various technologies, including wireless technologies.
Our customers may develop new technologies that allow users to receive enhanced
services without a significant upgrade of their existing telecommunications
networks.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES IN THE INDUSTRY
Our industry is highly competitive and is served by numerous small,
owner-operated private companies, a few public companies and several large
regional companies. Accordingly, we cannot assure you that we will be able to
maintain or enhance our competitive position. There are no substantial barriers
to entry in our industry and we expect that competition will intensify in the
future. As a result, any organization that has adequate financial resources and
access to technical expertise may become one of our competitors. Competition in
the industry depends on a number of factors, including price. Our competitors
may have lower overhead cost structures and may, therefore, be able to provide
their services at lower rates than we can. Our competitors have greater market
presence, engineering and marketing capabilities, and financial, technological
and personnel resources than those available to us. As a result, they may be
able to develop and expand their customer base more quickly, adapt more swiftly
to new or emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
we can. We also face competition from the in-house service organizations of our
existing or prospective customers which often employ personnel who perform some
of the same types of services as we do.
THE DEPARTURE OF KEY PERSONNEL COULD DISRUPT OUR BUSINESS
We depend upon the continued services and experience of our senior
management team, including William J. Mercurio, our President and Chief
Executive Officer, and of the managers of businesses we acquire. The loss of the
services of any of our key employees could have a material adverse effect on our
business by disrupting our business plan and growth strategy.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Those sales might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
29,264,328 shares of common stock, and options and warrants to acquire 746,773
shares of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the 10,900,000 shares offered by this prospectus are
freely tradable and the remaining 18,364,328 shares of common stock held by
existing stockholders on completion of this offering will be "restricted
securities," as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules 144
or 701 of the Securities Act. None
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of the shares outstanding prior to completion of this offering may be sold or
otherwise disposed of for a period of 180 days after the date of this prospectus
without the prior written consent of Deutsche Bank Securities, Inc. After 180
days following the completion of this offering, we intend to file a registration
statement under the Securities Act to register 3,000,000 shares of common stock
issuable on exercise of stock options or other awards granted or to be granted
under our existing stock option plan, which shares will be freely saleable in
the public market immediately following their exercise.
ANTI-TAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS AND OUR
SHAREHOLDER PROTECTION RIGHTS AGREEMENT, COULD MAKE AN ACQUISITION OF OUR
COMPANY MORE DIFFICULT
Our articles of incorporation provide that our Board of Directors may issue
preferred stock without stockholder approval. Our bylaws provide for staggered
terms for the members of our Board of Directors and impose limitations on the
ability of stockholders to propose matters to be voted on at our annual meeting.
Immediately prior to the closing of this offering, we will adopt a stockholder
protection rights agreement and distribute, as a dividend, one right for each
outstanding share of our common stock. The rights may cause substantial dilution
to a person or group that attempts to acquire our company in a manner or on
terms not approved by our Board of Directors. These provisions could make it
more difficult for a third party to acquire us.
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK
There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us and may not be
indicative of prices that will prevail in the trading market.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The trading price of our common stock could be subject to fluctuations in
response to the following factors:
- variations in our results of operations
- developments that affect the industry
- the overall economy, and
- the financial markets.
The market price of our common stock is also influenced by market
conditions for the common stock of our competitors and by changes in
recommendations or earnings estimates by securities analysts.
THE BOOK VALUE OF YOUR COMMON STOCK WILL BE SUBSTANTIALLY DILUTED IN THIS
OFFERING
The price you will pay for our common stock will be substantially higher
than the pro forma tangible book value per share of our common stock. As a
result, you will experience immediate and substantial dilution of $13.10 per
share in tangible book value, and the existing stockholders of our company will
receive a material increase in the tangible book value per share of their shares
of common stock. You will experience additional dilution as a result of common
stock being issued upon the exercise of outstanding stock options and warrants.
To implement our acquisition strategy, we intend to issue additional shares of
common stock in connection with future acquisitions, which may result in
additional dilution.
11
<PAGE> 13
THE YEAR 2000 PROBLEM COULD DISRUPT OUR BUSINESS
Many computer programs and applications define the applicable year using
two digits rather than four. The "Year 2000 problem" refers to the inability of
these computer programs on and after January 1, 2000 to recognize that "00"
refers to "2000" rather than "1900." The term "Year 2000 compliant" means a
computer or a computer system that has been designed or modified to recognize
dates on and after January 1, 2000. We are in the process of upgrading our
information systems which we expect to be Year 2000 compliant. We have initiated
an audit of our third-party vendors, suppliers and customers to determine their
readiness for the Year 2000 problem. We cannot be certain that unexpected Year
2000 compliance problems of our systems or of our vendors, suppliers and
customers will not materially and adversely affect our business, financial
condition or operating results. The unanticipated failure of one of these
systems to properly recognize date information beyond the year 1999 could have a
significant adverse impact on our ability to deliver services to customers and
to manage our continuing operations.
12
<PAGE> 14
USE OF PROCEEDS
We estimate that we will receive net proceeds of $93.2 million from the
sale of the 7,400,000 shares of common stock offered by us, assuming a public
offering price of $14.00 per share and after deducting underwriting discounts
and estimated expenses payable by us, of $10.4 million. The estimated net
proceeds will be $103.8 million if the underwriters' over-allotment option is
exercised in full. We will not receive any portion of the proceeds from the sale
of shares of common stock by the selling stockholders.
We intend to use the net proceeds of the offering to reduce outstanding
indebtedness under our credit facility. As of June 30, 1999, approximately $167
million was outstanding under our credit facility. The indebtedness to be repaid
out of the net proceeds from the offering consists of $51.7 million of term
loans bearing interest at LIBOR plus a 3.0% margin and due on February 26, 2004,
and $41.5 million of term loans, bearing interest at LIBOR plus a 3.75% margin
and due on February 26, 2005. This indebtedness was incurred under our credit
facility in connection with our prior acquisitions.
We intend to use the balance of the estimated net proceeds, if any, for
acquisitions, capital expenditures and working capital. Pending the allocation
of these proceeds, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit, or direct or guaranteed
obligations of the United States. We continually evaluate potential acquisition
candidates and intend to continue to pursue selective acquisition opportunities.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock and we do
not anticipate paying any cash dividends in the near future. Our current and
proposed credit facilities prohibit the payment of dividends on our common
stock. We currently intend to retain future earnings, if any, to finance
operations and the expansion of our business. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
dependent upon our financial condition, operating results, capital requirements
and other factors deemed relevant by our Board of Directors.
13
<PAGE> 15
CAPITALIZATION
The table below sets forth the following:
- our actual capitalization as of March 31, 1999
- our capitalization on a pro forma basis after giving effect to the
acquisition of Texel accounted for as a purchase, and
- our capitalization on a pro forma basis after giving effect to the
acquisition of Texel, as adjusted to give effect to our sale of 7,400,000
shares and application of the estimated net proceeds from this offering
as described in "Use of Proceeds."
This table should be read in conjunction with our financial statements and
related notes and the Selected Pro Forma Financial Data and related notes, which
are included elsewhere in this prospectus. We will convert the junior
subordinated convertible note referred to in the table into 692,627 shares of
common stock immediately prior to the closing of this offering.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
(IN THOUSANDS)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term debt:
Credit facility........................................ $110,250 $133,700 $ --
New senior credit facility............................. -- -- 63,837
Other.................................................. 1,079 1,079 1,079
-------- -------- --------
Total long-term debt........................... 111,329 134,779 64,916
-------- -------- --------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares outstanding.................... 10,017 10,017 --
Series B, 7,596.38 shares outstanding.................. 10,453 10,453 --
Value of redemption rights associated with junior
subordinated convertible note.......................... 1,056 1,056 --
-------- -------- --------
21,526 21,526 --
-------- -------- --------
Stockholders' equity:
Warrants............................................... 869 869 75
Common stock, $0.0001 par value, 48,696,230 shares
authorized; 13,421,163 shares issued on an actual
basis; 14,462,600 shares issued on a pro forma
basis; 29,264,328 shares issued on a pro forma as
adjusted basis...................................... 1 1 3
Additional paid-in-capital............................. 7,967 20,280 131,806
Retained earnings...................................... -- -- --
-------- -------- --------
Total stockholders' equity..................... 8,837 21,150 131,884
-------- -------- --------
Total capitalization........................... $141,692 $177,455 $196,800
======== ======== ========
</TABLE>
14
<PAGE> 16
DILUTION
The pro forma negative net tangible book value of our common stock as of
March 31, 1999, was $(63.0) million or $(2.88) per share of common stock. Pro
forma negative net tangible book value per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities, after
giving effect to the acquisition of Texel, divided by the number of shares of
common stock outstanding immediately prior to this offering.
After giving effect to our sale of 7,400,000 shares of common stock in this
offering and after deduction of the underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of March
31, 1999, would have been approximately $26.2 million, or $0.90 per share of
common stock. This represents an immediate increase in pro forma net tangible
book value of approximately $3.78 per share to existing stockholders and an
immediate dilution of $13.10 per share to new investors purchasing common stock
in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Offering price per share.................................... $14.00
Pro forma negative net tangible book value per share prior
to this offering.......................................... $(2.88)
Increase in pro forma net tangible book value per share to
existing stockholders..................................... $ 3.78
Pro forma net tangible book value per share after the
offering.................................................. $ 0.90
Dilution per share to new investors......................... $13.10
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on the initial
public offering price:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 21,864,328 74.7% $ 43,832,909 29.7% $ 2.00
New investors............... 7,400,000 25.3 103,600,000 70.3 14.00
---------- ----- ------------ ----- ------
Total............. 29,264,328 100.0% $147,432,909 100.0% $ 5.04
========== ===== ============ ===== ======
</TABLE>
The table excludes 746,773 shares of common stock issuable upon exercise of
outstanding warrants and options at a weighted average exercise price of $5.87
per share, and 2,285,098 shares reserved for future grants under our stock
option plan. The table includes 14,106,937 shares of common stock owned by our
executive officers and directors and their affiliates. We may also issue
additional shares to acquire additional businesses or upon exercise of stock
options granted in the future, which could result in additional dilution to our
stockholders.
15
<PAGE> 17
SELECTED PRO FORMA FINANCIAL DATA
We were formed in August 1997 to create a nationwide provider of
installation, design, engineering and maintenance services to the
telecommunications and cable television systems industry. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following pro forma statements of operations are
presented as if all these 13 acquisitions and this offering had occurred on
January 1, 1998. The following pro forma balance sheet gives effect to the Texel
acquisition and this offering as if they had occurred on March 31, 1999.
The following selected pro forma financial data has been derived from (1)
our financial information, which includes information for the acquired
businesses and, when applicable, includes adjustments to conform fiscal periods
to calendar periods, (2) the audited financial statements and notes thereto of
the acquired businesses and (3) our audited financial statements and notes
thereto since inception, which financial statements appear elsewhere in this
prospectus.
The selected pro forma financial data has been prepared for comparative
purposes only and do not purport to be indicative of the results which would
have been achieved had the acquired businesses been purchased and this offering
consummated as of the assumed dates, nor are the results indicative of our
future results. The selected pro forma financial data should be read in
conjunction with "Selected Historical Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our Financial
Statements and related notes since inception and the acquired businesses and the
Unaudited Pro Forma Financial Statements and related notes included elsewhere in
this prospectus.
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(a) BUSINESSES(b) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:....................... $81,551 $183,189 $ -- $264,740 $ -- $264,740
EXPENSES:
Direct costs.................. 59,896 134,484 (925)(c) 193,455 -- 193,455
General and administrative.... 8,645 31,910 (15,188)(d) 25,367 -- 25,367
Depreciation and
amortization................ 3,759 5,173 3,347(e) 12,279 -- 12,279
------- -------- -------- -------- -------- --------
Total.................. 72,300 171,567 (12,766) 231,101 -- 231,101
INCOME FROM OPERATIONS.......... 9,251 11,622 12,766 33,639 -- 33,639
OTHER (INCOME) EXPENSE:
Interest expense, net......... 2,508 674 11,079(f) 14,261 (9,639)(h) 4,622
Other (income) expense........ (72) (153) -- (225) -- (225)
------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAX
PROVISION..................... 6,815 11,101 1,687 19,603 9,639 29,242
PROVISION FOR INCOME TAXES...... 3,328 253 5,319(g) 8,900 4,376(g) 13,276
------- -------- -------- -------- -------- --------
NET INCOME...................... $ 3,487 $ 10,848 $ (3,632) $ 10,703 $ 5,263 $ 15,966
======= ======== ======== ======== ======== ========
Earnings per share:
Basic and diluted........... $ 0.54(i)
========
</TABLE>
16
<PAGE> 18
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(a) BUSINESSES(b) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:........................ $4,219 $48,300 $ -- $52,519 $ -- $ 52,519
EXPENSES:
Direct costs................... 3,364 37,054 7(c) 40,425 -- 40,425
General and administrative..... 710 5,550 (975)(d) 5,285 -- 5,285
Depreciation and
amortization................. 203 1,383 1,484(e) 3,070 -- 3,070
------ ------- -------- ------- -------- --------
Total................... 4,277 43,987 516 48,780 -- 48,780
INCOME (LOSS) FROM OPERATIONS.... (58) 4,313 (516) 3,739 -- 3,739
OTHER (INCOME) EXPENSE:
Interest expense, net.......... (57) 278 3,344(f) 3,565 (2,409)(h) 1,156
Other (income) expense......... (53) (17) -- (70) -- (70)
------ ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION...................... 52 4,052 (3,860) 244 2,409 2,653
PROVISION FOR INCOME TAXES....... 358 519 (766)(g) 111 1,094(g) 1,205
------ ------- -------- ------- -------- --------
NET INCOME (LOSS)................ $ (306) $ 3,533 $ (3,094) $ 133 $ 1,315 $ 1,448
====== ======= ======== ======= ======== ========
Earnings per share
Basic and Diluted............ $ 0.05(i)
========
</TABLE>
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------------
THE ACQUIRED PRO FORMA OFFERING PRO FORMA,
COMPANY(a) BUSINESSES(b) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:........................ $46,069 $22,087 $ -- $68,156 $ -- $ 68,156
EXPENSES:
Direct costs................... 36,224 15,479 -- 51,703 -- 51,703
General and administrative..... 4,540 2,453 112(d) 7,105 -- 7,105
Depreciation and
amortization................. 1,937 661 472(e) 3,070 -- 3,070
------- ------- ------- ------- -------- --------
Total................... 42,701 18,593 584 61,878 -- 61,878
INCOME FROM OPERATIONS........... 3,368 3,494 (584) 6,278 -- 6,278
OTHER (INCOME) EXPENSE:
Interest expense, net.......... 2,160 (34) 1,439(f) 3,565 (2,409)(h) 1,156
Other (income) expense......... (26) 55 -- 29 -- 29
------- ------- ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION AND EXTRAORDINARY
CHARGE......................... 1,234 3,473 (2,023) 2,684 2,409 5,093
PROVISION FOR INCOME TAXES....... 540 203 432(g) 1,175 1,055(g) 2,230
------- ------- ------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY
CHARGE......................... $ 694 $ 3,270 $(2,455) $ 1,509 $ 1,354 $ 2,863
======= ======= ======= ======= ======== ========
Earnings per share
Basic and Diluted............ $ 0.10(i)
========
</TABLE>
17
<PAGE> 19
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------------------------------------------------------------------
THE PRO FORMA OFFERING PRO FORMA,
COMPANY(j) TEXEL(j) ADJUSTMENTS(k) PRO FORMA ADJUSTMENTS(k) AS ADJUSTED
---------- -------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........... $ -- $ 2,126 $ -- $ 2,126 $ -- $ 2,126
Accounts receivable,
net................... 43,400 6,525 -- 49,925 -- 49,925
Unbilled accounts
receivable for
work-in-process....... 25,391 786 -- 26,177 -- 26,177
Inventory............... 14,682 -- -- 14,682 -- 14,682
Prepaid and other
current assets........ 1,241 14 -- 1,255 -- 1,255
-------- ------- ------- -------- -------- --------
Total current
assets....... 84,714 9,451 -- 94,165 -- 94,165
-------- ------- ------- -------- -------- --------
Property and equipment,
net................... 35,314 1,010 -- 36,324 -- 36,324
-------- ------- ------- -------- -------- --------
Goodwill, net........... 72,290 -- 33,384(i) 105,674 -- 105,674
Deferred financing
costs, net............ 3,976 -- -- 3,976 (2,476)(v) 1,500
Other, including
deferred income tax
asset................. 2,079 -- -- 2,079 -- 2,079
-------- ------- ------- -------- -------- --------
Total.......... $198,373 $10,461 $33,384 $242,218 $ (2,476) $239,742
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-
term debt............. $ 10,271 $ -- $ 1,550(ii) $ 11,821 $(11,821)(vi) $ --
Borrowing under credit
facility.............. 8,000 -- 2,000(ii) 10,000 (10,000)(vi) --
Accounts payable........ 13,796 1,297 -- 15,093 -- 15,093
Accrued liabilities..... 11,209 786 -- 11,995 -- 11,995
Deferred revenues....... 3,084 102 -- 3,186 -- 3,186
Other liabilities,
including deferred
income tax
liability............. 201 -- 513(iii) 714 -- 714
-------- ------- ------- -------- -------- --------
Total current
liabilities... 46,561 2,185 4,063 52,809 (21,821) 30,988
-------- ------- ------- -------- -------- --------
Long-term debt.......... 111,329 -- 23,450(ii) 134,779 (69,863) (vi) 64,916
Deferred income tax
liability............. 5,450 -- 1,537(iii) 6,987 -- 6,987
Deferred revenues....... 4,670 297 -- 4,967 -- 4,967
-------- ------- ------- -------- -------- --------
Total
liabilities... 168,010 2,482 29,050 199,542 (91,684) 107,858
Convertible preferred
stock................. 20,470 -- -- 20,470 (20,470)(vii) --
Value of redemption
rights associated with
junior subordinated
convertible note...... 1,056 -- -- 1,056 (1,056)(vii) --
-------- ------- ------- -------- -------- --------
21,526 -- -- 21,526 (21,526) --
-------- ------- ------- -------- -------- --------
Stockholders'
equity.............. 8,837 7,979 4,334(iv) 21,150 110,734(viii) 131,884
-------- ------- ------- -------- -------- --------
Total.......... $198,373 $10,461 $33,384 $242,218 $ (2,476) $239,742
======== ======= ======= ======== ======== ========
</TABLE>
18
<PAGE> 20
NOTES TO SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent the actual historical 1998 results of the
Company, including results for the acquired businesses purchased in the related
1998 period from the date of acquisition. Results for the three months ended
March 31, 1999 represent our actual historical results, including results for
the acquired businesses purchased in the first quarter of 1999 from the date of
acquisition.
(b) Results for the year ended December 31, 1998 and for the three months
ended March 31, 1998 represent combined historical 1998 results for (1) the
acquired businesses purchased in the related 1998 period prior to the date of
acquisition and (2) the acquired businesses purchased in 1999. Results for the
three months ended March 31, 1999 represent combined historical results for (1)
the acquired businesses purchased in 1999 prior to the date of acquisition and
(2) Texel which was acquired on May 25, 1999.
(c) Reflects the decrease resulting from differentials between the
compensation levels of the former owners of U.S. Cable that related to direct
costs and the terms of their employment agreements entered into with the
Company. A portion of the salaries of the former owners of U.S. Cable is also
included in general and administrative expenses. After the acquisition of the
acquired businesses, the owners' duties and responsibilities will not change and
additional costs are not expected to be incurred related to their efforts.
(d) The pro forma adjustment consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------
1998 1998 1999
------------ ------- -----
<S> <C> <C> <C>
Owners compensation (i)..................................... $(14,036) $ (969) $ 12
Business not acquired (ii).................................. (1,372) (86) --
Rent expense (iii).......................................... 220 80 100
-------- ------- -----
$(15,188) $ (975) $ 112
======== ======= =====
</TABLE>
(i) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and the
terms of the employment agreements entered into between the former owners
and the Company. After the acquisition of the acquired businesses, the
owners' duties and responsibilities will not change and additional costs
are not expected to be incurred related to their efforts. Also reflects
the elimination of compensation expense associated with the distribution
of excess cash balances to the former owners of the acquired businesses
immediately prior to the dates of acquisition by Orius.
(ii) Reflects the elimination of a business not purchased from CATV
Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease terms
as compared to lease terms entered into by former owners. In addition,
reflects the increase in rent expense and corresponding decrease in
depreciation expense and real estate tax expense resulting from our
leasing rather than owning related facilities which were not purchased
from the former owners of the acquired businesses.
(e) Depreciation has been derived utilizing the property and equipment
values of each of the acquired businesses at the time of their acquisition,
rather than utilizing values of property, plant and equipment actually held by
each of the acquired businesses in the period presented. Reflects the impact on
depreciation resulting from the application of our straight-line depreciation
policy rather than those of the former owners of the acquired businesses. In
addition, reflects the change in depreciation resulting from the write-up of
property and equipment to fair value arising from purchase accounting. Also
reflects amortization of goodwill calculated based on goodwill lives ranging
from 10 to 25 years. The pro forma adjustments consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1998 1998 1999
------------ ------ -----
<S> <C> <C> <C>
Depreciation:
Change in accounting policy............................... $(3,088) $ (462) $(738)
Write-up of property and equipment........................ 2,679 815 575
------- ------ -----
(409) 353 (163)
Amortization of goodwill.................................... 3,756 1,131 635
------- ------ -----
$ 3,347 $1,484 $ 472
======= ====== =====
</TABLE>
19
<PAGE> 21
NOTES TO SELECTED PRO FORMA FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(f) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the purchase of
the acquired businesses. In addition, reflects elimination of $67 and $25 during
the year ended December 31, 1998 and three months ended March 31, 1998,
respectively, of a business not purchased from CATV Subscriber Services. Under
the terms of our bank credit agreements, interest accrues at variable borrowing
rates. If interest rates were to fluctuate by 1/8 of 1 percent, pro forma
interest expense would change by $194 for the year ended December 31, 1998 and
$49 for the three month periods ended March 31, 1998 and March 31, 1999.
(g) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal statutory rate of
35% and the applicable state statutory rate for each of the Acquired Businesses
throughout the period presented.
(h) Reflects the decrease in interest expense at our borrowing rate under
our new credit facility on the indebtedness remaining after using the proceeds
from the initial public offering to repay a portion of our indebtedness. Under
the terms of our new credit facility, interest accrues at variable borrowing
rates. If interest rates were to fluctuate by 1/8 of 1 percent, pro forma
interest expense as adjusted would change by $81 for the year ended December 31,
1998 and $20 for the three month periods ended March 31, 1998 and March 31,
1999.
(i) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period, after
giving effect to the conversion of series A and series B preferred stock, the
stock split, this offering and the conversion of the junior subordinated
convertible note as well as the dilutive effect of shares issuable upon exercise
of outstanding options.
(j) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(k) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $32,634 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition, reflects $750
of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under the
senior secured credit facility and revolving credit facility, respectively,
to fund the Texel acquisition of $26,250 and $750 of transaction related
expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of Texel.
(v) Reflects the capitalization of deferring financing fees incurred for
the new credit facility and the write-off of fees associated with the
previous facility.
(vi) Reflects the repayment of debt with the proceeds from the initial
public offering.
(vii) Reflects the conversion of the convertible preferred stock and the
junior convertible subordinated note.
(viii) Reflects the issuance of common stock in conjunction with the
initial public offering and the conversion of the convertible preferred
stock and the junior convertible subordinated note and the exercise of
339,983 warrants.
20
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Channel as of December
31, 1997 and for the years ended December 31, 1996 and 1997 have been derived
from audited financial statements and related notes included elsewhere in this
prospectus. The following selected historical financial data of Channel as of
December 31, 1994, 1995 and 1996 and for the years ended December 31, 1994 and
1995 have been derived from unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data.
The selected historical financial data of our company as of and for the
period ended December 31, 1998 have been derived from the audited financial
statements and related notes appearing elsewhere in this prospectus.
The selected historical financial data of our company as of and for the
three months ended March 31, 1999 have been derived from unaudited financial
statements included elsewhere in this prospectus which have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such data.
The selected historical financial data should be read in conjunction with
the information contained in "Selected Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
OPERATING DATA THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CHANNEL:(a)
Total revenues............... $23,218 $20,731 $32,125 $20,268 $4,219
Income (loss) from
operations................. 1,786 279 4,638 1,926 (58)
Income before tax
provision.................. 1,613 138 4,823 2,063 52
THE COMPANY:
Total revenues............... $81,551 $46,069
Income from operations....... 9,251 3,368
Income before tax provision
and extraordinary charge... 6,815 1,234
Extraordinary charge, net of
tax benefit................ 770
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AT DECEMBER 31,
------------------------------------------- AT MARCH 31,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
CHANNEL:
Working capital........................ $2,476 $2,605 $4,709 $4,746
Total assets........................... 7,555 8,484 12,948 9,669
Total debt............................. 2,228 2,912 -- --
THE COMPANY:
Working capital........................ $20,921 $ 38,153
Total assets........................... 95,644 198,373
Total debt............................. 55,264 129,600
</TABLE>
- ------------
(a) Income from operations and income before tax provision reflect expenses that
would not be included in our company's results going forward, such as excess
owners' compensation. The operating data of the predecessor includes its
results of operations which were sold during 1996.
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains statements of a
forward-looking nature relating to future events or our future financial
performance. These statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to these differences include,
but are not limited to, those discussed in "Risk Factors," as well as those
discussed elsewhere in this prospectus. The historical results set forth in this
discussion and analysis are not necessarily indicative of trends with respect to
our actual or projected future financial performance. This discussion and
analysis should be read in conjunction with the financial statements and related
notes which appear elsewhere in this prospectus.
OVERVIEW
We derive our revenues primarily from installing, designing, engineering
and maintaining aerial and underground fiber-optic, coaxial and copper cable
systems. In addition, we provide interior wiring services, which include the
installation of integrated voice, data and video local and wide area networks in
facilities. Finally, we also provide installation services for utility
companies. We currently perform work for more than 200 customers. We had pro
forma 1998 revenues of approximately $265 million and approximately $68 million
for the three months ended March 31, 1999. Of our pro forma 1998 revenues, 47%
was from services provided to cable television system operators, 29% was from
services provided to telecommunications providers and 24% was from interior
wiring and other services.
Our three primary types of contracts include:
- installation contracts for specific projects
- master service agreements for all specified services within a defined
geographic territory, and
- turnkey agreements for comprehensive installation, design, engineering
and maintenance services.
These contracts are awarded on the basis of competitive bids, the final terms
and pricing of which are frequently negotiated with the customer. The majority
of our contracts provide that we will furnish a specified unit of service for a
specified unit of price. For example, we contract to install cable for a
specified rate per foot. We recognize revenues as the related work is performed.
Production reports are inspected and approved by both our on-site quality
control manager and the customer's on-site project manager. A small percentage
of our work is performed under percentage-of-completion contracts. Under this
method, revenues are recognized on a cost-to-cost method based on the percentage
of total cost incurred to date in proportion to total estimated cost to complete
the contract.
Project-specific agreements are billed on either a unit basis, as work is
completed, or a deferred unit basis, when work is completed in connection with
the overall project. Unbilled revenues consist of work-in-process on contracts
based on work performed, but not yet billed. All costs associated with unbilled
revenues are recorded as expenses in the same period as the unbilled revenue.
Customers are generally billed weekly. This process is intended to keep disputed
billings to a minimum, improve receivable collections and reduce our risk on
deferred billing projects. Master service agreements are billed on a unit basis
where bills are delivered upon completion of work. Turnkey agreements are billed
both on a unit and deferred unit basis.
Direct costs include all direct costs of providing services to our
customers, other than depreciation on fixed assets which we own or use under
capital leases. Except for turnkey agreements, materials are typically provided
by our customers. General and administrative costs include all costs of our
management personnel and the management of our subsidiaries, rent,
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utilities, travel and centralized costs such as insurance administration,
professional costs and clerical and administrative overhead. Our operating
subsidiaries' management personnel, and, with respect to national accounts, our
executive management, handle all sales and marketing functions as part or their
regular duties and, therefore, we do not incur material selling expenses.
RECENT ACQUISITIONS
Channel Communications, Inc. has been designated as our accounting
acquiror. All our acquisitions were accounted for using the purchase method of
accounting and, as a result, our financial statements will not include the
results of operations of the acquisitions prior to the date they were acquired.
The excess of the fair value of the consideration paid for the acquisitions of
$105.6 million over the fair value of the net assets purchased from the acquired
corporations has been recorded as goodwill. The majority of this goodwill is
being amortized over its estimated useful life of 25 years as a non-cash charge
to operating income. The effect to our net income of this amortization expenses,
a majority which is not deductible for tax purposes, is expected to be
approximately $4.5 million per year. Due to the timing of our acquisitions and
related costs, we believe that period to period comparisons may not be
meaningful in the near future.
1998 ACQUISITIONS
Our corporate predecessor, North American Tel-Com Group, was incorporated
in Florida in 1997. Orius was incorporated in Delaware in January 1999 and, in
February 1999, as a result of a corporate reorganization, North American became
our subsidiary. North American had no substantive operations until March 1998
when we acquired Cablemasters Corp., Channel, Excel Cable Construction, Inc. and
Mich-Com Cable Services, Incorporated, with combined 1997 revenues of
approximately $44 million.
In June 1998, we acquired U.S. Cable, Inc., with 1997 revenues of
approximately $15 million.
In August 1998, we acquired CATV Subscriber Services, Inc., Burn-Techs,
Inc. and State Wide CATV, Inc., with combined 1997 revenues of approximately $26
million.
1999 ACQUISITIONS
In February 1999, we acquired DAS-CO of Idaho, Inc., Schatz Underground
Cable, Inc., Copenhagen Utilities & Construction, Inc. and Network Cabling
Services, Inc., which have combined 1998 revenues of approximately $113 million.
In May 1999, we acquired Texel, with 1998 revenues of approximately $30
million.
These 13 acquisitions have pro forma 1998 revenues of approximately $265
million and combined 1997 revenues of approximately $217 million. Prior to their
acquisition by Orius, many of our subsidiaries were operated with different
strategic and financial objectives. Some of the former owners of the businesses
we acquired sought to maximize cash flow and stockholder distributions, rather
than reinvest earnings in future growth. In addition, our acquired businesses
operated under varying tax structures which influenced the historical level of
owners' compensation. As a result of the foregoing, gross profits and selling,
general and administrative expenses as a percentage of revenues may not be
comparable among the acquired businesses on an historical basis.
We entered into a new credit facility in connection with our February 1999
acquisitions and incurred a one-time non-cash related charge of approximately
$800,000, net of tax benefit of approximately $600,000. At March 31, 1999 we had
deferred financing costs recorded as an asset of approximately $4 million and
anticipate that some portion and possibly all of the
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<PAGE> 25
$4 million may be written-off in a similar non-cash charge upon the closing of
this offering in connection with the refinancing of our existing credit
facility.
RESULTS OF OPERATIONS
PRO FORMA AND COMBINED RESULTS OF OPERATIONS -- ORIUS
Pro Forma Three Months Ended March 31, 1999 Compared to Pro Forma Three
Months Ended March 31, 1998
Revenues. Revenues increased 30.0%, or $15.7 million, from $52.5 million
for the three months ended March 31, 1998 to $68.2 million for the three months
ended March 31, 1999. The growth was primarily attributable to a 43% increase in
demand from our cable customers and a 34% increase attributed to our
telecommunications customers, which when combined accounted for $15.3 million of
the total increase. Included in that amount was approximately $7.2 million of
revenues from turnkey contracts with our cable customers, which were not in
place during the prior period. Additionally, favorable weather conditions at key
telecommunications project sites allowed for an overall increase in services
provided. Revenues from interior wiring and other customers grew 4% over the
comparable period, or $400,000, due to a general increase in demand for our
services.
Direct Costs. Direct costs increased 28.0%, or $11.3 million, from $40.4
million for the three months ended March 31, 1998 to $51.7 million for the three
months ended March 31, 1999. These amounts represent a 1.0% decrease in direct
costs as a percentage of revenues from 76.9% for the three months ended March
31, 1998 to 75.9% for the three months ended March 31, 1999. The improvement was
a result of improved pricing on selected turnkey and master service agreements
contracts, increased utilization of assets and generally favorable weather
conditions, which led to improved labor productivity. This productivity was
partially offset by the increased reliance on subcontractors as a percentage of
total labor to service the increasing level of activity.
General and Administrative Expenses. General and administrative expenses
increased 34.0%, or $1.8 million from $5.3 million for the three months ended
March 31, 1998 to $7.1 for the three months ended March 31, 1999, and
represented 10.1% of revenues in 1998 and 10.4% of revenues in 1999. The
variance was primarily due to the increased payroll and expenses required to
service the increased levels of activity, and a one time consulting payment of
$550,000 related to the closing of four acquisitions in the quarter. Exclusive
of this payment, general and administrative expenses decreased to 9.6% as a
percent of revenues for the three months ended March 31, 1999.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $3.1 million for the three months ended March 31, 1998 and for the
three months ended March 31, 1999.
Interest Expense. Interest expense, net, was $3.6 million for the three
months ended March 31, 1998 and for the three months ended March 31, 1999.
Provision For Income Taxes. The provision for income taxes increased from
$111,000 to $1.2 million from the first quarter of 1998 to the first quarter of
1999. Our effective tax rate was 45.4% in 1998 and 43.8% in 1999 including
provision for federal, state and local taxes in each of the periods. The
increase was primarily attributable to the increased profits generated by our
company.
Pro Forma Year Ended December 31, 1998 Compared to Combined Year Ended
December 31, 1997
Revenues. Revenues increased 21.8%, or $47.3 million, from $217.4 million
for the year ended December 31, 1997 to $264.7 million for the year ended
December 31, 1998. Growth
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<PAGE> 26
in demand from our cable and interior wiring customers each exceeded 45%, a
combined increase of $55.3 million due to a general increase in demand for our
services. Revenues from our telephone customers increased $1.0 million or 1.5%
compared to prior year due to an increase in activities under master service
agreements. Other contract revenues declined $9.0 million or 37.2% due to the
completion of several municipal construction contracts in 1997.
Direct Costs. Direct costs increased from $163.9 million for the year
ended December 31, 1997 to $193.5 million for the year ended December 31, 1998.
The increase was due to the increased level of activity, and represents a
decline in direct costs as a percentage of revenues of 2.3% from 75.4% for the
year ended December 31, 1997 to 73.1% for the year ended December 31, 1998. The
increased productivity was due to increased utilization of assets and a shift to
higher margin telecommunications contracts from municipal construction
contracts.
Pro Forma Year Ended December 31, 1998
Revenues. Revenues for the year ended December 31, 1998 were $264.7
million.
Direct Costs. Direct costs for the year ended December 31, 1998 were
$193.5 million, or 73.1% of revenues.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1998 were $25.3 million, or 9.6% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the year ended December 31, 1998 was $12.3 million, or 4.6% of
revenues.
Income From Operations. Income from operations for the year ended December
31, 1998 was $33.6 million, or 12.7% of revenues.
Interest Expense. Net interest expense for the year ended December 31,
1998 was $14.2 million, or 5.4 % of revenues.
Provision For Income Taxes. The provision for income taxes for the year
ended December 31, 1998 was $8.9 million, or 3.4% of revenues.
HISTORICAL RESULTS OF OPERATIONS -- ORIUS AND CHANNEL
Our historical financial statements for the year ended December 31, 1998
include the results of Channel prior to its acquisition, for accounting
purposes, by our company on March 31, 1998. These results include the other
companies acquired in 1998 from the dates of acquisition. Our historical
financial statements for the three months ended March 31, 1998 and the year
ended December 31, 1997 consist solely of the results of Channel.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
The variations in our historical results for the three months ended March
31, 1999 and 1998 were primarily attributable to our completion of 12
acquisitions at different times during 1998 and the three months ended March 31,
1999. Accordingly, we believe that further explanation of these variances are
not meaningful.
Revenues. Revenues for the three months ended March 31, 1999 were $46.1
million and for the three months ended March 31, 1998 were $4.2 million.
Direct Costs. Direct costs for the three months ended March 31, 1999 were
$36.2 million, or 78.6% of revenues and for the three months ended March 31,
1998 were $3.3 million, or 79.7% of revenues.
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<PAGE> 27
General and Administrative Expense. General and administrative expenses for
the three months ended March 31, 1999 were $4.5 million or 9.9% of revenues and
for the three months ended March 31, 1998 were $710,000 or 16.8% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization for
the three months ended March 31, 1999 was $1.9 million or 4.2% of revenues and
for the three months ended March 31, 1998 was $203,000 or 4.8% of revenues.
Interest Expense (Income), Net. Interest expense, net, for the three months
ended March 31, 1999 was $2.2 million and for the three months ended March 31,
1998 was ($57,000).
Provision For Income Taxes. The provision for income taxes for the three
months ended March 31, 1999 was ($38,000) and for the three months ended March
31, 1998 was $358,000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The variations in our historical results for the years ended December 31,
1998 and 1997 were primarily attributable to our completion of eight
acquisitions at different dates during 1998. Accordingly, we believe that
further explanation of these variances are not meaningful.
Revenues. Revenues for the year ended December 31, 1998 were $81.5 million
and for the year ended December 31, 1997 were $20.3 million.
Direct Costs. Direct costs for the year ended December 31, 1998 were $59.9
million, or 73.4% of revenues and for the year ended December 31, 1997 were
$15.3 million, or 75.3% of revenues.
General and Administrative Expense. General and administrative expenses for
the year ended December 31, 1998 were $8.6 million or 10.6% of revenues and for
the year ended December 31, 1997 were $2.3 million or 11.2% of revenues.
Depreciation and Amortization Expense. Depreciation and amortization for
the year ended December 31, 1998 was $3.8 million or 4.6% of revenues and for
the year ended December 31, 1997 was $823,000 or 4.1% of revenues.
Interest Expense (Income), Net. Interest expense, net, for the year ended
December 31, 1998 was $2.5 million and for the year ended December 31, 1997 was
($66,000).
Provision (Benefit) For Income Taxes. The provision for income taxes for
the year ended December 31, 1998 was $3.3 million and for the year ended
December 31, 1997 was ($137,000).
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues decreased 36.9%, or $11.9 million, from $32.1 million
for the year ended December 31, 1996 to $20.3 million for the year ended
December 31, 1997. The decrease was primarily attributable to a reduction in
demand for Channel's services and the sale by Channel of operating assets.
Direct Costs. Direct costs decreased 35.1%, or $8.3 million, from $23.5
million for the year ended December 31, 1996 to $15.3 million for the year ended
December 31, 1997. As a percentage of revenues, direct costs increased from
73.2% to 75.2% primarily due to an increase of fixed costs as a percentage of
direct costs.
General and Administrative Expense. General and administrative expenses
decreased 43.8%, or $1.8 million, from $4.0 million for the year ended December
31, 1996 to $2.3 million for the
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year ended December 31, 1997. As a percentage of revenues, general and
administrative expense decreased from 12.5% to 11.2 as a result of a reduction
of salary related costs.
Depreciation and Amortization Expense. Depreciation and amortization
increased 22.8%, or $153,000, from $670,000 for the year ended December 31, 1996
to $823,000 for the year ended December 31, 1997. As a percentage of revenues,
depreciation and amortization expense increased from 2.1% to 4.1% primarily due
to fixed charges resulting from capital investments made prior to the reduction
in demand for services.
Interest Income, Net. Interest income, net, decreased 32%, or $31,000, from
$97,000 for the year ended December 31, 1996 to $66,000 for the year ended
December 31, 1997 due to a reduction in the amount of invested cash.
Provision (Benefit) For Income Taxes. The provision (benefit) for income
taxes, decreased 108.5%, or $1.8 million from a provision of $1.6 million for
the year ended December 31, 1996 to a benefit of ($137,000) for the year ended
December 31, 1997. The decrease was attributable to a reduction in taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements have been primarily to support our increased
working capital requirements, for capital expenditures and to fund acquisitions.
We have historically financed our liquidity needs through a combination of bank
borrowings, the sale of debt and equity securities and cash flow from
operations.
As of March 31, 1999, we had $0 cash and cash equivalents, working capital
of $38.1 million, including $18.3 million of short-term debt, and long-term debt
of $111.3 million, net of current maturities, including borrowings of $128.0
million under our credit facilities.
During the three months ended March 31, 1999, we used $8.5 million of net
cash in operating activities primarily related to increases in accounts
receivable, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by our acquisitions
and as such are not comparable to prior periods. We used net cash in investing
activities of $67.3 million, including $65.7 million used for the purchase of
businesses, net of cash acquired. Financing activities provided a net cash flow
of $73.6 million, resulting primarily from $130.5 million of borrowings under
our credit facility reduced by payment of debt assumed in connection with
acquisitions and private sales of equity securities. In connection with entering
the credit agreement on February 26, 1999, we issued to several of the lenders
warrants to purchase a total of 371,853 shares of common stock. The warrants
expire March 31, 2009 and entitle the holders to purchase common stock for $.01
per share. The warrants are exercisable at any time. In February 1999, we sold
7,596.38 shares of Series B preferred stock for $7.6 million and 1,029,078
shares of our common stock to our existing stockholders and employees for $2.4
million. The proceeds from those transactions were used to fund a portion of the
1999 acquisitions.
In connection with the acquisition of Network Cabling Services, Inc., we
are obligated to pay up to $500,000 in each of the next two years if the
acquired company meets designated financial targets through December 31, 2000.
In connection with the acquisition of Copenhagen Utilities, Inc., we are
obligated to pay up to $2,438,000 and issue up to 120,259 additional shares of
common stock in each of the next two years if the acquired company meets
designated financial targets through December 31, 2000. If the additional
consideration is paid it will be accounted for as additional purchase price
consideration.
During the three months ended March 31, 1999, we funded $1.5 million of
capital expenditures for an upgrade in our management information systems and
additions to our vehicles and equipment. We expect to spend approximately $9.5
million for capital expenditures for the remainder of 1999.
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During the nine months ended December 31, 1998, we used $5.2 million of net
cash in operating activities primarily related to increases in accounts
receivables, unbilled accounts receivable for work in process and inventory.
Changes in working capital accounts are driven predominantly by the acquisitions
throughout the period and as a result are not comparable to prior periods. We
used net cash in investing activities of $44.6 million, including $40.9 million
used for the purchase of businesses, net of cash acquired. Financing activities
provided a net cash flow of $50.7 million, resulting primarily from $61.3
million of borrowings under our credit facility reduced by payment of debt
assumed in connection with acquisitions and private sales of equity securities.
In March 1998, we sold 10,000 shares of Series A preferred stock for $4.4
million, net of issuing costs. At the same time, we borrowed $1 million in the
form of a junior subordinated convertible note. The proceeds from those
transactions were used to fund a portion of the 1998 acquisitions.
We currently have a $170 million credit facility with a group of financial
institutions. Our existing subsidiaries, and future subsidiaries will, guarantee
the repayment of all amounts due under our credit facility, and the existing
facility restricts pledges of our material assets. The credit facility contains
usual and customary covenants for a credit facility of this nature including the
prohibition of the payment of dividends, financial ratios and indebtedness
covenants and a requirement to obtain the consent of our lenders for
acquisitions which include a large cash consideration component. As of June 30,
1999, we had approximately $167 million outstanding under the credit facility.
In June 1999, we received a commitment for a new revolving credit facility
in the amount of $150 million. This facility will be provided by a group of
banks and other financial institutions led by Bank of America, N.A. We expect to
enter into this facility following the closing of this offering. The facility
will mature approximately five years after the date of the closing of the
facility.
Through May 26, 1999, we had acquired 13 businesses for an aggregate
consideration of $28.9 million of common stock, $138.6 million in cash and the
assumption of $14.6 million in debt. The cash portion of the consideration was
provided by borrowings under our credit facility and the issuance of debt and
equity securities.
As part of our growth strategy, we intend to pursue selective acquisitions.
The timing, size or success of any prospective acquisitions and the related
capital commitments cannot be predicted. To the extent that we seek to grow by
acquisitions that involve consideration other than our common stock, our capital
requirements may increase, although we are not currently subject to any
commitments or obligations with respect to any additional acquisitions. We
expect to fund future acquisitions primarily with issuances of additional equity
securities, the available portion of our credit facility and cash flow from
operations. We expect that our cash flow from operations and proceeds from the
offering will provide sufficient cash to allow us to meet our working capital
needs, debt service requirements and planned capital expenditures for property
and equipment through the end of 2000.
SEASONALITY; FLUCTUATIONS OF QUARTERLY RESULTS
Our operations are seasonal, generally resulting in reduced revenues and
profits during the first and fourth quarters relative to other quarters. Factors
affecting the seasonality of our business are holiday season shut-downs, adverse
weather conditions and capital expenditure patterns of our customers that can
negatively affect telecommunications systems repair, replacement and expansion.
Additionally, our industry can be highly cyclical. As a result, our business
volume may be adversely affected by declines in new projects in various
geographic regions. Quarterly results may also be materially affected by the
timing and magnitude of acquisitions and related costs, variations in the
margins of projects performed during any particular quarter and regional
economic conditions. Accordingly, our operating results in any
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<PAGE> 30
particular quarter may not be indicative of the results that can be expected for
any other quarter or for the entire year.
YEAR 2000 COMPLIANCE
Many computer programs and applications define the applicable year using
two digits rather than four in order to save memory and enhance the speed of
repeated date-based calculations. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000 compliant"
means a computer or a computer system that has been designed or modified to
recognize dates on and after January 1, 2000. We may be affected by Year 2000
issues in our own information technology ("IT") systems or non-IT systems, as
well as by Year 2000 issues related to IT and non-IT systems operated by third
parties. If our systems are not Year 2000 compliant, they could malfunction or
fail altogether, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
CURRENT SITUATION
Our plan to address the Year 2000 issue is structured in three phases:
inventory, analysis and implementation. The inventory phase is an investigation
of all our operations to identify the software and hardware used in all of our
systems. The analysis phase is an evaluation of each component to determine date
sensitivity to the Year 2000 and the identification and recommendation of
possible corrective actions. The implementation phase involves testing and
verification that the systems to be implemented are Year 2000 compliant, and are
deployed as required into our overall systems.
IT SYSTEMS. Our current state of progress with our IT systems is as follows:
- Inventory Phase. Since March, 1998, we have acquired 13
telecommunications companies each with its own information system for
project management, inventory control and financial reporting. We
determined that one system should be developed to manage our projected
growth. We believe the inventory phase of our IT systems is complete.
- Analysis Phase. During the fourth quarter of 1998, we began evaluating
software products from third-party vendors that included modules for
project management, inventory control, database and financial reporting
to replace the ITsystems of businesses we have acquired. Each of the
third-party vendors from which we purchased software modules and hardware
components of our new system certified to us that the modules and
components were Year 2000 compliant. The majority of our IT system will
be implemented without modification. We have engaged a consulting firm
that will certify that any needed modifications are Year 2000 compliant.
We are in the process of reviewing all of the Year 2000 testing programs
of vendors who have provided us with certifications to determine the
quality of their testing and whether additional testing will be required.
We believe we are 85% complete with testing of all of the components, and
expect to complete this process by October 31, 1999. We are not currently
aware of any Year 2000 problems relating to our IT system or the systems
and hardware supplied by third parties which would have a material effect
on our business, results of operations, or financial condition. To date,
we have handled our Year 2000 plan with our own internal personnel and
have not engaged any third-party consultants other than those involved
with implementation of our new systems.
- Implementation Phase. The implementation phase consists of the
conversion and replacement of the systems of our acquired businesses with
the third-party software and hardware selected in the IT analysis phase
of the project. During December 1998, we
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began converting our operations to the new systems. Currently, we operate
13 subsidiaries and have converted eight of these locations to the new IT
systems. The remaining five subsidiaries have begun implementation
activities and are expected to be converted by October 31, 1999.
NON-IT SYSTEMS. We are at the initial inventory phase for our non-IT systems
such as chips and microprocessors that may be embedded in our facilities and
equipment. We believe there is a minimal amount of dependence of our critical
operations on non-IT systems. However, since we have not completed our inventory
and assessment, we cannot currently determine if there are any potential Year
2000 problems that would cause a material adverse effect on our business,
results of operations, or financial condition. We expect to complete all phases
of our Year 2000 plan for our non-IT systems by October 31, 1999.
THIRD-PARTY SYSTEMS. We rely on third-party suppliers for operating supplies,
merchandise for resale, utilities, equipment and other key services.
Additionally, we rely on several key large customers for a continued source of
revenues. Interruption of any third-parties' operations due to Year 2000 issues
could have a material adverse effect on our business, results of operations or
financial condition. We have begun efforts to evaluate the progress of our
critical third-party suppliers and customers relative to their Year 2000 issues.
Letters and questionnaires are being sent to all essential third parties with
which we do business to assess their Year 2000 readiness. To the extent
necessary, we will seek alternative third-party relationships if circumstances
warrant. We expect to complete the analysis of the Year 2000 plan for our third-
party systems by October 31, 1999.
COSTS
The majority of our costs to address the Year 2000 issue are related to the
development of our new management information systems. Our costs principally
consist of licensing software modules and purchasing hardware components. As of
March 31, 1999, we have spent a total of approximately $500,000 for the new IT
systems. Our costs have been capitalized in accordance with generally accepted
accounting principles. We expect to incur $500,000 in additional software and
hardware costs installing the new IT system at our remaining current locations
in 1999. The aggregate cost of conversion and training employees for the new IT
system, which will be charged to expense in the period incurred, is expected to
be approximately $200,000. Although we do not expect to incur significant
expenses to address the Year 2000 issue beyond our capital investment in the new
IT system software and hardware, Year 2000 problems may require us to incur
unanticipated expenses which could have a material adverse effect on our
business, financial condition, or results of operations. These costs account for
approximately 90% of our information technology budget for 1999. To date, the
development of our management information system has run concurrent with and
been a part of our Year 2000 compliance efforts. No other major projects have
been deferred as a result of the system development effort. The source of the
funds for our Year 2000 compliance efforts has been cash generated from
operations and borrowings under our senior credit facilities.
RISKS RELATING TO THE COMPANY'S FAILURE TO BECOME YEAR 2000 COMPLIANT
Our worst case scenarios resulting from the Year 2000 issue include:
- interruptions to our customers' operations which could prevent them from
utilizing our services and paying for the services when rendered;
- disruptions to our utilities and other service providers which could
prevent us from operating in the normal course of business;
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- failure of our suppliers' operations which could result in our inability
to obtain equipment, materials and supplies to meet the demands of our
customers;
- failure to convert all of our locations to our new management information
system before December 31, 1999 which could prevent our locations from
processing invoices from our projects and tracking accounts receivable,
tracking employee productivity and other critical financial data. These
and other unknown items could prevent our locations from providing
services to our customers in a timely manner; and
- failure to convert all of the systems of the businesses we acquire during
1999 to our system prior to the year 2000 which could prevent these
locations from being integrated into the rest of our operations leading
to a loss in productivity, profitability and the ability to conduct
ongoing operations in the normal course of business.
The failures described above could materially and adversely affect our
business, results of operations and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
we are unable to determine at this time what our most reasonable and likely
worst case scenario would be or whether the consequences of Year 2000 failures
will have a material adverse impact on our results of operations, liquidity, or
financial condition. As we complete all of the phases of our Year 2000
compliance plan, we expect to have a better understanding of our most reasonably
likely worst case scenarios and will tailor our contingency plans accordingly.
CONTINGENCY PLANS
Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. Contingency plans for Year 2000-related interruptions are
being developed and will include emergency backup and recovery procedures for
lost data, manual invoicing, billing and collection procedures, identification
of alternate suppliers, acceleration of conversion times to our management
information system and increasing inventory levels of critical supplies and
equipment. These activities are intended to provide a means of managing risk,
but cannot eliminate the potential for disruption due to third-party failure. We
are currently considering what our final contingency plans will be in the event
that we are not able to bring all of our existing and acquired systems into Year
2000 compliance by the end of 1999. We currently plan to complete all
contingency plans by October 31, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SoP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," and in April 1998 AcSEC issued SoP
98-5, "Reporting on the Costs of Start-up Activities." Both SoPs are effective
for our 1999 financial statements. SoP 98-1 provides guidance on accounting for
costs of computer software developed or obtained for internal use. SoP 98-5
requires that entities expense start-up costs and organization costs as they are
incurred. The adoption of these SoPs in the first quarter of 1999 did not have a
material affect on our financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is effective for our 2000
financial statements, but that date is expected to be delayed to 2001 by the
FASB. This Statement requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Due to the complexity of this Statement, we are still
evaluating the impact, if any, on our financial statements.
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In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 in 1998 has had
no impact to date as we have not had any items of other comprehensive income in
any period presented.
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OUR BUSINESS
INTRODUCTION
We are a nationwide provider of installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry in the United States. We also install, design, engineer and maintain
interior wiring for integrated voice, data and video networks in commercial,
institutional and governmental facilities, which demand has been stimulated by
the rapid increases in internal networking of personal computers. Our customers
utilize our services to add capacity to their existing networks, expand their
networks into new geographic markets and maintain their existing fiber optic,
coaxial and copper cable networks. Fiber optic cable is composed of fine glass
fibers that allow light to pass through them, and can transmit a substantially
higher volume of information than copper wire. Coaxial cable is composed of an
insulated conducting tube surrounding a central, insulated conductor. We had pro
forma 1998 revenues of approximately $265 million, of which 47% was from
services provided to cable television system operators, 29% was from services
provided to telecommunications providers and 24% was attributable to interior
wiring and other services.
We currently have executive offices in 9 states and perform work
nationwide. Our principal customers are telecommunications providers and cable
television system operators including TCI, Time Warner, MediaOne, Adelphia,
Jones Intercable, U.S. West, Southwestern Bell, GTE, MCI WorldCom, Cox
Communications, Charter Communications and Digital Teleport. Approximately 80%
of our pro forma revenues in 1998 was generated from repeat customers, in some
cases under turnkey or master service agreements. The demand for our services
has accelerated as:
- traditional telecommunications and cable television industries have
converged,
- our customers have encountered rapid growth in voice and data traffic
over their networks, and
- many of our customers have identified outsourcing as an efficient means
to expand, maintain and replace their communication networks.
INDUSTRY
We estimate that the market for installation, design, engineering and
maintenance services for the telecommunications and cable television systems
industry exceeded $15 billion in 1998. We believe that our industry presents
substantial growth opportunities for large companies with broad geographic
coverage, comprehensive technical capabilities, and responsive and quality
service. Growth in our industry has been driven by the following trends:
Telecom Deregulation. The Telecommunications Act of 1996 substantially
revised prior law by preempting state and local government control over access
to the telecommunications and cable television market and eliminating regulatory
barriers to competition such as the antitrust consent decree that had restricted
the local Bell operating companies from offering long distance telephone
service, many federal pricing regulations that had affected cable television
providers and FCC restrictions that had prevented telephone companies from
offering cable television services. We believe the elimination of these entry
barriers has and will continue to increase competition among telecommunications
providers and cable television system operators in this market. In addition,
many state regulatory commissions eliminated pricing regulations for
telecommunications providers and cable television system operators, thus
requiring these providers to be price competitive and thereby become efficient
in installing and maintaining their telecommunications and cable television
networks. As a result, providers are entering new markets, offering services
that once were reserved for incumbent providers, and expanding and improving
their existing networks.
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Increased Voice and Data Traffic on Telecommunications Networks. Growth in
demand for telecommunications voice traffic, electronic commerce, delivery of
information and entertainment services, and the growth, use and reliance on
personal computers has created an increased need for greater bandwidth.
Bandwidth controls both the speed and breadth of voice, video and data
communications and is limited by the size of the cable or other facilities
through which communications flow. Because of the physical limitations of
existing network facilities, telecommunications providers and cable television
system operators are upgrading facilities with new and innovative technology,
expanding and, in many cases, replacing existing telecom infrastructure to allow
for increased bandwidth in order to offer faster and greater volume of
communications flow.
Increased Outsourcing. The need to upgrade and expand telecommunications
and cable television systems as a result of deregulation and the growth in
demand for enhanced services and bandwidth are expected to continue to increase
the current level of outsourcing to telecommunications providers and cable
television system operators. The outsourcing trend has largely been driven by
the efforts of telecommunications providers and cable television system
operators to expedite the expansion, maintenance, replacement and enhancement of
their networks, to reduce costs and to focus on their core competencies.
Companies that specialize in providing services to the telecommunications and
cable television industry are able to provide these services on an effective and
low cost basis. In addition, we believe that telecommunications providers and
cable television system operators are seeking to reduce the number of service
providers they utilize by establishing preferred relationships with a select
number of providers that are able to offer comprehensive solutions to their
network needs across a broad geographic area.
Industry Consolidation. While deregulation has created new market
participants, consolidation in the telecommunications and cable television
systems industry has created geographically diverse and in some cases integrated
providers. The expanding geographic markets served by telecommunications
providers and cable television system operators increase the requirement for
telecommunications and cable television service providers to have broader
geographic coverage capabilities. As the size and scope of telecommunications
providers and cable television system operators have expanded, they are
increasingly requiring service providers to provide installation, design,
engineering, and maintenance services simultaneously over multiple geographic
regions. Many of the smaller companies in our industry do not have the financial
resources necessary to provide comprehensive service capabilities over a broad
geographic area or the ability to manage multiple projects.
Emergence of Preferred Service Providers. We believe that
telecommunications providers and cable television system operators increasingly
prefer to simplify vendor management through the use of well capitalized
telecommunications and cable television service providers which provide
comprehensive services and broad geographic coverage. These service providers
must be able to build out large and complex networks quickly and with a high
level of quality. Furthermore, telecommunications and cable television service
providers must be able to rapidly mobilize their capital equipment, financial
assets and personnel resources to effectively respond to the increasing scale
and time constraints of customer demands. As telecommunications providers and
cable television system operators expand their geographic market, we believe
they often desire to extend existing relationships with service providers to
these new markets and are increasing the use of turnkey and master service
agreements. Turnkey agreements typically require the service provider to
install, design, engineer and often maintain a comprehensive network for a
specific project. Master service agreements typically require the service
provider to install, design and maintain systems and equipment for a variety of
projects over a three to five year period. Telecommunications and cable
television service providers also must be able to support the substantial
initial working capital and equipment commitments
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required for these turnkey and master service agreements. This trend favors
larger, better capitalized service providers over smaller industry competitors.
Consolidation of Our Industry. We believe our industry is highly
fragmented. Most companies in our industry are relatively small, privately-held
companies that have limited access to capital and offer a limited range of
services over a small geographic area to a single customer or relatively few
customers. In the future, telecommunications and cable television service
providers will need significant management expertise, technical capabilities and
capital resources to provide the level of service necessary to gain significant
market share. As a result, we believe that there will continue to be
consolidation within our industry and a large number of attractive acquisition
candidates.
STRATEGY
Our objective is to enhance our position as a leading provider of
comprehensive telecom infrastructure services in the United States. We seek to
take advantage of the growth trends in the telecom industry by offering
reliable, quality service on a nationwide basis. We also seek to expand our
ability to provide services under turnkey and master service agreements that
allow us to be the sole provider of a variety of services. We believe our
ability to offer outside installation and inside premise wiring services
provides us with a competitive advantage as some of our projects include the
placement and removal of various types of cable systems both inside and outside
of facilities. We expect to grow both internally and by acquiring well-
established and leading regional telecommunications and cable television service
companies. Our growth will enhance our geographic coverage and allow us to
continue to develop our diverse customer base. We also plan to continue to
implement our operating strategy with respect to the businesses we acquire. Key
elements of our growth and operating strategies include the following:
GROWTH STRATEGY
Internal Growth. We are focused on generating internal growth by:
- increasing the volume of services we provide to existing customers in
their current markets
- expanding the scope of services we provide to existing customers
- leveraging customer relationships into new markets served by existing
customers
- broadening our customer base, and
- geographically expanding our service area.
Additionally, the competitive pressures of deregulation have prompted
several existing customers to increase the outsourcing of noncore activities,
which can provide opportunities for enhancing internal growth without
necessarily requiring us to achieve market share gains. We are also able to
increase internal growth by enhancing the utilization of the businesses we
acquire by integrating their resources with those of our other operating
subsidiaries.
Our strong customer relationships, comprehensive service capabilities and
nationwide geographic coverage enable us to cross-market our services and
resources. These abilities and our expertise in engineering and installation
project management give us a competitive advantage in obtaining new contracts.
In addition, we have recently begun to offer our customers integrated
installation, design, engineering and maintenance services on large-scale
turnkey projects, which we believe distinguishes us from many of our
competitors.
An example of the success of our internal growth strategies is our
experience on a major turnkey project for TCI. In March 1998, we were awarded a
three-year, $60 million contract for
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the design, engineering and installation of a fiber optic/coaxial hybrid cable
network for TCI in its Pittsburgh region. The three-year contract, which may be
extended from time to time, involves the installation of approximately 7,800
miles of cable in western Pennsylvania, northern West Virginia and eastern Ohio.
Although the TCI contract was originally awarded to Channel, Excel, Cablemasters
and Mich-Com have also been involved in the completion of the contract. As a
result of our enhanced combined resources and our active cross-marketing
efforts, in June 1998 we were awarded a similar $10 million turnkey contract in
Tulsa, Oklahoma for the installation of a TCI cable network. Revenues from
turnkey agreements for the year ended December 31, 1998 and the three months
ended March 31, 1999 were $4.3 million and $7.2 million, respectively. We are
currently involved in discussions with several other customers for similar
turnkey contracts.
Expansion Through Selective Acquisitions. We believe that the increasing
trend toward the use of preferred service providers will result in a competitive
disadvantage for small and mid-sized companies that do not have access to
capital and cannot provide a comprehensive range of telecommunications and cable
television network services on a nationwide basis. As a result, we expect that
there will continue to be a large number of attractive acquisition candidates
that desire to join larger, better capitalized industry participants to compete
on a nationwide basis. We believe that our financial strength, experienced
management and decentralized operating strategy will be attractive to
acquisition candidates. The key elements of our acquisition strategy are:
- Enter New Geographic Markets. We intend to expand into geographic
markets we do not currently serve by selectively acquiring
well-established telecommunications and cable television service
providers that, like our current operating subsidiaries, are leaders in
their regional markets, are financially stable, have a strong customer
base, have senior management committed to participating in our future
growth and can enhance the resource utilization and internal growth of
the businesses we have previously acquired.
- Expand Services Within Existing Markets. We intend to explore selective
acquisition opportunities in the geographic markets we already serve as
well as markets serviced by businesses we acquire in the future. Once we
have entered a specific geographic market, we will seek to acquire other
well-established service providers in that particular market to deepen
our market penetration and expand the range of services offered to our
customers. We will also pursue acquisitions of smaller companies whose
operations can be integrated into and leveraged with our existing
operations.
OPERATING STRATEGY
Operate on a Decentralized Basis. We manage our operations on a
decentralized basis while overall operating and financial controls and strategic
planning are maintained at our corporate headquarters. Our operating
subsidiaries retain responsibility for the operations, profitability and growth
of their individual businesses. We believe that our decentralized operating
structure retains the entrepreneurial spirit of each of the businesses we
acquire and permits us to capitalize on the acquired businesses' local and
regional market knowledge, specialized skills, local brand name recognition and
customer relationships. Our operating subsidiaries have been in business for an
average of approximately 22 years. Our executive management team has
responsibility for overall operations, financing, capital expenditures,
insurance, investor relations, employee benefit plans, corporate strategy and
acquisitions. In addition, our executive management team is integrating
management information systems and accounting reporting systems through all of
our operating subsidiaries.
Achieve Operating Efficiencies. We are continuing to centralize
administrative functions. In addition, by combining overlapping operations of
the businesses we acquire, we expect to achieve more efficient asset and
personnel utilization and realize savings in overhead and other
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expenses. We intend to use our increased purchasing power to gain volume
discounts in areas such as vehicles and equipment, materials, marketing,
bonding, employee benefits and insurance. As we grow internally and acquire
additional businesses, we will seek to realize additional cost savings and other
benefits through shared purchasing, bidding, scheduling and other business
practices. We have established a program where we periodically review our
operations at the subsidiary level in order to identify those practices that can
be successfully implemented throughout our operations nationwide. When
appropriate, our operating subsidiaries work together in bidding for, winning
and executing new contracts for telecom infrastructure projects by pooling their
available resources, technical expertise and coverage in key geographic areas.
Our executive management team coordinates our overall bidding strategies to
maximize the utilization of our resources. We intend to continue to develop and
expand the use of management information systems to enhance financial controls,
project costing and asset utilization.
Attract, Train And Retain Highly Qualified Personnel. We focus on
attracting and retaining a highly trained and motivated workforce in order to
consistently deliver innovative customer solutions and high-quality service. Our
strategy is to become the employer of choice in each of the markets in which we
operate by offering our employees:
- comprehensive ongoing internal technical training programs throughout
their careers
- competitive compensation and employee benefits
- career development opportunities and geographic mobility, and
- equity participation in our success.
We have a centralized employee training program and conduct numerous
additional training programs throughout our offices. We believe that we have the
comprehensive training, nationwide presence and financial resources to better
attract and retain a highly qualified workforce than many of our competitors.
SERVICES
Installation and Maintenance. We provide a full range of installation and
maintenance services to our customers. The services we provide include the
splicing and placing of cable, excavation of trenches in which to place the
cable, placement of related structures such as poles, anchors, conduits,
manholes, cabinets and closures, placement of drop cable from the main
distribution lines to the customer's home and businesses, and maintenance and
removal of these facilities. In addition, we install and maintain transmission
and central office equipment. We have the capacity to directionally bore the
placement of cables, a highly specialized and increasingly necessary method of
placing buried cable networks in congested urban and suburban markets where
trenching is highly impractical. We also employ a licensed rail plow device
which enables us to bury cable on railway easements expeditiously at a low cost.
Design and Engineering. We offer a variety of design and engineering
capabilities. We design aerial, buried and underground fiber optic and copper
cable systems from the telephone central office to the ultimate consumer's home
or business. Engineering services for local exchange carriers include the design
of service area concept boxes, terminals, buried and aerial drops, transmission
and central office equipment design and the proper administration of feeder and
distribution cable pairs. For competitive access providers, we design building
entrance laterals, fiber rings and conduit systems. We obtain rights of way and
permits in support of engineering activities, and provide installation
management and inspection personnel in conjunction with engineering services or
on a stand-alone basis. For cable television system operators, we perform make
ready studies, strand mapping, field walk out, computer-aided radio frequency
design and drafting, and fiber optic cable routing and design.
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Interior Wiring and Other Services. We provide a variety of interior
wiring services which include the installation, design, engineering and
maintenance of telecommunications and cable television networks in commercial,
institutional and governmental facilities. These services generally include the
development of communication networks within a company or government agency
related primarily to the establishment and maintenance of computer operations,
telephone systems, Internet access and communications systems established for
purposes of monitoring environmental controls or security procedures. We also
provide installation services for gas and water utilities.
ACQUISITION PROGRAM
Since our formation in August 1997, we have acquired 13 telecommunications
providers and cable television system operators which have pro forma 1998
revenues of approximately $265 million. The following table sets forth the
businesses we have acquired.
<TABLE>
<CAPTION>
MONTH
BUSINESS ACQUIRED ACQUIRED PRINCIPAL CUSTOMERS HEADQUARTERS
- ----------------- -------- ------------------- ------------
<S> <C> <C> <C>
Texel Corporation............. May 1999 Interior Wiring Reston, VA
Copenhagen Utilities &
Construction, Inc........... February 1999 Telecommunications Clackamas, OR
Network Cabling Services,
Inc......................... February 1999 Interior Wiring Houston, TX
Schatz Underground Cable,
Inc......................... February 1999 Telecommunications/Cable TV Villa Ridge, MO
DAS-CO of Idaho, Inc.......... February 1999 Telecommunications Nampa, ID
Burn-Techs, Inc............... August 1998 Telecommunications Tampa, FL
State Wide CATV, Inc.......... August 1998 Cable TV Tampa, FL
CATV Subscriber Services,
Inc......................... August 1998 Cable TV Greensboro, NC
U.S. Cable, Inc............... June 1998 Cable TV O'Fallon, MO
Channel Communications, Inc... March 1998 Cable TV Sheboygan, WI
Cablemasters Corp............. March 1998 Cable TV Erie, PA
Mich-Com Cable Services
Incorporated................ March 1998 Cable TV Stuart, FL
Excel Cable Construction,
Inc......................... March 1998 Cable TV Jacksonville, FL
</TABLE>
We believe that we are regarded by acquisition candidates as an attractive
acquirer because of the following:
- our strategy for creating a nationwide comprehensive and professionally
managed business servicing the telecommunications and cable television
systems industry
- our access to capital resources
- our decentralized operating strategy and opportunities to participate in
a larger organization
- our potential for increased profitability due to centralizing
administrative functions, enhanced management information systems and
economies of scale, and
- the potential for owners of the businesses being acquired to participate
in our planned growth while realizing liquidity.
The management of our acquired companies are instrumental in identifying and
assisting in the completion of future acquisitions.
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We have developed a set of financial, geographic and management criteria
designed to assist management in the evaluation of acquisition candidates. These
criteria evaluate a variety of factors, including, but not limited to the
following:
- experience and reputation of the candidate's management and operations
- expertise of personnel
- composition and size of the candidate's customer base
- whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates
- whether the acquisition will augment our market share or services offered
or help protect our existing customer base
- historical and projected financial performance
- historical and projected internal rate of return, return on assets and
return on revenues
- potential synergies gained by combining the acquisition candidate with
our existing operations, and
- liabilities, contingent or otherwise, of the candidate.
We anticipate that acquisition candidates in the target markets and services
will typically have annual revenues ranging from $10 million to $100 million,
exclusive of acquisitions which may have annual revenues below $10 million. All
acquisitions are subject to initial evaluation and approval by our management
before being recommended to our Board of Directors. The evaluation by management
includes comprehensive financial, accounting and legal due diligence of the
acquisition candidate.
BIDDING AND CONTRACTS
Our contracts are awarded on a competitive basis, a negotiated basis, or a
combination of the two depending on the nature of the contract and the customer.
Upon receipt of a request for proposal, we develop a detailed bid which meets
the unique specifications and requirements of each project. This process often
entails strategic business analysis, resource planning, network design, cost and
engineering studies and, in some cases, development of financing alternatives
for the project. Bids may be structured as fixed price or cost plus, depending
on the requirements of the request for proposal, and are typically quoted on a
per unit basis. In either case, we believe that we enjoy a favorable competitive
position due to our ability to provide a full range of high quality
installation, design, engineering and maintenance services nationwide. Although
master service agreements have historically been awarded in a competitive
bidding process, recent trends have been toward securing or extending these
contracts on negotiated terms. With the rapid expansion of the
telecommunications and cable television networks, we believe that more master
service agreements will be awarded on the basis of negotiated terms as opposed
to the competitive bidding process.
Our three primary types of contracts include:
- installation contracts for specific projects
- master service agreements for all specified services within a defined
geographic territory, and
- turnkey agreements for comprehensive installation, design, engineering
and maintenance services.
Project-Specific Contracts. We refer to contracts covering bids for
particular services at specified prices as project-specific contracts.
Generally, these contracts cover most installation
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projects completed in over one year. The majority of these contracts provide
that we will furnish a specified unit of service for a specified unit of price.
For example, we contract to install cable for a specified rate per foot. Pro
forma revenues for project-specific contracts were $165 million in 1996, $174
million in 1997 and $218 million in 1998.
Master Service Agreements. We refer to contracts with telecommunications
providers and cable television system operators for the exclusive use of our
services to perform all work up to a price ceiling within a specific geographic
area as master service agreements. Under master service agreements, project
services are provided upon the execution of work orders, which will describe the
work to be undertaken. Each master service agreement contemplates hundreds of
individual installation and maintenance projects generally valued at less than
$50,000 each. While the terms of these agreements range from three to five
years, our customers are generally able to terminate the agreements upon 90 days
prior written notice and are often permitted to use other providers or to have
the services performed by their own regularly employed personnel. Pro forma
revenues for master service agreements were $32 million in 1996, $43 million in
1997 and $43 million in 1998.
Turnkey Agreements. We refer to contracts covering a comprehensive
spectrum of services, including the installation, design, engineering, and
maintenance of telecommunications and cable television networks on a fixed
unit-priced basis, as turnkey agreements. As we continue to grow and expand the
scope of services we provide, we are able to enter into an increasing number of
contracts to provide turnkey services. Even though these are generally long-term
agreements, the pricing for our services is not necessarily fixed because these
agreements often contain price adjustment provisions that are favorable to us as
well as performance and completion incentives. Turnkey agreements require
substantial initial working capital and equipment, which are partially funded by
customer prepayments. Pro forma revenues for turnkey agreements were $0 in 1996,
$0 in 1997 and $4 million in 1998.
CUSTOMERS
We served a diverse group of more than 200 customers in 1998. Our customers
include telecommunications providers such as incumbent local exchange carriers,
competitive local exchange carriers long-distance service providers and cable
television system operators. We also provide services to governmental entities,
general contractors, owners and managers of commercial and institutional
facilities such as public schools and utility providers. On a pro forma basis,
TCI and U.S. West each accounted for approximately 10% of our revenues during
1998. For the three months ended March 31, 1999, TCI was the only customer which
accounted for more than 10% of our pro forma revenues - $11.5 million, or 17%.
SALES AND MARKETING
Our sales and marketing efforts are primarily the responsibility of the
management of our operating subsidiaries. Our executive management supplements
their efforts with respect to national accounts. We focus on increasing the
value of comprehensive services provided to existing customers, actively
cross-marketing our additional services to our existing customer base and
developing new customer relationships. The management at each of our operating
subsidiaries has been responsible for developing and maintaining successful
long-term relationships with customers which helps facilitate our repeat
business and generate cross-marketing opportunities. We use both the written and
verbal referrals of our customers to help generate new business. Many of our
customers or prospective customers have a qualification procedure for becoming
an approved vendor based upon the satisfaction of particular performance and
safety standards set by the customer. These customers often maintain a list of
vendors meeting their standards and award contracts for individual jobs only to
vendors which meet their standards. We strive to maintain our status as a
preferred and qualified vendor to these customers.
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BACKLOG
We define our backlog as the uncompleted portion of services to be
performed under project specific contracts and the estimated value of future
services that we expect to provide under master service and turnkey agreements.
As of March 31, 1999, our backlog was approximately $368 million. Of that
amount, approximately $200 million is for work scheduled to be performed in 1999
and approximately $120 million is for work scheduled to be performed in 2000.
Approximately $16.5 million of our backlog represents work subject to
performance bonds and we may be required to pay liquidated damages if we fail to
perform in a timely manner. Two of our customers, TCI and US West, each
represent over 15% of our backlog. All our backlog can be canceled at any time
without penalty except, in some cases, for the recovery of our actual committed
costs and profit on work performed up to the date of cancellation. However, we
have not had any significant cancellations in the past. We are unable to provide
backlog information for periods prior to 1999 since our subsidiaries did not
maintain any consistent information on contract backlog prior to their
acquisition by Orius.
Due to the nature of our contractual commitments, in many instances our
customers do not commit to the volume of services to be purchased under the
contract. Rather, these contractual provisions commit us to perform these
services if requested by the customer and commit the customer to obtain these
services from us if they are not performed internally. Many of the contracts are
multi-year contracts and we include revenues from all the services projected to
be performed over the life of the contract in our backlog based upon our
historical relationships with our customers and experience in these types of
contracts.
SAFETY AND RISK MANAGEMENT
We are committed to ensuring that our employees perform their work in a
safe environment. We regularly communicate with our employees to promote safety
and to instill safe work habits through our company-wide employee training and
educational programs. We have dedicated risk managers at each of our operating
subsidiaries who review all accidents and claims, examine trends and implement
changes in procedures or communications to address any safety issues. We also
have a dedicated risk manager at our corporate headquarters who monitors the
risk management programs at our subsidiaries and establishes overall corporate
risk management objectives and standards.
EMPLOYEES
As of June 30, 1999, we had approximately 200 salaried employees, including
executive officers, project managers or engineers, job superintendents, staff
and clerical personnel. We also had approximately 2,470 field-based employees,
approximately 1,460 of which are paid on an hourly basis and approximately 1,000
of which are paid on a production basis. The number of employees can vary
significantly according to contracts in progress. We maintain a core of
technical and managerial personnel from which we draw to supervise all projects.
As the need arises, we also subcontract with independent contractors to supply
additional employees to complete specific projects. As of June 30, 1999, we had
approximately 1,200 subcontracted workers. Approximately 120 of our employees
are represented by a labor union and we consider relations with key and other
employees to be good.
EQUIPMENT AND FACILITIES
We operate a fleet of owned and leased trucks and trailers, support
vehicles and specialty installation equipment, such as backhoes, excavators,
trenchers, generators, boring machines, cranes, wire pullers and tensioners. The
total size of the equipment fleet approximates 2,100 units. We believe that
these vehicles generally are well-maintained and adequate for our present
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<PAGE> 43
operations. We believe that in the future, we will be able to lease or purchase
this equipment at favorable prices due to our larger size and the volume of our
leasing and purchasing activity.
Our corporate headquarters are located in leased space in West Palm Beach,
Florida. Our subsidiaries operate from one office facility which we own in Villa
Ridge, MO and leased administrative offices in: Jacksonville, FL; Stuart, FL;
Tampa, FL; Nampa, ID; O'Fallon, MO; Greensboro, NC; Clackamas, OR; Erie, PA;
Houston, TX; Reston, VA; and Sheboygan, WI. The total leased area is
approximately 125,000 square feet and the total annual base rent for our parent
and subsidiary headquarters facilities is approximately $1.1 million. The leases
for those facilities have terms ranging from month-to-month to five years. None
of the individual leases is material to our operations except for the facility
in Reston, VA which covers 17,654 square feet at an annual rent of $406,000. The
Reston lease expires in 2005 and has a five year annual option. Our subsidiaries
also lease various district field offices, equipment yards, shop facilities and
temporary storage locations. We also lease other smaller properties as necessary
to enable us to efficiently perform our obligations under master service
agreements and other contracts. We believe that our facilities are generally
adequate for our needs. We do not anticipate difficulty in replacing such
facilities or securing additional facilities, if needed.
COMPETITION
The market in which we operate is highly competitive, requiring substantial
resources and skilled and experienced personnel. We compete with other companies
in all of the markets in which we operate, some of which are large publicly
traded companies that may have greater financial, technical and marketing
resources than we do, including, Dycom Industries, Inc., MasTec, Inc. and Quanta
Services, Inc. There are relatively few, if any, barriers to entry into the
markets in which we operate and, as a result, any organization that has adequate
financial resources and access to technical expertise may become a competitor to
us. We may also face competition from the in-house service organizations of our
existing or prospective customers which often employ personnel who perform some
of the same types of services as those provided by us. Although a significant
portion of these services is currently outsourced, there can be no assurance
that our existing or prospective customers will continue to outsource service
requirements for installation, design, engineering and maintenance services in
the future.
We believe that the principal competitive factors in our market include
technical expertise, reputation, price, quality of service, availability of
skilled technical personnel, geographic presence, breadth of service offerings,
adherence to industry standards and financial stability. We believe that we
compete favorably within our industry on the basis of these factors.
LEGAL PROCEEDINGS
We occasionally are a party to legal proceedings incidental to our ordinary
business operations. At present, we are not a party to any pending legal
proceedings that we believe could have a material adverse effect on our
business, financial condition or results of operations.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William J. Mercurio....................... 58 President, Chief Executive Officer and
Chairman of the Board of Directors
Robert E. Agres........................... 38 Vice President and Chief Financial Officer
Robert J. Garrett......................... 61 Vice President-Business Development
Joseph P. Powers.......................... 53 Vice President-Operations, Director
Nominee
Bernard E. Czarnecki...................... 45 President-Cablemasters, Director
Jeffrey J. Ebersole....................... 43 President-Channel, Director
William Mullen............................ 46 President-U.S. Cable, Director
Douglas F. Berman......................... 33 Director
Sami Mnaymneh............................. 38 Director
Brian Schwartz............................ 32 Director
Leo J. Hussey............................. 60 Director Nominee
Ronald J. Mittelstaedt.................... 35 Director Nominee
Gerald E. Wedren.......................... 62 Director Nominee
</TABLE>
William J. Mercurio has been our President, Chief Executive Officer and
Chairman of our Board of Directors since our formation in August 1997. Mr.
Mercurio has more than 25 years of experience in our industry. From 1995 to
1997, Mr. Mercurio served as President and Chief Executive Officer of Able
Telcom Holding Corp., a publicly-traded telecommunications installation, design,
engineering and maintenance services company. From 1986 to 1995, Mr. Mercurio,
who is a certified public accountant, owned a consulting and accounting firm.
From 1971 to 1986, Mr. Mercurio held various positions with Burnup & Sims, Inc.
at the time a publicly-traded telecom infrastructure service provider, including
Senior Vice President, Chief Financial Officer and was a member of the Board of
Directors. While at Burnup & Sims, Mr. Mercurio participated in over 30
acquisitions and was responsible for all financing and accounting matters.
Robert E. Agres has been our Chief Financial Officer since June 1998. From
1993 to 1997, Mr. Agres served as Senior Vice President and Chief Financial
Officer of Triarc Beverage Group, where he was primarily responsible for
Triarc's subsidiary, Royal Crown Company, Inc. From 1997 to 1998 Mr. Agres was a
private financial consultant. Mr. Agres, who is a CPA, has more than 15 years of
experience in accounting and financial reporting including work at two public
companies and public accounting at KMG prior to joining our company.
Robert J. Garrett has been our Vice President for Business Development
since our formation in August 1997. Mr. Garrett has more than 40 years of
experience in the telecom infrastructure services industry. From 1995 to 1997,
Mr. Garrett was Vice President of Development for Irwin Utilities, a Texas-based
cable television installation company. For 36 years, until 1995, he was a
district manager with American Telephone and Telegraph where he managed major
telecom projects in Florida, Georgia, Louisiana, and New York.
Joseph P. Powers has been our Vice President for Operations since our
formation in August 1997. Mr. Powers has more than 32 years of experience in the
telecom infrastructure services industry. From 1995 to 1997, he served as
President of Able Communication Services, Inc., a wholly-owned subsidiary of
Able Telcom. From 1990 to 1995, he was Director of Operations for Voltelcom, the
telecommunications installation, design, engineering and maintenance services
division of Volt Information Sciences.
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<PAGE> 45
Bernard E. Czarnecki has served as a Director since March 1998. He has
served as President of Cablemasters since he founded that company in 1983.
Jeffrey J. Ebersole has served as a Director since March 1998. He has
served as President of Channel since he founded that company in 1978.
William Mullen has served as a Director since July 1998. He currently
serves as the President of U.S. Cable and has been associated with that company
since 1972.
Douglas F. Berman has served as a Director since March 1998. Mr. Berman
joined HIG in 1996 and became a Managing Director of HIG in 1998. From 1992 to
1996, Mr. Berman was with Bain & Company, an international management consulting
firm, where he managed a variety of projects for Fortune 500 companies. Mr.
Berman is also a director of Let's Talk Cellular & Wireless, Inc.
Sami Mnaymneh has served as a Director since March 1998. He co-founded HIG
Capital Management, Inc. in 1993 and serves as one of its Managing Directors.
Before founding HIG, Mr. Mnaymneh was a Managing Director at The Blackstone
Group, where he specialized in providing financial advisory services to Fortune
100 companies. Mr. Mnaymneh is also a director of Let's Talk Cellular &
Wireless, Inc.
Brian Schwartz has served as a Director since February 1999. Mr. Schwartz
joined HIG in 1994 and became a Managing Director of HIG in 1998. Before joining
HIG, Mr. Schwartz worked for PepsiCo, Inc.'s Strategic Planning Department.
Leo J. Hussey has agreed to become a Director upon completion of this
offering. Mr. Hussey has been the owner and Chief Executive Officer of
Southeastern Printing Company, a commercial printer, since 1997. From 1994 to
1997, Mr. Hussey was engaged in residential land development and the export of
motor vehicles to the United Kingdom. From 1970 to 1994, Mr. Hussey was an
officer with Burnup & Sims, Inc., including, from 1984 to 1992, Senior Vice
President and, from 1992 to 1994, Executive Vice President. Mr. Hussey was also
a director of Burnup & Sims from 1986 to 1994.
Ronald J. Mittelstaedt has agreed to become a Director upon completion of
this offering. Mr. Mittelstaedt has been the President, Chief Executive Officer
and a director of Waste Connections, Inc., a public solid waste services
company, since the company was formed in September 1997. He became Chairman of
Waste Connections in January 1998. From January 1997 to August 1997, Mr.
Mittelstaedt was a consultant to United Waste Systems, Inc., and, from November
1993 to January 1997, was a Regional Vice President of USA Waste Services, Inc.
Gerald E. Wedren has agreed to become a Director upon completion of this
offering. Mr. Wedren has been the President of Craig Capital Co., a private
Washington, D.C. based merger and acquisition advisory firm since 1973. Mr.
Wedren has also been the Managing Partner of Tavern Real Estate Limited
Partnership and Associates, which owns and leases properties in the Washington,
D.C. and Baltimore area since 1988. Mr. Wedren is a director of Lexford
Residential Trust and American Eagle Outfitters, Inc.
BOARD OF DIRECTORS
Our Board of Directors has seven members. Upon the closing of this
offering, the Board of Directors will have seven members, consisting of Messrs.
Mercurio, Mnaymneh, Berman, Powers, Hussey, Mittelstaedt and Wedren. Our
articles of incorporation provide that our Board of Directors will be divided
into three classes, with regular three year staggered terms and initial terms of
one, two and three years. Accordingly, Messrs. Berman and Wedren will hold
office until the annual meeting of stockholders to be held in 2000, Messrs.
Hussey and Mittelstaedt
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<PAGE> 46
will hold office until the 2001 annual meeting, and Messrs. Mercurio, Powers and
Mnaymneh will hold office until the 2002 annual meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an Audit Committee and a Compensation Committee.
Messrs. Mittelstaedt and Wedren have agreed to serve as the initial members of
our Audit Committee. The duties and responsibilities of the Audit Committee
include (1) recommending to the full Board of Directors the appointment of our
auditors and any termination of engagement, (2) reviewing the plan and scope of
audits, (3) reviewing our significant accounting policies and internal controls,
(4) administering our compliance programs, (5) having general responsibility for
all related auditing matters and (6) approving all transactions with affiliates.
The Compensation Committee is composed of two directors. Our Chief
Executive Officer makes recommendations to the committee as to the compensation
of our officers, including salary, bonus, stock options and benefits, as well as
the nomination of officers to be appointed by the Board of Directors. The
current members of the Compensation Committee are Messrs. Mnaymneh and Mercurio,
both of whom have agreed to resign. They will be replaced by Messrs. Hussey and
Mittelstaedt.
DIRECTORS' COMPENSATION
We do not currently pay any fees to directors. However, all directors are
reimbursed for out-of-pocket expenses incurred in connection with the rendering
of services as a director and, following this offering, our three independent
director nominees will be paid nominal amounts for attending board and committee
meetings. Upon consummation of this offering, each independent director nominee
will receive an initial grant of 25,000 options, exercisable at the initial
public offering price, which options will vest in one year. Each independent
director nominee will receive an additional grant of 7,500 options, exercisable
at the then current market value, on each anniversary of the consummation of the
initial public offering if such director nominee continues to serve as a
director at such time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Mercurio, a member of the Compensation Committee, is our President and
Chief Executive Officer. Mr. Mnaymneh, a member of our Compensation Committee,
is a controlling person of HIG, one of our principal stockholders. See "Certain
Transactions" for a description of various transactions between us, Mr. Mercurio
and HIG. None of our executive officers has served as a director or member of
the compensation committee of another entity, one of whose executive officers
served as a director or member of our Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal year ended
December 31, 1998 concerning compensation we paid to our Chief Executive Officer
and our other executive officers who were compensated over $100,000 during that
year. None of the executive officers appearing in the Summary Compensation Table
has received any stock options. Other annual compensation primarily represents
amounts paid for auto allowances.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- OTHER ANNUAL
NAME YEAR SALARY BONUS COMPENSATION
- ---- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
William J. Mercurio............................. 1998 $135,375 $100,000 $6,750
Joseph P. Powers................................ 1998 101,250 60,000 4,500
</TABLE>
STOCK OPTION PLAN
We have a stock option plan which provides for the grant of both
nonstatutory stock options and stock options intended to be treated as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended. Our stock option plan
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<PAGE> 47
provides that stock options may be granted by the Compensation Committee. The
Compensation Committee has the sole authority to grant option awards, to
construe and interpret the plan and to make all other determinations and take
any and all actions necessary or advisable for the administration of the plan.
The stock option plan is intended to provide incentives to, and rewards for, our
employees and non-employee directors. All of our employees, non-employee
directors, officers and advisors are eligible to receive awards and vote on the
stock option plan, but only employees are eligible to receive incentive stock
options. Incentive stock options granted under the stock option plan are
non-transferable other than by will or by the laws of descent and distribution.
The stock option plan may be amended at any time by the Board of Directors,
although the Board of Directors may condition any amendment on the approval of
our stockholders if approval is necessary or advisable with respect to tax,
securities or other applicable laws. Options will be exercisable during the
period specified in each option agreement and will generally become exercisable
in installments pursuant to a vesting schedule designated by the Compensation
Committee. If a change of control of Orius occurs, the Board may terminate all
options as of that date or accelerate the expiration of the options to the tenth
day after the change of control. The stock option plan terminates in 2008.
The total number of shares of common stock reserved for issuance under the
stock option plan is 3,000,000. We have granted incentive stock options to
acquire 672,680 shares of common stock, 103,609 of which are currently
exercisable. We have awarded options on five occasions. In each case, the
options vest in three equal installments on the first, second and third
anniversaries of the date of grant. All of the options which we have awarded are
incentive stock options, exercisable for a period of ten years, and the awards
have been made only to our employees. All options expire 90 days after an
employee ceases to be employed by the Company. The options were granted at
exercise prices ranging from $4.83 per share to $8.69 per share when the
estimated market price for the common stock ranged from $1.45 to $11.95 per
share.
EXECUTIVE EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Mercurio, Powers and Garrett,
dated February 26, 1999. Mr. Mercurio's employment agreement has a four-year
term and Messrs. Powers' and Garrett's agreements have two-year terms. Mr.
Mercurio receives a base salary of $400,000 per year, subject to adjustments for
inflation. Messrs. Powers and Garrett receive a base salary of $200,000 and
$150,000 per year, respectively, subject to adjustments for inflation. All three
employment agreements provide for health, life and disability insurance and
other benefits. They also contain covenants not to compete. So long as we do not
terminate the executives without cause, this period will run through their
employment and end on February 28, 2003 with respect to Mr. Mercurio, and
February 28, 2001 with respect to Messrs. Powers and Garrett, or one year after
their employment, whichever date is later. If we terminate Mr. Mercurio without
cause or due to his death or disability, then we must pay him his salary for a
period of two years following the date of termination. If that happens, Mr.
Mercurio also will have the right to exercise any options and warrants granted
to him while he was an employee. If Mr. Mercurio's termination is due to his
death or permanent disability, then we must pay him (or his estate) his salary
for one year after his death or date of disability. If Messrs. Powers or Garrett
are terminated without cause, we must continue to pay full compensation and
benefits to the terminated executive until February 28, 2001. If either
executive's termination is due to his death or permanent disability, then we
must pay him (or his estate) his salary for one year after his death or date of
disability.
None of our executive officers are parties to any agreements that are
triggered upon a "change of control."
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<PAGE> 48
CERTAIN TRANSACTIONS
GENERAL
We have, from time to time, entered into various transactions with certain
of our officers, directors and principal stockholders and entities in which
these parties have an interest. We believe that these transactions have been on
terms no less favorable to us than could be obtained in a transaction with an
independent third party.
ORGANIZATION OF ORIUS
We were formed in August 1997 by William Mercurio, Joseph Powers and Robert
Garrett, who acted as co-founders of Orius and paid nominal cash consideration
for 2,008,701 shares of common stock. In March 1998, we acquired Cablemasters,
Excel, Mich-Com and Channel for $25.1 million, including assumed indebtedness of
$2.6 million, and 5,192,676 shares of common stock. Messrs. Ebersole and
Czarnecki, directors of Orius, were stockholders of two of the founding
companies. Mr. Ebersole received $12.9 million and 2,779,415 shares of common
stock, with an effective per share price of $1.44, in connection with the sale
of Channel to us. We also entered into two three-year leases with entities
controlled by Mr. Ebersole for the lease of Channel's headquarters and office
space. The monthly rent for both leases is approximately $10,600. At the time of
the acquisition of Channel, Mr. Ebersole entered into a three-year employment
agreement with Channel that provided for an initial annual base salary of
$150,000. In addition, Mr. Ebersole received $200,000 and 59,399 shares of our
common stock as a finders fee for identifying acquisition candidates. Mr.
Czarnecki received $4.6 million and 1,098,680 shares of common stock, with an
effective per share price of $1.44, in connection with the sale of Cablemasters.
Mr. Czarnecki also signed a three-year employment agreement with Cablemasters,
with an initial annual base salary of $150,000. HIG Cable, Inc., an entity
controlled by Mr. Mnaymneh, purchased 10,000 shares of our Series A preferred
stock for $4.5 million and $1.0 million of our 9% junior subordinated
convertible notes, which will be converted into an aggregate of 3,809,455 shares
of common stock, with an effective per share price of $1.44, immediately prior
to the closing of this offering, to fund a portion of our initial acquisitions.
U.S. CABLE ACQUISITION
In June 1998, we acquired U.S. Cable from its former shareholders,
including William Mullen, one of our directors. Mr. Mullen and members of his
immediate family received $5.1 million and 1,290,218 shares of our common stock,
with an effective per share price of $1.44. Mr. Mullen signed a three year
employment agreement with U.S. Cable with an initial annual base salary of
$140,000 and became a member of our Board of Directors. U.S. Cable also entered
into a five-year lease for its corporate headquarters with an entity controlled
by Mr. Mullen at a monthly base rent of $5,000. As a result of the U.S. Cable
acquisition, the conversion ratio of the series A preferred stock held by HIG
Cable, Inc. was adjusted to provide that the Series A preferred stock will
convert into an additional 935,838 shares of common stock. This adjustment was a
term of the series A preferred stock when it was originally issued. In addition,
Mr. Mercurio received an additional 337,987 shares of common stock and Mr.
Garrett received an additional 144,852 shares pursuant to the terms of the
original issuance of these shares.
1999 ACQUISITIONS
In February 1999, we acquired Schatz, DAS-CO, Copenhagen and Network in a
transaction that was designed to give tax-free treatment to the stock issued to
the former stockholders of the acquired companies. To complete these
acquisitions all of our then existing stockholders exchanged their interests in
the company for new interests in Orius and we raised additional
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<PAGE> 49
equity to fund the 1999 acquisitions. HIG Cable West, Inc., an entity controlled
by Mr. Mnaymneh, acquired 7,596.38 shares of our series B preferred stock for
$7.6 million, which will be converted into 3,252,290 shares of common stock,
with an effective per share price of $2.34, immediately prior to the closing of
the offering. We also sold 1,066,219 shares of our common stock to our then
existing stockholders and employees for $2.4 million. The following officers,
directors and principal stockholders, and their immediate family members and
affiliated entities, purchased the number of shares indicated at $2.34 per
share, in cash: William J. Mercurio -- 132,319, Robert E. Agres -- 41,444,
Bernard E. Czarnecki -- 115,843, and William Mullen -- 106,717. In connection
with the 1999 acquisitions, we paid (1) Mercurio and Associates, P.A., an
affiliate of William J. Mercurio, a consulting fee of $550,000 for assistance in
identification of, and due diligence with respect to, acquisition candidates and
(2) HIG, an entity controlled by Mr. Mnaymneh, $267,000 for fees and expenses.
We have agreed to pay HIG Capital LLC, an entity controlled by Mr.
Mnaymneh, a professional services fee of approximately $1.55 million in
connection with this offering, less $230,000 for fees previously paid. We do not
currently have any other agreements or arrangements with any of our executive
officers or directors for the payment of fees or the reimbursement of expenses,
other than pursuant to employment agreements.
OTHER
Rosemarie Mulholland, the daughter of William J. Mercurio, is our Secretary
and Treasurer. Ms. Mulholland, a certified public accountant, received total
compensation of $64,287 from us in 1998, including a salary of $53,787 and an
accrued bonus of $10,500. Ms. Mulholland also received options to purchase 9,325
shares of our common stock, exercisable at $4.83 per share. The options vest in
equal annual increments in April 1999, 2000 and 2001.
COMPANY POLICY
In the future, any transactions with our directors, officers, employees or
affiliates are anticipated to be minimal and will, in any case, be approved by a
majority of the Board of Directors or a committee thereof, including a majority
of disinterested members of the Board of Directors.
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<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The table below lists information about the beneficial ownership of our
common stock as of June 30, 1999, including shares which the individuals have
the right to acquire within 60 days upon the conversion of our convertible
preferred stock or junior subordinated convertible note or the exercise of
options or warrants, by (a) each person whom we know to own beneficially more
than 5% of our common stock, (b) each of our directors and named executive
officers (c) all of our directors and executive officers as a group, and (d) our
selling stockholders. The share information for HIG Cable, Inc. set forth below
consists of shares issuable upon conversion of series A preferred stock and upon
conversion of a junior subordinated convertible note and the share information
for HIG Cable West, Inc. set forth below consists of shares issuable upon
conversion of series B preferred stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING THE OFFERING
------------------- SHARES TO -------------------
NAME NUMBER % BE OFFERED NUMBER %
---- ----------- ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Sami Mnaymneh(1)................. 7,061,745 32.8 1,848,552 5,213,193 17.8
Douglas F. Berman(1)............. 7,061,745 32.8 1,848,552 5,213,193 17.8
Brian Schwartz(1)................ 7,061,745 32.8 1,848,552 5,212,193 17.8
HIG Cable, Inc.(2)............... 3,809,455 20.1 1,848,552 1,960,903 6.7
HIG Cable West, Inc.............. 3,252,290 18.4 -- 3,252,290 11.1
Jeffery J. Ebersole.............. 2,838,817 19.6 557,873 2,280,944 7.8
William J. Mercurio.............. 1,255,916 8.7 -- 1,255,916 4.3
Bernard E. Czarnecki............. 1,098,680 7.6 109,868 988,812 3.9
Robert J. Garrett................ 930,357 6.4 -- 930,357 3.2
Larry Bonadeo.................... 823,071 5.7 -- 823,071 2.8
P. Nicholas Johnson.............. 764,734 5.3 -- 764,734 2.6
Jerry R. Wood and Sandra M. Wood
Trust(3)....................... 760,448 5.3 199,062 561,386 1.9
William Mullen Trustee........... 569,531 3.9 112,198 457,333 1.6
Robert Mullen.................... 552,651 3.8 108,872 443,779 1.5
Kenneth Childress................ 401,237 2.8 79,044 322,193 1.1
Douglas Hoffman.................. 378,981 2.6 74,659 304,322 1.0
Joseph P. Powers................. 305,267 2.1 -- 305,267 1.0
Glenn E. Mullen(4)............... 168,036 1.2 43,987 124,049 *
PNC Bank, N.A.(5)................ 175,307 1.2 175,307 -- *
Magnetite Asset Investor LLC(5).. 106,241 * 106,241 -- *
Heller Financial Inc.(5)......... 31,870 * 31,870 -- *
GMS Consultants Group, Inc....... 47,049 * 25,902 21,147 *
Robert E. Agres.................. 46,624 * -- 46,624 *
Merrill Lynch Capital
Corporation(5)................. 26,565 * 26,565 -- *
All officers and directors as a
group (10 persons)............. 14,106,937 65.6 2,628,491 11,478,446 39.2
</TABLE>
- ------------
(1) Consists of shares owned by HIG Cable, Inc. and HIG Cable West, Inc. that
are deemed to be owned by this person because of his position as a managing
director of HIG.
(2) Does not include up to 722,504 additional shares which may be purchased by
the underwriters upon exercise of the over-allotment option.
(3) Does not include up to 77,803 additional shares which may be purchased by
the underwriters upon exercise of the over-allotment option.
(4) Does not include up to 17,192 additional shares which may be purchased by
the underwriters upon exercise of the over-allotment option.
(5) Consists of shares issuable upon conversion of warrants.
* Less than 1%.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock will consist of 200,000,000 shares of common
stock having a par value of $.01 per share and 2,000,000 shares of preferred
stock having a par value of $.01 per share.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Holders
of common stock are not entitled to vote cumulatively for the election of
directors. Holders of common stock are entitled to dividends on a pro rata basis
upon declaration of dividends by the Board of Directors. Dividends are payable
only out of funds legally available for the payment of dividends. The Board of
Directors is not required to declare dividends, and it currently expects to
retain earnings to finance the development of our business.
Upon a liquidation of our company, holders of the common stock will be
entitled to a pro rata distribution of our assets, after payment of all amounts
owed to our creditors, and subject to any preferential amount payable to holders
of our preferred stock, if any. Holders of common stock have no preemptive,
subscription, conversion, redemption or sinking fund rights.
PREFERRED STOCK
Our articles of incorporation permit the Board of Directors to issue shares
of preferred stock in one or more series and to fix the relative rights,
preferences and limitations of each series. These rights, preferences and
limitations include dividend rates, provisions of redemption, rights upon
liquidation, conversion privileges and voting powers. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from acquiring, a majority of our
outstanding voting stock. There are currently two series of preferred stock
outstanding, all of the shares of which are held by HIG, which will be converted
into an aggregate of 6,369,118 shares of common stock immediately prior to the
closing of this offering.
In connection with the stockholder rights plan, which we will adopt
immediately prior to the closing of this offering, we will authorize 200,000
shares of series A junior participating preferred stock that will be issuable
upon the exercise of the stock purchase rights to be distributed as a dividend
to all of the holders of our common stock. Under the rights plan, each
stockholder will receive, for each share of common stock, a right to purchase
one one-thousandth of a share of series A junior participating preferred stock.
The junior participating preferred stock will have the following features:
quarterly cumulative dividends in an amount per whole share equal to the greater
of $10 or 1,000 times the dividends declared on the common stock; voting rights
of 1,000 votes per share; the ability to elect two directors in the event of a
default in the payment of six quarterly dividends; priority over the common
stock in the event of liquidation or dissolution; and ranking senior to the
common stock, but junior to all future series of preferred stock.
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The provisions of our articles of incorporation and bylaws summarized below
may be deemed to have an anti-takeover effect and may discourage, delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by the stockholders.
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<PAGE> 52
Staggered Terms of Directors. Our articles and bylaws provide for a
classified Board of Directors. The Board is divided into three classes of three,
two and two directors. Directors are elected for three-year terms, which are
staggered so that the terms of the different classes expire in successive years.
Nominating Directors. Our bylaws have an advance notice procedure for the
nomination of candidates by our stockholders for election as directors.
Authorized But Unissued Shares. Subject to the applicable requirements of
the exchange or automated quotation service on which our shares are listed or
traded, the authorized but unissued shares of common stock and preferred stock
are available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public or private offerings to raise additional capital, corporate acquisitions
or employee benefit plans. The existence of authorized but unissued and
unreserved common stock and preferred stock may enable the Board of Directors to
issue shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of our company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of our management.
Indemnification and Limitation of Liability. Our articles of incorporation
and bylaws provide that our directors and officers shall be indemnified by us to
the full extent permitted by Florida law against all expenses and liabilities
reasonably incurred in connection with service for or on our behalf. Our bylaws
also provide that the right of any person to indemnification is a contract right
and shall not be exclusive of any other right to which the person may be
entitled. Our articles of incorporation contain a provision that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty. This provision does not alter a director's liability
under the federal securities laws. In addition, this provision does not affect
the availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty.
Statutory Business Combination Provisions. Our articles of incorporation,
as amended, provide that we will be governed by the Florida Control Share Act,
which generally provides that shares acquired above specified thresholds will
not possess any voting rights unless those voting rights are approved by a
majority of a corporation's disinterested stockholders. Our articles provide
that we will NOT be governed by the Florida Affiliated Transactions Act, which
generally requires supermajority approval by disinterested stockholders of
specified transactions between a public corporation and holders of more than 10%
of the outstanding voting shares of the corporation.
STOCKHOLDER RIGHTS PLAN
Immediately prior to the closing of this offering, we will adopt a
stockholder protection rights agreement. Pursuant to the terms of the rights
agreement, we will distribute, as a dividend, preferred stock purchase rights to
holders of record of shares of common stock as of the closing date, at a rate of
one purchase right for each share of common stock held. Purchase rights will
also be attached to all shares of common stock that we issue on or after the
closing date. Each purchase right will entitle its holder to purchase from us
one one-thousandth of a share of preferred stock, par value $0.01 per share, at
a purchase price to be determined by the Board of Directors on the closing date,
subject to adjustment.
The purchase rights will become exercisable ten business days after a
person or group announces an offer which would, if consummated, result in the
person or group owning 15% or more of our common stock or the first date of a
public announcement that a person or group has acquired 15% or more of our
common stock. Until either of those events occur, the purchase rights will be
attached to all common stock certificates, and the rights will
51
<PAGE> 53
automatically trade with shares of common stock. The rights will expire ten
years after the adoption of the stockholder protection rights agreement, unless
we terminate the rights earlier.
In the event that any person becomes an owner of 15% or more of our common
stock, each holder of a purchase right, other than rights beneficially owned by
the acquiring person and its affiliates and associates, will have the right to
receive, upon exercise of a right, shares of our common stock. The number of
shares of common stock which a holder of a purchaser right is entitled to
receive is that number of shares having an aggregate market price, as defined in
the shareholder protection rights agreement, on the date of the public
announcement, equal to twice the exercise price of the purchase right, for an
amount in cash equal to the then current exercise price.
At any time after any person crosses the 15% threshold, but prior to the
acquisition by such person of 50% or more of the outstanding shares of common
stock, the Board of Directors may exchange the purchase rights, other than
purchase rights owned by the acquiring person, in whole or in part, at an
exchange ratio of one share of common stock per purchase right.
The purchase rights also have anti-takeover effects. The purchase rights
may cause substantial dilution to a person or group that attempts to acquire our
company in a manner or on terms not approved by the Board of Directors. The
purchase rights, however, should not deter any prospective offeror willing to
negotiate in good faith with the Board of Directors, nor should the purchase
rights interfere with any merger or other business combination approved by the
Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 29,264,328 shares of common
stock outstanding. All of the shares offered hereby will be freely saleable in
the public market after completion of this offering, unless acquired by
affiliates of our company. All of the shares outstanding prior to completion of
this offering are subject to contractual restrictions that prohibit the
stockholders from selling or otherwise disposing of shares for a period of 180
days after the date of this prospectus without the prior written consent of
Deutsche Bank Securities, Inc. After February 25, 2000, all of the currently
outstanding shares will be eligible for resale in the public market, subject to
the restrictions of Rule 144.
We have agreed not to sell, contract or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus, except
as consideration for business acquisitions or upon exercise of currently
outstanding stock options or warrants, without the prior written consent of
Deutsche Bank Securities, Inc.
In general, under Rule 144, a person, including persons who may be deemed
affiliates of our company, who has beneficially owned his or her shares for at
least one year is entitled to sell within any three-month period that number of
shares which does not exceed the greater of 1% of the outstanding shares of the
common stock or the average weekly trading volume during the four calendar week
preceding each sale. Sales under Rule 144 also are subject to manner of sale
provisions, notice requirements and the availability of current public
information about our company. Under Rule 144(k), a person who is not or has not
been deemed an "affiliate" of the company for at least three months and who has
beneficially owned his or her shares for at least two years would be entitled to
sell these shares under Rule 144 without regard to the limitations discussed
above.
There has been no public market for the common stock prior to this offering
and no assurance can be given that an active public market for the common stock
will develop or be sustained after completion of this offering. Sales of
substantial amounts of the common stock, or the perception that substantial
sales of common stock could occur, could adversely affect the
52
<PAGE> 54
prevailing market price of the common stock and could impair our ability to
raise capital or effect acquisitions through the issuance of common stock.
After 180 days after completion of this offering, we intend to file a
registration statement under the Securities Act to register 3,000,000 shares of
common stock issuable on exercise of stock options or other awards granted or to
be granted under our stock option plan. After the filing of that registration
statement, those shares will be freely saleable in the public market immediately
following exercise of such options.
In addition, our existing stockholders, who after the closing of this
offering will own approximately 18,364,325 shares of common stock, have the
right to include their shares in public offerings of our securities. Two of our
stockholders, holding 5,213,193 shares of common stock, have the right to cause
us to register shares of common stock owned by them.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company will serve as transfer agent and
registrar for our common stock.
53
<PAGE> 55
PLAN OF DISTRIBUTION
We have entered into an underwriting agreement with the underwriters named
below in which they have severally agreed to purchase from us the number of
shares of common stock set forth beside their names below. Deutsche Bank
Securities, Inc., Banc of America Securities LLC, Morgan Keegan & Company, Inc.,
and The Robinson-Humphrey Company, LLC are the representatives of the
underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities, Inc. .............................
Banc of America Securities LLC..............................
Morgan Keegan & Company, Inc................................
The Robinson-Humphrey Company, LLC..........................
--------
Total.............................................
========
</TABLE>
The obligation of the underwriters to purchase the common stock is subject
to the terms and conditions set forth in the underwriting agreement. The
underwriting agreement requires the underwriters to purchase all of the shares
of the common stock offered by this prospectus, if any are purchased. The shares
of common stock offered by the underwriters pursuant to this prospectus are
subject to prior sale, when, as and if delivered to and accepted by the
underwriters, and subject to the underwriters' right to reject any order in
whole or in part.
The underwriters have advised us that they propose to offer the shares of
common stock to the public at the public offering price of $ per share.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the public offering price. These
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the
public offering price. The underwriters may change the public offering price
after the common stock is released for sale to the public.
The underwriters may sell more shares than the total number set forth in
the table above. To cover these sales, the underwriters have an option to
purchase up to 1,635,000 additional shares of common stock, one half of which
are from Orius and one half of which are from the selling stockholders, at the
public offering price less the underwriting discounts and commissions set forth
in the table above. The underwriters may exercise this option for 30 days after
the date of this prospectus only to cover these sales. To the extent that the
underwriters purchase shares pursuant to this option, each of the underwriters
will purchase shares in approximately the same proportion as the number of
shares of common stock to be purchased by it shown in the above table bears to
10,900,000 and we will be obligated, pursuant to the option, to sell these
shares to the underwriters. If purchased, the underwriters will offer the
additional shares on the same terms as those on which the initial 10,900,000
shares are being offered.
Orius and the selling stockholders have agreed to indemnify the
underwriters with respect to liabilities incurred by the underwriters, including
liabilities under the Securities Act of 1933, as amended.
To facilitate the offering of the common stock, the underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the common stock. Specifically, the underwriters may over allot shares of the
common stock in connection with this offering,
54
<PAGE> 56
thereby creating a short position in the underwriters' account. A short position
results when an underwriter sells more shares of common stock than the
underwriter is committed to purchase. Additionally, to cover the over allotments
or to stabilize the market price of the common stock, the underwriters may bid
for, and purchase, shares of the common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if commenced, they may be discontinued at any
time. The underwriters may also reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by that
underwriter or dealer.
We have agreed not to make any offering, sale, short sale, transfer, pledge
or other disposition of any shares of our common stock or other securities
convertible into or exchangeable or exercisable for shares of our common stock
or derivatives of common stock for a period of 180 days after the date of this
prospectus, directly or indirectly, without the prior written consent of
Deutsche Bank Securities, Inc., except that we may, without this consent, issue
options granted under the stock option plan and issue shares upon exercise of
options granted under the stock option plan, and in connection with the
acquisitions of businesses.
Our executive officers, directors, and current stockholders have agreed not
to offer, sell, contract to sell, grant any option or other right for the sale
of, pledge or otherwise dispose of any shares of common stock or any securities
convertible or exchangeable into common stock owned or acquired in the future in
any manner until 180 days after the date of this prospectus, without the prior
written consent of Deutsche Bank Securities, Inc. These restrictions will be
applicable to any shares acquired by any of those persons during the applicable
restricted period.
The representatives of the underwriters have advise us that they do not
intend to confirm sales to any account over which they exercise discretionary
authority.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 400,000 shares to be offered and sold to our
employees and other persons. The number of shares of common stock available for
sale to the general public will be reduced to the extent these persons purchase
any of the reserved shares. Any reserved shares which are not orally confirmed
for purchase within one day of the pricing of the offering will be offered by
the underwriters to the general public on the same terms as the other shares
offered hereby. Individuals purchasing reserved shares may be required to agree
not to sell, offer or otherwise dispose of any shares of common stock for a
period of three months after the date of this prospectus.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. Among the
factors to be considered in these negotiations are prevailing market conditions,
our result of operations in recent periods, the market capitalizations and
stages of development of other companies that we and the representatives believe
to be comparable to Orius, estimates of our business potential, the present
state of our development and other factors deemed relevant. The initial public
offering price set forth on the cover page of this prospectus should not be
considered an indication of the actual value of our common stock. The initial
public offering price is subject to change as a result of market conditions and
other factors. Our common stock has been approved for listing on the New York
Stock Exchange under the symbol "ORS."
55
<PAGE> 57
EXPERTS
The consolidated financial statements of Orius Corp. and Subsidiaries as of
December 31, 1998 and for the period from March 31, 1998 through December 31,
1998 included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Channel Communications, Inc.,
f/k/a Kenya Corp., as of and for the two years ended December 31, 1997 included
in this prospectus have been included in reliance on the report of Williams,
Young & Associates, LLC, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of U.S. Cable, Inc. as of September 30, 1996 and
1997 and June 30, 1998 and for each of the two years in the period ended
September 30, 1997 and for the nine months ended June 30, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of CATV Subscriber Services, Inc. and its
subsidiary as of December 31, 1997 and August 31, 1998 and for the year ended
December 31, 1997 and the eight months ended August 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of DAS-CO of Idaho, Inc. as of December 31, 1997
and 1998 and for each of three years in the period ended December 31, 1998
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Schatz Underground Cable, Inc. as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 included in this prospectus have been included in reliance on the
report of Milhouse, Martz & Neal, L.L.P., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Network Cablings Services, Inc. included in
this prospectus and in the registration statement have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent and for
the periods set forth in their report appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
The financial statements of Copenhagen Utilities and Construction, Inc. as
of December 31, 1997 and 1998 and for each of three years in the period ended
December 31, 1998 included in this prospectus have been included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Texel Corporation as of December 31, 1997 and
1998 and for each of two years in the period ended December 31, 1998 included in
this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
56
<PAGE> 58
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale, Florida will pass upon
the validity of the shares of common stock offered by this prospectus for us.
White & Case LLP, Miami, Florida, will pass upon the validity of the shares of
common stock offered by this prospectus for the underwriters.
ADDITIONAL INFORMATION
We intend to file annual, quarterly, and special reports, proxy statements,
and other information with the Securities and Exchange Commission. Our reports,
proxy and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its regional offices located at 7
World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, at prescribed rates. The
Commission maintains a website that contains all information filed
electronically by us. The address of the Commission's website is
http://www.sec.gov. Our common stock is proposed to be listed on the New York
Stock Exchange. Reports, proxy statements and other information concerning Orius
can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
This prospectus constitutes a part of a registration statement on Form S-1
filed by us with the Commission under the Securities Act, with respect to the
securities offered in this prospectus. The registration statement contains
additional information with respect to Orius and this offering. Accordingly, we
refer you to the registration statement and to the exhibits to the registration
statement for further information with respect to Orius and the securities
offered in this prospectus. Parts of the registration statement are omitted as
allowed by the rules and regulations of the Commission. Copies of the
registration statement and its exhibits are on file at the offices of the
Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described above.
We have summarized what we believe are the material provisions of documents
discussed in this prospectus. If you have any questions concerning those
provisions or documents, we encourage you to read the entire documents which are
on file with the Commission as exhibits to the registration statement.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available copies of quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
57
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ORIUS CORP. AND SUBSIDIARIES INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets....................... F-3
Interim Consolidated Statements of Operations............. F-4
Interim Consolidated Statements of Cash Flows............. F-5
Notes to Interim Consolidated Financial Statements
(unaudited)............................................ F-6
ORIUS CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Financial
Statements............................................. F-12
Unaudited Pro Forma Statements of Operations.............. F-13
Unaudited Pro Forma Balance Sheet......................... F-16
Notes to Unaudited Pro Forma Financial Statements......... F-17
ORIUS CORP. AND SUBSIDIARIES
Financial Statements -- December 31, 1998
Report of Independent Accountants......................... F-19
Consolidated Balance Sheet................................ F-22
Consolidated Statements of Operations..................... F-23
Consolidated Statements of Cash Flows..................... F-24
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-25
Notes to Consolidated Financial Statements................ F-26
U.S. CABLE, INC.
Financial Statements -- September 30, 1996 and 1997 and
June 30, 1998
Report of Independent Accountants......................... F-38
Balance Sheets............................................ F-39
Statements of Operations.................................. F-40
Statements of Cash Flows.................................. F-41
Statements of Changes in Shareholders' Equity............. F-42
Notes to Financial Statements............................. F-43
CATV SUBSCRIBER SERVICES, INC. AND ITS SUBSIDIARY
Financial Statements -- December 31, 1997 and August 31,
1998
Report of Independent Accountants......................... F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Cash Flows.................................. F-51
Statements of Changes in Stockholders' Equity............. F-52
Notes to Financial Statements............................. F-53
DAS-CO OF IDAHO, INC.
Financial Statements -- December 31, 1996, 1997 and 1998
Report of Independent Accountants......................... F-58
Balance Sheets............................................ F-59
Statements of Operations.................................. F-60
Statements of Cash Flows.................................. F-61
Statements of Changes in Stockholders' Equity............. F-62
Notes to Financial Statements............................. F-63
</TABLE>
F-1
<PAGE> 60
<TABLE>
<S> <C>
SCHATZ UNDERGROUND CABLE, INC.
Financial Statements -- December 31, 1996, 1997 and 1998
Report of Independent Accountants......................... F-67
Balance Sheets............................................ F-68
Statements of Income and Retained Earnings................ F-69
Statements of Cash Flows.................................. F-70
Notes to Financial Statements............................. F-71
NETWORK CABLING SERVICES, INC.
Financial Statements -- September 30, 1997 and 1998 and
December 31, 1997 and 1999 unaudited
Report of Independent Certified Public Accountants........ F-76
Balance Sheets............................................ F-77
Statements of Income...................................... F-78
Statements of Cash Flows.................................. F-79
Statements of Stockholders' Equity........................ F-80
Notes to Financial Statements............................. F-81
COPENHAGEN UTILITIES AND CONSTRUCTION, INC.
Consolidated Financial Statements -- December 31, 1996,
1997 and 1998
Report of Independent Accountants......................... F-86
Consolidated Balance Sheets............................... F-87
Consolidated Statements of Operations..................... F-88
Consolidated Statements of Cash Flows..................... F-89
Notes to Consolidated Financial Statements................ F-90
TEXEL CORPORATION
Financial Statements -- December 31, 1997 and 1998 and
March 31, 1998 and 1999 unaudited
Report of Independent Accountants......................... F-97
Balance Sheets............................................ F-98
Statements of Operations.................................. F-99
Statements of Cash Flows.................................. F-100
Statements of Changes in Shareholders' Equity............. F-101
Notes to Financial Statements............................. F-102
</TABLE>
F-2
<PAGE> 61
ORIUS CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31,
DECEMBER 31, MARCH 31, 1999
1998 1999 (NOTE 12)
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................... $ 2,252,303 $ -- $ --
Accounts receivable, net.................................... 26,153,402 43,399,783 43,399,783
Unbilled accounts receivable................................ 12,189,615 25,391,153 25,391,153
Inventory................................................... 9,542,743 14,681,541 14,681,541
Prepaid and other current assets............................ 852,481 1,241,667 1,241,667
----------- ------------ ------------
Total current assets................................ 50,990,544 84,714,144 84,714,144
----------- ------------ ------------
PROPERTY AND EQUIPMENT, NET................................. 15,474,071 35,314,088 35,314,088
----------- ------------ ------------
OTHER ASSETS:
Goodwill, net............................................... 26,860,511 72,289,965 72,289,965
Deferred financing costs, net............................... 1,400,527 3,976,256 3,976,256
Other....................................................... 917,986 2,078,681 2,078,681
----------- ------------ ------------
Total other assets.................................. 29,179,024 78,344,902 78,344,902
----------- ------------ ------------
TOTAL............................................... $95,643,639 $198,373,134 $198,373,134
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current portion of long term debt........................... $ 5,864,268 $ 10,270,713 $ 10,270,713
Borrowing under credit facility............................. 6,750,000 8,000,000 8,000,000
Accounts payable............................................ 8,288,999 13,796,238 13,796,238
Accrued liabilities......................................... 5,889,749 11,208,447 11,208,447
Deferred revenues........................................... 2,621,398 3,083,725 3,083,725
Other liabilities, including deferred income tax
liability................................................. 655,988 201,099 201,099
----------- ------------ ------------
Total current liabilities........................... 30,070,402 46,560,222 46,560,222
----------- ------------ ------------
Long-term debt.............................................. 42,649,585 111,328,837 111,328,837
Deferred income tax liability............................... 2,594,697 5,450,539 5,450,539
Deferred revenues........................................... 4,670,000 4,670,000 4,670,000
----------- ------------ ------------
Total liabilities................................... 79,984,684 168,009,598 168,009,598
----------- ------------ ------------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized:
Series A, 10,000 shares issued and outstanding.......... 7,340,649 10,017,496 --
Series B, 7,596.33 shares issued and outstanding........ -- 10,452,866 --
Value of redemption rights associated with junior
subordinated convertible note............................. 493,358 1,056,290 --
----------- ------------ ------------
7,834,007 21,526,652 --
----------- ------------ ------------
STOCKHOLDERS' EQUITY:
Warrants.................................................... -- 868,538 868,538
Common stock, par value $.0001 per share; 48,696,230 shares
authorized; 10,897,151 and 13,421,163 shares issued and
outstanding at December 31, 1998 and March 31, 1999,
respectively.............................................. 105 130 197
Additional paid-in capital.................................. 7,427,745 7,968,216 29,494,801
Retained earnings........................................... 397,098 -- --
----------- ------------ ------------
Total stockholders' equity.......................... 7,824,948 8,836,884 30,363,536
----------- ------------ ------------
Total............................................... $95,643,639 $198,373,134 $198,373,134
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE> 62
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
REVENUES, NET:.............................................. $4,218,833 $46,069,230
---------- -----------
EXPENSES:
Direct costs................................................ 3,364,584 36,223,996
General and administrative.................................. 709,928 4,540,170
Depreciation and amortization............................... 202,643 1,937,279
---------- -----------
Total............................................. 4,277,155 42,701,445
---------- -----------
Income (loss) from operations............................... (58,322) 3,367,785
Other (income) expense:
Interest expense, net..................................... (57,697) 2,160,091
Other income.............................................. (52,966) (26,257)
---------- -----------
Income before income tax provision and extraordinary item... 52,341 1,233,951
Provision for income taxes.................................. 358,430 540,470
---------- -----------
(Loss) income before extraordinary charge................... (306,089) 693,481
Extraordinary charge for debt retirement, net of tax benefit
of $578,000............................................... -- (770,000)
---------- -----------
(LOSS) FROM OPERATIONS...................................... $ (306,089) $ (76,519)
========== ===========
Accretion and dividends associated with preferred stock and
junior convertible note................................... (6,096,307)
-----------
Net (loss) available to common stockholders................. $(6,172,826)
-----------
(Loss) per share:
Basic:
(Loss) available to common stockholders................ $ (0.46)
Extraordinary charge................................... $ (0.07)
-----------
Net loss available to common stockholders.............. $(1,113.05) $ (0.53)
========== ===========
Weighted average shares outstanding:
Basic..................................................... 275 11,738,489
========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE> 63
ORIUS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
---------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Equivalents from:
OPERATING ACTIVITIES:
Net (Loss)................................................ $ (306,089) $ (76,519)
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts.................... 165,000 4,091
Depreciation and amortization........................... 202,643 1,937,279
Extraordinary charge.................................... -- 1,348,000
Amortization of deferred finance costs.................. -- 1,890,162
Loss (gain) on disposal of assets....................... 1,928 (16,400)
Deferred income taxes................................... 330,254 (314,673)
Changes in assets and liabilities:
Accounts receivable, billed and unbilled................ 903,872 (8,232,905)
Inventories............................................. -- (3,714,821)
Other current assets.................................... (51,198) (364,733)
Other noncurrent assets................................. (2,598) 47,329
Accounts payable and accrued liabilities................ (46,997) (1,078,499)
Deferred revenues....................................... -- 171,202
Other liabilities....................................... (31,242) (133,261)
---------- ------------
Net cash provided by (used in) operating activities....... 1,165,573 (8,533,748)
---------- ------------
INVESTING ACTIVITIES:
Capital expenditures.................................... (152,337) (1,534,966)
Purchases of subsidiaries, net of cash acquired......... -- (65,745,431)
---------- ------------
Net cash (used in) investing activities................... (152,337) (67,280,397)
---------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility........................... 51,074 130,500,000
Principal payments on notes payable and credit
facility............................................. -- (62,472,266)
Amounts paid for deferred financing costs............... -- (4,465,891)
Distributions paid to stockholder....................... (6,117) --
Proceeds from issuance of common stock.................. -- 2,403,622
Proceeds from issuance of convertible preferred stock,
net of costs......................................... -- 7,596,377
---------- ------------
Net cash provided by financing activities................. 44,957 73,561,842
---------- ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............. 1,058,193 (2,252,303)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD............... 346,636 2,252,303
---------- ------------
CASH AND EQUIVALENTS AT END OF PERIOD..................... $1,404,829 $ --
========== ============
Cash paid for:
Interest................................................ $ 855 $ 760,363
Income taxes............................................ $ 59,418 $ 793,760
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE> 64
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Orius Corp. and its
subsidiaries (the "Company") as of and for the period ended March 31, 1999
includes the accounts of the Company and its subsidiaries and in the opinion of
management, includes all necessary adjustments, consisting of only normal
recurring adjustments, to present fairly the consolidated financial position and
results of operations of the Company for the periods presented. The accompanying
unaudited consolidated financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. Accordingly, these
unaudited consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in this registration statement. Reported interim results of operations
are based in part on estimates, and are not necessarily indicative of those
expected for the year.
With the acquisitions discussed in Note 5, the Company assumed and began to
offer contracts under fixed price arrangements. Consequently, the Company
modified its revenue recognition policy to include these types of contracts. For
fixed priced contracts, Orius Corp. recognizes revenue and the related costs
under the percentage-of-completion method. Revenues from these contracts are
recognized as the related costs are incurred based on the relationship of costs
incurred to total estimated contract costs. Unbilled accounts receivable for
contracts-in-progress represents revenue recognized but not yet billed. Deferred
revenue represents billings on contracts for which costs have not yet been
incurred and revenue has not been recognized. At the time a loss on a contract
becomes known, the entire amount of the estimated loss is accrued.
The financial information as of and for the period ended March 31, 1998
represents the information of Channel Communications, Inc., which was deemed the
accounting acquirer in the March 31, 1998 simultaneous business combination.
Such financial information has been derived from the audited accounts as of and
for the same period which appear elsewhere in this registration statement.
2. REORGANIZATION
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters Corp.;
Excel Cable Construction, Inc.; Mich-Com Cable Services Incorporated; U.S.
Cable, Inc.; CATV Subscriber Services, Inc.; Statewide CATV, Inc.; and
Burn-Techs, Inc. The common stock of NATG is owned by the former owners of these
companies and certain executive officers and founders of NATG. HIG Cable, Inc.
owns all the outstanding Convertible Preferred Stock.
On February 8, 1999, a reorganization of the Company occurred in connection
with the acquisition of four companies and related financing. Orius Corp., a
Delaware corporation, was formed, and it formed NATG Holdings, LLC, a Delaware
limited liability company. All of the interest in NATG Holdings is held by Orius
Corp. NATG Holdings formed a subsidiary, NATG Merger Sub., which was merged with
and into NATG with NATG as the surviving corporation.
As a result of the Reorganization, NATG became an indirect wholly owned
subsidiary of Orius. The Reorganization resulted in all of the stockholders of
NATG holding shares of Orius.
F-6
<PAGE> 65
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Shares of common and Preferred Stock of NATG were converted into one-tenth of a
share of common and preferred stock of Orius, respectively. This one-for-ten
exchange was the same for all stockholders and has been reflected in these
financial statements by restating all share amounts.
3. EARNINGS PER SHARE
Diluted earnings per common share have been excluded because inclusion of
the effects on earnings per share associated with the convertible preferred
stock, junior convertible note, options and warrants issued during the period
would be anti-dilutive.
4. PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share presented below were computed under SFAS No.
128 "Earnings per Share" based on the weighted average number of common shares
outstanding during the period after giving retroactive effect to the exchange of
the Company's Series A and Series B preferred stock to the Company's newly
established common stock, the split of the Company's newly established common
stock, the Company's planned initial public offering of common stock and the
conversion of the junior subordinated convertible note. All common shares and
stock options issued have been included as outstanding for the entire period
using the treasury stock method and the estimated public offering price per
share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
------------------------
MARCH 31, MARCH 31,
1998 1999
--------- ------------
<S> <C> <C>
Pro forma net income per share (unaudited):
Basic..................................................... $ 0.05 $ 0.10
Diluted................................................... $ 0.05 $ 0.10
Pro forma weighted average shares outstanding (unaudited):
Basic..................................................... 29,296 29,296
Diluted................................................... 29,529 29,529
</TABLE>
5. ACQUISITIONS
On February 26, 1999, four companies were acquired for total consideration
of $73.1 million plus transaction related expenses of $.9 million. Additionally,
approximately $7.1 million of debt was assumed. Cash paid for the four
acquisitions totaled $65.7 million (net of cash acquired of $4.8 million) and
the value of common stock issued (1,494,922 shares) totaled $3.5 million. The
purchase price of each acquisition is subject to a customary purchase price
adjustment mechanism and finalization of certain valuations.
The companies acquired were: DAS-CO of Idaho, Inc.; Copenhagen Utilities
and Construction, Inc.; Shatz Underground Cable, Inc.; and Network Cabling
Services, Inc. All the acquisitions were accounted for as purchases and were
included in the results of operations from the date of acquisition. The goodwill
associated with all the acquisitions during the period ended March 31, 1999
totaled $45.0 million. In connection with the acquisition of Network Cabling
Services, Inc., the Company is obliged to pay up to $500,000 in each of the next
two years if the acquired company meets certain performance levels through
December 31, 2000. In connection with the acquisition of Copenhagen Utilities,
Inc., the Company is obligated to pay up to $2,438,000 and issue up to 120,259
additional shares of common stock in each of the
F-7
<PAGE> 66
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
next two years if the acquired company meets certain performance levels through
December 31, 2000. If such contingent consideration is paid, it will be
accounted for as additional purchase price consideration.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions and the seven
acquisitions completed during the year ended December 31, 1998 had been
completed on January 1, 1998. These pro forma results give effect to increased
interest expense for acquisition debt and amortization of related goodwill.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed on January 1, 1998 nor are the
results indicative of the company's future results of operations (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $45,108 $62,105
Net income.................................................. $ (685) $ 1,366
Net (loss) available to common stock per share.............. $ (0.05) $ (0.35)
</TABLE>
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 and March 31, 1999 is
detailed by type of borrowing as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Bank credit facilities:
Revolving credit facility, maturing on April 1, 2005;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... $ 6,750,000 $ --
Revolving credit facility, maturing on February 26, 2004;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, plus a margin ranging from 2.25% to 3.00% for
LIBOR and 1.25% to 2.00% for Federal Funds Margin based
on leverage ratio, beginning June 30, 1999............. 8,000,000
Term loan, amortizing with final payment due April 1,
2003; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... 27,625,000 --
Term loan, amortizing with final payment due April 1,
2005; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.375% or
0.875%, respectively................................... 18,950,000 --
Term loan A, amortizing with final payment due December
31, 2003; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, plus a margin ranging from 2.25% to 3.00%
for LIBOR and 1.25% to 2.00% for Federal Funds. Margin
based on leverage ratio, beginning June 30, 1999....... 60,000,000
</TABLE>
F-8
<PAGE> 67
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Term loan B, amortizing with final payment due December
31, 2004; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, in either case plus a margin of 3.75% or
2.75%, respectively 45,000,000
Term loan C, amortizing with final payment due December
31, 2005; interest rate of LIBOR or Federal Funds Rate
plus 0.50%, in either case plus a margin of 5.00% or
4.00%, respectively.................................... 14,151,462
Junior subordinated convertible note, due April 15, 2005,
interest rate of 9%....................................... 1,063,750 1,086,300
Other debt and capital lease obligations.................... 875,103 1,361,788
----------- ------------
Total debt and capital lease obligations.......... 55,263,853 129,599,550
Less current portion........................................ 12,614,268 18,270,713
----------- ------------
Long-term debt.............................................. $42,649,585 $111,328,837
=========== ============
</TABLE>
On February 26, 1999, NATG Holdings entered into a new credit agreement
with Merrill Lynch, Pierce, Fenner & Smith Incorporated and PNC Bank, National
Association (PNC), as joint lead arrangers and a new syndication of banks (New
Credit Agreement). The New Credit Agreement includes a $25.0 million revolving
credit facility, maturing in 5 years, and a $120.0 million senior secured term
loan credit facility. The term loan facility is allocated among a $60.0 million
Term Loan A facility, maturing on December 1, 2003; a $45.0 million Term Loan B
facility, maturing on December 1, 2004; and a $15.0 million Term Loan C
facility, maturing on December 1, 2005. Of this credit facility, NATG Holding
borrowed $2.0 million under the revolving credit facility, $60.0 million under
the Term Loan A facility, $45.0 million under the Term Loan B facility, and
$15.0 million under the Term Loan C facility to complete the four new
acquisitions and to repay substantially all indebtedness of NATG, and terminate
all commitments to make extensions of credit to NATG, under NATG's old credit
facility with PNC.
Amounts under the credit facility bear interest, at the Company's choice,
at either LIBOR plus an applicable margin; or, the higher of PNC's corporate
base rate of interest, or the Federal Fund Rate plus 0.50% (the ABR), in each
case plus an applicable margin. For LIBOR loans, the margin is 3.00% for the
revolving credit facility and Term Loan A facility, 3.75% for the Term Loan B
facility and 5.00% for Term Loan C facility. For ABR loans, the margin is 2.00%
for the revolving credit facility and Term Loan A facility, 2.75% for the Term
Loan B facility and 4.00% for Term Loan C facility. Beginning June 30, 1999, the
margins for all interest rates will be adjusted based upon certain leverage
ratios, but cannot exceed the ranges disclosed above. Outstanding amounts under
the credit facility are secured by substantially all of NATG Holdings' assets
and the pledge of all of the outstanding shares of common stock of each or
Orius' direct and indirect subsidiaries, including NATG. The credit facility
also contains certain affirmative and negative covenants relating to NATG
Holdings' operations.
As a result of the termination and repayment of the indebtedness
outstanding under the old credit facility, the deferred financing costs
associated with the old credit facility totaling $1,348,000 were written off
resulting in an extraordinary charge to income of $770,000, net of tax benefits
of $578,000.
F-9
<PAGE> 68
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
During the three months ended March 31, 1999, the accretion associated with
the junior subordinated convertible note totaled approximately $562,732 which
represents the estimated appreciation in the value of common stock into which
the debt could have been converted.
7. CONVERTIBLE PREFERRED STOCK
In connection with the reorganization discussed above, the number of shares
of common stock into which the Series A Convertible Preferred Stock (Series A
Preferred) was convertible was changed to 3,116,828. Additionally, the provision
that reduced the conversion rate in the event of an initial public stock
offering of Orius Corp. common stock was removed from the Series A Preferred
rights. At March 31, 1999, the total recorded value of the Series A Preferred
has been determined based upon the convertible common shares of 3,116,828 at
$3.214 per share, or $10,017,485. The accretion to that value during the period
ended March 31, 1999 was $2,676,847.
In connection with the acquisitions on February 26, 1999, HIG Cable West,
Inc. purchased 7,596.38 shares of Series B Convertible Preferred Stock (Series B
Preferred) for $7,569,377. The Series B Preferred has the same rights as the
Series A Preferred and may be converted into 3,252,289 shares of Orius Corp.
common stock. At March 31, 1999, the recorded value of the Series B Preferred
has been determined based upon the converted common shares of 3,252,289 at
$3.214 per share, or $10,452,856. The accretion from February 26, 1999 to March
31, 1999 totaled $2,856,728.
8. WARRANTS TO PURCHASE COMMON STOCK
In connection with entering the new credit agreement on February 26, 1999,
the Company issued to the joint lead arrangers and certain of the banks that
participated in the new credit agreement warrants to purchase a total of 371,853
shares of common stock. The warrants expire March 31, 2009 and entitle the
holders to purchase common stock for $.01 per share. The warrants are
exercisable any time after the consummation of an initial public offering,
September 30, 2003 or in the event of a merger or other change of control.
The estimated fair market value of the warrants at date of issuance of
$868,538 has been reflected in the separate component of stockholders' equity
entitled warrants. An offsetting amount has been reflected as a discount or
reduction of the Company's long-term debt. The $868,538 of discount is being
recognized as interest expense using the effective interest method over 66
months which is the weighted average life of the credit agreement components
including the full capacity of the revolver and the Term A, B and C loans.
9. ISSUANCE OF COMMON STOCK
On February 26, 1999, the Company issued to certain of its then existing
stockholders 1,066,219 shares of common stock in exchange for cash of
$2,403,622.
10. INCOME TAXES
In connection with the simultaneous business combination on March 31, 1998,
Channel Communications, Inc.'s S corporation status for income tax purposes was
terminated. Consequently, a change to income tax expense of $330,254 was
recorded to establish deferred tax liabilities with payment to be spread over
four years.
F-10
<PAGE> 69
ORIUS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
11. SUBSEQUENT EVENTS -- ACQUISITION
On May 25, 1999, the Company acquired all of the outstanding stock of Texel
Corporation for cash of $26.25 million and 1,030,335 shares of common stock,
plus transaction costs of $750 thousand.
12. PRO FORMA BALANCE SHEET (UNAUDITED)
In July 1999, the Company announced its plan to exchange all outstanding
convertible Series A and Series B preferred stock and the junior subordinated
convertible note for 7,061,745 shares of common stock immediately preceding an
initial public offering of its common stock. Additionally, the Company announced
its plan to split each share of common stock into 10.3609 shares of common
stock. The effect of this exchange and split has been reflected in the unaudited
pro forma balance sheet and all share amounts presented reflect the split.
F-11
<PAGE> 70
ORIUS CORP. AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
We (Orius Corp.) were formed in August 1997 to create a nationwide provider
of comprehensive telecom infrastructure services. We have completed 13
acquisitions since March 1998. While the businesses were acquired at various
dates during 1998 and 1999, the following unaudited pro forma statements of
operations are presented as if all such acquisitions and this offering had
occurred on January 1, 1998. The following unaudited pro forma balance sheet
gives effect to the Texel acquisition and this offering as if they had occurred
on March 31, 1999. All other acquisitions occurred prior to March 31, 1999 and
are included in the Company's balance sheet at March 31, 1999.
The following unaudited pro forma financial statements have been derived
from (1) our (including the acquired businesses) financial information and, when
applicable, includes adjustments to conform fiscal periods to calendar periods,
(2) the audited financial statements and notes thereto of certain of the
acquired businesses for certain periods and (3) audited financial statements and
notes thereto since inception, which financial statements appear elsewhere in
this prospectus.
The unaudited pro forma financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the acquired businesses been purchased and
this offering consummated as of the assumed dates, nor are the results
indicative of our future results. The unaudited pro forma financial statements
should be read in conjunction with "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto since inception and
certain of the acquired businesses for certain periods included elsewhere
herein.
F-12
<PAGE> 71
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------------------------
THE CABLE- U.S. STATE- BURN-
COMPANY MASTERS EXCEL MICH-COM CABLE WIDE TECHS CATV DAS-CO SCHATZ COPENHAGEN
------- ------- ------ -------- ------ ------ ----- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:............ $81,551 $3,485 $1,868 $2,379 $9,465 $3,524 $597 $19,412 $21,778 $31,254 $35,192
EXPENSES:
Direct costs........ 59,896 2,500 1,545 1,953 6,832 2,879 223 16,018 14,548 18,867 27,092
General and
administrative.... 8,645 572 94 187 3,013 272 41 3,493 3,830 9,137 7,701
Depreciation and
amortization...... 3,759 114 35 73 259 125 14 296 938 2,199 840
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
Total.......... 72,300 3,186 1,674 2,213 10,104 3,276 278 19,807 19,316 30,203 35,633
INCOME (LOSS) FROM
OPERATIONS.......... 9,251 299 194 166 (639) 248 319 (395) 2,462 1,051 (441)
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 2,508 43 -- 7 (67) 24 -- 290 (44) 576 (170)
Other (income)
expense........... (72) (6) (1) 30 (144) -- -- 4 (77) (35)
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 6,815 262 195 129 (428) 224 319 (685) 2,502 552 (236)
PROVISION FOR INCOME
TAXES............... 3,328 -- -- 21 (156) 1 96 (248) -- 224 (76)
------- ------ ------ ------ ------ ------ ---- ------- ------- ------- -------
NET INCOME (LOSS).... $3,487 $ 262 $ 195 $ 108 $ (272) $ 223 $223 $ (437) $2,502 $ 328 $ (160)
======= ====== ====== ====== ====== ====== ==== ======= ======= ======= =======
Earnings per share,
Basic and diluted...
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
PRO
OFFERING FORMA,
NETWORK PRO ADJUST- AS
CABLING TEXEL ADJUSTMENTS FORMA MENTS ADJUSTED
------- ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:............ $24,586 $29,649 $ -- $264,740 $ -- $264,740
EXPENSES:
Direct costs........ 21,393 20,634 (925)(b) 193,455 -- 193,455
General and
administrative.... 1,808 1,762 (15,188)(c) 25,367 -- 25,367
Depreciation and
amortization...... 179 101 3,347(d) 12,279 -- 12,279
------- ------- --------- -------- --------- --------
Total.......... 23,380 22,497 (12,766) 231,101 -- 231,101
INCOME (LOSS) FROM
OPERATIONS.......... 1,206 7,152 12,766 33,639 -- 33,639
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 143 (128) 11,079(e) 14,261 (9,639)(g) 4,622
Other (income)
expense........... (12) 88 -- (225) -- (225)
------- ------- --------- -------- --------- --------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 1,075 7,192 1,687 19,603 9,639 29,242
PROVISION FOR INCOME
TAXES............... 391 -- 5,319(f) 8,900 4,376(f) 13,276
------- ------- --------- -------- --------- --------
NET INCOME (LOSS).... $ 684 $ 7,192 $ (3,632) $ 10,703 $ 5,263 $ 15,966
======= ======= ========= ======== ========= ========
Earnings per share,
Basic and diluted... $ 0.54(h)
</TABLE>
F-13
<PAGE> 72
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------------------------------------------------
THE CABLE- U.S. STATE
COMPANY MASTERS EXCEL MICH-COM CABLE WIDE BURN-TECHS CATV DAS-CO SCHATZ COPENHAGEN
------- ------- ------ -------- ------ ----- ---------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:............ $4,219 $3,485 $1,868 $2,379 $3,948 $909 $189 $8,069 $2,655 $4,830 $7,654
Expenses:
Direct costs........ 3,364 2,500 1,545 1,953 2,557 598 30 6,673 2,060 3,458 6,149
General and
administrative.... 710 572 94 187 888 166 4 639 682 1,066 532
Depreciation and
amortization...... 203 114 35 73 75 36 2 139 235 400 221
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
Total.......... 4,277 3,186 1,674 2,213 3,520 800 36 7,451 2,977 4,924 6,902
INCOME (LOSS) FROM
OPERATIONS.......... (58) 299 194 166 428 109 153 618 (322) (94) 752
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... (57) 43 -- 7 (32) 15 -- 115 (2) 129 (5)
Other (income)
expense........... (53) (6) (1) 30 (12) -- -- (9) 8 (15) (31)
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 52 262 195 129 472 94 153 512 (328) (208) 788
PROVISION FOR INCOME
TAXES............... 358 -- -- 21 196 -- -- 167 -- 56 --
------ ------ ------ ------ ------ ---- ---- ------ ------ ------ ------
NET INCOME (LOSS).... $ (306) $ 262 $ 195 $ 108 $ 276 $ 94 $153 $ 345 $(328) $ (264) $ 788
====== ====== ====== ====== ====== ==== ==== ====== ====== ====== ======
Earnings per share,
basic and diluted...
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------
PRO
OFFERING FORMA,
NETWORK PRO ADJUST- AS
CABLING TEXEL ADJUSTMENTS FORMA MENTS ADJUSTED
------- ------ ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:............ $4,903 $7,411 $ -- $52,519 $ -- $52,519
Expenses:
Direct costs........ 4,272 5,259 7(b) 40,425 -- 40,425
General and
administrative.... 339 381 (975)(c) 5,285 -- 5,285
Depreciation and
amortization...... 38 15 1,484(d) 3,070 -- 3,070
------ ------ -------- ------- ------- -------
Total.......... 4,649 5,655 516 48,780 -- 48,780
INCOME (LOSS) FROM
OPERATIONS.......... 254 1,756 (516) 3,739 -- 3,739
OTHER (INCOME)
EXPENSE:
Interest expense,
net............... 38 (30) 3,344(e) 3,565 (2,409)(g) 1,156
Other (income)
expense........... -- 19 -- (70) -- (70)
------ ------ -------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAX
PROVISION........... 216 1,767 (3,860) 244 2,409 2,653
PROVISION FOR INCOME
TAXES............... 79 -- (766)(f) 111 1,094(f) 1,205
------ ------ -------- ------- ------- -------
NET INCOME (LOSS).... $ 137 $1,767 $ (3,094) $ 133 $ 1,315 $ 1,448
====== ====== ======== ======= ======= =======
Earnings per share,
basic and diluted... $ 0.05(h)
</TABLE>
F-14
<PAGE> 73
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS(A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------
THE NETWORK
COMPANY DAS-CO SCHATZ COPENHAGEN CABLING TEXEL ADJUSTMENTS
------- ------ ------ ---------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:......................... $46,069 $3,660 $4,698 $3,877 $3,801 $6,051 $ --
Expenses:
Direct costs.................... 36,224 1,910 3,457 2,640 3,012 4,460 --
General and administrative...... 4,540 368 902 474 314 395 112(c)
Depreciation and amortization... 1,937 122 320 160 28 31 472(d)
------- ------ ------ ------ ------ ------ ---------
Total..................... 42,701 2,400 4,679 3,274 3,354 4,886 584
INCOME FROM OPERATIONS............ 3,368 1,260 19 603 447 1,165 (584)
OTHER (INCOME) EXPENSE:
Interest expense, net........... 2,160 (3) (12) (19) 31 (31) 1,439(e)
Other (income) expense.......... (26) 1 (1) 8 1 46 --
------- ------ ------ ------ ------ ------ ---------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION and extraordinary
charge.......................... 1,234 1,262 32 614 415 1,150 (2,023)
PROVISION FOR INCOME TAXES........ 540 18 13 -- 172 -- 432(f)
------- ------ ------ ------ ------ ------ ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGE.......................... $ 694 $1,244 $ 19 $ 614 $ 243 $1,150 $ (2,455)
======= ====== ====== ====== ====== ====== =========
Earnings per share, basic and
diluted.........................
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------
PRO OFFERING PRO FORMA,
FORMA ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
REVENUES:......................... $68,156 $ -- $68,156
Expenses:
Direct costs.................... 51,703 -- 51,703
General and administrative...... 7,105 -- 7,105
Depreciation and amortization... 3,070 -- 3,070
------- --------- -------
Total..................... 61,878 -- 61,878
INCOME FROM OPERATIONS............ 6,278 -- 6,278
OTHER (INCOME) EXPENSE:
Interest expense, net........... 3,565 (2,409)(g) 1,156
Other (income) expense.......... 29 -- 29
------- --------- -------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION and extraordinary
charge.......................... 2,684 2,409 5,093
PROVISION FOR INCOME TAXES........ 1,175 1,055(f) 2,230
------- --------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGE.......................... $ 1,509 $ 1,354 $ 2,863
======= ========= =======
Earnings per share, basic and
diluted......................... $ 0.10(h)
</TABLE>
F-15
<PAGE> 74
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------------------------------------------------------------------
THE PRO FORMA OFFERING PRO FORMA,
COMPANY(I) TEXEL(I) ADJUSTMENTS(J) PRO FORMA ADJUSTMENTS(J) AS ADJUSTED
---------- -------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......... $ -- $ 2,126 $ -- $ 2,126 $ -- $ 2,126
Accounts receivable, net.......... 43,400 6,525 -- 49,925 -- 49,925
Unbilled accounts receivable for
work-in-process................. 25,391 786 -- 26,177 -- 26,177
Inventory......................... 14,682 -- -- 14,682 -- 14,682
Prepaid and other current
assets.......................... 1,241 14 -- 1,255 -- 1,255
-------- ------- ------- -------- -------- --------
Total current assets...... 84,714 9,451 -- 94,165 -- 94,165
-------- ------- ------- -------- -------- --------
Property and equipment, net....... 35,314 1,010 -- 36,324 -- 36,324
-------- ------- ------- -------- -------- --------
Goodwill, net..................... 72,290 -- 33,384(i) 105,674 -- 105,674
Deferred financing costs, net..... 3,976 -- -- 3,976 (2,476)(v) 1,500
Other, including deferred income
tax asset....................... 2,079 -- -- 2,079 -- 2,079
-------- ------- ------- -------- -------- --------
TOTAL..................... $198,373 $10,461 $33,384 $242,218 $ (2,476) $239,742
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long term
debt............................ $ 10,271 $ -- $ 1,550(ii) $ 11,821 $(11,821)(vi) $ --
Borrowing under credit facility... 8,000 -- 2,000(ii) 10,000 (10,000)(vi) --
Accounts payable.................. 13,796 1,297 -- 15,093 -- 15,093
Accrued liabilities............... 11,209 786 -- 11,995 -- 11,995
Deferred revenues................. 3,084 102 -- 3,186 -- 3,186
Other liabilities, including
deferred income tax liability... 201 -- 513(iii) 714 -- 714
-------- ------- ------- -------- -------- --------
Total current
liabilities............. 46,561 2,185 4,063 52,809 (21,821) 30,988
-------- ------- ------- -------- -------- --------
Long-term debt.................... 111,329 -- 23,450(ii) 134,779 (69,863)(vi) 64,916
Deferred income tax liability..... 5,450 -- 1,537(iii) 6,987 -- 6,987
Deferred revenues................. 4,670 297 -- 4,967 -- 4,967
-------- ------- ------- -------- -------- --------
Total liabilities......... 168,010 2,482 29,050 199,542 (91,684) 107,858
-------- ------- ------- -------- -------- --------
Convertible preferred stock....... 20,470 -- -- 20,470 (20,470)(vii) --
Value of redemption rights
associated with junior
subordinated convertible note... 1,056 -- -- 1,056 (1,056)(vii) --
-------- ------- ------- -------- -------- --------
21,526 -- -- 21,526 (21,526) --
-------- ------- ------- -------- -------- --------
Stockholders' equity.............. 8,837 7,979 4,334(iv) 21,150 110,734(viii) 131,884
-------- ------- ------- -------- -------- --------
TOTAL..................... $198,373 $10,461 $33,384 $242,218 $ (2,476) $239,742
======== ======= ======= ======== ======== ========
</TABLE>
F-16
<PAGE> 75
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) For the Company, results for the year ended December 31, 1998 and for
the three months ended March 31, 1998 represent actual historical 1998 results,
including results for the Acquired Businesses purchased in the related 1998
period from the date of acquisition. Results for the three months ended March
31, 1999 represent actual historical results for the Company, including results
for the acquired businesses purchased in the first quarter of 1999 from the date
of acquisition. For the acquired businesses, results for the year ended December
31, 1998 and for the three months ended March 31, 1998, represent combined
historical results for (i) the acquired businesses purchased in the related 1998
period prior to the date of acquisition and (ii) the acquired businesses
purchased in 1999. For the acquired businesses, results for the three months
ended March 31, 1999 represent combined historical results for (i) the acquired
businesses purchased in 1999 prior to the date of acquisition and (ii) Texel
which was acquired on May 25, 1999.
(b) Reflects the decrease resulting from differentials between compensation
levels of the former owners of U.S. Cable that related to direct costs and the
terms of their employment agreements entered into with the Company. A portion of
the salaries of the former owners of U.S. Cable is also included in general and
administrative expenses. After the acquisition of the acquired businesses, the
owners' duties and responsibilities will not change and additional costs are not
expected to be incurred related to their efforts.
(c) The pro forma adjustment consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------
1998 1998 1999
------------ ------- -----
<S> <C> <C> <C>
Owners compensation(i)...................................... $(14,036) $ (969) $ 12
Business not acquired(ii)................................... (1,372) (86) --
Rent expense(iii)........................................... 220 80 100
-------- ------- -----
$(15,188) $ (975) $ 112
-------- ------- -----
</TABLE>
(i) Reflects the decrease resulting from differentials between
compensation levels of former owners of the acquired businesses and the
terms of the employment agreements entered into between the former owners
and the Company. After the acquisition of the acquired businesses, the
owners' duties and responsibilities will not change and additional costs are
not expected to be incurred related to their efforts. Also reflects the
elimination of compensation expense associated with the distribution of
excess cash balances to the former owners of the acquired businesses
immediately prior to the dates of acquisition by Orius.
(ii) Reflects the elimination of a business not purchased from CATV
Subscriber Services.
(iii) Reflects the rent expense resulting from our current lease terms
as compared to lease terms entered into by former owners. In addition,
reflects the increase in rent expense and corresponding decrease in
depreciation expense and real estate tax expense resulting from leasing
rather than owning related facilities which were not purchased from the
former owners of the acquired businesses.
(d) Depreciation has been derived utilizing the property, plant and
equipment values of each of the acquired businesses at the time of their
acquisition, rather than utilizing values of property, plant and equipment
actually held by each of the acquired businesses in the period presented.
Reflects the impact on depreciation resulting from the application of our
straight-line depreciation policy rather than those of the former owners of the
acquired businesses. In addition, reflects the change in depreciation resulting
from the write-up of property, plant and equipment to fair value arising from
purchase accounting. Also reflects amortization of goodwill calculated based on
goodwill lives ranging from 10 to 25 years. The pro forma adjustments consist of
the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------ --------------
1998 1998 1999
------------ ------ -----
<S> <C> <C> <C>
Depreciation:
Change in accounting policy............................... $(3,088) $ (462) $(738)
Write-up of property and equipment........................ 2,679 815 575
------- ------ -----
(409) 353 (163)
Amortization of goodwill.................................... 3,756 1,131 635
------- ------ -----
$ 3,347 $1,484 $ 472
------- ------ -----
</TABLE>
(e) Reflects the increase in interest expense at our borrowing rate under
our bank credit agreements on the indebtedness resulting from the purchase of
the acquired businesses. In addition, reflects elimination of $67 and $25
F-17
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA) -- (CONTINUED)
during the year ended December 31, 1998 and three months ended March 31, 1998,
respectively, of a business not purchased from CATV Subscriber Services. Under
the terms of our bank credit agreements, interest accrues at variable borrowing
rates. If interest rates were to fluctuate by 1/8 of 1 percent, pro forma
interest expense would change by $194 for the year ended December 31, 1998 and
$49 for the three month periods ended March 31, 1998 and 1999.
(f) Reflects the income tax rate that would have been in effect if the
acquired businesses had been combined and subject to a federal statutory rate of
35% and the applicable state statutory rate for each of the acquired businesses
throughout the period presented.
(g) Reflects the decrease in interest expense at our borrowing rate under
our new credit facility on the indebtedness remaining after using the proceeds
from the initial public offering to repay a portion of our indebtedness. Under
the terms of new credit facility, interest accrues at variable borrowing rates.
If interest rates were to fluctuate by 1/8 of 1 percent, pro forma interest
expense as adjusted would change by $81 for the year ended December 31, 1998 and
$20 for the three month periods ended March 31, 1998 and March 31, 1999.
(h) Unaudited pro forma earnings per share has been computed based on the
weighted average number of common shares outstanding during the period, after
giving effect to the conversion of Series A and Series B Preferred Stock, the
Stock Split, the Offering and the conversion of the junior subordinated
convertible note as well as the dilutive effect of shares issuable upon exercise
of outstanding options.
(i) Represents the actual historical balance sheets for the Company and
Texel as of March 31, 1999.
(j) The following are adjustments to the aforementioned balance sheets:
(i) Reflects $32,634 of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. In addition, reflects $750
of transaction related expenses.
(ii) Reflects additional borrowings of $25,000 and $2,000 under the
senior secured credit facility and revolving credit facility, respectively,
to fund the Texel acquisition of $26,250 and $750 of transaction related
expenses.
(iii) Reflects liabilities assumed in connection with the Texel
acquisition.
(iv) Reflects the issuance of Orius common stock used to fund the
acquisition of Texel and the elimination of the equity of Texel.
(v) Reflects the capitalization of deferring financing fees incurred for
the new credit facility and the write-off of fees associated with the
previous facility.
(vi) Reflects the repayment of debt with the proceeds from the initial
public offering.
(vii) Reflects the conversion of the convertible preferred stock and the
junior convertible subordinated note.
(viii) Reflects the issuance of common stock in conjunction with the
initial public offering and the conversion of the convertible preferred
stock and the junior convertible subordinated note and the exercise of
339,983 warrants.
F-18
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
ORIUS CORP. AND SUBSIDIARIES
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Orius Corp.
and Subsidiaries (the "Company") at December 31, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. 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
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 29, 1999, except for Note 18 as
to which the date is July 7, 1999
F-19
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholder and Board of Directors of
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Channel
Communications, Inc. (f/k/a Kenya Corp.) as of December 31, 1997, and the
related consolidated statements of income and retained earnings 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 consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the consolidated
financial position of Kenya Corporation and subsidiary as of December 31, 1997,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
February 27, 1998
F-20
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
Stockholder and Board of Directors
Kenya Corporation and Subsidiary
Sheboygan, Wisconsin
We have audited the accompanying consolidated balance sheet of Kenya
Corporation and Subsidiary as of December 31, 1996, and the related consolidated
statement of income and retained earnings and cash flows for the year then
ended. 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 report dated August 15, 1997, we expressed a qualified opinion
because of the non recognition of a loss of $723,716 for an uncollectible
receivable in 1995. This loss was recorded in 1996. If the financial statements
were corrected for this departure, net income would be increased by $723,716 in
1996 and decreased by $723,716 in 1995. The net effect of this loss on retained
earnings as of December 31, 1996 is $0. The Company has changed its method of
accounting for this transaction and restated its financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the financial statements, as presented herein, is different from that
expressed in our previous report.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the consolidated
financial position of Kenya Corporation and Subsidiary as of December 31, 1996,
and the consolidated results of their operations and their consolidated cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ WILLIAMS, YOUNG & ASSOCIATES, LLC
Madison, Wisconsin
August 15, 1997, except as to the
third paragraph above, which is
as of May 26, 1999.
F-21
<PAGE> 80
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 346,636 $ 2,252,303
Accounts receivable, net.................................. 4,349,058 26,153,402
Unbilled accounts revenue................................. 1,495,732 12,189,615
Inventory................................................. -- 9,542,743
Prepaid and other current assets.......................... 76,158 852,481
---------- -----------
Total current assets...................................... 6,267,584 50,990,544
---------- -----------
Property and equipment, net................................. 3,303,390 15,474,071
---------- -----------
Other assets:
Goodwill, net............................................. 81,304 26,860,511
Deferred financing costs, net............................. -- 1,400,527
Other..................................................... 16,450 917,986
---------- -----------
Total other assets........................................ 97,754 29,179,024
---------- -----------
Total assets...................................... $9,668,728 $95,643,639
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long term debt......................... $ -- $ 5,864,268
Borrowing under credit facility........................... -- 6,750,000
Accounts payable.......................................... 1,244,919 8,288,999
Accrued liabilities....................................... 276,682 5,889,749
Deferred revenues......................................... -- 2,621,398
Other liabilities, including deferred income tax
liability.............................................. -- 655,988
---------- -----------
Total current liabilities......................... 1,521,601 30,070,402
---------- -----------
Long-term debt.............................................. -- 42,649,585
Deferred income tax liability............................... -- 2,594,697
Deferred revenues........................................... -- 4,670,000
---------- -----------
Total liabilities................................. 1,521,601 79,984,684
---------- -----------
Convertible preferred stock, par value $.0001 per share;
300,000 shares authorized; 10,000 shares issued and
outstanding............................................... -- 7,340,649
Value of redemption rights associated with junior
subordinated convertible note............................. -- 493,358
---------- -----------
-- 7,834,007
---------- -----------
Stockholders' equity:
Common stock: no par value, 275 shares authorized, issued
and outstanding at December 31, 1997; par value $.0001
per share, 48,696,230 shares authorized, 10,897,151
shares issued and outstanding at December 31, 1998..... 27,500 105
Additional paid-in capital................................ 386 7,427,745
Retained earnings......................................... 8,119,241 397,098
---------- -----------
Total stockholders' equity........................ 8,147,127 7,824,948
---------- -----------
Total liabilities and stockholders' equity........ $9,668,728 $95,643,639
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-22
<PAGE> 81
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CHANNEL COMPANY
------------------------- --------------
YEARS ENDED
DECEMBER 31, YEAR ENDED
------------------------- DECEMBER 31,
1996 1997 1998
----------- ----------- --------------
<S> <C> <C> <C>
REVENUES, NET:................................. $32,124,776 $20,267,800 $81,550,425
----------- ----------- -----------
EXPENSES:
Direct costs................................... 23,518,738 15,256,947 59,896,854
General and administrative..................... 3,297,932 2,260,758 8,645,007
Depreciation and amortization.................. 670,436 823,602 3,758,708
----------- ----------- -----------
Total................................ 27,487,106 18,341,307 72,300,569
----------- ----------- -----------
Income (loss) from operations.................. 4,637,670 1,926,493 9,249,856
Other (income) expense:
Interest expense, net................... (97,068) (66,314) 2,507,395
Other income............................ (88,669) (69,812) (72,345)
----------- ----------- -----------
Income before income tax provision and
discontinued operations...................... 4,823,407 2,062,619 6,814,806
(Benefit) provision for income taxes........... 1,619,000 (137,387) 3,328,290
----------- ----------- -----------
Income (loss) from continuing operations....... 3,204,407 2,200,006 3,486,516
Loss from discontinued operations, net of tax
benefit of $77,401........................... (121,063) -- --
Gain on sale of assets of discontinued
operation, net of tax of $1,042,760.......... 2,003,648 -- --
----------- ----------- -----------
Net income (loss).............................. $ 5,086,992 $ 2,200,006 3,486,516
=========== ===========
Accretion and dividends associated with
preferred stock and junior convertible
note......................................... (3,395,507)
-----------
Net income available to common stockholders.... $ 91,009
===========
Per common share:
Basic:
Income (loss) from operations............. $ 11,652.39
Loss from discontinued operations......... (440.23)
Gain on sale of discontinued operations... 7,285.99
-----------
Net income (loss) available to common
stockholders................................. $ 18,498.15 $ 8,000.02 $ 0.01
=========== =========== ===========
Weighted average shares outstanding:
Basic........................................ 275 275 8,361,078
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-23
<PAGE> 82
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CHANNEL COMPANY
----------------------- --------------
YEARS ENDED
DECEMBER 31, YEAR ENDED
----------------------- DECEMBER 31,
1996 1997 1998
---------- ---------- --------------
<S> <C> <C> <C>
Increase (Decrease) in cash and equivalents from:
Operating Activities:
Net Income................................................ $5,086,992 $2,200,006 $ 3,486,516
Adjustments to reconcile net cash provided by (used in)
operating activities:
Provision for uncollectible accounts.................... -- 14,047 405,284
Depreciation and amortization........................... 837,130 823,602 3,758,708
Amortization of deferred finance costs.................. -- -- 166,919
Loss (gain) on disposal of assets....................... (3,032,742) (13,705) 53,150
Deferred income tax benefit............................. 133,420 (220,276) (307,439)
Changes in assets and liabilities:
Accounts receivable and unbilled revenues............... (1,246,198) (2,982,762) (11,151,317)
Inventories............................................. -- -- (9,542,743)
Income tax receivable................................... 196,406 -- --
Other current assets.................................... (69,602) 86,050 690,921
Other noncurrent assets................................. 958,917 9,623 (576,584)
Accounts payable and accrued liabilities................ 303,055 (112,602) 2,318,033
Deferred revenues....................................... -- -- 7,291,398
Other liabilities....................................... 2,216,568 (2,185,326) (641,807)
---------- ---------- ------------
Net cash provided by (used in) operating activities....... 5,383,946 (2,381,343) (4,048,961)
---------- ---------- ------------
INVESTING ACTIVITIES:
Capital expenditures.................................... (2,475,748) (211,947) (3,923,200)
Proceeds from sale of assets............................ 3,214,590 57,542 75,510
Purchases of subsidiaries, net of cash acquired,
including payment to accounting acquirer.............. -- -- (40,934,547)
Collection on notes receivable stockholder.............. 982,823 548,614 --
---------- ---------- ------------
Net cash provided by (used in) investing activities....... 1,721,665 394,209 (44,782,237)
---------- ---------- ------------
FINANCING ACTIVITIES:
Borrowings on credit facility........................... -- -- 61,306,677
Principal payments on notes payable and credit
facility.............................................. (2,911,878) -- (13,434,749)
Amounts paid for deferred financing costs............... -- -- (1,567,446)
Distributions paid to stockholder....................... -- (2,593,439) (6,117)
Proceeds from issuance of convertible preferred stock,
net of costs.......................................... -- -- 4,438,500
---------- ---------- ------------
Net cash provided by (used in) financing activities....... (2,911,878) (2,593,439) 50,736,865
---------- ---------- ------------
NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES............. 4,193,733 (4,580,573) 1,905,667
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 733,476 4,927,209 346,636
---------- ---------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $4,927,209 $ 346,636 $ 2,252,303
========== ========== ============
Cash paid for:
Interest................................................ $ 97,525 $ 19,858 $ 2,306,701
Income taxes............................................ $ 26,356 $2,185,326 $ 2,769,243
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-24
<PAGE> 83
ORIUS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
----------------- ------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ---------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................. 275 $ 27,500 -- $ -- $ 386 $8,512,674 $ 8,540,560
Net Income.............. 2,200,006 2,200,006
Distributions........... (2,593,439) (2,593,439)
----- -------- ---------- ---- ---------- ---------- -----------
Balance at December 31,
1997.................. 275 27,500 -- -- 386 8,119,241 8,147,127
Distributions........... (166,787) (166,787)
Shares exchanged........ (275) (27,500) 2,779,387 27 27,473 -- --
Cash payment to
accounting acquirer... (4,440,635) (7,646,365) (12,087,000)
Common stock issued for
acquisitions.......... 8,117,764 78 11,840,521 11,840,599
Accretion associated
with junior
subordinated
convertible note...... (493,358) (493,358)
Accretion associated
with convertible
preferred stock,
including dividends... (2,902,149) (2,902,149)
Net income.............. 3,486,516 3,486,516
----- -------- ---------- ---- ---------- ---------- -----------
Balance at December 31,
1998.................. -- $ -- 10,897,151 $105 $7,427,745 $ 397,098 $ 7,824,948
===== ======== ========== ==== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
F-25
<PAGE> 84
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMMENCEMENT OF OPERATIONS
Orius Corp. was formed in January 1999 by North American Tel-Com Group,
Inc. (NATG or the Company). NATG was formed in 1997 to create a nationwide
provider of comprehensive telecom infrastructure services. As further discussed
in Note 17, as a result of a merger in February 1999, NATG became an indirect
subsidiary of Orius. NATG had no substantive operations prior to March 31, 1998
and these financial statements reflect the NATG operations from March 31, 1998
through December 31, 1998, NATG's fiscal year end.
On March 31, 1998, NATG and several other parties simultaneously entered
into a series of transactions and agreements including: a new stockholders'
agreement (Note 9); preferred stock coupled with a redemption agreement (Notes 7
and 8) and a junior subordinated convertible note (Note 6) were issued to HIG
Cable, Inc. (HIG), a credit facility and loan agreement was completed (Note 6);
and four stock exchange agreements were completed (Note 3). The result of these
transactions was the commencement of NATG's operations. NATG had no substantive
operations from its inception in August 1997 to March 31, 1998 and these
financial statements reflect the NATG operations from March 31, 1998 through
December 31, 1998. As further discussed in Note 17, Orius was reorganized in
early 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Business -- The Company's operations consist primarily of
installation, design, engineering, and maintenance services for the telecom
industry in the United States.
Principles Of Consolidation -- The consolidated financial statements
include NATG Corp. and its subsidiaries, all of which are currently wholly owned
subsidiaries of NATG. All material intercompany accounts and transactions have
been eliminated. The Company operates and reports financial results on a fiscal
year of 52 or 53 weeks ending on the Saturday closest to December 31.
Accordingly, fiscal 1998 ended on December 31, 1998.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates and such differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
allowance for doubtful accounts, depreciation and amortization, and in the
estimated lives of assets including intangibles.
Earnings Per Share -- Diluted earnings per share have not been presented
because inclusion of the effects of the Company's convertible securities and
options granted to management are anti-dilutive individually and in the
aggregate.
Revenues -- Orius Corp.'s revenue consists principally of unit contracts.
Consequently, Orius Corp. accounts for revenue and related costs using the
units-of-delivery revenue recognition method. Revenue is recognized as the
related units are completed, and costs allocable to the delivered units are
recognized as the cost of earned revenue. Unbilled revenues consist of
work-in-process on contracts based on management's estimate of work performed,
but not billed. All costs associated with unbilled revenues are recorded as
expenses in the same period as the unbilled revenue. At the time a loss on a
contract becomes known, the entire amount of the estimated ultimate loss is
accrued. Deferred revenues consist principally of
F-26
<PAGE> 85
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prepayments by customers for the cost of material and services to be provided
and are recognized as revenues as the related material is used or services are
provided.
Additionally, Orius Corp. recognizes revenues from short term contracts
with duration under two weeks under the completed contract method. Billings and
costs are accumulated on the balance sheet, and no profit or income is recorded
before completion or substantial completion of the work.
Cash And Cash Equivalents -- Cash and cash equivalents include all highly
liquid investments with a maturity of three months or less at the time of
purchase. For purposes of the consolidated statements of cash flows, the Company
considers these to be cash equivalents.
Property And Equipment -- Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful life of the
assets utilizing the straight-line method. The estimated useful service lives of
the assets are: buildings -- 20-30 years; leasehold improvements -- the term of
the respective lease or the estimated useful life of the improvements, whichever
is shorter; vehicles -- 3-7 years; equipment and machinery -- 3-7 years;
computer software and hardware -- 3-5 years; and furniture and fixtures -- 5-7
years. Maintenance and repairs are expensed as incurred; expenditures that
enhance the value of the property or extend its useful life are capitalized.
When assets are sold or retired, the cost and related accumulated depreciation
are removed from the accounts and the resulting gain or loss is included in
income.
Inventory -- Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market. Inventory consists of items purchased for resale at
cost based on terms of customer contracts. Accordingly, there is no cost other
than the purchase price of the items purchased included in the carrying value.
Fair Value Of Financial Instruments -- The fair value of the Company's
financial instruments approximate the carrying values.
Intangible Assets -- The excess of the purchase price over the fair market
value of the tangible net assets of acquired businesses (goodwill) is amortized
on a straight-line basis over estimated useful lives of 10 to 25 years. The
appropriateness of the carrying value of goodwill is reviewed periodically by
the Company at a subsidiary level. An impairment loss for the difference between
fair value and recorded value is recognized when the projected undiscounted
future cash flows are less than the carrying value of goodwill. No impairment
loss has been recognized in the period presented. Amortization expense was
$766,953 for the fiscal period ending December 31, 1998. The intangible assets
at December 31, 1998 are net of accumulated amortization of $766,953.
Included in other assets are intangible assets for deferred financing
costs. Deferred financing costs of $1,567,446 are being amortized over the term
of the related debt facility. For the period ended December 31, 1998, $166,919
of amortization expense related to these costs has been included in interest
expense.
Income Taxes -- The Company and its subsidiaries file a consolidated
federal income tax return. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
Stock Option Plans -- In October 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock Based Compensation," which was effective for the Company
beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of stock
based compensation arrange-
F-27
<PAGE> 86
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ments with employees, and encourages, but does not require, compensation cost to
be measured based on the fair value of the equity instrument awarded. Under SFAS
No. 123, companies are permitted, however, to continue to apply Accounting
Principle Board (APB) Opinion No. 25, which recognizes compensation based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock based compensation awards to employees,
and will disclose in the annual financial statements the required pro forma
effect on net income and earnings per share. See Note 12.
Recently Issued Accounting Pronouncements -- In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes standards for the accounting and reporting of derivative
instruments, including certain derivative instruments imbedded in other
contracts, (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as other assets
or liabilities in the statement of financial position, and measure those
instruments at fair value. This statement is effective for financial statements
for periods beginning after December 15, 1999.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 in 1998 has had
no impact to date as the Company has not had any items of other comprehensive
income in any period presented.
3. ACQUISITIONS
On March 31, 1998, Channel Communications, Inc. (Channel), Cablemasters
Corp., Excel Cable Construction, Inc. and Mich-Com Cable Services Incorporated
simultaneously entered into stock exchange agreements with the Company. Common
stock of each of these companies was exchanged for cash and common stock of the
Company. In accordance with APB Opinion No. 16, Channel was deemed to be the
accounting acquirer of the other companies involved in the simultaneous business
combination. This designation was made because after giving effect to the
transactions on March 31, 1998, Channel held the largest percentage of voting
common stock and was the largest entity involved in the simultaneous business
combination. Accordingly, the cash paid of $12,087,000 to former Channel
stockholders was accounted for as a reduction of Channel's March 31 equity and
no value was ascribed to the Company shares of common stock received by the
former stockholders.
F-28
<PAGE> 87
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Seven companies, including the companies involved in the simultaneous
business combination other than Channel, were acquired during 1998 for total
consideration of $39,583,400 plus transaction related expenses of $1,209,350.
Cash paid for the seven acquisitions totaled $27,638,200 (net of cash acquired
of $3,025,200) and the value of common stock issued, including the value of the
shares held by Orius management, totaled $11,840,600. Additionally,
approximately $7.5 million of debt was assumed. Summarized below are the seven
acquisitions:
<TABLE>
<CAPTION>
ACQUISITION PRIMARY PRINCIPAL
COMPANY ACQUIRED DATE LOCATION CUSTOMERS
---------------- ----------- -------------- ------------------
<S> <C> <C> <C>
Cablemasters Corp........................... 3/31/98 Pennsylvania Cable TV
Excel Cable Construction, Inc............... 3/31/98 Florida Cable TV
Mich-Com Cable Services Incorporated........ 3/31/98 Florida Cable TV
U.S. Cable, Inc............................. 6/30/98 Missouri Cable TV
CATV Subscriber Services, Inc............... 8/31/98 North Carolina Cable TV
State Wide CATV, Inc........................ 8/31/98 Florida Cable TV
Burn-Techs, Inc............................. 8/31/98 Florida Telecommunications
</TABLE>
All the acquisitions were accounted for as purchases and were included in
the results of operations from the date of acquisition. The goodwill associated
with all the acquisitions during 1998 totaled $27,627,465.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisitions had been
completed on January 1, 1998. These pro forma results give effect to increased
interest expense for acquisition debt and amortization of related goodwill.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which would have been
achieved had these acquisitions been completed on January 1, 1998 nor are the
results indicative of the company's future results of operations (in thousands).
<TABLE>
<S> <C>
Revenues.................................................... $123,338
Net income.................................................. $ 5,924
Net income available to common stock per share.............. $ 0.23
</TABLE>
4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Contract billings........................................... $4,067,489 $23,673,522
Retainage.............................................. 301,569 2,818,579
---------- -----------
4,369,058 26,492,101
Less allowance for doubtful accounts................... 20,000 338,699
---------- -----------
Accounts receivable, net.................................. $4,349,058 $26,153,402
========== ===========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts, the majority of the retention balances at December 31, 1998 are
expected to be collected within the next twelve months.
F-29
<PAGE> 88
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
The accompanying consolidated balance sheet includes the following property
and equipment at December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Land, building and leasehold improvements................... $ 510,217 $ 616,258
Vehicles.................................................. 3,010,131 12,957,646
Equipment and machinery................................... 3,331,415 7,579,213
Office equipment, including furniture and fixtures, and
computer equipment and software........................ -- 770,931
---------- -----------
6,851,763 21,924,048
Less accumulated depreciation............................. 3,548,374 6,449,977
---------- -----------
Property and equipment, net............................... $3,303,389 $15,474,071
========== ===========
</TABLE>
Certain subsidiaries of the Company have entered into lease arrangements
accounted for as capitalized leases. The carrying value of capital leases at
December 31, 1998 was $474,326, net of accumulated depreciation of $76,628.
Assets under capital leases are included as a component of vehicles, and
equipment and machinery. Maintenance and repairs of property and equipment
amounted to $1,204,600 for the period ended December 31, 1998.
6. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt outstanding at December 31, 1998 is detailed by type of
borrowing as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Bank credit facility:
Revolving credit facility, maturing on April 1, 2005;
interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... $ 6,750,000
Term loan, amortizing with final payment due April 1,
2003; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.00% or 0.50%,
respectively........................................... 27,625,000
Term loan, amortizing with final payment due April 1,
2005; interest rate of LIBOR or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.375% or
0.875%, respectively................................... 18,950,000
Capital lease obligations................................... 402,819
Equipment loans............................................. 472,284
Junior subordinated convertible note, due April 15, 2005,
interest rate of 9%....................................... 1,063,750
-----------
Total debt and capital lease obligations.......... 55,263,853
Less current portion........................................ 12,614,268
-----------
Long-term debt.............................................. $42,649,585
===========
</TABLE>
BANK CREDIT FACILITY
On March 31, 1998, the Company entered into a credit facility with PNC
Bank, National Bank (PNC) as Bank and agent (the Credit Agreement), to provide
for two term notes totaling $19,000,000 and a revolving credit facility,
including a letter of credit subfacility, in the amount
F-30
<PAGE> 89
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $10,000,000. In conjunction with the purchase of U.S. Cable, Inc., the Credit
Agreement was amended on June 30, 1998, increasing the revolving credit note to
$12,000,000 and the term notes to $33,000,000. In conjunction with the
acquisition of CATV Subscriber Services, Inc., State Wide CATV, Inc., and
Burn-Techs, Inc., a second amendment to the credit facility occurred on August
31, 1998, increasing the revolving credit note to $15,000,000 and the term loans
to $47,000,000. The term loan in the amount of $28,000,000 matures on April 1,
2003. The revolving credit note and the other term loan in the amount of
$19,000,000, mature on April 1, 2005. There is a commitment fee of 0.50% of the
unused portion of the credit facility.
Outstanding amounts under the credit facility were secured by substantially
all of the Company's assets and the pledge of all of the outstanding shares of
common stock of each of the Company's direct and indirect subsidiaries. The
credit facility also contains certain affirmative and negative covenants
relating to the Company's Holding's operations. As discussed in Note 16, the
Company entered a new bank credit agreement on February 26, 1999.
At December 31, 1997, the Company had a revolving line-of-credit with a
bank for $2,500,000. The line of credit agreement expired June 30, 1998. At
December 31, 1997, none of the line-of-credit had been drawn.
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
In addition to the borrowings under the credit facility, certain
subsidiaries have obligations outstanding under capital leases and other
equipment financing arrangements. The remaining obligations are payable in
monthly installments expiring at various dates through June 2003.
JUNIOR SUBORDINATED CONVERTIBLE NOTE
On March 31, 1998, the Company sold to HIG a $1,000,000, 9% junior
subordinated convertible note, due April 15, 2005 (the Junior Convertible Note).
Any time at the option of HIG, or at the Company's option upon an initial public
offering, the debt may be converted into 692,627 shares of the Company's common
stock. As further discussed in Note 8, the Company and HIG entered into a
redemption agreement that gives HIG certain rights to put its converted common
stock to the Company. Due to the conversion feature of the Junior Convertible
Note coupled with the redemption rights of HIG, the liability associated with
the Junior Convertible Note is adjusted at each balance sheet date to the
greater of the principal plus interest due or the fair market value of the
converted common stock. At December 31, 1998, the fair market value of the
converted common stock is estimated at $2.34. Accordingly, the liability for the
Junior Convertible Note is recorded at $1,063,750. The amount attributable to
the accretion to the fair value of the converted common stock for the period
ended December 31, 1998 of $493,358 is recorded as a reduction of retained
earnings and on a separate line in the balance sheet. The interest charge for
the period ended December 31, 1998 totaled $63,500 and was recorded as interest
expense.
F-31
<PAGE> 90
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MATURITIES
At December 31, 1998, the estimated aggregate annual repayments for notes
payable and capital lease obligations are as follows:
<TABLE>
<S> <C>
Maturities for fiscal years:
1999................................................... $12,614,268
2000................................................... 6,277,265
2001................................................... 6,722,108
2002................................................... 7,027,750
2003................................................... 8,021,212
Thereafter............................................. 14,601,250
-----------
$55,263,853
===========
</TABLE>
7. SERIES A CONVERTIBLE PREFERRED STOCK
The Company issued 10,000 shares of Series A Convertible Preferred Stock
(Preferred Stock) to HIG for $4,438,500, net of $61,500 of issue costs. The
Preferred Stock has an 8% cumulative dividend, is convertible to shares of Orius
common stock, has full voting rights on an as-if converted basis and conversion
is at the discretion of HIG. At December 31, 1998, the Preferred Stock could
have been converted to 3,116,828 shares of common stock. The conversion rate may
be reduced to ensure that the value received by HIG in an initial public
offering of Orius common stock (an IPO) is equal to the face value of the
Preferred Stock plus accrued and unpaid dividends. In the event of an IPO, the
Company has the right to force conversion of the Preferred Stock. Further, HIG
has been given certain redemption rights discussed in Note 8.
At December 31, 1998, the total recorded value of the Preferred Stock has
been determined based upon the value of the converted common stock shares of
3,116,828 at $2.34 per share or $7,340,649. The $2.34 per share price was based
upon the value of the additional preferred stock purchased by HIG on February
26, 1999 as further discussed in Note 16.
8. HIG REDEMPTION RIGHTS
The Company entered into a redemption agreement on March 31, 1998 with HIG
(the Redemption Agreement) that allows HIG to redeem its converted shares of
common stock derived from the Preferred Stock and Junior Convertible Note.
Pursuant to the Redemption Agreement, HIG may cause the Company to redeem its
converted shares of common stock at the earlier of a sale of the Company, a
merger involving the Company, commencement of liquidation or bankruptcy
proceedings, or April 15, 2005. Conversion can only occur for all of the shares
Preferred Stock at once and the Junior Convertible Note must be converted at the
same time. The redemption value of the converted shares of common stock is the
greater of fair market value at the date of redemption or the initial purchase
price for the Preferred Stock and Junior Convertible Note plus any accumulated
and unpaid dividends and interest. In the event of an initial public offering of
Orius common stock, HIG's redemption rights are terminated.
F-32
<PAGE> 91
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCKHOLDERS' AGREEMENT
On March 31, 1998, a stockholders agreement was entered into by all of the
common stockholders and HIG. The stockholders agreement limits the transfer of
the common shares to immediate family and HIG has certain limited rights with
respect to sales of its shares. Generally, the existing stockholders have the
right of first refusal for all proposed sales of common stock, but the Company
has no obligation to repurchase any shares except those covered by the
Redemption Agreement discussed in Note 8.
10. INCOME TAXES
Effective January 1, 1997, Channel elected to be treated as an S
corporation for income tax purpose as allowed under the Internal Revenue Code.
With this conversion, the Company's net deferred tax balance of $220,276 was
reversed as a credit to the provision for income taxes. The tax liabilities for
the year ended December 31, 1997 were the responsibility of the individual
shareholder. In connection with the transaction on March 31, 1998, the Company's
S corporation status was terminated. With this termination, the Company was
required to recognize a deferred tax liability and corresponding charge to
income of $330,254 with payment to be spread over four years.
The components of the provision for income taxes for the period ended
December 31, 1998 and 1996 are:
<TABLE>
<CAPTION>
1996 1998
---------- ----------
<S> <C> <C>
Current:
Federal................................................... $2,225,000 $2,912,700
State..................................................... 225,859 723,029
---------- ----------
2,450,859 3,635,729
---------- ----------
Deferred:
Federal................................................... 123,000 (555,480)
State..................................................... 10,500 (82,213)
---------- ----------
133,500 (637,693)
---------- ----------
Total tax provision............................... $2,584,359 $2,998,036
========== ==========
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to the deferred
liabilities and assets at December 31, 1998 and their approximate tax effects
are as follows:
<TABLE>
<CAPTION>
TEMPORARY TAX
DIFFERENCE EFFECT
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts............................. $1,169,722 $ 463,327
Deferred compensation....................................... 212,037 83,988
Other....................................................... 48,220 19,100
---------- ----------
Total deferred tax assets......................... 1,429,980 566,415
---------- ----------
Accumulated depreciation.................................... 4,780,492 1,893,553
Reversal of cash basis...................................... 3,200,098 1,267,559
---------- ----------
Total deferred tax liabilities.................... 7,980,591 3,161,112
---------- ----------
Net deferred tax liability........................ $6,550,611 $2,594,697
========== ==========
</TABLE>
F-33
<PAGE> 92
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the expected provision for income taxes at the
statutory Federal income tax rate and the actual provision for the period ended
December 31, 1998 and 1996 are as follows:
<TABLE>
<CAPTION>
1996 1998
----------------- -----------------
AMOUNT % AMOUNT %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Expected total tax at statutory rate................ $2,362,196 34.0 $2,317,034 34.0
State taxes, net of federal benefit................. 149,067 2.1 519,677 6.8
Nondeductible amortization.......................... -- -- 268,452 2.8
Other, net.......................................... 73,096 1.1 (107,127) (1.5)
---------- ---- ---------- ----
$2,584,359 37.2 $2,998,036 42.1
========== ==== ========== ====
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have defined contribution plans that
provide retirement benefits to all employees that elect to participate. Under
the plans, participating employees may defer up to 15% of their base pre-tax
compensation. Generally, the Company's contributions to the plans are
discretionary. The Company's contributions were $72,509 in the fiscal period
ended December 31, 1998.
12. STOCK OPTION PLANS
The Company has reserved 518,045 shares of common stock under its 1998
Incentive Stock Option Plan (the "1998 Plan") which was approved by the
stockholders on March 30, 1998. The 1998 Plan provides for the granting of
options to key employees. Options are exercisable over a period of 5 years. At
December 31, 1998, options available for grant under the 1998 plan totaled
166,552 shares.
In fiscal 1998, the Company granted to key employees under the 1998 Plan,
options to purchase an aggregate of 351,493 shares of common stock. The options
were granted at prices ranging from $4.83 to $8.69, prices representing a
premium to the fair market value on the date of grant. At December 31, 1998, the
weighted-average remaining contractual life of the stock options outstanding is
approximately nine years. As of December 31, 1998, no options were exercisable.
Grants of options under the plan are accounted for using the intrinsic
value method. Accordingly, no compensation cost has been recognized for grants
made to date. There would have been no difference in net income for the year
ended December 31, 1998 had compensation cost been determined by computing under
the provisions of SFAS 123 regarding the minimum fair value of each grant. For
purposes of this calculation, the fair value of each option grant is estimated
as of the date of grant using the Black-Scholes option pricing model. The
weighted-average assumptions used in determining fair value as disclosed for
SFAS 123 were risk-free interest rates ranging from 5.0% to 5.7% and an option
life of six years.
13. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The operating subsidiaries obtain contracts from both public and private
concerns. For the period ended December 31, 1998, approximately 56% of the
contract revenues were from three customers (TCI, Time Warner, and MediaOne),
with the largest customer representing approximately 24% of the contract
revenues.
F-34
<PAGE> 93
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade accounts receivable.
The three customers noted above represent a significant portion of the Company's
customer base. As of December 31, 1998, the total outstanding trade receivables
from these customers was approximately $13 million or 50% of the Company's
outstanding trade receivables.
14. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered operating leases covering
office facilities, vehicles and equipment that have non-cancelable terms in
excess of one year. Certain of these leases contain renewal provisions and
generally require the Company to pay insurance, maintenance, and other operating
expenses. Total expense incurred under operating lease agreements for period
ended December 31, 1998 was approximately $1,183,300.
<TABLE>
<S> <C>
For fiscal years ending:
1999........................................................ $ 610,512
2000........................................................ 262,510
2001........................................................ 150,497
2002........................................................ 133,929
2003........................................................ 68,278
----------
Total Payments......................................... $1,225,726
==========
</TABLE>
15. RELATED PARTY TRANSACTIONS
Certain subsidiaries of the Company lease administrative offices from
partnerships and corporations of which certain officers of the subsidiaries are
the general partners or shareholders. The total expense under these arrangements
was $174,718 during the period ended December 31, 1998. The future minimum lease
commitments under these arrangements are $140,715 in 1999 and 2000, $121,500 in
2001, $83,070 in 2002 and $35,768 in 2003.
16. SALE OF SUBSIDIARY
In January 1996 and September 1996, the Company sold the operating assets
of its subsidiary, Channelvision Cable TV, Inc. in two separate transactions.
Proceeds from the sales were $3,195,640 with a gain of $3,046,408 being
recognized on the sales. The 1996 financial statements include the losses from
discontinued operations and the net gain from the disposal of assets, after
applicable income taxes of $1,042,760. Revenues of the subsidiary were $114,606
in 1996.
17. SUBSEQUENT EVENTS
At December 31, 1998, the organization consisted of eight subsidiaries
operating under the Company: Channel Communications, Inc.; Cablemasters Corp.;
Excel Cable Construction, Inc.; Mich-Com Cable Services Incorporated; U.S.
Cable, Inc.; CATV Subscriber Services, Inc.; State Wide CATV, Inc., and
Burn-Techs, Inc. The common stock of the Company is owned by the former owners
of these companies and certain executive officers and founders of the Company.
HIG Cable, Inc. owns all the outstanding Preferred Stock of the Company.
On February 8, 1999 a reorganization of NATG occurred in connection with
the acquisition of four companies and related financing. Orius Corp., a Delaware
corporation, was formed, and it formed NATG Holdings, LLC, a Delaware limited
liability company. All of the interest in NATG
F-35
<PAGE> 94
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Holdings is held by Orius Corp. In February 1999, NATG Holdings formed a
subsidiary, NATG Merger Sub., which was merged with and into NATG with NATG as
the surviving corporation.
As a result of the merger, NATG became an indirect wholly owned subsidiary
of Orius. The merger resulted in all of the stockholders of NATG holding shares
of Orius. Shares of common and Preferred Stock of NATG were converted into
one-tenth of a share of common and preferred stock of Orius, respectively. This
one-for-ten exchange was the same for all stockholders and has been reflected in
these financial statements. Furthermore, the Company sold a total of 99,323.25
shares (on a post-split basis) of common stock to existing stockholders for
$2,403,623.
On February 26, 1999, four companies were acquired by NATG Holdings for
consideration of $69.4 million in cash and 144,285 shares of Orius common stock.
The four companies acquired by NATG Holdings were Schatz Underground Cable, Inc;
DAS-CO of Idaho, Inc.; Copenhagen Utilities and Construction, Inc.; and Network
Cabling Services, Inc.
In connection with these acquisitions, NATG Holdings entered into a $25.0
million revolving credit facility, maturing in 5 years, and a $120.0 million
senior secured credit facility with Merrill Lynch Capital Corporation and PNC,
as agents for a syndicate of financial institutions (the Agents). The term loan
facility is allocated among a $60.0 million Term Loan A facility, maturing on
December 1, 2003; a $45.0 million Term Loan B facility, maturing on December 1,
2004; and a $15.0 million Term Loan C facility, maturing on December 1, 2005. Of
this credit facility, NATG Holdings borrowed $2.0 million under the revolving
credit facility, $60.0 million under the Term Loan A facility, $45.0 million
under the Term Loan B facility, and $15.0 million under the Term Loan C facility
to complete the four new acquisitions and to repay substantially all
indebtedness of NATG, and terminate all commitments to make extensions of credit
to NATG, under NATG's existing credit facility with PNC. Additionally, the
Company issued to the Agents warrants to purchase 371,853 shares of common stock
of Orius Corp. for $.01 per share.
Amounts under the credit facility bear interest, at the Company's choice,
at either LIBOR plus an applicable margin; or, the higher of PNC's corporate
base rate of interest, or the Federal Fund Rate plus 0.50% (the ABR), in each
case plus an applicable margin. For LIBOR loans, the margin is 3.00% for the
revolving credit facility and Term Loan A facility, 3.75% for the Term Loan B
facility and 5.00% for Term Loan C facility. For ABR loans, the margin is 2.00%
for the revolving credit facility and Term Loan A facility, 2.75% for the Term
Loan B facility and 4.00% for Term Loan C facility. Outstanding amounts under
the credit facility are secured by substantially all of NATG Holdings' assets
and the pledge of all of the outstanding shares of common stock of each of
Orius' direct and indirect subsidiaries, including NATG. The credit facility
also contains certain affirmative and negative covenants relating to NATG
Holding's operations.
Also in connection with the acquisitions, HIG made an additional investment
in 7,596.38 shares of the Company's Series B Preferred Stock (the Series B
Preferred) for $7,569,377. The Series B Preferred is convertible into Orius
common stock based upon a conversion rate that resulted in 3,252,290 converted
common shares at the date of issuance, or a value of $2.34 per share on a split
basis.
F-36
<PAGE> 95
ORIUS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENT -- STOCK SPLIT
In connection with its initial public offering of common stock, the Company
announced that each share of common stock will split into 10.3609 shares of
common stock. The effect of this split has been reflected in these financial
statements.
Pro Forma Earnings per Share
Pro forma earnings per share presented below was computed under SFAS No.
128 "Earnings per Share" based on the weighted average number of common shares
outstanding during the period after giving retroactive effect to the exchange of
the Company's Series A and Series B preferred stock to the Company's newly
established common stock, the split of the Company's newly established common
stock, the Company's planned initial public offering of common stock and the
conversion of the junior subordinated convertible note. All common shares and
stock options issued have been included as outstanding for the entire period
using the treasury stock method and the estimated public offering price per
share.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Pro forma net income per share (unaudited):
Basic..................................................... $ 0.54
Diluted................................................... $ 0.54
Pro forma weighted average shares outstanding (unaudited):
Basic..................................................... 29,296
Diluted................................................... 29,529
</TABLE>
F-37
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of U.S. Cable, Inc. at September 30, 1996 and 1997 and June
30, 1998, and the results of its operations and its cash flows for each of the
two years in the period ended September 30, 1997 and the nine months ended June
30, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 1, 1999
F-38
<PAGE> 97
U.S. CABLE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 856,593 $ 4,251,340 $ 2,069,038
Accounts receivable............................ 3,200,754 2,426,636 3,771,432
Deferred billings.............................. 2,043,590 1,393,030 2,706,321
Inventory...................................... 386,473 315,112 204,609
Prepaid expenses............................... 112,074 105,678 81,133
Income tax receivable.......................... -- -- 574,211
---------- ----------- -----------
Total current assets................... 6,599,484 8,491,796 9,406,744
---------- ----------- -----------
Property and equipment, net...................... 1,331,382 1,465,180 1,079,415
---------- ----------- -----------
Other assets..................................... 239,742 235,111 176,255
---------- ----------- -----------
Total assets........................... $8,170,608 $10,192,087 $10,662,414
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 245,465 $ 167,433 $ --
Accounts payable............................... 1,086,878 665,798 1,014,495
Accrued payroll and payroll taxes.............. 2,399,806 3,294,402 3,026,879
Accrued expenses............................... 92,736 74,351 30,918
Income taxes payable........................... 49,820 103,389 --
---------- ----------- -----------
Total current liabilities.............. 3,874,705 4,305,373 4,072,292
---------- ----------- -----------
Long-term debt................................... 741,424 649,187 --
---------- ----------- -----------
Shareholders' equity:
Common stock, no par value, 40,000 shares
authorized; 36,720 (1996 and 1997) and
27,356 (1998) shares issued and
outstanding................................. 232,174 901,541 1,904,022
Retained earnings.............................. 5,387,405 6,329,855 4,686,100
Less treasury stock, 19,697 (1996), 16,267
(1997) shares at cost....................... (2,065,100) (1,993,869) --
---------- ----------- -----------
Total shareholders' equity............. 3,554,479 5,237,527 6,590,122
---------- ----------- -----------
Total liabilities and shareholders'
equity............................... $8,170,608 $10,192,087 $10,662,414
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 98
U.S. CABLE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues....................................... $14,963,035 $16,111,159 $12,354,223
----------- ----------- -----------
Cost of revenues:
Materials.................................... 1,203,284 404,374 466,178
Subcontracting fees.......................... 5,094,629 6,299,154 5,006,676
Direct labor................................. 2,022,261 1,860,541 1,445,939
Overhead expenses............................ 3,162,098 3,543,693 2,326,318
----------- ----------- -----------
Total cost of revenues............... 11,482,272 12,107,762 9,245,111
----------- ----------- -----------
Gross profit................................... 3,480,763 4,003,397 3,109,112
General and administrative expenses............ 1,753,565 2,175,709 3,440,303
----------- ----------- -----------
Income (loss) from operations.................. 1,727,198 1,827,688 (331,191)
----------- ----------- -----------
Other (income) expenses:
Interest income.............................. (22,969) (125,026) (134,320)
Interest expense............................. 38,076 58,885 30,150
Miscellaneous................................ 14,807 (22,738) (145,101)
----------- ----------- -----------
Total other (income) expense......... 29,914 (88,879) (249,271)
----------- ----------- -----------
Income (loss) before income taxes.............. 1,697,284 1,916,567 (81,974)
(Benefit) Provision for income taxes........... 681,758 766,725 (19,598)
----------- ----------- -----------
Net income (loss).............................. $ 1,015,526 $ 1,149,842 $ (62,376)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 99
U.S. CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss).............................. $ 1,015,526 $1,149,842 $ (62,376)
----------- ---------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on investments, net....................... (2,798) (2,599) (29,629)
Gain on sale of equipment, net................. (32,883) (40,028) (70,947)
Depreciation................................... 447,349 458,508 334,187
Equity in losses (earnings) of affiliated
company..................................... 15,008 (8,398) (20,259)
Deferred income tax provision.................. -- (25,000) 15,000
Changes in assets and liabilities
Accounts receivable......................... (1,721,481) 774,118 (1,344,796)
Deferred billings........................... (176,469) 650,560 (1,313,291)
Inventory................................... (53,171) 71,361 110,503
Other assets................................ (8,433) 6,396 24,545
Accounts payable............................ 261,354 (421,080) 348,697
Accrued payroll and payroll taxes........... 1,468,503 894,596 (267,523)
Accrued expenses............................ 44,870 (18,385) (43,433)
Income taxes payable/receivable............. (477,119) 78,569 (692,600)
----------- ---------- -----------
Total adjustment....................... (235,270) 2,418,618 (2,949,546)
----------- ---------- -----------
Net cash (used) provided by operating
activities..................................... 780,256 3,568,460 (3,011,922)
----------- ---------- -----------
Cash flows from investing activities:
Purchases of property and equipment............ (627,479) (699,134) (493,830)
Proceeds from sale of property and equipment... 61,040 146,856 616,355
Proceeds from distributions of investment
earnings.................................... 5,696 30,654 --
Proceeds from sale of investments.............. -- -- 120,049
Net increase in cash value of life insurance... (14,660) (15,026) (11,305)
----------- ---------- -----------
Net cash provided by (used in) investing
activities..................................... $ (575,403) $ (536,650) $ 231,269
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt...... 750,907 391,730 --
Principal payments on long-term debt........... (351,107) (561,999) (816,620)
Payments of dividends to shareholders.......... (55,718) (207,392) (205,056
Sales of treasury stock........................ 340,283 1,132,328 1,620,027
Purchases of treasury stock.................... (643,050) (391,730) --
----------- ---------- -----------
Net cash provided by financing activities........ 41,315 362,937 598,351
----------- ---------- -----------
Net (decrease) increase in cash and cash
equivalent..................................... 246,168 3,394,747 (2,182,302)
Cash and cash equivalent --
Beginning of year.............................. 610,425 856,593 4,251,340
----------- ---------- -----------
Cash and cash equivalent --
End of year.................................... $ 856,593 $4,251,340 $ 2,069,038
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 100
U.S. CABLE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- RETAINED --------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT
------ ---------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995... 36,720 $ 72,819 $4,427,597 18,398 $(1,602,978)
Net income.................... 1,015,526
Dividends paid................ (55,718)
Purchases of 3,370 shares..... 3,370 (643,050)
Sales of 2,071 shares......... 159,355 (2,071) 180,928
------ ---------- ---------- ------ -----------
BALANCE AT SEPTEMBER 30, 1996... 36,720 $ 232,174 $5,387,405 19,697 $(2,065,100)
Net income.................... 1,149,842
Dividends paid................ (207,392)
Purchases of 1,822 shares..... 1,822 (391,730)
Sales of 5,252 shares......... 669,367 (5,252) 462,961
------ ---------- ---------- ------ -----------
BALANCE AT SEPTEMBER 30, 1997... 36,720 $ 901,541 $6,329,855 16,267 $(1,993,869)
Net loss...................... (62,376)
Dividends..................... (205,056)
Sales of 6,903 shares......... 1,017,666 (6,803) 602,361
Retirement of 9,364 shares.... (9,364) (15,185) (1,376,323) (9,364) 1,391,508
------ ---------- ---------- ------ -----------
BALANCE AT JUNE 30, 1998........ 27,356 $1,904,022 $4,686,100 -- $ --
====== ========== ========== ====== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE> 101
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND FOR THE PERIOD ENDED JUNE 30, 1998
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies
followed in the preparation of the financial statements.
PRINCIPAL ACTIVITIES
U.S. Cable, Inc. (the "Company,") incorporated on December 12, 1963, is a
cable installation contractor for cable companies throughout the United States.
During the course of its business, the Company grants unsecured credit to its
customers.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the
unit price of a contract is determined to be below estimated cost, the entire
estimated ultimate loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable for work
performed prior to the balance sheet date. All costs associated with the
deferred billings are also recognized as expenses as of the balance sheet date.
ACCOUNTS RECEIVABLE
Accounts receivable include amounts that represent retainage on contracts
which is collectible at the conclusion of the contracts. Retainage included in
the accounts receivable balance totaled $627,348, $288,770 and $607,200 as of
September 30, 1996 and 1997, June 30, 1998, respectively. Historically, the
Company has not experienced any significant bad debts or pricing adjustments
and, accordingly, there is no provision for bad debts or other allowances
recorded as of any balance sheet date.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased
with original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Inventory consists primarily of purchased materials used in
the installation of cable systems.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods.
Repairs and maintenance charges which do not increase the useful lives of the
assets are charged to expense as incurred.
F-43
<PAGE> 102
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Upon sale or retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts and resulting gain or loss included in
other income.
TREASURY STOCK
The Company's common stock is no par value. When common stock is
repurchased, it is recorded as treasury stock at the cost of repurchase. When
treasury stock is sold, treasury stock is reduced by the lesser of the sale
price or original cost with any excess proceeds over cost used to increase
common stock. All treasury stock was retired during the period ended June 30,
1998.
INCOME TAXES
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 taxes, which have not been material, are recognized for differences
between the basis of assets and liabilities for financial statement and income
tax purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate the
carrying values due to their short-term maturities.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in the Company's revenue recognition of work-in-process,
costs associated with the work-in-progress, allowances for doubtful accounts,
depreciation and amortization, and in the estimated lives of assets.
NOTE 2 -- STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................ $ 36,826 $ 59,714 $49,732
========== ======== =======
Income taxes............................................ $1,158,877 $713,156 $83,791
========== ======== =======
</TABLE>
F-44
<PAGE> 103
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Land........................................... $ 142,430 $ 140,075 $ --
Buildings and improvements..................... 368,352 414,903 --
Vehicles....................................... 1,156,937 1,170,674 1,398,052
Construction equipment......................... 822,094 848,179 885,981
Office equipment............................... 106,515 117,477 68,701
----------- ----------- -----------
2,596,328 2,691,308 2,352,734
Accumulated depreciation....................... (1,477,590) (1,598,441) (1,614,133)
----------- ----------- -----------
Total................................ $ 1,118,738 $ 1,092,867 $ 738,601
=========== =========== ===========
</TABLE>
NOTE 4 -- INVESTMENT IN AFFILIATED COMPANY
The Company has an investment in an affiliated company which is accounted
for using the equity method of accounting. The total investment was $26,558 and
$19,026 at September 30, 1996 and 1997, respectively. The Company sold its
interest in the affiliated company during 1998 for $62,144 resulting in a gain
of $38,789. Cash received from the affiliates in the form of distributions has
not been significant.
NOTE 5 -- LONG-TERM DEBT
Long-term debt at September 30, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Note payable to Allegiant Bank with 35 monthly payments of
$2,889 including interest at prime plus 1/2% and a final
payment due June 28, 1999. Secured by certain equipment... $ 84,319 $ --
Promissory note to former shareholder with annual
installments of $12,210 plus interest at the one-year US
Treasury Bill rate determined at each anniversary......... 61,050 --
Promissory note to shareholder with annual installments of
$83,143 plus interest at the one-year U.S. Treasury Bill
rate determined at each anniversary....................... 498,857 415,714
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% Secured
by certain land........................................... 45,940 37,232
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% Secured
by certain land........................................... 45,940 37,232
Promissory note to former shareholder, payable in annual
installments of $46,583 plus interest (tied to the rate on
US Treasury Bills)........................................ 93,167 --
Promissory note to former shareholder, payable in annual
installments of $49,911 plus interest (tied to the rate on
US Treasury Bills)........................................ 149,732 --
</TABLE>
F-45
<PAGE> 104
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Promissory note to shareholder, payable in annual
installments of $65,288 plus interest (tied to the rate on
US Treasury Bills)........................................ -- 326,442
--------- ---------
Total other....................................... 9,884 --
Total............................................. 986,889 816,620
Less current portion........................................ (245,465) (167,433)
--------- ---------
Total............................................. $ 741,424 $ 649,187
========= =========
</TABLE>
NOTE 6 -- INCOME TAXES
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1997 JUNE 30, 1998
-------- -------- -------------
<S> <C> <C> <C>
Current:
Federal.............................................. $586,317 $664,369 $(20,676)
State................................................ 95,441 127,356 (13,922)
-------- -------- --------
681,758 791,725 (34,598)
Deferred............................................... -- (25,000) 15,000
-------- -------- --------
Total tax provision (benefit).......................... $681,758 $766,725 $(19,598)
======== ======== ========
</TABLE>
The difference between income tax expense (or benefit) calculated by
multiplying the Federal statutory rate by income (or loss) before income taxes
and the reported amount of income tax expense (or benefit) is due state taxes
and nondeductible meals and entertainment expenses. Deferred tax assets and
liabilities are not significant.
NOTE 7 -- RETIREMENT PLAN
The Company has a qualified 401(k) profit sharing plan covering all
full-time employees employed one year. The Company matches 100% of the employee
deferral amount up to 2.5% of the employee's compensation. Total Company
contributions were $38,098 and $38,937 for the years ended September 30, 1996
and 1997, respectively and $30,845 for the period ended June 30, 1998.
NOTE 8 -- COMMON STOCK
All of the common stock of U.S. Cable, Inc., is subject to an agreement
between the company and its shareholders who have the right to require the
Company to repurchase shares at fair market value in the event of death,
retirement and certain financial hardships.
NOTE 9 -- CONCENTRATIONS OF BANK BALANCE
The Company maintains accounts with a bank totaling $856,593, $4,251,340
and $2,069,038 at September 30, 1996 and 1997 and June 30, 1998, respectively.
The cash at this bank is primarily invested in cash equivalents.
NOTE 10 -- CONCENTRATION OF CUSTOMERS
Sales to three major customers; Media One, Time Warner and Cox
Communications, who operate cable television networks, for the years ended
September 30, 1996 and 1997 and the
F-46
<PAGE> 105
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
period ended June 30, 1998 were $14,228,938, $13,889,838 and $10,857,676,
respectively representing 95%, 86% and 88% of sales, respectively. Account
receivable from the three major customers at September 30, 1996 and 1997 and
June 30, 1998 were $5,025,742, $3,475,362, and $6,102,784, and, respectively
representing 95%, 91% and 94% of account receivable balance, respectively.
NOTE 11 -- DIVIDEND
The Board of Directors of the Company declared and paid the dividends of
$2, $11 and $8 per share for the years ended September 30, 1996 and 1997 and the
period ended June 30, 1998, respectively.
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Company paid consultancy fees of $250,000 to its shareholders for the
period ended June 30, 1998 in connection with the negotiation of the sale of the
Company's common stock to North American Tel-Com Group, Inc. ("NATG.") These
amounts were recorded as administrative expenses.
The Company sold certain land, buildings, construction equipment and other
investments to a shareholder for $672,894 during the period ended June 30, 1998
resulting in a gain of approximately $110,000 which was recorded as
miscellaneous income. Management believes the prices paid by the shareholder
approximated fair market value.
The Company sold and purchased shares of common stock to certain employees
of the company during all the periods presented. The share prices for these
transactions were determined by a formula which management believes resulted in
share prices that approximated the fair value of the common stock. There were no
differences between the formula prices per share and the prices per share paid
or received by the company. Accordingly, no compensation expense was recorded in
the financial statements for any of these transactions.
NOTE 13 -- LEASE COMMITMENT
Prior to June 30, 1998, the Company sold its building to a shareholder and
leased it back commencing from July 1, 1998 under a capital lease agreement.
Under the capital lease agreement, the Company is required to pay the annual
lease payment for a term of five years commencing from July 1, 1998. The lease
payments are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 60,000
2000........................................................ 60,000
2001........................................................ 60,000
2002........................................................ 60,000
2003........................................................ 60,000
--------
300,000
Less: Imputed interest...................................... (54,567)
--------
$245,433
========
</TABLE>
NOTE 14 -- SALE OF COMMON STOCK
On June 30, 1998 the Company's shareholders entered into a stock exchange
agreement with NATG. Pursuant to that transaction, all the shares of the
Company's common stock were exchanged for cash and shares of NATG common stock.
The financial statements of the Company as of and for the period ended June 30,
1998 do not reflect the share exchange agreement.
F-47
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, retained earnings and of cash
flows present fairly, in all material respects, the financial position of CATV
Subscriber Services, Inc. and its subsidiary (the "Company") at December 31,
1997 and August 31, 1998, and the results of its operations and its cash flows
for the year ended December 31, 1997 and the eight months ended August 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
April 23, 1999
F-48
<PAGE> 107
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
BALANCE SHEETS AT DECEMBER 31, 1997
AND AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,100 $ 231,418
Accounts receivable, net.................................. 5,976,705 4,713,417
Deferred billings......................................... 1,364,080 2,975,188
Inventory................................................. -- 138,421
Prepaid expenses & other current assets................... 134,848 493,941
---------- -----------
Total current assets.............................. 7,506,733 8,552,385
---------- -----------
Property and equipment, net................................. 1,837,508 2,154,989
---------- -----------
Other assets................................................ 47,887 24,031
---------- -----------
Total assets...................................... $9,392,128 $10,731,405
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $3,108,447 $ 190,676
Capital lease obligation, current......................... 246,763 347,445
Accounts payable.......................................... 883,702 465,882
Amounts due to -- NATG.................................... -- 3,317,768
Accrued costs in excess of billings....................... 784,000 1,709,503
Accrued payroll and payroll taxes......................... 42,406 120,491
Accrued expenses.......................................... 912,431 1,063,840
---------- -----------
Total current liabilities......................... 5,977,749 7,215,605
---------- -----------
Long-term liabilities:
Notes payable............................................. 582,043 251,060
Capital lease obligation, noncurrent...................... 192,698 319,818
Deferred income tax payable............................... 159,093 188,947
---------- -----------
Total long-term liabilities....................... 933,834 759,825
---------- -----------
Shareholders' equity:
Common stock, par value $10; 10,000 shares authorized;
1,615 (1997) and 1,806 (1998) shares issued and
outstanding............................................ 16,150 18,060
Paid-in capital........................................... 5,015 813,700
Retained earnings......................................... 2,459,380 1,924,215
---------- -----------
Total shareholders' equity........................ 2,480,545 2,755,975
---------- -----------
Total liabilities and shareholders' equity........ $9,392,128 $10,731,405
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE> 108
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1997 1998
------------ -----------
<S> <C> <C>
Revenues.................................................... $21,546,731 $19,411,946
----------- -----------
Cost of revenues:
Materials................................................. 489,937 404,313
Subcontracting fees....................................... 8,302,304 8,333,115
Direct labor.............................................. 6,096,415 4,505,819
Overhead expenses......................................... 4,375,972 3,070,671
----------- -----------
Total cost of revenues............................ 19,264,628 16,313,918
----------- -----------
Gross profit................................................ 2,282,103 3,098,028
General and administrative expenses......................... 1,972,025 3,493,019
----------- -----------
(Loss) income from operations............................... 310,078 (394,991)
----------- -----------
Other (income) expense:
Interest expense, net..................................... 333,332 289,788
Miscellaneous............................................. 31,170 --
----------- -----------
Total other (income) expense...................... 364,502 289,788
----------- -----------
Loss before income taxes.................................... (54,424) (684,779)
Income tax benefit.......................................... (1,725) (247,564)
----------- -----------
Net loss.................................................... $ (52,699) $ (437,215)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE> 109
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss).................................................. $ (52,699) $ (437,215)
----------- -----------
Adjustment to reconcile net (loss) to net cash used in
operating activities:
Loss on sale of equipment................................. 31,509 --
Depreciation expense...................................... 505,639 296,369
Provision for bad debt.................................... 385,017 1,014,578
Deferred income tax provision............................. 33,813 (354,734)
Changes in assets and liabilities
Accounts receivable.................................... (2,065,764) 248,710
Deferred billings...................................... (1,364,080) (1,611,108)
Inventory.............................................. -- (138,421)
Prepaid and other current assets....................... (5,387) 25,495
Other assets........................................... (3,164) 23,856
Accounts payable....................................... 844,807 (417,820)
Accrued costs in excess of billings.................... 784,000 925,503
Accrued payroll and payroll taxes...................... 17,437 78,085
Accrued expenses....................................... (12,990) 151,409
Accrued income taxes................................... (359,198) --
----------- -----------
Total adjustment.................................. (1,208,361) 241,922
----------- -----------
Net cash used in operating activities....................... $(1,261,060) $ (195,293)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (254,448) (271,421)
Proceeds from sale of property and equipment.............. 19,920 --
Net (increase) in cash value of life insurance............ (9,993) --
----------- -----------
Net cash (used in) investing activities..................... (244,521) (271,421)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt................. 9,366,314 257,350
Principal payments on long-term debt...................... (7,913,819) (3,506,104)
Payment of capital lease obligation....................... (320,075) (114,627)
Amounts received from NATG................................ -- 3,317,768
Payment of dividends...................................... -- (97,950)
Proceeds from issuance of stock........................... -- 810,595
----------- -----------
Net cash provided by financing activities................... 1,132,420 667,032
----------- -----------
Net increase (decrease) in cash and cash equivalent......... (373,161) 200,318
Cash and cash equivalent -- Beginning of year............... 404,261 31,100
----------- -----------
Cash and cash equivalent -- End of year..................... $ 31,100 $ 231,418
=========== ===========
Non-Cash Transactions:
Capital lease obligations................................... $ 207,242 $ 342,429
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 110
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES ISSUED
AND COMMON RETAINED PAID-IN
OUTSTANDING STOCK EARNINGS CAPITAL
------------- ------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............... 1,615 $16,150 $2,512,079 $ 5,015
Net loss................................. (52,699)
----- ------- ---------- --------
BALANCE AT DECEMBER 31, 1997............... 1,615 $16,150 $2,459,380 $ 5,015
Net loss................................. (437,215)
Dividends paid........................... (97,950)
Issuance of 191 shares................... 191 1,910 808,685
----- ------- ---------- --------
BALANCE AT AUGUST 31, 1998................. 1,806 $18,060 $1,924,215 $813,700
===== ======= ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE> 111
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies
followed in the preparation of the financial statements.
COMPANY'S ACTIVITIES
CATV Subscriber Services, Inc. (the Company), incorporated in North
Carolina in March 1972, is a provider of infrastructure services to cable
television system operators.
BASIS OF ACCOUNTING
The Company's policy is to prepare its financial statements on the accrual
basis of accounting. The consolidated financial statements include the accounts
of CATV Subscriber Services, Inc., and its wholly owned inactive subsidiary,
Arizona Cable Concepts, Inc. Intercompany accounts have been eliminated.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates and such
differences may be material to the financial statements.
Estimates are used in determining the Company's revenue recognition of
work-in-progress, costs associated with the work-in-progress, allowances for
doubtful accounts, depreciation and amortization, and in the estimated useful
lives of assets.
REVENUE RECOGNITION
Revenue is recorded as units and footages are actually installed. If the
unit price of a contract is determined below cost, the entire estimated ultimate
loss is accrued.
DEFERRED BILLINGS
Deferred billings consist of unbilled accounts receivable on work performed
prior to December 31, 1997 and August 31, 1998. All costs associated with the
deferred billings are also recognized as expenses as of the balance sheet date.
ACCRUED COSTS IN EXCESS OF BILLINGS
Accrued costs in excess of billings represents estimated cost required to
complete the current units of production in excess of amounts billed for those
units of production.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased
with original maturities of three months or less.
INVENTORY
Inventory is stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market, and consists of materials purchased for installation of cable
television networks.
F-53
<PAGE> 112
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using various accelerated and straight-line methods for
income tax and financial statement purposes. Repairs and maintenance charges
which do not increase the useful lives of the assets are charged to expense as
incurred. Upon sale or retirement, the cost and related accumulated depreciation
are eliminated from the respective accounts and resulting gain or loss included
in current income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate their
carrying value due to the short-term maturities of these financial instruments.
INCOME TAXES
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 taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
and lives for financial statement and income tax purposes) and certain reserves
recorded for book purposes that are not currently deductible for tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled.
NOTE 2 -- STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTHS
DECEMBER 31, ENDED AUGUST 31,
1997 1998
------------ ----------------
<S> <C> <C>
Cash paid during the year for:
Interest.................................................. $333,332 $289,788
======== ========
Income taxes.............................................. $359,198 $201,983
======== ========
</TABLE>
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1997 and
August 31, 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Trade receivables........................................... $5,433,509 $5,097,585
Retainage................................................... 928,213 745,732
Allowance for doubtful accounts............................. (385,017) (1,129,900)
---------- ----------
Accounts receivable, net.................................... $5,976,705 $4,713,417
========== ==========
</TABLE>
F-54
<PAGE> 113
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retainage consists of amounts that are not due until the completion of a
contract. The allowance for doubtful accounts was increased by $997,374 during
1998 for the write-off of receivables from St. Martin Cable TV, FWI. (SMCTV).
The Company filed a claim against SMCTV in mid-1997 and has received only
insignificant payments since that time. During 1998, the Company elected to not
pursue the collection of the receivable due to costs associated with doing so.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 37,018 $ --
Office building............................................. 93,628 --
Leasehold improvements...................................... 2,344 2,344
Automobiles and trucks...................................... 2,315,510 2,820,681
Equipment and tools......................................... 1,684,571 1,847,788
Furniture and fixtures...................................... 147,568 223,676
----------- -----------
4,280,639 4,894,489
Accumulated depreciation.................................... (2,443,131) (2,739,500)
----------- -----------
Total............................................. $ 1,837,508 $ 2,154,989
=========== ===========
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Long-term debt at December 31, 1997 and August 31, 1998, consists of the
following:
<TABLE>
<CAPTION>
1997 1998
---------- --------
<S> <C> <C>
Notes payable to BB&T Bank with monthly installments of
$33,333 plus interest at prime plus 1.5%. Secured by St.
Martin Cable TV system and all Company assets............. $ 987,993 $ --
Note payable to BB&T Bank. Monthly interest payable at prime
plus 2% and a principal due upon demand. Secured by all
Company assets............................................ 2,341,991 --
Notes payable to Ford Motor Credit payable in monthly
installments ranging from $405 to $906 with terms of 36 to
60 months; interest ranges from 8.25% to 10.95%........... 308,970 387,401
Notes payable to GMAC Financial Services with 48 monthly
payments of principal and interest of $795; interest at
9.50%..................................................... 17,726 12,474
Notes payable to Mazda American Credit payable in 36 monthly
installments of $1,198; interest at 8.25%................. -- 37,128
Other equipment loans....................................... 33,810 4,733
---------- --------
Total............................................. 3,690,490 441,736
Less current portion........................................ 3,108,447 190,676
---------- --------
Total............................................. $ 582,043 $251,060
========== ========
</TABLE>
F-55
<PAGE> 114
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt for each of the 5 years subsequent to August
31, 1998 are as follows:
<TABLE>
<S> <C>
1999...................................................... $190,676
2000...................................................... 130,655
2001...................................................... 79,940
2002...................................................... 33,770
2003...................................................... 6,695
--------
$441,736
========
</TABLE>
On August 30, 1998, NATG loaned the Company $3,317,768 which was used to
repay certain of the Company's indebtedness.
NOTE 6 -- INCOME TAXES
The components of the provision (benefit) for income taxes for the year
ended December 31, 1997 and the period ended August 31, 1998:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current:
Federal................................................... $(30,918) $ 93,238
State..................................................... (4,620) 13,932
-------- ---------
(35,538) 107,170
-------- ---------
Deferred:
Federal................................................... 29,417 (308,619)
State..................................................... 4,396 (46,115)
-------- ---------
33,813 (354,734)
-------- ---------
Total tax benefit........................................... $ (1,725) $(247,564)
======== =========
</TABLE>
The effective income tax rate for 1997 and 1998 varies from the federal
statutory rate of 34% due primarily to state taxes, as detailed above, and
certain non-deductible entertainment expenses.
Deferred tax assets in the amount of $398,000 due to reserves for the St.
Martin receivable are included in prepaid expenses and other current assets as
of August 31, 1998. The deferred tax liabilities of $159,093 and $188,947 at
December 31, 1997 and August 31, 1998, respectively consist primarily of tax
depreciation in excess of book. There are no other significant deferred tax
amounts recorded as of December 31, 1997 or August 31, 1998.
NOTE 7 -- CONCENTRATION OF CUSTOMERS
The Company's customer base is highly concentrated with customers operating
cable television networks. For the year ended December 31, 1997 and the eight
months ended August 31, 1998 and as of those dates, five customers Media One,
Falcon Communications, Cox Communications, Charter Communications and Time
Warner, accounted for approximately 77% and 87%, respectively, of net revenues
and accounts receivable.
F-56
<PAGE> 115
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEASE COMMITMENT
The Company and its subsidiary maintain various capital leases for
equipment. Future minimum lease payments for each of the years subsequent to
August 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $347,445
2000........................................................ 180,425
2001........................................................ 93,469
2002........................................................ 45,924
--------
$667,263
========
</TABLE>
NOTE 9 -- SUBSEQUENT EVENTS
On August 31, 1998, the company's shareholders entered into an agreement to
exchange all of the common stock of CATV for cash and stock of the Company. The
effect of this stock exchange agreement has not been reflected in these
accounts.
F-57
<PAGE> 116
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of DAS-CO of Idaho, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of DAS-CO of Idaho, Inc. at December
31, 1997 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boise, Idaho
May 3, 1999
F-58
<PAGE> 117
DAS-CO OF IDAHO, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 283,383 $ 826,986
Accounts receivable....................................... 4,182,269 4,551,536
Unbilled accounts receivable for contracts-in-process..... 844,114 433,416
Inventory................................................. 159,526 166,881
Other current assets...................................... 59,412 3,213
---------- ----------
Total current assets.............................. 5,528,704 5,982,032
---------- ----------
Property and equipment, net................................. 3,422,112 3,097,182
---------- ----------
Total assets...................................... $8,950,816 $9,079,214
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt......................... $ 206,180 $ 208,500
Accounts payable.......................................... 683,810 1,258,516
Accrued liabilities....................................... 127,982 115,662
Profit sharing contribution payable....................... 100,000 100,000
Deferred revenue.......................................... -- 306,669
---------- ----------
Total current liabilities......................... 1,117,972 1,989,347
Long-term debt, less current portion........................ 510,154 284,828
---------- ----------
Total liabilities................................. 1,628,126 2,274,175
---------- ----------
Contingencies and Commitments (Note 8)...................... -- --
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, par value $1 per share; 5,000 shares
authorized and issued (including 1,200 shares held in
treasury).............................................. 5,000 5,000
Retained earnings......................................... 7,322,997 6,805,346
---------- ----------
Total............................................. 7,327,997 6,810,346
Less treasury stock, at cost.............................. (5,307) (5,307)
---------- ----------
Total stockholders' equity........................ 7,322,690 6,805,039
---------- ----------
Total liabilities and stockholders' equity........ $8,950,816 $9,079,214
========== ==========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-59
<PAGE> 118
DAS-CO OF IDAHO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues....................................... $20,389,928 $19,126,148 $21,778,456
----------- ----------- -----------
Costs and expenses:
Cost of revenues............................. 14,443,164 13,682,534 15,415,090
Selling, general and administrative.......... 3,267,175 3,502,691 3,900,768
----------- ----------- -----------
Total................................ 17,710,339 17,185,225 19,315,858
----------- ----------- -----------
Income from operations......................... 2,679,589 1,940,923 2,462,598
Other (income) expense:
Interest income.............................. (46,722) (62,683) (86,981)
Interest expense............................. 115,010 72,991 42,914
(Gain) loss on disposal of assets............ (14,236) (6,848) 4,238
----------- ----------- -----------
Income before income tax provision............. 2,625,537 1,937,463 2,502,427
Provision for income taxes..................... -- -- --
----------- ----------- -----------
Net income........................... $ 2,625,537 $ 1,937,463 $ 2,502,427
=========== =========== ===========
Pro Forma Tax Provision (Unaudited):
Income before income taxes................... $ 2,625,537 $ 1,937,463 $ 2,502,427
Pro forma provision for income taxes......... 997,000 736,200 950,900
----------- ----------- -----------
$ 1,628,537 $ 1,201,263 $ 1,551,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-60
<PAGE> 119
DAS-CO OF IDAHO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents from:
OPERATING ACTIVITIES:
Net income................................... $ 2,625,537 $ 1,937,463 $ 2,502,427
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization............. 768,440 883,658 937,988
(Gain) loss on disposal of assets......... (14,236) (6,848) 4,238
Changes in assets and liabilities:
Accounts receivable....................... 1,445,670 (1,439,915) (369,267)
Unbilled accounts receivable for
contracts-in-process.................... (491,856) (352,258) 410,698
Inventories............................... (20,170) (139,356) (7,355)
Other current assets...................... (11,223) (15,852) 56,199
Accounts payable.......................... (160,178) 30,677 574,706
Accrued liabilities....................... (21,893) 62,631 (12,320)
Deferred revenue.......................... (155,120) -- 306,669
----------- ----------- -----------
Net cash inflow from operating activities.... 3,964,971 960,200 4,403,983
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures...................... (1,692,719) (758,280) (1,014,322)
Proceeds from sale of assets.............. 16,931 6,848 90,362
----------- ----------- -----------
Net cash outflow from investing activities... (1,675,788) (751,432) (923,960)
----------- ----------- -----------
FINANCING ACTIVITIES:
Payments on line of credit................ (905,000) -- --
Proceeds from long-term debt.............. 821,303 -- --
Principal payments on long-term debt...... (683,756) (177,713) (223,006)
Distributions............................. (200,000) (1,330,000) (2,713,414)
----------- ----------- -----------
Net cash outflow from financing activities... (967,453) (1,507,713) (2,936,420)
----------- ----------- -----------
Net cash inflow (outflow) from all
activities................................ 1,321,730 (1,298,945) 543,603
Cash and cash equivalents at beginning of
year...................................... 260,598 1,582,328 283,383
----------- ----------- -----------
Cash and cash equivalents at end of year..... $ 1,582,328 $ 283,383 $ 826,986
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest....................... $ 142,592 $ 72,991 $ 42,914
Noncash investing and financing activities:
Assets acquired through a capital lease...... $ 178,697 $ -- $ --
Distribution of equipment to stockholders.... $ -- $ -- $ 306,664
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-61
<PAGE> 120
DAS-CO OF IDAHO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996......... 5,000 $5,000 $ 4,289,997 $(5,307) $ 4,289,690
Net income......................... 2,625,537 2,625,537
Distributions...................... (200,000) (200,000)
----- ------ ----------- ------- -----------
Balance at December 31, 1996....... 5,000 $5,000 $ 6,715,534 (5,307) $ 6,715,227
Net income......................... 1,937,463 1,937,463
Distributions...................... (1,330,000) (1,330,000)
----- ------ ----------- ------- -----------
Balance at December 31, 1997....... 5,000 $5,000 7,322,997 (5,307) 7,322,690
Net income......................... 2,502,427 2,502,427
Distributions...................... (3,020,078) (3,020,078)
----- ------ ----------- ------- -----------
Balance at December 31, 1998....... 5,000 $5,000 $ 6,805,346 $(5,307) $ 6,805,039
===== ====== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-62
<PAGE> 121
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DAS-CO of Idaho, Inc. (the Company) is a provider of installation, design,
engineering and maintenance services for the telecom industry, formerly in the
western United States. The Company is headquartered in Nampa, Idaho, and has
offices in Twin Falls and Pocatello, Idaho.
On February 26, 1999, the Company was sold to Orius Corp. headquartered in
West Palm Beach, Florida, (the acquisition).
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
and such differences may be material to the financial statements.
Revenue: Revenues from contracts are recognized as the related costs are
incurred based on the relationship of costs incurred to total estimated contract
costs. Unbilled accounts receivable for contracts-in-process represents revenue
recognized but not billed. Deferred revenue represents billings on contracts for
which costs have not yet been incurred and revenue has not been recognized. At
the time a loss on a contract becomes known, the entire amount of the estimated
loss is accrued.
Cash and Cash Equivalents: Cash and cash equivalents include cash balances
on deposit with banks, overnight repurchase agreements, and various other
financial instruments purchased with a remaining maturity of three months or
less. At times, balances on deposit with banks may exceed amounts insured by the
Federal Deposit Insurance Corporation.
Inventory: Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.
Property and Equipment: Property and equipment is stated at cost.
Depreciation and amortization is computed over the estimated useful life of the
assets utilizing the straight-line method. The estimated useful lives of the
assets are: leasehold improvements -- the term of the respective lease or the
estimated useful life of the improvements, whichever is shorter; vehicles -- 5
years; equipment and machinery -- 5 years; computer equipment -- 3-5 years; and
other equipment -- 10 years. Maintenance and repairs are expensed as incurred;
expenditures that enhance the value of the property or extend its useful life
are capitalized. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
Income Taxes: Prior to the acquisition date, the Company was an S
corporation for income tax purposes, and accordingly, any income tax liabilities
for the periods prior to acquisition were the responsibility of the respective
stockholders. Pro forma income taxes are calculated at a combined federal and
state tax rate of 38%.
Subsequent to the acquisition the Company became part of the consolidated
group for federal income tax purposes.
F-63
<PAGE> 122
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Contract billings........................................... $4,180,459 $4,117,007
Retainage................................................... 1,810 434,529
---------- ----------
Total............................................. $4,182,269 $4,551,536
========== ==========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, retainages are expected to be collected within twelve
months.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Land and leasehold improvements............................. $ 267,601 $ 282,400
Equipment and machinery..................................... 5,224,075 5,149,400
Vehicles.................................................... 2,048,723 2,274,269
Office equipment............................................ 256,175 252,865
Computer equipment.......................................... 134,337 128,337
----------- -----------
7,930,911 8,087,271
Less accumulated depreciation and amortization.............. (4,508,799) (4,990,089)
----------- -----------
Property and equipment, net................................. $ 3,422,112 $ 3,097,182
=========== ===========
</TABLE>
4. DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
Contract payable with monthly payments of $19,802, including
interest at 7.062%, due April 2001; equipment is pledged
as collateral............................................. $ 704,606 $ 493,328
Contract payable with monthly payments of $1,099, including
interest at 7.9%, due November 1998; equipment is pledged
as collateral............................................. 11,728 --
--------- ---------
716,334 493,328
Less current portion........................................ (206,180) (208,500)
--------- ---------
Total long-term debt........................................ $ 510,154 $ 284,828
========= =========
</TABLE>
At December 31, 1998, the Company had an unsecured $1 million revolving
line of credit available through a financial institution, bearing interest at 2%
over the LIBOR index rate (7.75% at December 31, 1998). The note was guaranteed
by the stockholders. There were no
F-64
<PAGE> 123
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amounts outstanding at December 31, 1997 and 1998. As part of the acquisition,
the line of credit agreement was terminated.
Maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $208,500
2000........................................................ 223,582
2001........................................................ 61,246
--------
$493,328
========
</TABLE>
5. PROFIT SHARING PLAN:
The Company sponsors a 401(k) profit sharing plan covering substantially
all full-time employees. Company discretionary contributions to the plan totaled
$75,000, $100,000 and $100,000 for 1996, 1997 and 1998, respectively.
6. TRANSACTIONS WITH RELATED PARTIES:
During 1998, the Company leased office and shop facilities from businesses
owned by a related party on a month-to-month basis. On February 26, 1999 these
lease agreements were restructured to require minimum annual lease payments of
$168,744 for each of the next five years. The lease agreements contain two
five-year renewal options, at which time lease terms will be renegotiated.
Rental expense for these leases totaled $160,926, $169,200 and $155,000 for
1996, 1997 and 1998, respectively.
The Company paid consulting fees to businesses owned by related parties.
These businesses provided property management, product development, and other
services to the Company. Consulting fees were $290,910, $149,996 and $152,000
for 1996, 1997 and 1998, respectively. As a result of the acquisition, these
services will no longer be provided by these related parties.
At December 31, 1997 and 1998, the Company had related party receivables of
$5,027 and $9,477, respectively; and had related party payables of $14,100 and
$13,007, respectively.
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
In 1996, revenues from three customers; US West, Citizens and Idaho Power,
represented approximately 61%, 12%, and 10% of total revenue; in 1997, revenues
from three customers represented approximately 50%, 16%, and 15% of total
revenue; and in 1998, revenues from three customers represented approximately
41%, 13%, and 12% of total revenue.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash equivalents
and accounts receivable. The Company grants credit, generally without
collateral, to its customers, which include utility companies,
telecommunications providers and commercial companies located primarily in the
Western United States. Consequently, the Company is subject to potential credit
risk related to changes in business and economic factors throughout the Western
United States.
F-65
<PAGE> 124
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. CONTINGENCIES AND COMMITMENTS:
The Company is subject to lawsuits and other legal claims in the normal
course of its operations. Management believes that the resolution of any such
lawsuits and legal claims, if any, will not have a material impact on the
Company's financial position, results of operations or cash flows.
F-66
<PAGE> 125
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Schatz Underground Cable, Inc. and Orius Corp.
We have audited the accompanying balance sheets of Schatz Underground
Cable, Inc. as of December 31, 1997 and 1998, and the related statements of
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 1998. 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 Schatz Underground Cable,
Inc. as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ MILHOUSE, MARTZ & NEAL, L.L.P.
Maryland Heights, Missouri
February 17, 1999
F-67
<PAGE> 126
SCHATZ UNDERGROUND CABLE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash (Notes 2 & 13)....................................... $ 917,337 $ 2,080,720
Accounts receivable, trade (Notes 1, 5 & 12).............. 4,947,062 5,533,608
Inventory (Notes 1, 3 & 5)................................ 391,886 873,287
Prepaid expenses.......................................... 210,762 269,579
Deferred income tax benefit (Note 7)...................... 47,200 1,193,204
Prepaid income taxes...................................... -- --
----------- -----------
Total current assets.............................. 6,514,247 9,950,398
Property, plant and equipment (Notes 1, 4, 5 & 6)........... 6,858,690 7,483,645
Other assets (Note 1)....................................... 13,615 19,332
----------- -----------
Total assets...................................... $13,386,552 $17,453,375
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, line of credit (Note 5).................... $ -- $ --
Notes payable, current (Note 6)........................... 2,115,383 2,543,486
Accounts payable.......................................... 535,598 540,973
Accrued salaries.......................................... 473,300 3,672,358
Accrued income taxes...................................... 448,877 225,784
Other accrued expenses.................................... 200,469 268,775
Customer deposits......................................... 386,233 316,498
----------- -----------
Total current liabilities......................... 4,159,860 7,567,874
Notes payable, long-term (Note 6)........................... 3,829,194 4,182,397
Deferred income taxes (Note 7).............................. 186,000 163,769
Stockholders' equity:
Common stock, $1 par value; authorized 30,000 shares;
issued and outstanding 1,000 shares.................... 1,000 1,000
Paid-in capital........................................... 7,392 7,392
Retained earnings......................................... 5,203,106 5,530,943
----------- -----------
Total stockholders' equity........................ 5,211,498 5,539,335
----------- -----------
Total liabilities and stockholders equity......... $13,386,552 $17,453,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-68
<PAGE> 127
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net.................................. $20,601,378 $29,530,683 $31,254,221
Direct costs................................... 15,745,117 22,293,285 21,065,985
----------- ----------- -----------
Gross margin................................. 4,856,261 7,237,398 10,188,236
General and administrative expenses............ 4,153,824 4,948,418 9,136,881
----------- ----------- -----------
Income from operations....................... 702,437 2,288,980 1,051,355
Other income (expense):
Interest income.............................. 39,032 33,031 61,373
Other income................................. 3,236 56,104 34,699
Gain (loss) on sale of equipment............. 87,988 (4,282) 41,249
Interest expense............................. (452,796) (582,709) (636,850)
Lawsuit settlement........................... 155,000 -- --
----------- ----------- -----------
Total other income (expense)................. (167,540) (497,856) (499,529)
----------- ----------- -----------
Income before provision for income taxes..... 534,897 1,791,124 551,826
Provision for income taxes (Note 7):
Current...................................... 273,335 728,420 1,392,224
Deferred..................................... (12,445) (20,084) (1,168,235)
----------- ----------- -----------
260,890 708,336 223,989
----------- ----------- -----------
Net income................................... 274,007 1,082,788 327,837
Retained earnings, beginning of year........... 3,846,311 4,120,318 5,203,106
----------- ----------- -----------
Retained earnings, end of year............... $ 4,120,318 $ 5,203,106 $ 5,530,943
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-69
<PAGE> 128
SCHATZ UNDERGROUND CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 274,007 $ 1,082,788 $ 327,837
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
(Gain) loss on disposal of property, plant and
equipment.......................................... (87,988) 4,282 (41,249)
Depreciation and amortization...................... 1,602,284 1,972,539 2,200,018
Deferred taxes..................................... (12,445) (20,084) (1,168,235)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... (2,174,654) (43,572) (586,546)
(Increase) decrease in inventory................ (571,288) 468,387 (481,401)
(Increase) decrease in prepaid expenses......... (97,839) (11,326) (58,817)
(Increase) decrease in prepaid income taxes..... 634,629 28,209 --
(Increase) decrease in other assets............. 1,232 (4,143) (5,717)
Increase (decrease) in accounts payable......... (140,498) 1,886 5,375
Increase (decrease) in accrued expenses......... 373,293 (226,840) 3,267,364
Increase (decrease) in customer deposits........ 27,277 358,956 (69,735)
Increase (decrease) in accrued income taxes..... -- 448,877 (223,093)
----------- ----------- -----------
Net cash provided (used) by operating
activities.................................... (171,990) 4,059,959 3,165,801
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment.............. (2,483,688) (2,705,201) (2,917,848)
Proceeds from sale of property and equipment........... 182,901 32,890 134,124
----------- ----------- -----------
Net cash used by investing activities........... (2,300,787) (2,672,311) (2,783,724)
----------- ----------- -----------
Cash flows from financing activities:
Payments on and proceeds from line-of-credit, net...... 1,255,000 (1,255,000) --
Loan proceeds -- long term............................. 4,258,733 4,860,170 2,223,266
Payments on long-term debt............................. (3,441,610) (4,111,675) (1,251,960)
Payments to and proceeds from stockholder, net......... (190,000) (190,000) (190,000)
----------- ----------- -----------
Net cash provided (used) by financing
activities.................................... 1,882,123 (696,505) 781,306
----------- ----------- -----------
Net increase (decrease) in cash.......................... (590,654) 691,143 1,163,383
Cash, beginning of year.................................. 816,848 226,194 917,337
----------- ----------- -----------
Cash, end of year........................................ $ 226,194 $ 917,337 $ 2,080,720
=========== =========== ===========
Schedule of noncash investing and financing transactions:
Cost of property, plant and equipment purchased........ $ 2,490,504 $ 2,807,580 $ 2,944,135
Net book value of trade-ins............................ (6,816) (102,379) (26,287)
----------- ----------- -----------
Cash paid for property, plant and equipment..... $ 2,483,688 $ 2,705,201 $ 2,917,848
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 456,794 $ 583,524 $ 636,850
Income taxes......................................... 103,783 251,334 1,627,615
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-70
<PAGE> 129
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a provider of installation, design, engineering and
maintenance services for the telecom industry. The company operates in the St.
Louis metropolitan area, as well as throughout the United States.
REVENUE AND COST RECOGNITION
Revenues from fixed price contracts are recognized on the
percentage-of-completion method for individual contracts. Revenues are
recognized based on fixed prices per contract for amount of work performed.
Changes in job performance, estimated profitability and final contract
settlements may result in revisions to costs and income, and are recognized in
the period in which the revisions are determined.
Contract costs include all direct materials, subcontracts, labor costs and
those indirect costs related to contract performance. General and administrative
costs are charged to expenses as incurred.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
ACCOUNTS RECEIVABLE, TRADE
Trade accounts receivable are recorded net of allowance for doubtful
accounts of $40,000 at December 31, 1997 and 1998.
INVENTORY
Materials are valued at cost on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation has been
provided for in the financial statements using accelerated methods over the
estimated useful lives. Repairs and maintenance are charged to expense in the
year incurred. Additions and improvements are capitalized.
OTHER ASSETS
At December 31, 1997 and 1998, other assets consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deposits.................................................... $13,615 $11,715
Construction in progress.................................... -- 7,617
------- -------
$13,615 $19,332
======= =======
</TABLE>
ACCRUED HEALTH INSURANCE
During 1997 and through May 31, 1998, employees and their dependents were
provided comprehensive health care coverage under a self-funded plan. The
Company pays the first
F-71
<PAGE> 130
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$50,000 in medical expenses per covered individual per year. Any additional
costs are paid by the Plan's underwriters. Premiums due the underwriters are
accrued and paid monthly. The Company's self-funded liability is accrued based
on actual claims filed. The reserve liability for accrued health insurance
benefits payable was $52,466 for the year ended December 31, 1997. The Company
ceased to be self-funded on June 1, 1998 and paid all remaining self-funded
liability; therefore, no liability exists at December 31, 1998.
LEASE AGREEMENTS
Annual rentals pertaining to leases which convey merely the right to use
property are charged to current operations. Leases which are in substance
installment purchases of property are recorded as acquisitions with the asset
and the related obligation recorded in the balance sheet.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments have been estimated by
management to approximate fair value.
ADVERTISING
The costs of advertising are expensed as incurred.
2. RESTRICTED CASH
At December 31, 1997, $7,500 of cash had been segregated to fund the
insurance companies draws in connection with the health benefit plan discussed
in Note 1.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Work-in-process............................................. $369,512 $865,046
Materials................................................... 22,374 8,241
-------- --------
$391,886 $873,287
======== ========
</TABLE>
F-72
<PAGE> 131
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trucks, automobiles, equipment and tools.................... $13,311,204 $15,217,306
Office furniture and equipment.............................. 156,592 216,662
Buildings and improvements.................................. 1,489,684 1,661,519
Land........................................................ 350,000 350,000
----------- -----------
15,307,480 17,445,487
Less accumulated depreciation............................... 8,448,790 9,961,842
----------- -----------
$ 6,858,690 $ 7,483,645
=========== ===========
</TABLE>
Depreciation expense was $1,602,284, $1,972,539 and $2,200,018 for years
ended December 31, 1996, 1997 and 1998, respectively.
5. NOTE PAYABLE, LINE-OF-CREDIT
The Company has an annually renewable agreement for a $2,000,000
line-of-credit with Jefferson Bank and Trust Company, which provides for
accounts receivable and inventory financing. Borrowings bear interest at 1/2%
above the Bank's prime rate and are secured by accounts receivable, inventory,
and personal guaranty of the stockholder.
At December 31, 1997 and 1998, no amount had been drawn against the
line-of-credit.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable, stockholder, payable in quarterly installments
of $47,500 plus interest at 9% Matures December 31,
2005...................................................... $1,520,000 $1,330,000
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $8,929 including interest at 8.5%.
Matures March 22, 2001 with outstanding balance due;
secured by real estate and a personal guaranty of the
stockholder............................................... 842,383 805,415
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $33,333 plus interest at prime
plus 1/2%. Matures April 22, 2001, secured by equipment
and a personal guaranty of the stockholder................ 1,333,333 933,333
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $25,000 plus interest at prime
plus 1/2% Matures April 22, 2001; secured by equipment
and a personal guaranty of the stockholder................ 1,000,000 700,000
Note payable, Jefferson Bank and Trust Company, interest
only at prime plus 1/2%. Maximum borrowings of $1,200,000
to finance equipment purchased during 1997. Matures April
22, 1998 secured by equipment and a personal guaranty of
the stockholder. The intent is to refinance the note over
four years commencing March 20, 1998. At December 31,
1997, this note is classified as a current liability...... 1,173,423 --
</TABLE>
F-73
<PAGE> 132
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable, Jefferson Bank and Trust Company, payable in
monthly installments of $50,000 plus interest at prime
plus 1/2%. Matures February 20, 2002 Secured by equipment
and personal guarantee of the stockholder................. -- 1,900,000
Note payable, Jefferson Bank and Trust Company, interest
only of prime plus 1/2%. Matures February 20, 1999.
Secured by equipment and personal guarantee of the
stockholders.............................................. -- 996,689
Note payable, individual, payable in monthly installments of
$1,822 including interest at 10.0% 5 year amortization.
Matures March 15, 2002 secured by a freightliner truck.... 75,438 60,446
---------- ----------
5,944,577 6,725,883
Less current portion........................................ 2,115,383 2,543,486
---------- ----------
$3,829,194 $4,182,397
========== ==========
</TABLE>
Maturities of debt for 1999 and the succeeding years are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1999........................................................ $2,543,486
2000........................................................ 1,552,089
2001........................................................ 1,764,932
2002........................................................ 295,376
2003........................................................ 190,000
Thereafter.................................................. 380,000
----------
$6,725,883
==========
</TABLE>
7. INCOME TAXES
The Corporation provides for deferred income taxes for temporary
differences between the financial and income tax reporting of accrued
shareholder bonus, depreciation, accrued vacation and allowance for doubtful
accounts.
8. RELATED PARTY TRANSACTIONS
The Company has a note payable with the stockholder as explained in Note 6.
The Company leases additional facilities and real estate from the
stockholders at $2,550 and $2,000 a month, respectively, under month-to-month
leases.
9. RETIREMENT PLAN
The Company has a retirement plan (401k) which covers all employees meeting
minimum age and service requirements. The Company makes a matching contribution
of 25% of the first 4% of compensation an employee contributes. The Company made
$46,614, $49,038 and $47,241 in matching contributions for the years ended
December 31, 1996, 1997 and 1998, respectively.
Under the plan, the Company can make discretionary contributions to the
plan. For the years ended December 31, 1996, 1997 and 1998, no discretionary
contributions were made.
F-74
<PAGE> 133
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LEASE COMMITMENTS
The Company currently leases a facility in Kansas City under a long-term
lease expiring May 30, 1999. Minimum rental commitments under this lease are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- -----------
<S> <C>
1999........................................................ $17,500
=======
</TABLE>
The Company leases equipment under month-to-month leases. The Company also
leases a facility at Nixa and real estate in Villa Ridge from the stockholder
under month-to-month leases.
11. MAJOR CUSTOMERS
Sales to four major customers were approximately $16,556,622, $25,382,560
and $26,221,856 for the years ended December 31, 1996, 1997 and 1998,
respectively, representing 79.9%, 85.9% and 83.7% of total sales for those
years.
12. CREDIT RISK
The Company is involved in construction for various levels of government
and therefore issues credit under binding construction contracts to these
agencies. The Company also is engaged in commercial construction and issues
credit under binding construction contracts to various companies.
13. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the organization to credit
risk include cash on deposit with one financial institution amounting to
$896,603 and $2,070,597 at December 31, 1997 and 1998, respectively, which was
insured for up to $100,000 by the U.S. Federal Deposit Insurance Corporation.
F-75
<PAGE> 134
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
and the Board of Directors of Network Cabling Services, Inc.
We have audited the accompanying balance sheets of Network Cabling
Services, Inc. (formerly JAR Industries, Inc.) as of September 30, 1997 and
1998, and the related statements of income, stockholders' equity and cash flows
for each of the two years in the period ended September 30, 1998. 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 Network Cabling Services,
Inc., as of September 30, 1997 and 1998, and the results of its operations and
its cash flows for each of the two years in the period ended September 30, 1998
in conformity with generally accepted accounting principles.
As more fully discussed in Note 10, subsequent to December 31, 1998, the
Company's stockholders sold all of the outstanding common stock of the Company
to an unrelated company.
/s/ BDO Seidman, LLP
Houston, Texas
December 22, 1998, except for Note 10,
which date is February 26, 1999
F-76
<PAGE> 135
NETWORK CABLING SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents....................... $ 1,996 $ 121,842 $ 105,586
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $24,000, $30,000 and $30,000............ 3,406,797 5,236,298 4,632,975
Affiliates (Note 6).......................... 42,161 40,256 41,404
Other........................................ 13,400 1,680 --
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 2)... 53,989 679,450 1,387,810
Inventories..................................... 712,765 709,128 643,254
Prepaid expenses................................ 24,182 13,941 33,023
Refundable income taxes......................... -- 93,499 13,499
---------- ---------- ----------
Total current assets.................... 4,255,290 6,896,094 6,857,551
---------- ---------- ----------
Property and equipment, less accumulated
depreciation (Note 3)........................... 351,713 463,071 435,927
---------- ---------- ----------
Other assets.................................... 14,920 27,320 27,320
---------- ---------- ----------
Total assets.................................... $4,621,923 $7,386,485 $7,320,798
========== ========== ==========
LIABILITIES
Current liabilities:
Accounts payable................................ $1,605,506 $2,386,989 $2,178,882
Accrued expenses................................ 661,553 828,197 627,326
Income taxes payable (Note 5)................... 169,000 -- --
Note payable (Note 4)........................... -- 1,625,528 1,881,493
Current maturities of long-term debt (Note 4)... 131,599 161,929 153,711
Deferred income taxes (Note 5).................. 12,000 193,000 193,000
---------- ---------- ----------
Total current liabilities............... 2,579,658 5,195,643 5,034,412
Note payable (Note 4)............................. 400,265 -- --
Long-term debt, less current maturities (Note
4).............................................. 328,426 262,468 230,247
Deferred income taxes (Note 5).................... 34,000 40,000 40,000
---------- ---------- ----------
Total liabilities....................... 3,342,349 5,498,111 5,304,659
---------- ---------- ----------
Commitments (Note 7 and 8)
STOCKHOLDERS' EQUITY
Common stock, $1 par; shares authorized 10,000;
issued and outstanding 2,000.................... 2,000 2,000 2,000
Additional paid-in capital........................ 25,000 25,000 25,000
Retained earnings................................. 1,267,574 1,876,374 2,004,139
---------- ---------- ----------
Total................................... 1,294,574 1,903,374 2,031,139
Treasury stock, at cost, 100 shares............... (15,000) (15,000) (15,000)
---------- ---------- ----------
Total stockholders' equity.............. 1,279,574 1,888,374 2,016,139
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $4,621,923 $7,386,485 $7,320,798
========== ========== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-77
<PAGE> 136
NETWORK CABLING SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- ---------------------------
1997 1998 1997 1998
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note 1)................. $13,399,655 $22,862,869 $3,646,867 $5,370,037
Cost of Sales...................... 10,744,383 19,750,187 2,959,013 4,601,927
----------- ----------- ---------- ----------
Gross Profit....................... 2,655,272 3,112,682 687,854 768,110
General and administrative
expenses......................... 1,784,612 2,041,916 571,431 516,794
----------- ----------- ---------- ----------
Income from operations............. 870,660 1,070,766 116,423 251,316
Other income (expense):
Interest expense, net............ (95,483) (124,061) (22,799) (41,739)
Miscellaneous income (expense)... 7,456 6,095 (7,665) (1,812)
----------- ----------- ---------- ----------
Total other expense, net........... (88,027) (117,966) (30,464) (43,551)
----------- ----------- ---------- ----------
Income before income tax expense... 782,633 952,800 85,959 207,765
Income tax expense (benefit):
Current.......................... 312,000 157,000 33,000 80,000
Deferred......................... (12,000) 187,000 -- --
----------- ----------- ---------- ----------
Total.................... 300,000 344,000 33,000 80,000
----------- ----------- ---------- ----------
Net income............... $ 482,633 $ 608,800 $ 52,959 $ 127,765
=========== =========== ========== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-78
<PAGE> 137
NETWORK CABLING SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
SEPTEMBER 30, ENDED DECEMBER 31,
------------------------- -------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net income............................... $ 482,633 $ 608,800 $ 52,959 $ 127,765
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................... 103,965 151,757 27,291 54,132
Loss (gain) on disposition of property
and equipment........................ (5,015) 112 -- --
Provision for doubtful accounts........ 16,533 6,000 -- --
Deferred income taxes.................. (12,000) 187,000 -- --
Changes in assets and liabilities:
Accounts receivable.................. (1,300,397) (1,821,876) (158,351) 603,855
Costs and estimated earnings in
excess of billings on uncompleted
contracts......................... 102,865 (625,461) (418,624) (708,360)
Inventories.......................... (339,282) 3,637 (45,359) 65,874
Prepaid expenses and other assets.... (40,868) (2,159) (30,766) (19,082)
Refundable income taxes.............. -- (93,499) -- 80,000
Accounts payable..................... 809,748 781,483 (2,324) (208,107)
Accrued expenses..................... 315,097 166,644 (43,848) (200,871)
Income taxes payable................. 48,000 (169,000) (129,000) --
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............ 181,279 (806,562) (748,022) (204,794)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures..................... (151,953) (268,004) (67,639) (26,988)
Proceeds from sale of property and
equipment.............................. 7,249 4,777 -- --
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (144,704) (263,227) (67,639) (26,988)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Repayment of long-term debt.............. (96,783) (138,983) (378,596) (40,439)
Proceeds from long-term debt............. -- 85,000 -- --
Net borrowings on line of credit......... 35,265 1,243,618 1,285,048 255,965
Purchase of treasury stock............... (15,000) -- -- --
----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities............ (76,518) 1,189,635 906,452 215,526
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. (39,943) 119,846 90,791 (16,256)
Cash and cash equivalents, beginning of
period................................... 41,939 1,996 1,996 121,842
----------- ----------- ----------- -----------
Cash and cash equivalents, at end of
period................................... $ 1,996 $ 121,842 $ 92,787 $ 105,586
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Financial Statements.
F-79
<PAGE> 138
NETWORK CABLING SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1996.................... 2,000 $2,000 $25,000 $ 784,941 $ -- $ 811,941
Treasury stock, at cost,
100 shares.............. -- -- -- -- (15,000) (15,000)
Net income................ -- -- -- 482,633 -- 482,633
----- ------ ------- ---------- -------- ----------
Balance at September 30,
1997.................... 2,000 2,000 25,000 1,267,574 (15,000) 1,279,574
Net income................ -- -- -- 608,800 -- 608,800
----- ------ ------- ---------- -------- ----------
Balance at September 30,
1998.................... 2,000 2,000 25,000 1,876,374 (15,000) 1,888,374
Net income (unaudited).... 127,765
----- ------ ------- ---------- -------- ----------
Balance at December 31,
1998 (unaudited)........ 2,000 $2,000 $25,000 $2,004,139 $(15,000) $2,016,139
===== ====== ======= ========== ======== ==========
</TABLE>
See accompanying notes to Financial Statements.
F-80
<PAGE> 139
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Network Cabling Services, Inc. (formerly JAR Industries,
Inc.) (the Company) was incorporated in the state of Texas in April 1981. The
Company is engaged in designing, installing and servicing data telecommunication
cabling, including fiber optic, as well as the fabrication of data and
telecommunication patch cables. The Company conducts its business primarily in
Texas, principally in Houston, Dallas, Austin, and Corpus Christi.
Interim Financial Information (Unaudited) -- The unaudited financial
statements as of December 31, 1998 and for the three month periods ended
December 31, 1997 and 1998 have been prepared on the same basis as the audited
financial statements, and, in the opinion of management, include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations of such
interim period in accordance with generally accepted accounting principles.
Results for the interim periods are not necessarily indicative of results to be
expected for the full year.
Revenue and Cost Recognition -- Revenues from fixed price and time and
material cost contracts are recognized on the percentage-of-completion method.
Revenues from such contracts are measured primarily by the percentage of labor
hours incurred to date to the estimated total labor hours for each contract.
This method is used because management considers labor hours to be the best
available measure of progress on these contracts.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs. Selling and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
For uncompleted jobs at September 30, 1997 and 1998, the Company records
revenues earned in excess of amounts billed as an asset in the accompanying
balance sheet as "Costs and estimated earnings in excess of billings on
uncompleted contracts."
Property, Equipment And Depreciation -- Property and equipment are recorded
at cost. Depreciation is computed using primarily the straight-line method for
financial reporting purposes. Depreciation is computed for tax reporting
purposes using accelerated methods. The Company reviews the carrying values of
its long-lived assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable.
Inventories -- Inventory consists primarily of fiber optic and coaxial
cable, connectors, adapters, and similar items. Inventories are valued at the
lower of cost or market using the average cost method which approximates the
first-in, first-out (FIFO) method.
Income Taxes -- Provision for estimated income taxes is based on the
elements of income and expense reported in the statements of income. Deferred
income taxes result from temporary differences between the financial statement
and tax basis of assets and liabilities.
Concentration Of Credit Risk -- The Company had revenues from one customer
that represented 14% of total revenues for the year ended September 30, 1997,
and revenue from two customers that represented 17% and 12% of total revenue for
the year ended September 30, 1998.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and
F-81
<PAGE> 140
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
management believes it is not exposed to any significant credit risk on cash and
cash equivalents.
Cash and Cash Equivalents -- For purposes of the statements of cash flows,
all highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.
Management's Estimates and Assumptions -- 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 reported periods. Actual results could differ from those
estimates.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
At September 30, 1997 and 1998, contracts totaling approximately $2,092,000
and $8,277,000, respectively, were in process. Costs and estimated earnings on
uncompleted contracts at September 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 361,293 $ 5,286,761
Estimated earnings........................................ 355,235 818,044
--------- -----------
716,528 6,104,805
Less, billings to date.................................... (662,539) (5,425,355)
--------- -----------
Total............................................. $ 53,989 $ 679,450
========= ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
The cost and estimated useful lives of property and equipment at September
30, are summarized as follows:
<TABLE>
<CAPTION>
LIVES 1997 1998
----- --------- ---------
<S> <C> <C> <C>
Installation and fabrication equipment.............. 3-7 $ 429,050 $ 675,252
Vehicles............................................ 5 84,269 86,826
Furniture and office equipment...................... 3-7 107,326 86,301
--------- ---------
620,645 848,379
Less accumulated depreciation....................... (268,932) (385,308)
--------- ---------
Net property and equipment.......................... $ 351,713 $ 463,071
========= =========
</TABLE>
4. NOTE PAYABLE AND LONG-TERM DEBT
Effective November 30, 1997, the Company refinanced its revolving line of
credit facility with another bank. The new credit agreement provides for maximum
borrowings of $2,500,000, expiring January 31, 1999, bears interest at prime
plus .25% to .75% (8.75% at September 30, 1998), and is cross-collateralized by
substantially all the assets of the Company and the personal guaranty of the two
major stockholders. As of September 30, 1998, borrowings under the credit
facility totaled $1,625,528. The credit facility requires the
F-82
<PAGE> 141
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company to maintain certain net worth and debt to equity ratios, as defined. As
of September 30, 1998, the Company was not in violation of these covenants.
For the year ended September 30, 1997, the Company had a revolving credit
facility with a bank with similar terms as the new line. As of September 30,
1997, borrowings under the credit facility totaled $400,265.
Long-term debt at September 30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Note payable to a bank bearing interest at 9.25% payable in
monthly installments of $12,694 plus interest, through May
2001, cross-collateralized by substantially all assets of
the Company and personal guarantees of the two major
stockholders.............................................. $452,488 $406,200
Note payable to a bank bearing interest at 8.25% payable in
monthly installments of $510 plus interest, through
December 2000, collateralized by business vehicles........ -- 13,766
Other....................................................... 7,537 4,431
-------- --------
460,025 424,397
Less current maturities..................................... 131,599 161,929
-------- --------
Total long-term debt........................................ $328,426 $262,468
======== ========
</TABLE>
At September 30, 1998, the aggregate remaining principal repayments of
long-term debt were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Year ending September 30,
1999........................................................ $161,929
2000........................................................ 159,389
2001........................................................ 103,079
--------
Total....................................................... $424,397
========
</TABLE>
5. INCOME TAXES
The components of deferred income tax assets and liabilities at September
30, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current deferred tax asset (liability):
Inventory capitalization................................ $ 12,000 $ 14,000
Allowance for doubtful accounts......................... 8,000 10,000
Difference between book method of contract accounting
(percentage of completion) and tax method (completed
contract)............................................ (32,000) (217,000)
-------- ---------
$(12,000) $(193,000)
======== =========
Non-current deferred tax liability:
Basis difference in property and equipment.............. $(34,000) $ (40,000)
======== =========
</TABLE>
F-83
<PAGE> 142
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended September 30, 1997 and 1998, the effective tax rate
differs from the statutory income tax rate applied to pre-tax income primarily
due to expenses not deductible for tax purposes.
6. RELATED PARTY TRANSACTIONS
The Company leases its facilities and vehicles from a company affiliated
through common ownership (see Note 8). Total lease payments for the years ended
September 30, 1997 and 1998 were $200,105 and $249,195, respectively. At
September 30, 1997 and 1998, the Company had balances from related parties
bearing interest at prime due upon demand of $42,161 and $40,256, respectively.
The Company recorded interest income of approximately $1,900 and $2,400, for the
years ended September 30, 1997 and 1998, respectively.
7. EMPLOYEE BENEFIT PLAN
Prior to September 30, 1997, the Company maintained a 401(a) plan covering
all employees with one year of service. Employees could not contribute to the
plan, however, the Company could contribute a discretionary amount. For the year
ended September 30, 1997, the Company made a discretionary contribution of
$30,000 to the plan.
Vesting occurs in 20% increments per year with full vesting upon completion
of six years of participation for the contributions made by the Company.
Effective October 1, 1997, the plan was amended to a 401(k) plan whereby
employees can contribute up to the dollar limit set by law. The Company will
make matching contributions equal to 25% of employee contributions up to 4% of
total compensation for a maximum matching contribution of 1% of total employee
compensation. For the year ended September 30, 1998, the Company contributed
approximately $22,100 in matching contributions to the plan.
8. COMMITMENTS
The Company leases its facilities, vehicles and certain equipment, under
noncancelable operating leases. Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Year ending September 30,
1999................................................... $301,655
2000................................................... 142,452
2001................................................... 37,279
--------
Total............................................. $481,386
========
</TABLE>
The Company incurred rental expense for the year ended September 30, 1997
of approximately $235,000, of which approximately $69,000 was for short-term
rentals of operating equipment. The Company incurred rental expense for the year
ended September 30, 1998 of approximately $454,000, of which $120,000 was for
short-term rentals of operating equipment.
The Company is self-insured for the health and medical insurance program
provided to employees. The coverage is a maximum of $15,000, per employee, per
year. The Company will pay approximately 67% of the cost of this coverage for
employees. If claims for an employee exceed the maximum of $15,000, re-insurance
will cover the excess. Also, if aggregate claims
F-84
<PAGE> 143
NETWORK CABLING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
exceed certain calculated levels for any given year, the re-insurance will cover
any excess. The Company incurred expenses related to the health and medical
program of approximately $166,000 and $297,000 for the years ended September 30,
1997 and 1998, respectively. No claims were outstanding at September 30, 1997
and 1998.
9. SUPPLEMENTAL CASH FLOW INFORMATION
During the years ended September 30, 1997 and 1998, the Company paid
interest of approximately $88,000 and $129,000, respectively. During the years
ended September 30, 1997 and 1998, the Company paid federal income taxes of
approximately $264,000 and $419,000, respectively.
10. SUBSEQUENT EVENT
On February 26, 1999, the stockholders of the Company sold all of the
outstanding common stock of the Company to an unrelated company. Subsequent to
the sale, the unrelated company paid off all of the outstanding debt of the
Company (see Note 4).
F-85
<PAGE> 144
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of
Copenhagen Utilities & Construction, Inc.
and the Board of Directors of Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, retained earnings and of cash
flows present fairly, in all material respects, the financial position of
Copenhagen Utilities & Construction, Inc. (the "Company") at December 31, 1997
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
May 20, 1999
F-86
<PAGE> 145
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,100,760 $ 1,638,845
Short-term investments.................................... 750,000 750,000
Accounts receivable, net.................................. 5,522,908 3,980,602
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 2,438,416 2,217,739
Deferred income taxes..................................... 16,000 21,000
Prepaid expenses and other current assets................. 76,300 105,938
Income taxes receivable................................... 94,103
----------- -----------
Total current assets.............................. 9,904,384 8,808,227
Vehicles, equipment and leasehold improvements, net......... 2,098,858 1,835,429
----------- -----------
Total assets...................................... $12,003,242 $10,643,656
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, including retainage of $499,749 in 1997
and $69,466 in 1998.................................... $ 2,519,770 $ 1,300,495
Accrued liabilities....................................... 2,112,636 3,185,607
Long-term debt, current portion........................... 61,023 129,364
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 780,404 250,437
Income taxes payable...................................... 435,450
----------- -----------
Total current liabilities......................... 5,909,283 4,865,903
Long-term debt.............................................. 835,277 28,032
----------- -----------
Total liabilities................................. 6,744,560 4,893,935
----------- -----------
Contingencies (Note 12)
Stockholders' equity:
Common stock:
Voting; 10,000 shares authorized, 2,496 issued and
outstanding in 1997 and 1998, par value $.02......... 50 50
Nonvoting; 90,000 shares authorized, 59,904 shares
issued and outstanding in 1997 and 1998, par value
$.02................................................. 1,198 1,198
Additional paid-in capital............................. 651,319
Retained earnings...................................... 5,257,434 5,097,154
----------- -----------
Total stockholders' equity........................ 5,258,682 5,749,721
----------- -----------
Total liabilities and stockholders' equity........ $12,003,242 $10,643,656
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-87
<PAGE> 146
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenue............................... $33,945,841 $48,377,526 $35,191,894
Contract costs................................. 27,942,424 39,166,200 27,092,236
----------- ----------- -----------
Gross profit.............................. 6,003,417 9,211,326 8,099,658
General and administrative expenses............ 4,086,357 6,888,750 8,541,112
----------- ----------- -----------
Income (loss) from operations............. 1,917,060 2,322,576 (441,454)
----------- ----------- -----------
Other (income) expense:
Interest income.............................. (108,694) (207,866) (238,701)
Interest expense............................. 52,173 43,126 68,882
(Gain) loss on disposal of assets............ 2,181 (3,238) (35,355)
----------- ----------- -----------
(54,340) (167,978) (205,174)
----------- ----------- -----------
Income (loss) before income tax
provision............................... 1,971,400 2,490,554 (236,280)
Income tax provision (benefit)................. 749,000 900,000 (76,000)
----------- ----------- -----------
Net income (loss)......................... 1,222,400 1,590,554 (160,280)
Retained earnings, beginning of year........... 2,694,480 3,816,880 5,257,434
Dividends paid................................. (100,000) (150,000) --
----------- ----------- -----------
Retained earnings, end of year................. $ 3,816,880 $ 5,257,434 $ 5,097,154
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-88
<PAGE> 147
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 1,222,400 $ 1,590,554 $ (160,280)
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 686,294 635,084 839,632
Gain on disposal of assets................ 2,181 (3,238) (35,355)
Net changes in operating assets and
liabilities:
Accounts receivables.................... (2,545,305) (645,554) 1,542,306
Prepaid expenses and other current
assets............................... (30,871) (21,264) (29,638)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ (1,388,584) (549,642) 220,677
Deferred income tax..................... (12,000) 11,000 (5,000)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ (1,420) 180,963 (529,967)
Accounts payable........................ 1,074,149 2,550 (1,219,275)
Accrued liabilities..................... 650,728 1,164,688 1,072,971
Income taxes payable (receivable)....... 804,829 (259,754) (529,553)
----------- ----------- -----------
Total adjustments.................... (759,999) 514,833 1,326,798
----------- ----------- -----------
Net cash provided by operating
activities......................... 462,401 2,105,387 1,166,518
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets............. 800 23,300 38,500
Purchase of vehicles, equipment and leasehold
improvements.............................. (988,255) (449,190) (464,648)
Purchase of short-term investments........... -- (750,000) --
----------- ----------- -----------
Net cash used in investing
activities......................... (987,455) (1,758,190) (426,148)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid............................... (100,000) (150,000) 0
Contributions from shareholders.............. -- -- 109,085
Payments on long-term debt................... (45,023) (720,223) (311,370)
----------- ----------- -----------
Net cash used in financing
activities......................... (145,023) (870,223) (202,285)
----------- ----------- -----------
Net increase (decrease) in cash...... (670,077) 59,274 538,085
Cash at beginning of year...................... 1,711,563 1,041,486 1,100,760
----------- ----------- -----------
Cash at end of year............................ $ 1,041,486 $ 1,100,760 $ 1,638,845
=========== =========== ===========
Supplemental disclosure of noncash investing
and financing transactions:
Notes payable assumed by a related party
recorded as additional paid-in capital.... $ -- $ -- $ 542,234
=========== =========== ===========
Equipment purchased with notes payable....... $ 535,277 $ 405,277 $ 114,700
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for income taxes................... $ $ 1,148,754 $ 458,553
=========== =========== ===========
Cash paid for interest....................... $ 63,919 $ 72,336 $ 51,290
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-89
<PAGE> 148
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Copenhagen Utilities & Construction, Inc. (the "Company,") an Oregon
corporation since 1975, operates in Oregon, Washington, California and Nevada.
The Company is a provider of installation, design, engineering and maintenance
services for the telecom industry. The Company also provides installation
services for gas and water utilities. The Company is located in Clackamas,
Oregon and Sacramento, California.
These financial statements include the accounts of a special purpose
entity, Excel Equipment LLC, and is owned by the same shareholders as the
Company. On December 31, 1998, in preparation for the sale of the outstanding
shares of stock of the Company as discussed in Note 13, substantially all assets
of Excel were transferred to the Company, and the Company assumed a portion of
the Company's long-term debt. In connection with this transfer amounts owing
related entities by Excel totaling $542,234 was not assumed by the Company and
accordingly, was recorded as a contribution of capital.
Following is a summary of the Company's significant accounting policies:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents. The cost of
these investments approximates fair value. At times, temporary cash investments
may be in excess of the Federal Deposit Insurance Corporation insurance limit.
The Companies deposits in high credit quality investments with reputable
financial institutions.
SHORT-TERM INVESTMENTS
Short-term investments are stated at fair market value as of the balance
sheet date. Unrealized holding gains or losses are reported in the balance sheet
as a separate component of stockholders' equity until realized. Realized gains
and losses are included in operations.
The Company reported no unrealized gains or losses as the market value of
short-term investments approximated their cost at December 31, 1997 and 1998.
ACCOUNTING FOR LONG-TERM CONTRACTS
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting for long-term contracts. This
accounting method provides for the recognition of revenue on contracts which are
not yet completed. The amount of revenue recognized is based on the percentage
that contract costs incurred to date bear to estimated total contract costs,
except that anticipated losses are recognized in their entirety without
reference to percentage-of-completion. Contract costs include all subcontracts,
direct labor and benefits, materials and allocated equipment and indirect costs.
The Company allocates equipment and indirect costs to each contract based
on equipment usage and direct labor rates. These rates are reviewed and adjusted
periodically to reflect changes in the Company's total equipment and indirect
costs.
Revisions in estimated costs and earnings are reported in the accounting
period in which the facts requiring revisions become known.
F-90
<PAGE> 149
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Profits and losses from service and minor installation contracts are
recognized in the period the work is completed.
OPERATING CYCLE
Assets and liabilities related to long-term contracts are included in
current assets and current liabilities in the accompanying balance sheets as
they will be liquidated in the normal course of contract completion, although
this may require more than one year.
VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Vehicles, equipment and leasehold improvements are stated at cost.
Maintenance and repairs of a routine nature are charged to operations as
incurred; additions and improvements are capitalized. Gains and losses from
sales or retirements are included in operations.
Depreciation is computed by accelerated methods over the estimated useful
lives of the related assets, which are as follows:
<TABLE>
<S> <C>
Construction vehicles and equipment......................... 5 years
Office furniture and equipment.............................. 5 to 7 years
Leasehold improvements...................................... 15 years
</TABLE>
Amortization of leasehold improvements is classified as depreciation
expense for financial reporting.
INCOME TAXES
Deferred income taxes are provided for the expected future income tax
effect of differences between the tax basis of assets and liabilities and their
financial reporting amounts. At the balance sheet date, based on enacted tax
laws and statutory tax rates applicable to the years in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures 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.
CONCENTRATIONS OF CREDIT RISK
The Company's cash and accounts receivable subject the Company to
concentrations of potential credit risk. The Company limits its risk by
depositing cash only with established financial institutions which maintain high
credit standings. The Company limits its exposure to losses on accounts
receivable by maintaining a broad customer base and performing the majority of
its contracts for public agencies.
The Company has a long-term service contract to provide service for one
major customer. The Company had total revenues of $10,197,923, $16,521,016 and
$15,219,596 for fiscal
F-91
<PAGE> 150
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years 1996, 1997 and 1998, which comprises approximately 30%, 34.2% and 43.5%,
respectively.
2. SHORT-TERM INVESTMENTS:
Short-term investments at December 31, 1997 and 1998 consist of municipal
bonds with an approximately 5.60% effective annual yield. The market value of
these investments approximated cost at December 31, 1997 and 1998.
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Construction contracts................................... $4,134,239 $3,533,164
Retainage on construction contracts...................... 1,398,669 457,438
---------- ----------
5,532,908 3,990,602
Less allowance for uncollectible accounts................ 10,000 10,000
---------- ----------
$5,522,908 $3,980,602
========== ==========
</TABLE>
Retainage billed but not due until contract completion is $1,398,669 and
$457,438 at December 31, 1997 and 1998. The Company expects to collect the
retainage over the next year upon contract completion.
4. LONG-TERM CONTRACTS IN PROGRESS:
Following is a summary of long-term contracts in progress:
<TABLE>
<CAPTION>
1997 1998
------------------------- --------------------------
ESTIMATED ESTIMATED
TOTAL CONTRACT TOTAL CONTRACT
CONTRACT TO DATE CONTRACT TO DATE
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Contract costs......... $43,967,855 $30,758,952 $45,321,883 $ 42,768,316
Gross profit........... 6,403,291 3,318,369 9,450,258 9,111,308
----------- ----------- ----------- ------------
Contract revenue..... $50,371,146 34,077,321 $54,772,141 51,879,624
=========== ===========
Less billings.......... (32,419,309) (49,912,322)
----------- ------------
Net underbillings.... $ 1,658,012 $ 1,967,302
=========== ============
</TABLE>
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. $2,438,416 $2,217,739
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (780,404) (250,437)
---------- ----------
$1,658,012 $1,967,302
========== ==========
</TABLE>
F-92
<PAGE> 151
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Vehicles, equipment and leasehold improvements:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Construction vehicles and equipment...................... $5,633,278 $5,995,829
Office furniture and equipment........................... 338,780 500,407
Leasehold improvements................................... 126,786 126,786
---------- ----------
6,098,844 6,623,022
Less accumulated depreciation............................ 3,999,986 4,787,593
---------- ----------
$2,098,858 $1,835,429
========== ==========
</TABLE>
6. LINE OF CREDIT:
The Company maintains an operating line of credit agreement with U.S. Bank
which renews annually in May. Funds are available to a maximum of $750,000,
subject to availability of collateral (80% of eligible accounts receivable).
Borrowings under this agreement bear interest at the bank's prime lending rate.
There were no outstanding borrowings under the line of credit agreement at
December 31, 1997 or 1998.
The line of credit agreement contains certain restrictive covenants related
to the Company's current ratio, net worth and debt to equity ratio. The Company
was in compliance with all requirements at December 31, 1998.
The Company maintains a term-financing line of credit agreement with U.S.
Bank for equipment acquisitions. Under this agreement, the Company may borrow up
to $750,000 (not to exceed 80% of the sales price of equipment acquired).
Borrowings bear interest at the bank's prime lending rate plus one-half percent
(8.25% and 8.75% at December 31, 1997 and 1998). Loans are amortized over three
to five years. There were no outstanding borrowings under the equipment line of
credit agreement at December 31, 1997 or 1998.
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Contracts payable to Case Credit Corporation (12) and
Western Traction Company (1) in aggregate monthly average
installments of $11,775, including interest ranging from
6% to 7.90%; maturing in November 1999; collateralized by
construction equipment.................................... $284,138 $157,396
Related party long-term debt:
Leota Johnson, monthly installments of $3,533, including
interest of 7.5%; maturing in February 2010............ 353,470 --
Johnson Family Trust monthly installments of $2,581,
including interest of 7.5%; maturing in February
2010................................................... 258,692 --
-------- --------
896,300 157,396
Less amount due within one year............................. 61,023 129,364
-------- --------
$835,277 $ 28,032
======== ========
</TABLE>
F-93
<PAGE> 152
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES:
The income tax provision (benefit) reported in the accompanying statements
of operations and retained earnings consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------------ ------------------------------------ ------------------------
CURRENTLY DEFERRED CURRENTLY DEFERRED CURRENTLY DEFERRED
PAYABLE PROVISION PAYABLE PROVISION PAYABLE PROVISION
(RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) BENEFIT
------------ ---------- -------- ------------ ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal.............. $632,000 $(11,000) $621,000 $790,000 $ 8,000 $798,000 $(71,000) $ 2,000
State................ 129,000 (1,000) 128,000 99,000 3,000 102,000 (7,000)
-------- -------- -------- -------- ------- -------- -------- -------
$761,000 $(12,000) $749,000 $889,000 $11,000 $900,000 $(71,000) $(5,000)
======== ======== ======== ======== ======= ======== ======== =======
Effective tax rate... 38.0% 36.1%
======== ========
<CAPTION>
1998
--------
TOTAL
--------
<S> <C>
Federal.............. $(69,000)
State................ (7,000)
--------
$(76,000)
========
Effective tax rate... (32.2)%
========
</TABLE>
The income tax provision (benefit) result in effective rates which differ
from the statutory federal income tax rate (34%) for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
--------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory
federal income tax
rate.................. $670,300 34.0% $846,800 34.0% $(80,400) (34.0)%
State income taxes, net
of federal benefit.... 84,400 4.3% 68,800 2.8% (7,000) (3.0)%
Permanent differences... 16,000 0.8% 18,700 0.7% 12,700 5.4%
Fuel tax credit and
other, net............ (21,700) (1.1)% (34,300) (1.4)% (1,300) (0.6)%
-------- ---- -------- ---- -------- -----
$749,000 38.0% $900,000 36.1% $(76,000) (32.2)%
======== ==== ======== ==== ======== =====
</TABLE>
Deferred income taxes are recognized for the expected future income tax
effect of differences between the tax bases of assets and liabilities and their
financial reporting amounts (temporary differences). Following is a summary of
temporary differences and the related deferred income tax effect as of December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
AMOUNT OF DEFERRED AMOUNT OF DEFERRED
TEMPORARY INCOME TAX TEMPORARY INCOME TAX
SOURCES OF TEMPORARY DIFFERENCES DIFFERENCES EFFECT DIFFERENCES EFFECT
- -------------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accrued insurance reserves..................... $35,000 $12,000 $25,000 $10,000
Allowance for uncollectible accounts
receivable................................... 10,000 4,000 10,000 4,000
State tax net operating losses net of federal
provision.................................... 165,000 7,000
------- -------
Deferred income tax benefit.................... $16,000 $21,000
======= =======
</TABLE>
Recoverable income taxes totaling $94,103 reported in the accompanying
December 31, 1998 balance sheet result from federal and state estimated tax
payments which exceeded the Company's current income tax obligations.
F-94
<PAGE> 153
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. OPERATING LEASE COMMITMENTS:
The Company leases office and shop facilities in Clackamas, Oregon and
Sacramento, California from its stockholders under lease agreements which
require the Company to pay certain operating costs such as property taxes,
insurance and utilities in addition to the basic rent.
The combined rent commitment under these leases is $19,000 per month
through February 2004, exclusive of operating costs.
Rent expense charged to operations under all operating leases, including
the leases with the Company's stockholders described above, totaled
approximately, $1,291,000, $1,719,100 and $1,085,000 for 1996, 1997 and 1998,
respectively. Rent expense paid to a related party was $168,000 for each of the
years ended 1996, 1997 and 1998.
10. EMPLOYEE BENEFIT PLANS:
RETIREMENT PLANS:
The Company's hourly field employees and certain salaried employees
participate in a multi-employer money purchase pension plan sponsored by the
Associated General Contractors of America, Inc. Contributions charged to
operations under this plan totaled approximately $628,000, $683,000 and $604,000
for 1996, 1997 and 1998, respectively.
The Company maintains a defined contribution retirement plan under
provisions of Internal Revenue Code Section 401(k) for its eligible employees
not covered by the money purchase pension plan described above. The plan
requires the Company to match 50% of employee contributions, to a maximum
Company contribution of 3% of the employee's annual compensation (up to
specified limits set by law). The plan also allows for discretionary
contributions to be determined annually by the Company's Board of Directors.
Contributions charged to operations under this plan totaled approximately,
$55,000, $64,000 and $54,000, for the years ended December 31, 1996, 1997 and
1998, respectively.
INCENTIVE BONUS PLAN:
The Company has an incentive bonus plan for certain key employees under
which the employees can share in profits which the Company earns in excess of
predetermined norms. Bonuses earned under this formula have been paid or accrued
as of year-end. Bonuses paid by the Company were $1,575,000, $4,035,000 and
$5,218,500 during fiscal years 1996, 1997 and 1998, respectively.
11. RECAPITALIZATION:
In July 1997 the Company's stockholders recapitalized the Company by
creating a second class of (nonvoting) capital stock to facilitate business
succession plans. The stockholders exchanged 1,248 shares of $1 par value voting
common stock for 2,496 of voting common stock and 59,904 shares of nonvoting
common stock.
12. CONTINGENCIES:
The Company is a party to certain claims and suits arising out of the
conduct of its business. While there can be no assurance as to their ultimate
outcome, management does not
F-95
<PAGE> 154
believe these matters will have a material adverse effect on its consolidated
financial condition or operating results.
13. SUBSEQUENT EVENT:
On February 26, 1999, the stockholders of the Company sold all outstanding
shares of stock to the Orius Corporation of West Palm Beach, Florida for cash
and common stock.
F-96
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
TEXEL Corporation and the
Board of Directors of Orius Corp.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in shareholder's equity and of cash flows present fairly,
in all material respects, the financial position of TEXEL Corporation (the
Company) as of December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
May 14, 1999
F-97
<PAGE> 156
TEXEL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $1,395,669 $ 3,144,841 $ 2,125,996
Accounts receivable............................ 4,725,915 7,172,628 6,525,215
Costs in excess of billings on uncompleted
contracts................................... 177,080 644,353 785,519
Prepaid expenses............................... 52,570 -- 14,500
---------- ----------- -----------
Total current assets................... 6,351,234 10,961,822 9,451,230
Property and equipment, net...................... 195,395 920,046 1,009,537
---------- ----------- -----------
Total assets........................... $6,546,629 $11,881,868 10,460,767
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 757,528 $ 2,028,443 1,297,074
Accrued expenses............................... 414,636 618,298 786,053
Billings in excess of costs on uncompleted
contracts................................... 40,351 73,153 101,712
---------- ----------- -----------
Total current liabilities.............. 1,212,515 2,719,894 2,184,839
Deferred rent.................................... -- 198,065 297,098
---------- ----------- -----------
Total liabilities...................... 1,212,515 2,917,959 2,481,937
---------- ----------- -----------
Shareholders' equity:
Common stock, par value $1.00, authorized 1,000
shares; issued and outstanding 400 shares... 400 400 400
Additional paid in capital..................... 1,600 1,600 1,600
Treasury stock, 200 shares at cost............. (24,000) (24,000) (24,000)
Retained earnings.............................. 5,356,114 8,985,909 8,000,830
---------- ----------- -----------
Total shareholders' equity............. 5,334,114 8,963,909 7,978,830
---------- ----------- -----------
Total liabilities and shareholders'
equity............................... $6,546,629 $11,881,868 $10,460,767
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-98
<PAGE> 157
TEXEL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Contract and service revenue....... $21,832,078 $29,648,953 $7,410,948 $6,050,577
Cost of sales...................... 14,989,003 20,633,959 5,259,214 4,460,088
----------- ----------- ---------- ----------
Gross profit............. 6,843,075 9,014,994 2,151,734 1,590,489
Selling, general and administrative
expenses......................... 1,265,074 1,862,802 396,186 426,008
----------- ----------- ---------- ----------
Income from operations... 5,578,001 7,152,192 1,755,548 1,164,481
Other (income) expense
Interest income.................. (102,617) (127,621) (29,600) (30,652)
Other expense.................... 101,730 88,145 19,011 46,152
----------- ----------- ---------- ----------
Net Income......................... $ 5,578,888 $ 7,191,668 $1,766,137 $1,148,981
=========== =========== ========== ==========
Pro Forma Tax Provision
(Unaudited):
Income before income taxes....... $ 5,578,888 $ 7,191,668 $1,766,137 $1,148,981
Pro forma provision for income
taxes......................... 2,120,000 2,732,800 671,132 436,612
----------- ----------- ---------- ----------
Total.................... $ 3,458,888 $ 4,458,868 $1,095,005 $ 712,369
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-99
<PAGE> 158
TEXEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- -------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 5,578,888 $ 7,191,668 $ 1,766,137 $ 1,148,981
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation............... 83,767 101,434 15,180 31,332
Changes in:
Accounts receivable...... (735,921) (2,446,713) (547,239) 647,413
Prepaid expenses......... (52,570) 52,570 37,291 (14,500)
Billings in excess of
costs................. 40,351 32,802 (17,909) 28,559
Accounts payable......... 193,091 1,270,915 2,367,042 (731,369)
Accrued expenses......... 30,805 203,662 168,442 167,755
Costs in excess of
billings.............. (97,607) (467,273) (1,588,302) (141,166)
Deferred rent............ -- 198,065 -- 99,033
----------- ----------- ----------- -----------
Net cash provided by
operating
activities.......... 5,040,804 6,137,130 2,200,642 1,236,038
----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment.................. (89,460) (826,085) (27,948) (120,823)
----------- ----------- ----------- -----------
Net cash used in
investing
activities.......... (89,460) (826,085) (27,948) (120,823)
----------- ----------- ----------- -----------
Cash flows from financing
activities:
Distributions to
stockholder................ (4,751,016) (3,561,873) (1,102,500) (2,134,060)
----------- ----------- ----------- -----------
Net cash used in
financing
activities.......... (4,751,016) (3,561,873) (1,102,500) (2,134,060)
----------- ----------- ----------- -----------
Increase in cash and cash
equivalents................... 200,328 1,749,172 1,070,194 (1,018,845)
Cash and cash equivalents,
beginning of year............. 1,195,341 1,395,669 1,395,669 3,144,841
----------- ----------- ----------- -----------
Cash and cash equivalents, end
of year....................... $ 1,395,669 $ 3,144,841 $ 2,465,863 $ 2,125,996
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-100
<PAGE> 159
TEXEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE THREE MONTHS ENDED MARCH
31, 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................ 400 $400 $1,600 $ 4,528,242 $(24,000) $ 4,506,242
Net income.......... -- -- -- 5,578,888 -- 5,578,888
Distributions to
shareholder...... -- -- -- (4,751,016) -- (4,751,016)
--- ---- ------ ----------- -------- -----------
Balance at December
31, 1997............ 400 400 1,600 5,356,114 (24,000) 5,334,114
Net income.......... -- -- -- 7,191,668 -- 7,191,668
Distributions to
shareholder...... -- -- -- (3,561,873) -- (3,561,873)
--- ---- ------ ----------- -------- -----------
Balance at December
31, 1998............ 400 400 1,600 8,985,909 (24,000) 8,963,909
Net income
(unaudited)......... 1,148,981 1,148,981
Distributions to
shareholder
(unaudited)......... (2,134,060) (2,134,060)
--- ---- ------ ----------- -------- -----------
Balance at March 31,
1999 (unaudited).... 400 $400 $1,600 $ 8,000,830 $(24,000) $ 7,978,830
=== ==== ====== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-101
<PAGE> 160
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Texel Corporation (the "Company") was incorporated in 1983 under the laws
of the Commonwealth of Virginia. The Company is a provider of premise wiring
services, primarily in the Washington, D.C. metropolitan area. The Company's
corporate headquarters are located in Reston, Virginia and as of April 30, 1999,
the Company had two regional field offices in Columbia, Maryland and Richmond,
Virginia.
The shareholder of the Company has signed a definitive agreement to sell
all of the Company's outstanding shares to Orius Corporation. The transaction is
expected to close on May 24, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTRACT REVENUE
The Company recognizes revenue from contracts in process on the percentage
of completion method of accounting based on contract costs incurred to date
compared with total estimated contract costs. Contract costs include all direct
labor, material, subcontract, depreciation, and other direct project costs
related to contract performance. General and administrative costs are charged to
expense as incurred.
Service revenue is recognized when the work is complete. This work is
primarily short term and completed within five days or less.
Revenues recognized in excess of amounts billed are classified as current
assets under costs in excess of billings, and amounts billed in excess of
revenues recognized to date are classified as current liabilities as billings in
excess of costs. Contract retentions are included in accounts receivable.
INCOME TAXES
The Company elected subchapter S-Corporation status effective January 1,
1984. As an S-Corporation, the shareholder reports profits or losses of the
Company, for Federal and State income tax purposes, on his individual income tax
return. As an S-Corporation, the Company was not subject to certain income taxes
at the corporate level. Substantially all payments made to the shareholder are
in the form of S-Corporation shareholder distributions. In conjunction with the
sale of the Company's outstanding stock, the Company's S-Corporation filing
status will be terminated and the Company will begin to be taxed as a
C-Corporation for federal and state income tax purposes. Pro forma income taxes
are calculated at a combined federal and state tax rate of 38%.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid short-term investments readily
convertible into cash. Cash equivalents consist primarily of time deposits and
certificates of deposit with various financial institutions. These investments
are carried at cost, which approximates market and mature within 90 days and
therefore are subject to minimal risk.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The cost of assets sold or
retired and the related amounts of accumulated depreciation are eliminated from
the accounts and the resulting gain or loss is included in the income. Renewals
and betterments are capitalized. Repairs and maintenance are charged to expense
when incurred.
Depreciation is computed using the straight-line and accelerated methods
over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7.5 years
Machinery and equipment..................................... 5.5 years
Automobiles................................................. 5.5 years
Computer software........................................... 5.5 years
Leasehold improvements...................................... 31.5 years
</TABLE>
F-102
<PAGE> 161
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense in 1997 and 1998 was $83,767 and $101,434,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's assets and liabilities approximate
fair value due to the short-term maturity of these financial instruments.
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 amounts could differ from these estimates.
3. MAJOR CUSTOMERS
Sales to individual customers representing more than 10% of total sales
were approximately $5,933,000 and $11,246,000 in 1997 and 1998, respectively.
These amounts represent sales to 2 and 3 customers, respectively.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Contract billings........................................ $4,261,637 $4,924,667
Unbilled accounts receivable............................. 360,083 1,845,201
Retainage................................................ 44,012 345,424
Rebates and other........................................ 60,183 57,336
---------- ----------
Total.......................................... $4,725,915 $7,172,628
========== ==========
</TABLE>
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts
and acceptance by the customer. Based on the Company's experience with similar
contracts in recent years, the retention balances at December 31, 1997 and 1998
are expected to be collected within twelve months of year end.
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Leasehold improvements................................... $ 3,413 $ 687,427
Automobiles.............................................. 345,061 424,502
Machinery and equipment.................................. 292,938 338,392
Computer software........................................ 83,891 83,891
Furniture and fixtures................................... 50,598 67,774
--------- ----------
775,901 1,601,986
Less accumulated depreciation............................ (580,506) (681,940)
--------- ----------
Property and equipment, net.................... $ 195,395 $ 920,046
========= ==========
</TABLE>
6. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 387,343 $ 2,673,895
Billings on uncompleted contracts........................... (250,614) (2,102,695)
--------- -----------
$ 136,729 $ 571,200
========= ===========
Costs in excess of billings on uncompleted contracts........ 177,080 644,353
Billings in excess of costs on uncompleted contracts........ (40,351) (73,153)
--------- -----------
$ 136,729 $ 571,200
========= ===========
</TABLE>
F-103
<PAGE> 162
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
The Company leases office space at various locations under noncancelable
operating leases expiring through 2005. Each lease agreement provides for an
annual escalation of 3%.
Certain office space is leased from Trison LLC, a real estate company owned
by the sole shareholder of the Company. The lease requires monthly payments of
approximately $33,000 over a 7-year term, with a 5-year renewal option. Based on
the terms of the lease, the Company received 10-month rent abatement in return
for making necessary leasehold improvements to the office space. The rent
abatement is recognized on a straight line basis over the term of the lease.
Rent expense for office space for the year ended December 31, 1998 was $307,323.
Minimum rental payments due under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER TOTAL
---------- ------- ----------
<S> <C> <C> <C>
1999.......................................... $ 396,130 $36,784 $ 432,914
2000.......................................... 396,130 18,059 414,189
2001.......................................... 396,130 16,798 412,928
2002.......................................... 396,130 17,303 413,433
2003.......................................... 396,130 8,779 404,909
Thereafter.................................... 594,196 -- 594,196
---------- ------- ----------
Total future minimum lease
payments.......................... $2,574,846 $97,723 $2,672,569
========== ======= ==========
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses were comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Salaries, wages and benefits................................ $196,244 $273,352
Profit sharing.............................................. 115,304 177,399
Vacation accrual............................................ 49,448 59,012
Other....................................................... 53,640 108,535
-------- --------
Total............................................. $414,636 $618,298
======== ========
</TABLE>
9. PROFIT SHARING PLAN
A defined contribution retirement plan is maintained by the Company. All
full-time employees who have attained the age of twenty-one and completed one
year of service are eligible to participate in the plan. The participants may
elect to make a contribution up to 15% of their compensation not exceeding
$9,500 in 1998 as defined by the plan. The Company matches 20% of employee
contributions up to 4% of the employee's compensation. Vesting of Company
contributions occur ratably over a 7-year period. The Company also provides a
discretionary contribution to the profit sharing plan. During 1997 and 1998,
approximately $125,000 and $177,000, respectively, was expensed related to this
contribution.
10. OTHER RELATED PARTY TRANSACTIONS
The president and sole shareholder of the Company is the 30% shareholder of
Texel Systems, Inc., which is a company that performs certain phone and cable
system installation services. The Company occasionally uses Texel Systems, Inc.
as a subcontractor on its projects, and vice-versa. Total revenue and expense
recorded by the Company for services provided to or obtained from Texel Systems,
Inc. was approximately $44,000 and $173,000, respectively in 1998.
F-104
<PAGE> 163
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. ORIUS
HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL, AND IT
DOES NOT SEEK AN OFFER TO BUY, THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF WHEN THIS PROSPECTUS IS
DELIVERED OR THESE SECURITIES ARE SOLD.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Pro Forma Financial Data..... 16
Selected Historical Financial Data.... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Our Business.......................... 33
Management............................ 43
Certain Transactions.................. 47
Principal and Selling Stockholders.... 49
Description of Capital Stock.......... 50
Shares Eligible for Future Sale....... 52
Plan of Distribution.................. 54
Experts............................... 56
Legal Matters......................... 57
Additional Information................ 57
Reports to Security Holders........... 57
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, 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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
10,900,000 SHARES
(ORIUS LOGO)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
MORGAN KEEGAN & COMPANY, INC.
THE ROBINSON-HUMPHREY
COMPANY
, 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $54,733
NASD Filing Fee............................................. $ *
NYSE Listing Fee............................................ $ *
Printing and Engraving Costs................................ $ *
Accounting Fees and Expenses................................ $ *
Legal Fees and Expenses..................................... $ *
Transfer Agent and Registrar Fees........................... $ *
Miscellaneous............................................... $ *
Total............................................. $ *
</TABLE>
- ------------
* To be supplied by amendment.
All amounts are estimated except for the SEC registration fee, the NASD
filing fee and NYSE listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA")
provides that a Florida corporation, such as the Company, shall have the power
to indemnify any person who was or is a party to any proceeding, other than an
action by, or in the right of, the corporation, by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or another
organization at the request of the corporation. Indemnification is permitted if
the individual acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 607.0850(2) of the FBCA allows Florida corporations to indemnify
its directors, officers, employees or agents against expenses and amounts paid
in settlement. Indemnification is allowed if the indemnified person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation. However, no indemnification is allowed
without court order if a person is actually found to be liable in a court
proceeding.
Indemnification or advancement of expenses may not be made on behalf of any
director, officer, employee or agent if a judgment or other final order
establishes that his actions, or omissions to act, were: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had
II-1
<PAGE> 165
no reasonable cause to believe his conduct was unlawful; (B) a transaction from
which the director derived an improper personal benefit, either directly or
indirectly; (C) a circumstance under which the liability provisions regarding
unlawful distributions are applicable; (D) in a proceeding by or in the right of
the corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation, or
willful misconduct; or (E) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property.
The Company's Bylaws provide that the Company shall indemnify any director,
officer or employee or any former director, officer or employee to the full
extent permitted under Florida law.
The Company has acquired insurance with respect to, among other things,
certain liabilities that may arise under the statutory provisions referred to
above. The directors and officers of the Company are insured against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, which might be incurred by them in such capacities and against which they
are not indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
On February 26, 1999, an indirect subsidiary of the Registrant was merged
with and into North American Tel-Com Group, Inc. ("NATG"). As a result of the
merger, NATG became an indirect subsidiary of the Registrant. In the merger,
each issued and outstanding share of NATG common stock was converted into
one-tenth of one share of the Registrant's common stock and each issued and
outstanding share of NATG preferred stock was converted into one-tenth of one
share of the Registrant's preferred stock. As a result of the merger, 10,517,561
shares of NATG common stock were converted into 10,897,140 shares of the
Registrant's common stock and 100,000 shares of NATG Series A Preferred Stock
were converted into 10,000 shares of Orius Series A Preferred Stock (the "Series
A Stock"). The securities issued in these transactions were intended to be
exempt from registration pursuant to Section 4(2) of the Securities Act as an
offering to a limited number of persons.
On the date of the merger, the Registrant also entered into certain
subscription agreements to raise capital to complete additional acquisitions.
The Registrant entered into a subscription agreement with HIG whereby HIG
received 7,596.38 shares of Orius Series B Preferred Stock (the "Series B
Stock") in exchange for $7,596,378 or $1,000 per share of Series B Preferred
Stock. In addition, the Registrant entered into subscription agreements with 18
then existing stockholders and employees of NATG and issued an aggregate amount
of 1,066,219 shares of Orius common stock to these stockholders in exchange for
an aggregate sum of $2.4 million or $2.34 per share of common stock. The
securities issued in these transactions were intended to be exempt from
registration pursuant to Section 4(2) of the Securities Act as an offering to a
limited number of persons.
On February 26, 1999, the Registrant consummated the acquisitions of
Network Cabling Services, Inc., ("NCS"), Copenhagen Utilities & Construction,
Inc. ("CUCI"), and DAS-CO of Idaho, Inc ("DAS-CO"). In connection with the
acquisition of all of NSC's outstanding capital stock, the Registrant issued
310,827 shares of its common stock to six former NCS stockholders as partial
consideration for the purchase. In connection with acquisition of all of CUCI's
outstanding capital stock, the Registrant issued 1,147,100 shares of its common
stock to two former CUCI stockholders as partial consideration for the purchase.
In connection with
II-2
<PAGE> 166
the acquisition of all of DAS-CO's outstanding capital stock, the Registrant
issued 37,003 shares of its common stock to a key employee of DAS-CO. All the
issuances of Orius common stock in connection with the NCS, CUCI and DAS-CO
acquisitions were valued at $2.34 per share of common stock. The securities
issued in these transactions were intended to be exempt from registration
pursuant to Section 4(2) of the Securities Act as an offering to a limited
number of persons.
On February 26, 1999, in connection with the completion of its new credit
facility, the Registrant issued warrants (the "Warrants") to acquire 371,853
shares of its common stock to five members of the loan syndicate at an exercise
price of $0.01 per share of common stock. The securities issued in these
transactions were intended to be exempt from registration pursuant to Section
4(2) of the Securities Act as an offering to a limited number of persons.
On May 24, 1999, the Registrant consummated the acquisitions of Texel
Corporation ("Texel"). In connection with the acquisition of all of Texel's
outstanding capital stock, the Registrant issued 1,030,334 shares of its common
stock, at a price of $11.95 per share of common stock, to the former Texel
stockholder as partial consideration for the purchase. The securities issued in
this transactions were intended to be exempt from registration pursuant to
Section 4(2) of the Securities Act as an offering to a limited number of
persons.
In connection with the consummation of this offering, the Series A Stock
and the Series B Stock will be converted into shares of the Registrant's common
stock and some or all of the Warrants may be exercised. The securities issued in
those transactions are intended to be exempt from registration pursuant to
Section 4(2) of the Securities Act as an offering to a limited number of
persons.
For all transactions listed in this Item other exemptions from registration
under the Securities Act may also have been available including exemptions under
Section 4(6) of the Securities Act and Rules 505 and 506 of Regulation D
promulgated under the Securities Act. For instance, the issuance of Orius'
common stock and preferred stock in the merger with NATG was made for aggregate
consideration of less than $5 million as permitted under Rule 505 of Regulation
D. Furthermore, each recipient of Orius' common stock and preferred stock in the
February 1999 capital raising transactions, and the NCS, CUCI, DAS-CO and Texel
acquisitions were accredited investors within the meaning of Section 4(6).
Finally, each recipient of Orius' warrants in connection with its new credit
facility was an accredited institutional investor within the meaning of Section
4(6).
Orius and its subsidiary, NATG, have made five separate grants of options
during the past three years in connection with the acquisition of its operating
subsidiaries. Those five grants were made exclusively to employees of the
acquired companies. The amounts and exercise prices of the awards were: March
28, 1998 -- options to purchase 207,218 shares exercisable at $4.83 per share;
June 30, 1998 -- options to purchase 51,804 shares exercisable at $4.83 per
share; August 31, 1998 -- options to purchase 41,443 shares exercisable at $8.69
per share and options to purchase 14,764 shares exercisable at $7.72 per share;
February 26, 1999 -- options to purchase 227,940 shares exercisable at $6.76 per
share; and May 24, 1999 -- options to purchase 93,248 shares exercisable at
$8.69 per share. In addition, options have been granted to four employees of
Orius: on June 30, 1998, Robert Agres, our Chief Financial Officer, received
options to purchase 15,541 shares exercisable at $4.83 per share: on March 31,
1998, Rosemarie Mulholland, our Secretary and Treasurer, received options to
purchase 9,325 shares of common stock, exercisable at $4.83 per share; and on
March 31, 1998, two additional employees received options to purchase 11,397
shares, exercisable at $4.83 per share. All options are incentive stock options
and vest in equal increments on the first, second and third anniversaries of the
date of grant.
II-3
<PAGE> 167
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS:
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement
3.1* -- Articles of Incorporation
3.2* -- Articles of Amendment to Articles of Incorporation
3.3* -- Bylaws
4.1* -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Amended Bylaws of
the Registrant defining the rights of holders of the
Registrant's common stock
4.2* -- Specimen certificate for the Registrant's common stock
4.3* -- Form of Stockholders Rights Plan
4.4* -- Form of Registration Rights Agreement
5.1* -- Form of Opinion of Akerman, Senterfitt & Eidson, P.A.
regarding the validity of the securities offered
10.1** -- Employment Agreement, dated as of February 26, 1999, between
William J. Mercurio and the Registrant
10.2** -- Employment Agreement, dated as of February 26, 1999, between
Joseph P. Powers and the Registrant
10.3** -- Employment Agreement, dated as of February 26, 1999, between
Robert Garrett and the Registrant
10.4* -- 1999 Stock Option Plan, as amended
10.5** -- Form of Indemnification Agreement, dated as of February 26,
1999, between the Registrant and each member of the Board of
Directors
10.6** -- Stock Exchange Agreement between North American Tel-Com
Group, Inc. ("NATG") and Jeffery J. Ebersole, dated March
31, 1998
10.7** -- Stock Exchange Agreement among NATG, David Mai and Frank
Back, dated March 31, 1998
10.8** -- Stock Exchange Agreement between NATG and Larry Bonadeo,
dated March 31, 1998
10.9** -- Stock Exchange Agreement between NATG and Bernard E.
Czarnecki, dated March 31, 1998
10.10** -- Stock Purchase Agreement among NATG and the Shareholders of
U.S. Cable, Inc., dated June 30, 1998
10.11** -- Stock Purchase Agreement between NATG and the Sole
Shareholder of Burn-Techs, Inc., dated August 31, 1998
10.12** -- Stock Purchase Agreement between NATG and the Sole
Shareholder of State Wide CATV, Inc., dated August 31, 1998
10.13** -- Stock Purchase Agreement among NATG and the Shareholders of
CATV Subscriber Services, Inc., dated August 31, 1998
10.14** -- Stock Purchase Agreement among NATG Holdings, LLC
("Holdings") and the Shareholders of Schatz Underground
Cable, Inc., dated February 19, 1999
10.15** -- Stock Purchase Agreement among Holdings and the Shareholders
of DAS-CO of Idaho, Inc., dated February 20, 1999
</TABLE>
II-4
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
10.16** -- Stock Exchange Agreement among the Registrant, Holdings and
the Shareholders of Copenhagen Utilities & Construction,
Inc., dated February 20, 1999
10.17** -- Stock Purchase Agreement among the Registrant, Holdings and
the Shareholders of Network Cabling Services, Inc., dated
February 23, 1999
10.18** -- Stock Purchase Agreement among the Registrant, Holdings and
E. Scott Kasprowicz, dated May 24, 1999
10.19** -- Credit Agreement, dated as of February 26, 1999
10.20** -- First Amendment to Credit Agreement, dated as of May 24,
1999
10.21** -- Warrant Agreement, dated as of February 26, 1999
21.1** -- Subsidiaries of the Company
23.1* -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1 of this Registration Statement)
23.2* -- Consent of PricewaterhouseCoopers LLP
23.3* -- Consent of BDO Seidman, LLP
23.4* -- Consent of Milhouse, Martz & Neal, L.L.P.
23.5* -- Consent of Williams, Young & Associates, LLC
25.1** -- Power of Attorney (included on the signature page of this
Registration Statement)
27.1** -- Financial Data Schedule
99.1* -- Consent of Leo J. Hussey
99.2* -- Consent of Ronald J. Mittelstaedt
99.3* -- Consent of Gerald E. Wedren
99.4* -- Consent of Joseph P. Powers
</TABLE>
- ------------
* Filed with this Registration Statement.
** Previously filed.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a Director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such Director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-5
<PAGE> 169
The Company hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. For purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Orius Corp. has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State of
Florida, on the 28th day of July, 1999.
ORIUS CORP.
/s/ WILLIAM J. MERCURIO
--------------------------------------
By: William J. Mercurio
Its: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM J. MERCURIO President, Chief Executive July 28, 1999
- ----------------------------------------------------- Officer (Principal Executive
William J. Mercurio Officer) and Chairman of the
Board
/s/ ROBERT E. AGRES Vice-President Finance and July 28, 1999
- ----------------------------------------------------- Chief Financial Officer
Robert E. Agres (Principal Financial and
Principal Accounting Officer)
* Director July 28, 1999
- -----------------------------------------------------
Jeffrey J. Ebersole
* Director July 28, 1999
- -----------------------------------------------------
Bernard E. Czarnecki
* Director July 28, 1999
- -----------------------------------------------------
William Mullen
* Director July 28, 1999
- -----------------------------------------------------
Sami Mnaymneh
* Director July 28, 1999
- -----------------------------------------------------
Douglas F. Berman
* Director July 28, 1999
- -----------------------------------------------------
Brian Schwartz
*By: /s/ WILLIAM J. MERCURIO July 28, 1999
--------------------------------------------
William J. Mercurio, as
attorney-in-fact
</TABLE>
II-7
<PAGE> 1
Exhibit 1.1
10,900,000 Shares
ORIUS CORP.
Common Stock
UNDERWRITING AGREEMENT
August __, 1999
Deutsche Bank Securities, Inc.
Banc of America Securities LLC
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities, Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Orius Corp., a Florida corporation (the "Company"), proposes to issue
and sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") and
certain stockholders of the Company named in Schedule II hereto severally and
not jointly propose to sell to the several Representatives, an aggregate of
10,900,000 shares of the Company's Common Stock, par value $.01 per share
(the "Firm Shares"), of which (a) 7,400,000 shares are to be issued and sold by
the Company, (b) 3,500,000 shares are to be sold by the selling stockholders,
each selling stockholder selling the number of Firm Shares set forth opposite
such selling stockholder's name on Schedule II hereto, and (c) certain security
holders of the Company named in Schedule II (the "Selling Warrant Holders")
propose to sell to the Underwriters warrants (the "Warrants") to purchase an
aggregate of ________ shares of the Company's authorized and unissued Common
Stock. The Underwriters propose to exercise the Warrants and sell the shares
issuable upon such exercise (the "Warrant Shares") pursuant to this Agreement.
The respective amounts of the Warrants to be purchased by the several
Underwriters are set forth opposite their names in Schedule II hereto, and the
number of Warrant Shares represented by Warrants to be sold by each of the
Selling Warrant Holders is set forth opposite such Selling Warrant Holder's
name in Schedule II hereto. The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to issue and sell, and certain
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<PAGE> 2
selling stockholders also propose to sell, at the Underwriters' option an
aggregate of up to 1,635,000 additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
stockholders that you are authorized to enter into this Underwriting Agreement
(this "Agreement") on behalf of the several Underwriters, and that the several
Underwriters are willing, acting severally and not jointly, to purchase the
numbers of Firm Shares set forth opposite their respective names in Schedule I,
plus their pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares, the Warrant Shares and the Option Shares (to the
extent the aforementioned option is exercised) are herein collectively called
the "Shares." The Selling stockholders and the Selling Warrant Holders are
hereinafter sometimes referred to as the "Selling Security Holders." The
Company and the Selling Security Holders are hereinafter to collectively as the
"Sellers."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (Reg. No. 333-79743)
with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. The
Company meets the requirements for the use of Form S-1. Copies of such
registration statement, including any amendments thereto, the
preliminary prospectuses (meeting the requirements of the Rules and
Regulations in all material respects) contained therein and the
exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed
by the Company pursuant to Rule 462(b) of the Act, herein referred to
as the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. "Prospectus" means (a)
the form of prospectus first filed with the Commission pursuant to
Rule 424(b) or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or
filed pursuant to Rule 424(a) under the Act that is delivered by the
Company to the Underwriters for delivery to purchasers of the Shares,
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<PAGE> 3
together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it
becomes effective is herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Florida, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. Each of the Company's subsidiaries as listed in Exhibit
21.1 of the Registration Statement (collectively, the "Subsidiaries")
has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. As of
the date hereof, the Company has no subsidiaries except those listed
in Exhibit 21.1 to the Registration Statement. The Company and each of
the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their respective businesses
requires such qualification except where the failure to be so
qualified would not have a material adverse effect on the earnings,
business, properties, assets, rights, operations, condition (financial
or otherwise) or prospects of the Company and its Subsidiaries, taken
as a whole (a "Material Adverse Effect"). The outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable. As of the
Closing Date (as hereinafter defined), all of the outstanding shares
of capital stock of each of the Subsidiaries will be owned by the
Company free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in
any of the Subsidiaries will be outstanding, except for the liens on
the capital stock of the Subsidiaries issued in favor of the Company's
lenders described in the Registration Statement and other than those
created by the Underwriters.
(c) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the Company
pursuant to the terms of this Agreement have been duly authorized and
when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common
Stock.
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<PAGE> 4
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the
Registration Statement. The form of certificates for the Shares
conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain in all material respects, all
statements which are required to be stated therein by, and will
conform in all material respects to the requirements of the Act and
the Rules and Regulations. The Registration Statement and any
amendment thereto do not contain, and will not contain, any untrue
statement of a material fact and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any
amendments and supplements thereto do not contain, and will not
contain, any untrue statement of a material fact; and do not omit, and
will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(f) All of the financial statements of the Company and the
Subsidiaries, in each case together with related notes and schedules,
as set forth in the Registration Statement, present fairly in all
material respects the financial position and the results of operations
and cash flows of the Company and the Subsidiaries, respectively, at
the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with
generally accepted accounting principles, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such
periods have been made. The summary historical and pro forma financial
and statistical data included in the Registration Statement present
fairly the information shown therein and such data have been compiled
on a basis consistent with the financial statements presented therein
and the books and records of the Company and each of the Subsidiaries,
as applicable. The pro forma combined financial statements of the
Company, together with the related notes, as set forth in the
Registration Statement and the Prospectus, present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the pro forma bases
described therein, and in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
-4-
<PAGE> 5
(g) The accounts receivable of the Company and the
Subsidiaries reflected in the financial statements, in each case
together with related notes and schedules, as set forth in the
Registration Statement, and such additional accounts receivable as are
reflected on the books of the Company and the Subsidiaries, are good
and collectible except to the extent reserved against thereon (which
reserves have been determined based upon actual prior experience and
are consistent with prior practices). All such accounts receivable
(except to the extent so reserved against) are valid, genuine and
subsisting, arise out of bona fide sales and deliveries of goods,
performance of services or other business transactions and are not
subject to defenses, set-offs or counterclaims.
(h) PricewaterhouseCoopers LLP, who have certified certain of
the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(i) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any
of the Subsidiaries before any court or administrative agency or
otherwise, which if determined adversely to the Company or any of the
Subsidiaries is reasonably likely to result in any Material Adverse
Effect, or to prevent the consummation of the transactions
contemplated hereby.
(j) The Company and the Subsidiaries each has good and
marketable title to all of its properties and assets reflected in its
financial statements (or as described in the Registration Statement)
as set forth in the Registration Statement, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. Each of
the Company and the Subsidiaries occupies its leased properties under
valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
(k) Each of the Company and the Subsidiaries has filed all
federal, state, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns
and all assessments received by it or any of them to the extent that
such taxes have become due and are not being contested in good faith
except where the failure to file or pay such taxes would not result in
a Material Adverse Effect. All tax liabilities have been adequately
provided for in the financial statements of the Company and the
Subsidiaries, as applicable.
(l) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any Material Adverse Effect or any
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<PAGE> 6
development known to the Company which will result in a Material
Adverse Effect, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into
or any material transaction that is probable of being entered into by
the Company and the Subsidiaries, other than transactions in the
ordinary course of business and changes and transactions described in
the Registration Statement, as it may be amended or supplemented.
Neither the Company nor any of the Subsidiaries has any material
contingent obligations which are not disclosed in the Company's
financial statements, as applicable, included in the Registration
Statement.
(m) Neither the Company nor any of the Subsidiaries is, or
with the giving of notice or lapse of time or both, will be, in
violation of or in default under its Charter or By-Laws or under any
agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its
properties, is bound and which would reasonably be expected to have a
Material Adverse Effect. The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any of the Subsidiaries is a party,
or of the Charter or By-Laws of the Company or any of the Subsidiaries
or any order, rule or regulation applicable to the Company or any of
the Subsidiaries of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
No consent, approval, authorization or order of, or filing with, any
court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement in connection with
the issuance or sale of the securities by the Company, except such as
have been obtained under the Act and such as may be required under the
state securities laws in connection with the purchase and distribution
of the Shares by the Underwriters.
(n) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission or the National
Association of Securities Dealers, Inc. (the "NASD")) has been
obtained or made and is in full force and effect.
(o) The Common Stock is registered pursuant to Section 12(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and is listed on The New York Stock Exchange, and the Company
has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange
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<PAGE> 7
Act or delisting the Common Stock from The New York Stock Exchange,
nor has the Company received any notification that the Commission or
the NASD is contemplating terminating such registration or listing.
(p) The Company and each of the Subsidiaries hold all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses;
and except as disclosed in the Registration Statement, to the
Company's knowledge neither the Company nor any of the Subsidiaries
has infringed any patents, patent rights, trade names, trademarks or
copyrights, which infringement would reasonably be expected to have a
Material Adverse Effect. The Company knows of no material infringement
by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company or any of the
Subsidiaries.
(q) Neither the Company, nor to the Company's best knowledge,
any of its affiliates or any of the Subsidiaries or any of their
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares.
(r) Neither the Company nor any of the Subsidiaries is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations of the Commission thereunder.
(s) The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(t) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
reasonably adequate for the conduct of their respective businesses and
the value of their respective properties and as the Company believes
is reasonably customary for companies engaged in similar industries.
(u) The Company and each of its Subsidiaries are in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
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<PAGE> 8
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any of its Subsidiaries would have any liability;
neither the Company nor any of its Subsidiaries has incurred nor
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan," or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company or any of
its Subsidiaries would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(v) No labor dispute with the employees of the Company or any
of its Subsidiaries exists, or to the Company's knowledge, is
threatened other than such disputes which would not have a Material
Adverse Effect.
(w) There is (i) no significant unfair labor practice
complaint pending against the Company or any of its Subsidiaries or,
to the best knowledge of the Company, threatened against any of them,
before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or more significant
arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
Subsidiaries or, to the best knowledge of the Company, threatened
against any of them, and (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its
Subsidiaries or, to the best knowledge of the Company, threatened
against it any of its Subsidiaries except for such actions specified
in clause (i) or (ii) above, which, singly or in the aggregate could
not reasonably be expected to have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(x) As of the Closing Date, all Date Data and Date-Sensitive
Systems are Year 2000 Compliant. "Date Data" means any data of any
type that includes date information or which is otherwise derived
from, dependent on or related to date information. "Date-Sensitive
System" means any software, microcode or hardware system or component,
including any electronic or electronically controlled system or
component, that processes any Date Data and that is installed, in
development or on order by the Company or the Subsidiaries for their
internal use, or that the Company or the Subsidiaries sell, lease,
license, assign or otherwise provide, or the provision or operation of
which the Company or the Subsidiaries provide the benefit, to their
customers, vendors, suppliers, affiliates or any other third party.
"Year 2000 Compliant" means (i) with respect to Date Data, that such
data is in proper format and accurate for all dates in the twentieth
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<PAGE> 9
and twenty-first centuries, and (ii) with respect to Date-Sensitive
Systems, that each such system accurately processes all Date Data,
including for the twentieth and twenty-first centuries, without loss
or any functionality or performance, including but not limited to
calculating, comparing, sequencing, storing and displaying such Date
Data (including all leap year considerations), when used as a
stand-alone system or in combination with other software or hardware.
The Company or the Subsidiaries have obtained written representations
or assurances from each entity that (x) provides Date Data to the
Company or the Subsidiaries, (y) processes in any way Date Data for
the Company or the Subsidiaries or otherwise provides any material
product or service to the Company or the Subsidiaries that is
dependent on Year 2000 Compliant Date Data or a Year 2000 Compliant
Date-Sensitive System, that all of such entity's Date Data and
Date-Sensitive Systems that are used for, or on behalf of, the Company
or the Subsidiaries are Year 2000 Compliant.
(y) (i) Except as otherwise disclosed in writing to the
Underwriters, (A) each of the Company and its Subsidiaries has
conducted its business in compliance with applicable Environmental
Laws, including without limitation, having all permits, licenses and
other approvals and authorizations necessary for the operation of
their respective businesses as presently conducted, (B) none of the
properties owned by the Company and its Subsidiaries contain any
Hazardous Substance as a result of any activity of any of the Company
or its Subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (C) the Company and its Subsidiaries
have not received any written notices, demand letters or requests for
information from any Federal, state, local or foreign governmental
entity or third party indicating that it may be in violation of, or
liable under, any Environmental Law in connection with the ownership
or operation of its business, (D) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings,
investigations or proceedings pending or, to the Company's knowledge,
threatened, against the Company or any of the Subsidiaries relating to
any violation, or alleged violation, of any Environmental Law, (E) no
reports have been filed, or are required to be filed, by the Company
or any of the Subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental
Law, (F) no Hazardous Substance has been disposed of, released or
transported in violation of any applicable Environmental Law from any
properties owned by the Company or any of the Subsidiaries as a result
of any activity of the Company or of any of the Subsidiaries during
the time such properties were owned, leased, or operated by the
Company or any of the Subsidiaries, (G) there have been no
environmental investigations, studies, audits, tests, reviews or other
analysis regarding compliance or non-compliance with any applicable
Environmental Law conducted by or which are in the possession of the
Company or any of the Subsidiaries relating to the activities of the
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<PAGE> 10
Company or any of the Subsidiaries (H) there are no underground
storage tanks on, in or under any properties owned by Company or any
of its Subsidiaries and no underground storage tanks have been closed
or removed from any of such properties during the time such properties
were owned, leased or operated by the Company or any of its
Subsidiaries, (I) there is no asbestos or asbestos containing material
present in any of the properties owned by the Company or any of its
Subsidiaries, and no asbestos has been removed from any of such
properties during the time such properties were owned, leased or
operated by it, and (J) neither the Company or any of its Subsidiaries
nor any of their respective properties are subject to any material
liabilities or expenditures (fixed or contingent) relating to any
suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any
Environmental Law, except for violations of the foregoing clauses (A)
through (J) that, singly or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect.
(ii) As used herein, "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent,
legal doctrine, order, judgment, decree, injunction, requirement or
agreement with any governmental entity relating to (A) the protection,
preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or
any other nature resource) or to human health or safety or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances, in each case as amended as in effect
on the Closing Date. The term Environmental Law includes, without
limitation, (X) the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational
Safety and Health Act of 1970, each as amended and as in effect on the
Closing Date, and (Y) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened
as a result of, the presence of, effects of or exposure to any
Hazardous Substance.
(iii) As used herein, "Hazardous Substance" means
any substance presently or hereafter listed, defined, designated, or
classified as hazardous, toxic, radioactive, or dangerous, or
otherwise regulated, under any Environmental Law. Hazardous Substance
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<PAGE> 11
includes any substance to which exposure is regulated by any
governmental authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos or asbestos containing material, urea,
formaldehyde, foam insulation, lead or polychlorinated biphenyls.
2. Representations and Warranties of the Selling Security Holders.
Each Selling Security Holder represents and warrants, severally as to
itself and not jointly, to each Representative that:
(a) Such Selling Security Holder is the lawful owner of the
Shares to be sold by such Selling Shareholder pursuant to this
Agreement and has, and on the Closing Date will have, good and clear
title to such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever.
(b) Such Selling Security Holder has, and on the Closing Date
will have, full legal right, power and authority, and all
authorization and approval required by law, to enter into this
Agreement and the Custody Agreement and Power of Attorney signed by
such Selling Security Holder and American Stock Transfer & Trust
Company, as Custodian, relating to the deposit of the Shares or the
Warrants to be sold by such Selling Security Holder and appointing
certain individuals as such Selling Security Holder's
attorneys-in-fact (the "Attorneys") to the extent set forth therein
(the "Custody Agreement and Power of Attorney") and to sell, assign,
transfer and deliver the Shares to be sold by such Selling Security
Holder in the manner provided herein.
(c) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Security Holder. The Custody
Agreement and Power of Attorney of such Selling Security Holder has
been duly authorized, executed and delivered by such Selling Security
Holder and is a valid and binding agreement of such Selling Security
Holder, enforceable in accordance with its terms except as rights to
indemnify and contribution hereunder may be limited by federal or
state securities laws; such Selling Security Holder has, among other
things, authorized the Attorneys, or any one of them, to execute and
deliver on such Selling Security Holder's behalf this Agreement and
any other document that they, or any one of them, may deem necessary
or desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling
Security Holder pursuant to this Agreement.
(d) The execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of such Selling
Security Holder by or on behalf of such Selling Security Holder, the
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<PAGE> 12
compliance by such Selling Security Holder with all the provisions
hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (A) require any consent,
approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the organizational documents of such Selling
Security Holder, if such Selling Security Holder is not an individual,
or any indenture, loan agreement, mortgage, lease or other agreement
or instrument to which such Selling Security Holder is a party or by
which such Selling Security Holder or any property of such Selling
Security Holder is bound or (iii) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over
such Selling Security Holder or any property of such Selling Security
Holder.
(e) The information in the Registration Statement under the
caption "Principal and Selling Stockholders" which specifically
relates to such Selling Security Holder does not, and will not on the
Closing Date, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(f) At any time during the period described in Section 2(e),
if there is any change in the information referred to in Section 3(b),
such Selling Security Holder will immediately notify you of such
change.
(g) Each certificate signed by or on behalf of such Selling
Security Holder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by
such Selling Security Holder to the Underwriters as to the matters
covered thereby.
(h) Such Selling Security Holder has not taken and will not
take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of the Shares.
(i) The Shares to be sold by such Selling Security Holder
have been duly authorized and are validly issued, fully paid and
non-assessable.
(j) Upon delivery of and payment for the Shares to be sold by
such Selling Security Holder pursuant to this Agreement, good and
clear title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.
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<PAGE> 13
3. Purchase, Sale and Delivery of the Firm Shares.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions
herein set forth, the Sellers, severally and not jointly, agree to
sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number
of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9
hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in same day funds via wire transfer to the order of the Sellers
against delivery of the Firm Shares to the Representatives for the
several accounts of the Underwriters. Such payment and delivery are to
be made at the offices of Deutsche Bank Securities, Inc., One South
Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the
[third] business day after the date of this Agreement or at such other
time and date not later than 4 business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to
as the "Closing Date." (As used herein, "business day" means a day on
which The New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law
or executive order to be closed).
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as
set forth in paragraph (a) of this Section 3. The option granted
hereby may be exercised in whole or in part by giving written notice
(i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters
are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which the
Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than 3 nor later than 10 full
business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option
is 3 or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the
number of Firm Shares being purchased by such Underwriter bears to the
total number of Firm Shares, adjusted by you in such manner as to
avoid fractional shares. The option with respect to the Option Shares
granted hereunder may be exercised only to cover over-allotments in
the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at
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<PAGE> 14
any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option
Closing Date in same day funds via wire transfer to the order of the
Company against delivery of certificates therefor at the offices of
Deutsche Bank Securities, Inc., One South Street, Baltimore, Maryland.
The Company shall not be obligated to sell or deliver Firm Shares
except upon tender of payment by the Underwriters for all the Firm
Shares agreed to be purchased by them hereunder.
4. Offering by the Underwriters.
It is understood that the Underwriters are to make a public offering
of the Firm Shares as soon as the Representatives deem it advisable to do so.
The Firm Shares are to be initially offered to the public at the initial public
offering price set forth in the Prospectus. The Representatives may from time
to time thereafter change the public offering price and other selling terms. To
the extent, if at all, that any Option Shares are purchased pursuant to Section
2 hereof, the Underwriters will offer them to the public on the foregoing
terms. It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
5. Covenants of the Company.
The Company covenants and agrees with the Underwriters that:
(a) The Company will (A) cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus
in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations, and
(B) not file any amendment to the Registration Statement or supplement
to the Prospectus of which the Representatives shall not previously
have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is
not in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments
from the Commission, (C) of any request of the Commission for
amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information and (D) of the issuance
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<PAGE> 15
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose. The Company will use
its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws
of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other
documents, as are or may be reasonably required to continue such
qualifications in effect for so long a period as the Representatives
may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as
many copies of the Prospectus in final form, or as thereafter amended
or supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, three signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur
as a result of which, in the judgment of the Company or in the
reasonable opinion of the Underwriters, it becomes necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at
any time to amend or supplement the Prospectus to comply with any law,
the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to
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<PAGE> 16
the Prospectus so that the Prospectus as so amended or supplemented
will not, in the light of the circumstances when it is so delivered,
be misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement,
which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of 3 years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished
by the Company to its stockholders or filed with any securities
exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the Exchange Act. The Company will
deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of the Prospectus, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of Deutsche Bank Securities, Inc.. The Company will
list, subject to notice of issuance, the Shares on the New York Stock
Exchange.
(i) Each executive officer, director and stockholder of the
Company immediately prior to the Company's initial public offering
have furnished to you, on or prior to the date of this Agreement, a
letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person has agreed not to
offer, sell, sell short or otherwise dispose of any shares of Common
Stock of the Company owned by such person (or as to which such person
has the right to direct the disposition of) or request the
registration for the offer or sale of any of the foregoing until
________ __, 200__, directly or indirectly, except with the prior
written consent of Deutsche Bank Securities, Inc.
("Lock-up Agreements").
(j) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
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<PAGE> 17
(k) The Company shall not invest, or otherwise use, the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the 1940 Act.
(l) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(m) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
(n) The Company has not distributed and prior to the later of
(i) the Closing Date and (ii) the completion of the distribution of
the Shares, will not distribute any offering material in connection
with the offering and sale of the Shares other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, any documents
incorporated by reference in the Registration Statement, and any other
materials, if any permitted by the Act.
6. Covenants of the Selling Security Holders.
Each Selling Security Holder covenants and agrees with the
Underwriters to:
(a) Pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares by such Selling Security
Holder to the Underwriters.
(b) Do and perform all things to be done and performed by
such Selling Security Holder under this Agreement prior to the Closing
Date and to satisfy all conditions precedent to the delivery of the
Share to be sold by such Selling Security Holder pursuant to this
Agreement.
7. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, and
this Agreement; the Underwriters' Selling Memorandum and the Underwriters'
Invitation Letter; the fees of the Commission; the filing fee of the NASD;
transfer agent and registrar fees and expenses; and the Listing Fee of The New
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<PAGE> 18
York Stock Exchange. The Company shall not, however, be required to pay for any
of the Underwriters' expenses (other than those related to qualification under
NASD regulations) except that, if this Agreement shall not be consummated
because the conditions in Section 8 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 13 hereof,
or by reason of any failure, refusal or inability on the part of the Company to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on its part to be performed, unless such failure
to satisfy said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel consisting of one firm only, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company
shall not in any event be liable to any of the several Underwriters for damages
on account of loss of anticipated profits from the sale by them of the Shares.
8. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representatives and
complied with to the reasonable satisfaction of the Commission's
staff. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the
knowledge of the Company, shall be contemplated by the Commission and
no injunction, restraining order, or order of any nature by a federal
or state court of competent jurisdiction shall have been issued as of
the Closing Date, which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Akerman Senterfitt & Eidson, P.A., counsel for the Company, dated the
Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters (and stating that it may be relied upon by counsel
to the Underwriters) to the effect that:
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<PAGE> 19
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Florida, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of
Company's Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and
conduct its business; the Company and each of its
Subsidiaries is duly qualified to transact business in all
jurisdictions in which the conduct of their business requires
such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the
Company and its Subsidiaries taken as a whole; and, the
outstanding shares of capital stock of each of the Company's
Subsidiaries have been duly authorized and validly issued and
are fully paid and non-assessable and are owned, directly or
indirectly, by the Company free and clear of all liens,
claims and encumbrances, except as described in the
Registration Statement; and, to such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into any shares of capital stock of or other
ownership interests in any of the Company's Subsidiaries are
outstanding.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization"
in the Prospectus; the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable; all of the Shares conform
to the description thereof contained in the Prospectus; the
certificates for the Shares, are in the form required by
Florida law; the Firm Shares and Option Shares, if any, to be
sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and
non-assessable when issued and paid for as contemplated by
this Agreement with no personal liability attaching to the
ownership thereof; and no statutory or, to the best of such
counsel's knowledge, contractual preemptive rights of
stockholders exist with respect to any of the Shares or the
issue or sale thereof. Upon payment of the exercise price of
the Warrant Shares in accordance with the terms of the
Warrants you will receive fully paid, nonassessable shares of
Common Stock. Upon the payment of the initial offering price
to the public as set forth in the Prospectus to the Selling
Stockholders you will receive good and valid title to such
shares of common stock, free and clear of any claims, liens
or other encumbrances.
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<PAGE> 20
(iii) Except as described in or contemplated by the
Prospectus, to such counsel's knowledge, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as
described in the Prospectus to such counsel's knowledge, no
holder of any securities of the Company or any other person
has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any
shares of Common Stock or other securities of the Company
included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common
Stock or other securities of the Company.
(iv) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all
material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial
statements, notes thereto and related schedules and other
financial and statistical information included therein or any
information furnished by the Underwriters for use therein).
(vi) The statements under the captions
"Business-Employees," "Management-Executive Compensation,"
"Management-Executive Employment Agreements,"
"Management-Stock Option Plan," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for
Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or
matters of law, fairly summarize in all material respects the
information called for with respect to such documents and
matters.
(vii) To such counsel's knowledge, there are no
contracts or documents required to be filed as exhibits to
the Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as
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<PAGE> 21
are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) To such counsel's knowledge, there are no
material legal or governmental proceedings pending or
threatened against the Company or any of its Subsidiaries
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default
under, the Charter or By-Laws of the Company, or, any
material agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries may be bound that was filed as an exhibit
to the Registration Statement.
(x) This Agreement has been duly authorized,
executed and delivered by the Company and by, or on behalf
of, each of the Selling Security Holders.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
by the Company or the Selling Security Holders.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated
by this Agreement, and application of the net proceeds
therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion, Akerman, Senterfitt and Eidson,
P.A. may provide that its opinion is limited to matters governed by
the laws of Florida and the General Corporation Law of the State of
Delaware and the Federal securities laws of the United States. In
addition to the matters set forth above, the opinion of Akerman,
Senterfitt and Eidson, P.A. shall also include a statement to the
effect that. Although counsel has not undertaken, except as otherwise
indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the
statements in the Registration Statement, such counsel has
participated in the preparation of the Registration Statement and the
Prospectus, including review and discussions of the contents thereof,
and nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of
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<PAGE> 22
the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as
to financial statements, schedules and statistical information
therein).
(c) The Representatives shall have received from White & Case
LLP, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, substantially to the
effect specified in subparagraphs (ii), (iii), (iv) and (x) of
Paragraph (b) of this Section 8, and that the Company is a duly
organized and validly existing corporation under the laws of the State
of Florida. In rendering such opinion, White & Case LLP may rely as to
the matters relating to the laws of the States other than Florida or
Federal laws on the opinions of counsel referred to in Paragraph (b)
of this Section 6. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that
(i) the Registration Statement, or any amendment thereto, as of the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the
Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus,
or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make
the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as
to financial statements, schedules and statistical information
therein). With respect to such statement, White & Case LLP may state
that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) You shall have received, on the date hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated
the date hereof, the Closing Date or the Option Closing Date, as the
case may be, in form and substance satisfactory to you, of
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating that, in their opinion,
the financial statements and schedules of the Company and its
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<PAGE> 23
Subsidiaries examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to such financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus.
(e) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Company and signed by the Chief Executive Officer
and the Chief Financial Officer of the Company to the effect that, as
of the Closing Date or the Option Closing Date, as the case may be,
each of them severally represents as follows:
(i) The Registration Statement has become effective
under the Act and to their knowledge no stop order suspending
the effectiveness of the Registration Statement has been
issued, and to their knowledge no proceedings for such
purpose have been taken or are contemplated by the
Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were true and correct
and such Registration Statement and Prospectus did not omit
to state a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any Material Adverse Effect or
any development involving a prospective Material Adverse
Effect, whether or not arising in the ordinary course of
business.
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<PAGE> 24
(f) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations
and warranties, covenants and conditions contained herein and related
matters as the Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, shall have
been approved for listing upon notice of issuance on The New York
Stock Exchange.
(h) The Lock-up Agreements described in Section 4(i) shall be
in full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to White &
Case LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 7 and 10
hereof).
9. Conditions of the Obligations of the Sellers.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
10. Indemnification.
(a) The Sellers, severally and not jointly, agree to
indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act, against
any losses, claims, damages or liabilities to which such Underwriter
or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
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<PAGE> 25
therein not misleading; and will reimburse each Underwriter and each
such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a
party to any action or proceeding; provided, however, that the Sellers
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability
which the Sellers may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Selling Security Holders and the Company, each
of its directors, each of its officers who has signed the Registration
Statement, and each person, if any, who controls the Company within
the meaning of the Act against any losses, claims, damages or
liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or (ii) the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses
reasonably incurred by the Selling Security Holders and the Company or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that each Underwriter will be
liable in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof. This indemnity agreement will be in addition
to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
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<PAGE> 26
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in
writing. No indemnification provided for in Section 8(a) or (b) shall
be available to any party who shall fail to give notice as provided in
this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party
or parties from any liability which it or they may have to the
indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable
fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you
in the case of parties indemnified pursuant to Section 10(a) and by
the Sellers in the case of parties indemnified pursuant to Section
10(b). The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the
prior written consent of the indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual or
potential party to such claim, action or proceeding) unless such
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<PAGE> 27
settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim,
action or proceeding.
(d) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 10(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Sellers on the one hand and the
Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Sellers on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well
as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Sellers bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Sellers on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 10(d)
were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above in this Section 10(d). The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
above in this Section 10(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of
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<PAGE> 28
the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 10(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought
under this Section 10 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that
process issuing from such court may be served upon him, her or it by
any other contributing party and consents to the service of such
process and agrees that any other contributing party may join him, her
or it as an additional defendant in any such proceeding in which such
other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Sellers set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Selling Security Holders and the
Company, its directors or officers or any persons controlling the
Company, (ii) acceptance of any Shares and payment therefor hereunder,
and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in
this Section 10.
11. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for any portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Sellers), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within [36] hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Sellers such amounts as may be agreed upon and
upon the terms set forth herein, the Firm Shares or Option Shares, as the case
may be, which the defaulting Underwriter failed to purchase. If during such
[36] hours, you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
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<PAGE> 29
such default shall occur does not exceed [10%] of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase or (b) if
the aggregate number of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds [10%] of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Sellers or you, as the
Representatives of the Underwriters, will have the right, by written notice
given within the next [36]-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Sellers except to the extent provided in Section 10
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 11, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding [7] days, you, as the
Representatives of the Underwriters, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 11 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
12. Notices.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities,
Inc., One South Street, Baltimore, Maryland 21202, Attention: Worthing F.
Jackman, Principal, with a copy to White & Case LLP, 200 South Biscayne Blvd.,
Miami, FL 33131, Attention: Jorge L. Freeland, Esq.; and if to the Company, to
Orius Corp., 1401 Forum Way, Suite 400, West Palm Beach, Florida 33401,
Attention: William J. Mercurio, Chief Executive Officer, with copies to
Akerman, Senterfitt & Eidson, P.A., 450 East Las Olas Boulevard, Suite 950,
Fort Lauderdale, FL 33301, Attention: Donn A. Beloff, Esq.
13. Termination.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
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<PAGE> 30
Company and its Subsidiaries taken as a whole, whether or not arising
in the ordinary course of business; (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make
it impracticable to market the Shares or to enforce contracts for the
sale of the Shares; (iii) trading generally shall have been suspended
or materially limited on or by, as the case may be, any of the New
York Stock Exchange, American Stock Exchange or the NASDAQ Stock
Market or limitation on prices (other than limitations on hours or
numbers of days of trading); (iv) the enactment, publication, decree
or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially
and adversely affects or may materially and adversely affect the
business or operations of the Company; (v) declaration of a banking
moratorium by United States or New York State authorities; (vi) the
suspension of trading of the Company's Common Stock by the Commission
on The New York Stock Exchange; or (vii) the taking of any action by
any governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect
on the securities markets in the United States; or
(b) as provided in Sections 8 and 11 of this Agreement.
14. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Selling Security Holders and the Company and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
15. Information Provided by Underwriters.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Plan of Distribution" in the Prospectus.
16. Miscellaneous.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations and covenants in this
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<PAGE> 31
Agreement shall remain in full force and effect, regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a
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<PAGE> 32
binding agreement among the Company, the Selling Security Holders and
the Underwriters in accordance with its terms.
Very truly yours,
ORIUS CORP.
By:
-------------------------------
William J. Mercurio,
Chief Executive Officer
THE SELLING SECURITY HOLDERS
NAMED IN SCHEDULE II HERETO,
ACTING SEVERALLY
By:
-------------------------------
Attorney-in-fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted on
behalf of themselves and the other
secured Underwriters as of the date
first above written.
Deutsche Bank Securities, Inc.
Banc of America Securities LLC
Morgan Keegan & Company, Inc.
The Robinson-Humphrey Company
As Representatives of the
Several Underwriters
By: Deutsche Bank Securities, Inc.
By:
--------------------------------
Authorized Officer
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<PAGE> 33
SCHEDULE I
Schedule of Underwriters
Number of
Firm Shares
Underwriter to be Purchased
----------- ---------------
Deutsche Bank Securities, Inc.............................
Banc of America Securities LLC............................
Morgan Keegan & Company, Inc..............................
The Robinson-Humphrey Company.............................
Total
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<PAGE> 34
SCHEDULE II
Schedule of Selling Security Holders
<TABLE>
<CAPTION>
Number of
Warrant Shares
Number of Underlying
Firm Shares Warrants
Shareholder to be Sold to be Sold
----------- ----------- --------------
<S> <C> <C>
Total
</TABLE>
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<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
ORIUS CORP.
THE UNDERSIGNED incorporator, for the purpose of forming a corporation
under the Florida Business Corporation Act, adopts the following Articles of
Incorporation:
ARTICLE I - NAME
The name of the Corporation is Orius Corp. (the "Corporation").
ARTICLE II - ADDRESS
The principal office and mailing address for the Corporation is 1401
Forum Way, Suite 400, West Palm Beach, Florida 33401.
ARTICLE III - DURATION
The duration of the Corporation shall be perpetual.
ARTICLE IV - PURPOSE
The Corporation is organized to engage in any activity or business
permitted under the laws of the United States and the State of Florida.
ARTICLE V - INCORPORATOR
The name of the incorporator of this Corporation is Donn A. Beloff,
Esq. and his address is 450 East Las Olas Blvd., Suite 950, Ft. Lauderdale,
Florida 33301.
ARTICLE VI - REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is One S.E. 3rd
Avenue, 28th Floor, Miami, Florida 33131, and the name of the registered agent
of the Corporation at such address is American Information Services, Inc.
ARTICLE VII - CAPITAL STOCK
The total number of shares of all classes of capital stock of the
Corporation which the Corporation shall have the authority to issue is Two
Hundred Two Million (202,000,000), consisting of Two Hundred Million
(200,000,000) shares of Common Stock having a par value of $.01 per share
("Common Stock") and Two Million (2,000,000) shares of Preferred Stock having a
par value of $.01 per share ("Preferred Stock").
Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number of shares in
each series, the designation thereof and the
<PAGE> 2
relative rights, preferences and limitations of each series including, but not
limited to: (a) the dividend rate; (b) redeemable features, if any; (c) rights
upon liquidation; (d) whether or not the shares of such series shall be subject
to a purchase, retirement or sinking fund provision; (e) whether or not the
shares of such series shall be convertible into or exchangeable for shares of
any other class and, if so, the rate of conversion or exchange; (f)
restrictions, if any, upon the payment of dividends on Common Stock; (g)
restrictions, if any, upon the creation of indebtedness; (h) voting powers, if
any, of the shares of each series; and (i) such other rights, preferences and
limitations as shall not be inconsistent with the laws of the State of Florida.
The holders of the Preferred Stock shall be entitled to dividends
thereon at the rate established by the Board of Directors. All remaining profits
which the Board of Directors may determine to apply in payment of dividends
shall be distributed among the holders of Common Stock exclusively, except as
may otherwise be set forth below. Upon dissolution, whether voluntary or
involuntary, the holders of Preferred Stock shall first be entitled to receive,
out of the net assets of the Corporation, the liquidating value established by
the Board of Directors, of their shares plus unpaid accumulated dividends and
any other distributions declared thereon, without interest.
ARTICLE VIII - BOARD OF DIRECTORS
Section 1. Classified Board. The number of directors shall be
determined by the Board of Directors in accordance with the Bylaws. The
directors shall be divided into three classes, Class I, Class II and Class III,
as nearly equal in number as possible. The term of office for the Class I
directors shall expire at the first annual meeting of the shareholders in 2000;
the term of office for the Class II directors shall expire at the annual meeting
of the shareholders in 2001; and the term of office for the Class III directors
shall expire at the annual meeting of the shareholders in 2002. At each annual
meeting of the shareholders commencing in 2000, the successors to the directors
whose term is expiring shall be elected to a term expiring at the third
succeeding annual meeting of the shareholders. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional directors of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Section 2. Advance Notice of Nominations. Advance notice of nominations
for the election of directors, other than by the Board of Directors or a
committee thereof, shall be given within the term and in the manner provided in
the Bylaws of the Corporation.
2
<PAGE> 3
ARTICLE IX - AMENDMENTS TO ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal
any provision in these Articles of Incorporation in the manner now or hereafter
prescribed by statute, and all rights conferred upon the shareholders herein are
subject to this reservation.
ARTICLE X - BYLAWS
The Board of Directors is expressly authorized to amend, repeal or
adopt any Bylaw of and for the Corporation. The holders of voting stock shall to
the extent such power is at the time conferred on them by applicable law, also
have the power, by the affirmative vote of the holders of at least a majority of
the outstanding shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class, to
make, alter, amend or repeal any Bylaw of and for the Corporation.
ARTICLE XI - CONTROL-SHARE ACQUISITIONS
The Corporation elects to be governed by Florida Statute Section
607.0902, as amended, relating to control-share acquisitions (the "Control-Share
Act"). The Corporation is expressly authorized to the fullest extent permitted
by the Control-Share Act to redeem control shares acquired in a control-share
acquisition at the fair value thereof pursuant to procedures adopted by the
Board of Directors.
ARTICLE XII - AFFILIATED TRANSACTIONS
The Corporation elects not to be governed by Florida Statutes Section
607.0901, as amended, concerning affiliated transactions.
ARTICLE XIII - DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the Florida Business Corporation Act
as currently in effect or as the same may hereafter be amended. No amendment,
modification or repeal of this Article XIII (including any amendment or repeal
of this Article XIII made by virtue of any change in the Florida Business
Corporation Act after the date hereof) shall adversely affect any right or
protection of a director that exists at the time of such amendment, modification
or repeal on account of any action taken or any failure to act by such director
prior to such time.
NOW THEREFORE, the undersigned executed these articles of incorporation
this ____ day of __________, 1999.
Donn Beloff, Incorporator
3
<PAGE> 1
EXHIBIT 3.2
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
ORIUS CORP.
A FLORIDA CORPORATION
Pursuant to the Florida Business Corporation Act, the Articles of
Incorporation of Orius Corp., a Florida corporation, hereinafter referred to as
the "Corporation", is amended to add the following immediately after the last
paragraph of Article VII, which shall read as follows:
"A. Series A Junior Participating Preferred Stock.
Section 1. Designation and Amount. There shall be a series of
Preferred Stock that shall be designated as "Series A Junior Participating
Preferred Stock," and the number of shares constituting such series shall be
200,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series A Junior Participating Preferred Stock to less than
the number of shares then issued and outstanding plus the number of shares
issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
Section 2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the
holders of any shares of any class or series of stock of the Corporation ranking
prior and superior to the shares of Series A Junior Participating Preferred
Stock with respect to dividends, the holders of shares of Series A Junior
Participating Preferred Stock, in preference to the holders of shares of any
class or series of stock of the Corporation ranking junior to the Series A
Junior Participating Preferred Stock in respect thereof, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of March, June, September and December, in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $10
or (b) the Adjustment Number (as defined below) times the aggregate per share
amount of all cash dividends, and the Adjustment Number times the aggregate per
share amount (payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, par value $.01 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 1000. In the event
the Corporation shall at any time after August___, 1999 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
<PAGE> 2
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Junior Participating Preferred Stock as provided in
paragraph (A) above immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating
Preferred Stock shall entitle the holder thereof to a number of votes equal to
the Adjustment Number on all matters submitted to a vote of the stockholders of
the Corporation.
(B) Except as required by law, by Section 3(C) and by
Section 10 hereof, holders of Series A Junior Participating Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
(C) If, at the time of any annual meeting of
stockholders for the election of directors, the equivalent of six quarterly
dividends (whether or not consecutive) payable on any share or shares of Series
A Junior Participating Preferred Stock are in default, the number of directors
constituting the Board of Directors of the Company shall be increased by two. In
addition to voting together with the holders of Common Stock for the election of
other directors of the Company, the holders of record of the Series A Junior
Participating Preferred Stock, voting separately as a class to the exclusion of
the holders of Common Stock, shall be entitled at said
<PAGE> 3
meeting of stockholders (and at each subsequent annual meeting of stockholders),
unless all dividends in arrears on the Series A Junior Participating Preferred
Stock have been paid or declared and set apart for payment prior thereto, to
vote for the election of two directors of the Company, the holders of any Series
A Junior Participating Preferred Stock being entitled to cast a number of votes
per share of Series A Junior Participating Preferred Stock as is specified in
paragraph (A) of this Section 3. Each such additional director shall serve until
the next annual meeting of stockholders for the election of directors, or until
his successor shall be elected and shall qualify, or until his right to hold
such office terminates pursuant to the provisions of this Section 3(C). Until
the default in payments of all dividends which permitted the election of said
directors shall cease to exist, any director who shall have been so elected
pursuant to the provisions of this Section 3(C) may be removed at any time,
without cause, only by the affirmative vote of the holders of the shares of
Series A Junior Participating Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Junior Participating
Preferred Stock shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like default in
payments of dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected directors
pursuant to said special voting rights shall forthwith terminate, and the number
of directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(C) shall be in addition to any other
voting rights granted to the holders of the Series A Junior Participating
Preferred Stock in this Section 3.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred Stock, or
any shares of stock ranking on a parity with the
<PAGE> 4
Series A Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of Series A Junior Participating Preferred Stock, or
to such holders and holders of any such shares ranking on a parity therewith,
upon such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired promptly after the acquisition
thereof. All such shares shall upon their retirement become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to any conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up
of the Corporation, voluntary or otherwise, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received an amount per share (the
"Series A Liquidation Preference") equal to the greater of (i) $10 plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, or (ii) the Adjustment Number
times the per share amount of all cash and other property to be distributed in
respect of the Common Stock upon such liquidation, dissolution or winding up of
the Corporation.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with the
Series A Junior Participating Preferred Stock in respect thereof, then the
assets available for such distribution shall be distributed ratably to the
holders of the Series A Junior Participating Preferred Stock and the holders of
such parity shares in proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the
Corporation into or with another corporation nor the merger or consolidation of
any other corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 6.
<PAGE> 5
Section 7. Consolidation, Merger, Etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the outstanding shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property, then in
any such case each share of Series A Junior Participating Preferred Stock shall
at the same time be similarly exchanged or changed in an amount per share equal
to the Adjustment Number times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged.
Section 8. No Redemption. Shares of Series A Junior
Participating Preferred Stock shall not be subject to redemption by the Company.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the Preferred Stock as
to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, unless the terms of any such series
shall provide otherwise, and shall rank senior to the Common Stock as to such
matters.
Section 10. Amendment. At any time that any shares of Series A
Junior Participating Preferred Stock are outstanding, the Articles of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately as a
class.
Section 11. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred
Stock."
This Amendment shall be effective upon its filing with the
Florida Department of State.
The foregoing Amendment to the Articles of Incorporation of
the Corporation was adopted duly adopted by the Corporation's board of directors
on August ___, 1999. Shareholder action was not required.
IN WITNESS WHEREOF, the undersigned _______________ of the
Corporation has executed these Articles of Amendment this ___ day of August,
1999.
By:
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
ORIUS CORP.
ARTICLE I
Shareholders
Section I.1 Annual Meetings. An annual meeting of shareholders shall be
held for the election of Directors at such date, time and place either within or
without the State of Florida as may be designated by the Board of Directors from
time to time. To the extent notice has been provided in accordance with sections
1.4 and 1.12, any other proper business may be transacted at the annual meeting.
Section I.2 Special Meetings. Special meetings of the shareholders of
the Corporation for any purpose or purposes may be called at any time by (i) the
Chairman of the Board of Directors, the President of the Corporation or a
majority of the Board of Directors or (ii) upon delivery of one or more written
demands for a meeting describing the purpose or purposes for the meeting and
signed and dated by the holders of not less than 50 percent (50%) of all votes
entitled to be cast on any issue proposed to be considered at such special
meeting. Special meetings of shareholders of the Corporation may not be called
by any other person or persons. At any special meeting of shareholders, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall be set forth in the notice of such special meeting.
Section I.3 Shareholder Action. Any action required or permitted to be
taken at any annual or special meeting of the shareholders of the Corporation
may be taken only upon the vote of shareholders at a duly convened meeting of
shareholders in accordance with the Articles of Incorporation and these Bylaws,
and may not be taken by written consent of shareholders.
Section I.4 Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the shareholder at such shareholders'
addresses as they appear on the records of the Corporation.
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Section I.5 Adjournments. Any meeting of shareholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section I.6 Quorum. At each meeting of shareholders, except where
otherwise provided by law or the Articles of Incorporation or these Bylaws, the
holders of a majority of the outstanding shares of stock entitled to vote on a
matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more classes or series of stock shall be considered a single
class if the holders thereof are entitled to vote together as a single class at
the meeting. In the absence of a quorum of the holders of any class of stock
entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.5 of these Bylaws until a quorum of
such class shall be so present or represented. Shares of its own capital stock
belonging on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
Directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section I.7 Organization. Meetings of shareholders shall be presided
over by the Chairman of the Board of Directors, if any, or in the absence of the
Chairman of the Board of Directors by the Vice Chairman of the Board of
Directors, if any, or in the absence of the Vice Chairman of the Board of
Directors by the President, or in the absence of the President, by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary, or in the absence of the Secretary an
Assistant Secretary, shall act as secretary of the meeting, but in the absence
of the Secretary and any Assistant Secretary, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
The order of business at each such meeting shall be as determined by
the chairman of the meeting. The chairman of the meeting shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on
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the affairs of the Corporation, restrictions on entry to such meeting after the
time prescribed for the commencement thereof and the opening and closing of the
voting polls.
Section I.8 Inspectors. Prior to any meeting of shareholders, the Board
of Directors or the President shall appoint one or more inspectors to act at
such meeting and make a written report thereof and may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at the meeting of shareholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspectors may appoint or retain other persons to assist them in
the performance of their duties. The time of the opening and closing of the
polls for each matter upon which the shareholders will vote at a meeting shall
be announced at the meeting. No ballot, proxy or vote, nor any revocation
thereof or change thereto, shall be accepted by the inspectors after the closing
of the polls. In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any envelopes
submitted therewith, any information provided by a shareholder who submits a
proxy by telegram, cablegram or other electronic transmission from which it can
be determined that the proxy was authorized by the shareholder, ballots and the
regular books and records of the corporation, and they may also consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by the
record owner to cast or more votes than the shareholder holds of record. If the
inspectors consider other reliable information for such purpose, they shall, at
the time they make their certification, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section I.9 Voting; Proxies. Unless otherwise provided in the Articles
of Incorporation, each shareholder entitled to vote at any meeting of
shareholders shall be entitled to one vote for each share of stock held by such
shareholder which has voting power upon the matter in question. If the Articles
of Incorporation provides for more or less than one vote for any share on any
matter, every reference in these Bylaws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock. Each shareholder entitled to vote at a meeting of shareholders may
authorize another person or persons to act for such shareholder by proxy, but no
such proxy shall be voted or acted upon after eleven months from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to
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support an irrevocable power, regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the Corporation
generally. A shareholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. Voting at meetings of shareholders need not be by
written ballot unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or represented by
proxy at such meeting shall so determine. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of Directors. In all other
matters, unless otherwise provided by law or by the Articles of Incorporation or
these Bylaws, the affirmative vote of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders. Where a separate vote
by class or classes is required, the affirmative vote of the holders of a
majority of the shares of such class or classes present in person or represented
by proxy at the meeting shall be the act of such class or classes, except as
otherwise provided by law or by the Articles of Incorporation or these Bylaws.
Section I.10 Fixing Date for Determination of Shareholders of Record.
In order that the Corporation may determine the shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the shareholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such action. If no record date is fixed, the record date for determining
shareholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section I.11 List of Shareholders Entitled to Vote. The Secretary shall
prepare and make, at least ten (10) days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder.
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Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any shareholder who is
present.
Section I.12 Advance Notice of Shareholder Proposals and Director
Nominations. At any annual or special meeting of shareholders, proposals by
shareholders and persons nominated for election as Directors by shareholders
shall be considered only if advance notice thereof has been timely given as
provided herein and such proposals or nominations are otherwise proper for
consideration under applicable law and the Articles of Incorporation and Bylaws
of the Corporation. Notice of any proposal to be presented by any shareholder or
of the name of any person to be nominated by any shareholder for election as a
Director of the Corporation at any meeting of shareholders shall be delivered to
the Secretary of the Corporation at its principal executive office not less than
sixty (60) nor more than ninety (90) days prior to the date of the meeting;
provided, however, that if the date of the meeting is first publicly announced
or disclosed (in a public filing or otherwise) less than seventy (70) days prior
to the date of the meeting, such advance notice shall be given not more than ten
(10) days after such date is first so announced or disclosed. Public notice
shall be deemed to have been given more than seventy (70) days in advance of the
annual meeting if the Corporation shall have previously disclosed, in these
Bylaws or otherwise, that the annual meeting in each year is to be held on a
determinable date, unless and until the Board of Directors determines to hold
the meeting on a different date. Any shareholder who gives notice of any such
proposal shall deliver therewith the text of the proposal to be presented and a
brief written statement of the reasons why such shareholder favors the proposal
and setting forth such shareholder's name and address, the number and class of
all shares of each class of stock of the Corporation beneficially owned by such
shareholder and any material interest of such shareholder in the proposal (other
than as a shareholder). Any shareholder desiring to nominate any person for
election as a Director of the Corporation shall deliver with such notice a
statement in writing setting forth the name of the person to be nominated, the
number and class of all shares of each class of stock of the Corporation
beneficially owned by such person, the information regarding such person
required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by
the Securities and Exchange Commission (or the corresponding provisions of any
regulation subsequently adopted by the Securities and Exchange Commission
applicable to the Corporation), such person's signed consent to serve as a
Director of the Corporation if elected, such shareholder's name and address and
the number and class of all shares of each class of stock of the Corporation
beneficially owned by such shareholder. As used herein, shares "beneficially
owned" shall mean all shares as to which such person, together with such
person's affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all
shares as to which such person, together with such person's affiliates and
associates, has the right to become the beneficial owner pursuant to any
agreement or understanding, or upon the exercise of warrants, options or rights
to convert or exchange (whether such rights are
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exercisable immediately or only after the passage of time or the occurrence of
conditions). The person presiding at the meeting, in addition to making any
other determinations that may be appropriate to the conduct of the meeting,
shall determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been given.
ARTICLE II
Board of Directors
Section II.1 Powers; Number; Qualifications. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the Articles of
Incorporation. The Board of Directors shall consist of not less than three (3)
or more than fifteen (15) members, the number thereof to be determined from time
to time by the Board of Directors. Directors need not be shareholders. The
number of directors may be increased or decreased from time to time by action of
the Board of Directors, but no decrease shall have the effect of shortening the
term of any incumbent director.
Section II.2 Election; Term of Office; Resignation; Removal; Vacancies.
The Directors of the Corporation shall be divided into three classes, as nearly
equal in number as reasonably possible, as determined by the Board of Directors,
with the initial term of office of the first class of such Directors to expire
at the first annual meeting of shareholders thereafter, the initial term of
office of the second class of such Directors to expire at the second annual
meeting of shareholders thereafter and the initial term of office of the third
class of such Directors to expire at the third annual meeting thereafter, with
each class of Directors to hold office until their successors have been duly
elected and qualified. At each annual meeting of shareholders following such
initial classification and election, Directors elected to succeed the Directors
whose terms expire at such annual meeting shall be elected to hold office for a
term expiring at the annual meeting of shareholders in the third year following
the year of their election and until their successors have been duly elected and
qualified. If the number of Directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain or attain a number of
Directors in each class as nearly equal as reasonably possible, but no decrease
in the number of Directors may shorten the term of any incumbent Director. Any
Director may resign at any time upon written notice to the Board of Directors or
to the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective. Subject to the rights, if any, of the holders of shares of preferred
stock then outstanding, any Director or the entire Board of Directors may be
removed by the shareholders of the Corporation at any annual or special meeting
of shareholders, only for cause in accordance with the provisions of the
Articles of Incorporation, by the affirmative vote of the holders of sixty
percent (60%) of the shares then generally entitled to vote at an election of
Directors, voting together as a single class. Unless otherwise provided in the
Articles of Incorporation or these Bylaws, vacancies and newly created
directorships resulting from any increase in the authorized number of Directors
elected by all of the shareholders having the right to vote as a single class or
from any other cause shall
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be filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director. Any Director elected or appointed to
fill a vacancy shall hold office until the next election of the class of
Director which such Director replaced, and until his or her successor is elected
and qualified or until his or her earlier resignation or removal in accordance
with the Articles of Incorporation and these Bylaws.
Section II.3 Regular Meetings. Regular meetings of the Board of
Directors may be held at such places within or without the State of Florida and
at such times as the Board of Directors may from time to time determine, and if
so determined notice thereof need not be given.
Section II.4 Special Meetings. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Florida whenever called by the Chairman of the Board of Directors, if any, by
the Vice Chairman of the Board of Directors, if any, by the President or by any
three Directors. Reasonable notice thereof shall be given by the person or
persons calling the meeting.
Section II.5 Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the Articles of Incorporation or these
Bylaws, members of the Board of Directors, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or of
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
Section II.6 Quorum; Vote Required for Action. Subject to the Articles
of Incorporation, at all meetings of the Board of Directors one-third of the
entire Board of Directors shall constitute a quorum for the transaction of
business. The vote of a majority of the Directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors unless the
Articles of Incorporation or these Bylaws shall require a vote of a greater
number. In case at any meeting of the Board of Directors a quorum shall not be
present, the members of the Board of Directors present may adjourn the meeting
from time to time until a quorum shall be present.
Section II.7 Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board of Directors, if any, or in the
absence of the Chairman of the Board of Directors by the Vice Chairman of the
Board of Directors, if any, or in the absence of the Vice Chairman of the Board
of Directors by the President, or in his absence by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary, the chairman of the meeting may appoint
any person to act as secretary of the meeting.
Section II.8 Action by Directors Without a Meeting. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto
7
<PAGE> 8
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section II.9 Compensation of Directors. Unless otherwise restricted by
the Articles of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of Directors.
ARTICLE III
Committees
Section III.1 Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Directors or in these Bylaws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Articles of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the shareholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution or amending these Bylaws; and, unless the
resolution, these Bylaws or the Articles of Incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, to adopt a certificate of ownership and merger
or to remove or indemnify Directors.
Section III.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may adopt, amend
and repeal rules for the conduct of its business. In the absence of a provision
by the Board of Directors or a provision in the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote of
a majority of the members present at a meeting at the time of such vote if a
quorum is then present shall be the act of such committee, and in other respects
each committee shall conduct its business
8
<PAGE> 9
in the same manner as the Board of Directors conducts its business pursuant to
Article II of these Bylaws.
ARTICLE IV
Officers
Section IV.1 Officers; Election. As soon as practicable after the
annual meeting of shareholders in each year, the Board of Directors shall elect
a President, a Chief Executive Officer, a Treasurer and a Secretary, and it may,
if it so determines, elect from among its members a Chairman of the Board of
Directors and a Vice Chairman of the Board of Directors. The Board of Directors
may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board of Directors may deem
desirable or appropriate and may give any of them such further designations or
alternate titles as it considers desirable. Any number of offices may be held by
the same person unless the Articles of Incorporation or these Bylaws otherwise
provide.
Section IV.2 Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no
acceptance of such resignation shall be necessary to make it effective. The
Board of Directors may remove any officer with or without cause at any time. Any
such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election of an officer shall not
of itself create contractual rights. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled by the
Board of Directors at any regular or special meeting or by unanimous written
consent of the Board of Directors.
Section IV.3 Powers and Duties. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these Bylaws or in a resolution of the Board of Directors which is not
inconsistent with these Bylaws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board of
Directors. The Secretary shall have the duty to record the proceedings of the
meetings of the shareholders, the Board of Directors and any committees in a
book to be kept for that purpose. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
or her duties.
9
<PAGE> 10
ARTICLE V
Stock
Section V.1 Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
shareholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section V.2 Lost, Stolen or Destroyed Stock Certificates: Issuance of
New Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Indemnification
Section VI.1 Right to Indemnification. Any person, his heirs, or
personal representative, made, or threatened to be made a party to any
threatened, pending, or completed action or
10
<PAGE> 11
proceeding, whether civil, criminal, administrative, regulatory, or
investigative ("Proceeding") because he is or was a director or officer of this
Corporation or serves or served any other corporation or other enterprise in any
capacity at the request of this Corporation, shall be indemnified by this
Corporation, to the full extent permitted by the Florida Business Corporation
Act; provided, however, that the Corporation shall indemnify any such person
seeking indemnity in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. In discharging his duty, any director or
officer, when acting in good faith, may rely upon information, opinions,
reports, or statements, including financial statements and other financial data,
in each case prepared or presented by (1) one or more officers or employees of
the Corporation whom the director or officer reasonably believes to be reliable
and competent in the matters presented, (2) counsel, public accountants, or
other persons as to matters that the director or officer believes to be within
that person's professional or expert competence, or (3) in the case of a
director, a committee of the board of directors upon which he does not serve,
duly designated according to law, as to matters within its designated authority,
if the director reasonably believes that the committee is competent.
Section VI.2 Advances. The rights set forth above in this Article VI
shall include the right to be paid by the Corporation expenses incurred in
defending or being represented in any such Proceeding in advance of its final
disposition; provided, however, that the payment of such expenses incurred by a
director or officer because he is or was a director or officer of this
Corporation or serves or served any other corporation or enterprise in any
capacity at the request of this Corporation (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including service to an employee benefit plan) in advance of the final
disposition of such Proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Article VI or
otherwise.
Section VI.3 Contract Right. All rights to indemnification, including
advancement of expenses, shall be deemed to be provided by a contract between
the Corporation and the director or officer who serves in such capacity at any
time while this Article VI and other relevant provisions of the Florida Business
Corporation Act and other applicable law, if any, are in effect, such that any
repeal or modification thereof shall not adversely affect any right existing at
the time of such repeal or modification.
Section VI.4 Right to Bring Suit. If a claim under the preceding
paragraphs of this Article VI is not paid in full by the Corporation within 90
days after a written claim therefor has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense, including attorney's
fees, of prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where
11
<PAGE> 12
the required undertaking has been tendered to the Corporation) that the claimant
has not met the applicable standard of conduct which makes it permissible under
the Florida Business Corporation Act for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Florida Business Corporation Act, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant had not met the applicable standard of conduct.
Section VI.5 Non-Exclusivity of Rights. The rights conferred on any
person by this Article VI shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of these
Bylaws, the Articles of Incorporation, agreement, vote of shareholders or
disinterested directors or otherwise.
Section VI.6 Insurance. The Corporation may maintain insurance, at its
expense, for the purpose of indemnifying itself and any director, officer,
employee or agent of the Corporation or another corporation, partnership, trust
or other enterprise, whether or not the Corporation would have the power to
provide such indemnity under the Florida Business Corporation Act.
ARTICLE VII
Miscellaneous
Section VII.1 Fiscal Year. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section VII.2 Seal. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section VII.3 Waiver of Notice of Meetings of Shareholders, Directors
and Committees. Whenever notice is required to be given by law or under any
provision of the Articles of Incorporation or these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
12
<PAGE> 13
shareholders, Directors or members of a committee of Directors need be specified
in any written waiver of notice unless so required by the Articles of
Incorporation or these Bylaws.
Section VII.4 Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are Directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
Directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Section VII.5 Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section VII.6 Amendment of Bylaws. The Board of Directors is expressly
authorized to amend, repeal or adopt any Bylaw of and for the Corporation. The
holders of voting stock shall to the extent such power is at the time conferred
on them by applicable law, also have the power, by the affirmative vote of the
holders of at least sixty percent (60%) of the outstanding shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class, to make, alter, amend or repeal
any Bylaw of and for the Corporation.
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<PAGE> 1
EXHIBIT 4.2
COMMON STOCK COMMON STOCK
NUMBER SHARES
[ORIUS LOGO] ORIUS CORP. INCORPORATED UNDER
THE LAWS OF THE
STATE OF FLORIDA
This Certifies that CUSIP 686324 10 4
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01, OF
Orius Corp. transferable on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed. This
certificate and the shares evidenced hereby are issued under and shall be
subject to all of the provisions of the Articles of Incorporation of the
Corporation and any amendment thereto copies of which are filed with the
Corporation and the Transfer Agent, to all of which the holder by acceptance
hereof, assents. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
TRANSFER AGENT
AND REGISTRAR
ORIUS CORP.
CORPORATE
SEAL
1999
FLORIDA
/s/ /s/
AUTHORIZED SIGNATURE CORPORATE SECRETARY CHAIRMAN OF THE BOARD,
CEO AND PRESIDENT
<PAGE> 2
EXHIBIT 4.2
ORIUS CORP.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE COMPANY
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian ____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act _____________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________
| |
|___________________________________|
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
______________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17AD-15
<PAGE> 1
EXHIBIT 4.3
ORIUS CORP.
and
____________________, as Rights Agent
RIGHTS AGREEMENT
Dated as of August __, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions....................................................................1
Section 2. Appointment of Rights Agent............................................................5
Section 3. Issue of Right Certificates............................................................5
Section 4. Form of Right Certificates.............................................................7
Section 5. Countersignature and Registration......................................................7
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates...........................................................................8
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights..........................9
Section 8. Cancellation and Destruction of Right Certificates....................................10
Section 9. Availability of Shares of Preferred Stock.............................................10
Section 10. Preferred Stock Record Date...........................................................11
Section 11. Adjustment of Purchase Price, Number of Shares and Number
of Rights.............................................................................12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares............................19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.........................................................................19
Section 14. Fractional Rights and Fractional Shares...............................................23
Section 15. Rights of Action......................................................................24
Section 16. Agreement of Right Holders............................................................24
Section 17. Right Certificate Holder Not Deemed a Stockholder.....................................25
Section 18. Concerning the Rights Agent...........................................................25
Section 19. Merger or Consolidation or Change of Name of Rights Agent.............................26
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 20. Duties of Rights Agent................................................................26
Section 21. Change of Rights Agent................................................................28
Section 22. Issuance of New Right Certificates....................................................29
Section 23. Redemption............................................................................29
Section 24. Exchange..............................................................................30
Section 25. Notice of Certain Events..............................................................31
Section 26. Notices...............................................................................32
Section 27. Supplements and Amendments............................................................32
Section 28. Successors............................................................................33
Section 29. Benefits of this Agreement............................................................33
Section 30. Determinations and Actions by the Board of Directors..................................33
Section 31. Severability..........................................................................33
Section 32. Governing Law.........................................................................33
Section 33. Counterparts..........................................................................33
Section 34. Descriptive Headings..................................................................34
</TABLE>
<PAGE> 4
RIGHTS AGREEMENT
Rights Agreement, dated as of August __, 1999 ("Agreement"),
between Orius Corp., a Florida corporation (the "Company"), and ______________,
as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared
a dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the Close
of Business (as defined below) on August __, 1999 (the "Record Date"), each
Right representing the right to purchase one one-thousandth (subject to
adjustment) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth, and has further authorized
and directed the issuance of one Right (subject to adjustment as provided
herein) with respect to each share of Common Stock that shall become outstanding
between the Record Date and the earlier of the Distribution Date and the
Expiration Date (as such terms are hereinafter defined); provided, however, that
Rights may be issued with respect to shares of Common Stock that shall become
outstanding after the Distribution Date and prior to the Expiration Date in
accordance with Section 22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
the following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is hereinafter
defined); provided, however, that (i) if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person" became the Beneficial Owner of a number of shares of Common Stock such
that the Person would otherwise qualify as an "Acquiring Person" inadvertently
(including, without limitation, because (A) such Person was unaware that it
beneficially owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (B) such Person was aware of the extent of
its Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without any
intention of changing or influencing control of the Company, then such Person
shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement unless and until such Person shall have failed to
divest itself, as soon as practicable (as determined, in good faith, by the
Board of Directors of the Company), of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer otherwise
qualify as an "Acquiring Person"; (ii) if, as of the date hereof, any Person is
or becomes the Beneficial Owner of 15% or more of the shares of Common Stock
outstanding, such Person shall not be deemed to be or to become an
1
<PAGE> 5
"Acquiring Person" unless and until such time as such Person shall, after the
date hereof, become the Beneficial Owner of additional shares of Common Stock
(other than pursuant to a dividend or distribution paid or made by the Company
on the outstanding Common Stock or pursuant to a split or subdivision of the
outstanding Common Stock), unless, upon becoming the Beneficial Owner of such
additional shares of Common Stock, such Person is not then the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding; (iii) no Person
shall become an "Acquiring Person" as the result of an acquisition of shares of
Common Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares of Common Stock beneficially owned
by such Person to 15% or more of the shares of Common Stock then outstanding,
provided, however, that if a Person shall become the Beneficial Owner of 15% or
more of the shares of Common Stock then outstanding by reason of such share
acquisitions by the Company and shall thereafter become the Beneficial Owner of
any additional shares of Common Stock (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Stock or
pursuant to a split or subdivision of the outstanding Common Stock), then such
Person shall be deemed to be an "Acquiring Person" unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then outstanding; and
(iv) no Person that is an underwriter shall become an "Acquiring Person" as the
result of its acquisition of securities from the Company in a public offering of
securities. For all purposes of this Agreement, any calculation of the number of
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date hereof.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially
own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule l3d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered
2
<PAGE> 6
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase, (y) securities which such Person has a right to acquire
upon the exercise of Rights at any time prior to the time that any Person
becomes an Acquiring Person or (z) securities issuable upon the exercise of
Rights from and after the time that any Person becomes an Acquiring Person if
such Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or Section
22 hereof ("Original Rights") or pursuant to Section 11(i) or Section 11(n) with
respect to an adjustment to Original Rights; or (B) the right to vote pursuant
to any agreement, arrangement or understanding; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security by reason of such agreement, arrangement or understanding if the
agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person and with respect to which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except to the extent contemplated
by the proviso to Section 1(c)(ii)(B)) or disposing of such securities of the
Company;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section l(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York or the
city in which the principal office of the Rights Agent is located are authorized
or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., [
, ] time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., [ , ] time, on the next succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall
mean the Common Stock, presently par value $.01 per share, of the Company.
"Common Stock" when used with reference to any Person other than the Company
shall mean the common stock (or, in the case of an unincorporated entity, the
equivalent equity interest) with the greatest
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<PAGE> 7
voting power of such other Person or, if such other Person is a subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(h) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(i) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set
forth in Section 11(b) hereof.
(k) "Exempt Person" shall mean the Company or any Subsidiary (as
such term is hereinafter defined) of the Company, in each case including,
without limitation, in its fiduciary capacity, or any employee benefit plan of
the Company or of any Subsidiary of the Company, or any entity or trustee
holding Common Stock for or pursuant to the terms of any such plan or for the
purpose of funding any such plan or funding other employee benefits for
employees of the Company or of any Subsidiary of the Company.
(l) "Exchange Ratio" shall have the meaning set forth in Section
24 hereof.
(m) "Expiration Date" shall have the meaning set forth in Section
7 hereof.
(n) "Flip-In Event" shall have the meaning set forth in Section
11(a)(ii) hereof.
(o) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(p) "NASDAQ" shall mean The Nasdaq Stock Market.
(q) "New York Stock Exchange" shall mean the New York Stock
Exchange, Inc.
(r) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust or other entity, and shall include
any successor (by merger or otherwise) to such entity.
(s) "Preferred Stock" shall mean the Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in Exhibit A to this Agreement.
(t) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
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<PAGE> 8
(u) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(v) "Redemption Price" shall have the meaning set forth in
Section 23 hereof.
(w) "Right Certificate" shall have the meaning set forth in
Section 3 hereof.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(y) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(z) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(aa) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such, or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(bb) "Subsidiary" of any Person shall mean any corporation or
other entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or other
persons performing similar functions are beneficially owned, directly or
indirectly, by such Person, and any corporation or other entity that is
otherwise controlled by such Person.
(cc) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(dd) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date be the holders of Common Stock) in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co- Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates.
(a) Until the Close of Business on the earlier of (i) the tenth
day after the Stock Acquisition Date or (ii) the tenth Business Day (or such
later date as may be determined by action of the Board of Directors prior to
such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
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<PAGE> 9
Person) to commence, a tender or exchange offer the consummation of which would
result in any Person (other than an Exempt Person) becoming the Beneficial Owner
of shares of Common Stock aggregating 15% or more of the Common Stock then
outstanding (the earlier of such dates being herein referred to as the
"Distribution Date", provided, however, that if either of such dates occurs
after the date of this Agreement and on or prior to the Record Date, then the
Distribution Date shall be the Record Date), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Stock registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in connection
with the transfer of Common Stock. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, insured, postage-prepaid mail, to each record
holder of Common Stock as of the close of business on the Distribution Date
(other than any Acquiring Person or any Associate or Affiliate of an Acquiring
Person), at the address of such holder shown on the records of the Company, a
Right Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right (subject to adjustment as provided herein)
for each share of Common Stock so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) With respect to certificates for Common Stock outstanding as
of the Record Date, until the Distribution Date, the Rights will be evidenced by
such certificates registered in the names of the holders thereof. Until the
Distribution Date (or, if earlier, the Expiration Date), the surrender for
transfer of any certificate for Common Stock outstanding on the Record Date
shall also constitute the transfer of the Rights associated with the Common
Stock represented thereby.
(c) Rights shall be issued in respect of all shares of Common
Stock issued or disposed of (including, without limitation, upon disposition of
Common Stock out of treasury stock or issuance or reissuance of Common Stock out
of authorized but unissued shares) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date, or in certain
circumstances provided in Section 22 hereof, after the Distribution Date.
Certificates issued for Common Stock (including, without limitation, upon
transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earlier of the
Distribution Date and the Expiration Date, or in certain circumstances provided
in Section 22 hereof, after the Distribution Date shall have impressed on,
printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Orius
Corp. (the "Company") and ________________, as Rights Agent,
dated as of August __, 1999 and as amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the
principal executive offices of the Company. Under certain
circumstances, as set forth in
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<PAGE> 10
the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate.
The Company will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a written
request therefor. Under certain circumstances, as set forth in
the Rights Agreement, Rights owned by or transferred to any
Person who is or becomes an Acquiring Person (as defined in the
Rights Agreement) and certain transferees thereof will become
null and void and will no longer be transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend
shall not affect the enforceability of any part of this Agreement or the rights
of any holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase shares and of assignment to be printed on
the reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or interdealer quotation system on which the Rights may from time to
time be listed or quoted, or to conform to usage. Subject to the provisions of
this Agreement, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock as
shall be set forth therein at the price per one one-thousandth of a share of
Preferred Stock set forth therein (the "Purchase Price"), but the number of such
one one- thousandths of a share of Preferred Stock and the Purchase Price shall
be subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by the President of the Company, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof
and shall be attested by the Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless
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<PAGE> 11
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at an office or agency designated for such purpose, books
for registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of this Agreement, at any time
after the Distribution Date and prior to the Expiration Date, any Right
Certificate or Right Certificates may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of this Agreement, at any time
after the Distribution Date and prior to the Expiration Date, upon receipt by
the Company and the Rights Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
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<PAGE> 12
Section 7. Exercise of Rights, Purchase Price; Expiration Date
of Rights.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the Close of Business on August
__, 2009 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $______ for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock, or make available if the Rights Agent is the transfer agent
for the Preferred Stock, certificates for the number of shares of Preferred
Stock to be purchased, and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) requisition from a
depositary agent appointed by the Company depositary receipts representing
interests in such number of one one-thousandths of a share of Preferred Stock as
are to be purchased (in which case certificates for the Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent), and the Company hereby directs any such depositary agent to
comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder and (iv) when appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.
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<PAGE> 13
(d) Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all of the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock issuable upon the
exercise of Rights may be listed or admitted to trading on any national
securities exchange, or quoted on NASDAQ, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such exchange,
or quoted on NASDAQ, upon official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable,
the Company shall use its best efforts, if then necessary to permit the issuance
of shares of Preferred Stock upon the exercise of Rights, to register and
qualify such shares of Preferred Stock under the Securities Act and any
applicable state securities or "Blue Sky" laws (to the extent exemptions
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<PAGE> 14
therefrom are not available), cause such registration statement and
qualifications to become effective as soon as possible after such filing and
keep such registration and qualifications effective until the earlier of the
date as of which the Rights are no longer exercisable for such securities and
the Expiration Date. The Company may temporarily suspend, for a period of time
not to exceed 90 days, the exercisability of the Rights in order to prepare and
file a registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act shall have been declared
effective, unless an exemption therefrom is available.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
delivered upon exercise of Rights shall, at the time of delivery of the
certificates therefor (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any shares of Preferred Stock upon the exercise of Rights.
The Company shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right Certificates to a Person
other than, or the issuance or delivery of certificates or depositary receipts
for the Preferred Stock in a name other than that of, the registered holder of
the Right Certificate evidencing Rights surrendered for exercise or to issue or
deliver any certificates or depositary receipts for Preferred Stock upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by that holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose
name any certificate for Preferred Stock is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
shares of Preferred Stock represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote
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<PAGE> 15
or to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares and Number of Rights. The Purchase Price, the number of shares of
Preferred Stock or other securities or property purchasable upon exercise of
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare and pay a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the number and kind of shares of capital stock issuable upon exercise of a Right
as of the record date for such dividend or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, the holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person (the first occurrence of such event being
referred to hereinafter as the "Flip-In Event"), then (A) the Purchase Price
shall be adjusted to be the Purchase Price in effect immediately prior to the
Flip-In Event multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
Flip- In Event, whether or not such Right was then exercisable, and (B) each
holder of a Right, except as otherwise provided in this Section 11(a)(ii) and
Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon
exercise thereof at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of Preferred
Stock, such number of shares of Common Stock as shall equal the result obtained
by dividing the Purchase Price (as so adjusted) by 50% of the current per share
market price of the Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such Flip- In Event; provided, however, that the Purchase Price
(as so adjusted) and the number of shares of Common Stock so receivable upon
exercise of a Right shall, following the Flip-In Event, be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof.
Notwithstanding anything in this Agreement to the contrary, however, from and
after the Flip- In Event, any Rights that are beneficially owned by (x) any
Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the Flip-In Event or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to any
Person with whom it has any continuing
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<PAGE> 16
agreement, arrangement or understanding regarding the transferred Rights or (II)
a transfer which the Board of Directors has determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding the
provisions of this paragraph, and subsequent transferees of such Persons, shall
be void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any
provision of this Agreement. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 11(a)(ii) are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From and after
the Flip-In Event, no Right Certificate shall be issued pursuant to Section 3 or
Section 6 hereof that represents Rights that are or have become void pursuant to
the provisions of this paragraph, and any Right Certificate delivered to the
Rights Agent that represents Rights that are or have become void pursuant to the
provisions of this paragraph shall be canceled. From and after the occurrence of
an event specified in Section 13(a) hereof, any Rights that theretofore have not
been exercised pursuant to this Section 11(a)(ii) shall thereafter be
exercisable only in accordance with Section 13 and not pursuant to this Section
11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) a number of shares of Preferred Stock or fraction
thereof such that the current per share market price of one share of Preferred
Stock multiplied by such number or fraction is equal to the current per share
market price of one share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess (such excess, the "Spread") of
(1) the value of the shares of Common Stock issuable upon the exercise of a
Right in accordance with the foregoing subparagraph (ii) (the "Current Value")
over (2) the Purchase Price (as adjusted in accordance with the foregoing
subparagraph (ii)), and (B) with respect to each Right (other than Rights which
have become void pursuant to the foregoing subparagraph (ii)), make adequate
provision to substitute for the shares of Common Stock issuable in accordance
with the foregoing subparagraph (ii) upon exercise of the Right and payment of
the Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a
reduction in such Purchase Price, (3) shares of Preferred Stock or other equity
securities of the Company (including, without limitation, shares or fractions of
shares of preferred stock which, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the shares of Common
Stock, are deemed in good faith by the Board of Directors to have substantially
the same value as the shares of Common Stock (such shares of Preferred Stock and
shares or fractions of shares of preferred stock are hereinafter referred to as
"Common Stock Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having a value which, when
added to the value of the shares of Common Stock issued upon exercise of such
Right, shall have an aggregate value equal to the Current Value (less the amount
of any reduction in such Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally
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<PAGE> 17
recognized investment banking firm selected in good faith by the Board of
Directors; provided, however, that if the Company shall not make adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the Flip-In Event (the "Section 11(a) (ii) Trigger Date"), then the
Company shall be obligated to deliver, to the extent permitted by applicable law
and any material agreements then in effect to which the Company is a party, upon
the surrender for exercise of a Right and without requiring payment of such
Purchase Price, shares of Common Stock (to the extent available), and then, if
necessary, such number or fractions of shares of Preferred Stock (to the extent
available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If, upon the occurrence of the Flip-In
Event, the Board of Directors shall determine in good faith that it is likely
that sufficient additional shares of Common Stock could be authorized for
issuance upon exercise in full of the Rights, then, if the Board of Directors so
elects, the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety (90) days after the Section 11(a) (ii)
Trigger Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares (such thirty (30) day period, as it may
be extended, is herein called the "Substitution Period"). To the extent that the
Company determines that some action need be taken pursuant to the second and/or
third sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this Section
11(a)(iii) hereof, that such action shall apply uniformly to all outstanding
Rights and (y) may suspend the exercisability of the Rights until the expiration
of the Substitution Period in order to seek any authorization of additional
shares and/or to decide the appropriate form of distribution to be made pursuant
to such second sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. For purposes
of this Section 11(a)(iii), the value of the shares of Common Stock shall be the
current per share market price (as determined pursuant to Section 11(d)(i)) on
the Section 11(a)(ii) Trigger Date and the per share or fractional value of any
"Common Stock Equivalent" shall be deemed to equal the current per share market
price of the Common Stock. The Board of Directors of the Company may, but shall
not be required to, establish procedures to allocate the right to receive shares
of Common Stock upon the exercise of the Rights among holders of Rights pursuant
to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("Equivalent Preferred
Shares")) or securities convertible into Preferred Stock or Equivalent Preferred
Shares at a price per share of Preferred Stock or Equivalent Preferred Shares
(or having a conversion price per share, if a security convertible into shares
of Preferred Stock or Equivalent Preferred Shares) less than the then current
per share market price of the Preferred Stock (determined pursuant to Section
11(d) hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock and Equivalent Preferred Shares
outstanding on such record date plus the number of shares of Preferred Stock and
Equivalent Preferred Shares which the aggregate offering price of the total
number of shares of Preferred Stock and/or Equivalent Preferred Shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of shares of Preferred Stock and
Equivalent Preferred Shares outstanding on such
14
<PAGE> 18
record date plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Shares of Preferred Stock and Equivalent Preferred Shares owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of
a distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock (determined pursuant
to Section 11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of Preferred
Stock, and the denominator of which shall be such current per share market price
(determined pursuant to Section 11(d) hereof) of the Preferred Stock; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company to be issued upon exercise of one Right. Such adjustments shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d)(i) Except as otherwise provided herein, for the purpose of
any computation hereunder, the "current per share market price " of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is
15
<PAGE> 19
hereinafter defined) immediately prior to such date; provided, however, that in
the event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security of (A)
a dividend or distribution on such Security payable in shares of such Security
or securities convertible into such shares, or (B) any subdivision, combination
or reclassification of such Security, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported by the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the
Preferred Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set forth in
Section 11(d)(i). If the Preferred Stock is not publicly traded but the Common
Stock is publicly traded, the "current per share market price" of the Preferred
Stock shall be conclusively deemed to be the current per share market price of
the Common Stock as determined pursuant to Section 11(d)(i) multiplied by the
then applicable Adjustment Number (as defined in and determined in accordance
with the terms of the Preferred Stock). If neither the Common Stock nor the
Preferred Stock is publicly traded, "current per share market price" shall mean
the fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with
the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one
hundred-thousandth of a share of Preferred Stock or one-hundredth of a share of
Common Stock or other share or security as the case may be. Notwithstanding the
first sentence of this
16
<PAGE> 20
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than the Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof, as applicable, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and 11(c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest one
hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying
(x) the number of one one-thousandths of a share purchasable upon the exercise
of a Right immediately prior to such adjustment by (y) the Purchase Price in
effect immediately prior to such adjustment and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the
number of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of Preferred Stock purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
one-hundredth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. Such record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than
17
<PAGE> 21
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company may, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of a Right, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one one-thousandths of a share of Preferred Stock which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the holder of any Right exercised after such record date the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current market
price, issuance wholly for cash of Preferred Stock or securities which by their
terms are convertible into or exchangeable for Preferred Stock, dividends on
Preferred Stock payable in shares of Preferred Stock or issuance of rights,
options or warrants referred to
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<PAGE> 22
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding,
in the event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare and pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the
Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
and the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power.
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<PAGE> 23
(a) In the event, directly or indirectly, at any time after the
Flip-In Event (i) the Company shall consolidate with or shall merge into any
other Person, (ii) any Person shall merge with and into the Company and the
Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more
wholly-owned Subsidiaries of the Company), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of a Right
(other than Rights which have become void pursuant to Section 11(a)(ii) hereof)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof), in accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall equal the result obtained by dividing the Purchase Price (as
theretofore adjusted in accordance with Section 11(a)(ii) hereof) by 50% of the
current per share market price of the Common Stock of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; provided, however, that the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) and the number of shares of Common Stock of such Principal Party so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof to reflect any events
occurring in respect of the Common Stock of such Principal Party after the
occurrence of such consolidation, merger, sale or transfer; (B) such Principal
Party shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (C) the term "Company" shall thereafter be
deemed to refer to such Principal Party; and (D) such Principal Party shall take
such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
20
<PAGE> 24
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (i) or
(ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the shares of Common Stock are converted in
such merger or consolidation, or, if there is more than one such issuer, the
issuer the shares of Common Stock of which have the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x) the
Person that is the other party to the merger, if such Person survives said
merger, or, if there is more than one such Person, the Person the shares of
Common Stock of which have the greatest aggregate market value of shares
outstanding or (y) if the Person that is the other party to the merger does not
survive the merger, the Person that does survive the merger (including the
Company if it survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii)
of the first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a party
to such transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest portion of
the assets or earning power cannot be determined, whichever of such Persons is
the issuer of Common Stock having the greatest aggregate market value of shares
outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company shall not consummate any consolidation, merger,
sale or transfer referred to in Section 13(a) hereof unless prior thereto the
Company and the Principal Party involved therein shall have executed and
delivered to the Rights Agent an agreement confirming that the requirements of
Sections 13(a) and (b) hereof shall promptly be performed in accordance with
their terms and that such consolidation, merger, sale or transfer of assets
shall not result in a default by the Principal Party under this Agreement as the
same shall have been assumed by the Principal Party pursuant to Sections 13(a)
and (b) hereof and providing
21
<PAGE> 25
that, as soon as practicable after executing such agreement pursuant to this
Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date and
similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the
Principal Party shall be listed or admitted to trading on the New York Stock
Exchange or on another national securities exchange, to list or admit to trading
(or continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be listed or
admitted to trading on the New York Stock Exchange or a national securities
exchange, to cause the Rights and the securities receivable upon exercise of the
Rights to be authorized for quotation on NASDAQ or on such other system then in
use;
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the Principal Party subject
to purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, shares of Common
Stock or Common Stock Equivalents of such Principal Party at less than the then
current market price per share thereof (determined pursuant to Section 11(d)
hereof) or securities exercisable for, or convertible into, Common Stock or
Common Stock Equivalents of such Principal Party at less than such then current
market price, or (ii) providing for any special payment, tax or similar
provision in connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such
transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been canceled,
waived or amended, or that the authorized securities shall be redeemed, so that
the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.
22
<PAGE> 26
(e) The Company covenants and agrees that it shall not, at any
time after the Flip-In Event, enter into any transaction of the type described
in clauses (i) through (iii) of Section 13(a) hereof if (i) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (ii)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer or other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(b) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (iii) the form or nature
of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights
(except prior to the Distribution Date in accordance with Section 11(n) hereof).
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) or to distribute certificates
which evidence fractional shares of Preferred Stock (other than fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock) upon
the exercise or exchange of Rights. Interests in fractions of Preferred Stock in
integral multiples of one one-thousandth of a share of Preferred Stock may, at
the election of
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the Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided, that
such agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Stock represented by such depositary
receipts. In lieu of fractional shares of Preferred Stock that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised or exchanged as herein provided an amount in cash equal to the same
fraction of the current market value of a whole share of Preferred Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(c) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares of
Common Stock would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise or exchange of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided therein and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
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(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
Person in whose name the Right Certificate (or, prior to the Distribution Date,
the Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise or exchange of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in this Agreement), or to
receive dividends or subscription rights, or otherwise, until the Rights
evidenced by such Right Certificate shall have been exercised or exchanged in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or
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<PAGE> 29
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by
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the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the President and the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights provided for in Sections 3, 11, 13, 23 and
24, or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of a certificate furnished pursuant to Section
12, describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock or other securities will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or the
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or such
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omission shall be effective. The Rights Agent shall not be liable for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
application (which date shall not be less than five Business Days after the date
any officer of the Company actually receives such application unless any such
officer shall have consented in writing to an earlier date) unless, prior to
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and, following the Distribution Date, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate
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<PAGE> 32
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States or the laws of any state of the United States or the
District of Columbia, in good standing, having an office in the State of New
York or the State of Florida, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock or
Preferred Stock, and, following the Distribution Date, mail a notice thereof in
writing to the registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Stock following the Distribution
Date and prior to the Expiration Date, the Company may with respect to shares of
Common Stock so issued or sold pursuant to (i) the exercise of stock options,
(ii) under any employee plan or arrangement, (iii) upon the exercise, conversion
or exchange of securities, notes or debentures issued by the Company or (iv) a
contractual obligation of the Company, in each case existing prior to the
Distribution Date, issue Rights Certificates representing the appropriate number
of Rights in connection with such issuance or sale.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at any time prior
to the Flip-In Event, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring in
respect of the Common Stock after the date hereof (the redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board of Directors in its sole discretion may establish. The Redemption
Price shall be payable, at the option of the Company, in cash, shares of Common
Stock, or such other form of consideration as the Board of Directors shall
determine.
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(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23 (or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights (or such later time as
the Board of Directors may establish for the effectiveness of such redemption),
the Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at
any time after the Flip-In Event, exchange all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring in
respect of the Common Stock after the date hereof (such amount per Right being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after an Acquiring Person shall have become the Beneficial Owner of shares
of Common Stock aggregating 50% or more of the shares of Common Stock then
outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 24(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange
of the Rights by the Board of Directors may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board
of Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders of the
Rights so exchanged at their last addresses as they
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<PAGE> 34
appear upon the registry books of the Rights Agent. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by which
the exchange of the shares of Common Stock for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option substitute, and, in the event
that there shall not be sufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit an exchange of Rights for
Common Stock as contemplated in accordance with this Section 24, the Company
shall substitute to the extent of such insufficiency, for each share of Common
Stock that would otherwise be issuable upon exchange of a Right, a number of
shares of Preferred Stock or fraction thereof (or Equivalent Preferred Shares,
as such term is defined in Section 11(b)) such that the current per share market
price (determined pursuant to Section 11(d) hereof) of one share of Preferred
Stock (or Equivalent Preferred Share) multiplied by such number or fraction is
equal to the current per share market price of one share of Common Stock
(determined pursuant to Section 11(d) hereof) as of the date of such exchange.
Section 25. Notice of Certain Events.
(a) In case the Company shall at any time after the earlier of
the Distribution Date or the Stock Acquisition Date propose (i) to pay any
dividend payable in stock of any class to the holders of its Preferred Stock or
to make any other distribution to the holders of its Preferred Stock (other than
a regular quarterly cash dividend), (ii) to offer to the holders of its
Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Stock (other than a reclassification involving only the subdivision or
combination of outstanding Preferred Stock), (iv) to effect the liquidation,
dissolution or winding up of the Company, or (v) to pay any dividend on the
Common Stock payable in Common Stock or to effect a subdivision, combination or
consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in Common Stock), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such liquidation, dissolution or winding up is to take
place and the date of participation therein by the holders of the Common Stock
and/or Preferred Stock, if any such date is to be fixed, and such notice shall
be so given in the case of any action covered by clause (i) or (ii) above at
least 10 days prior to the record date for determining holders of the Preferred
Stock for purposes of such action, and in the case of any such other action, at
least 10 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the Common Stock and/or
Preferred Stock, whichever shall be the earlier.
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(b) In case any event described in Section 11(a)(ii) or Section
13 shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Orius Corp.
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
Attention: Chief Financial Officer
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
[Rights Agent]
[address]
Attention: _____________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
last sentence of this Section 27, for so long as the Rights are then redeemable,
the Company may in its sole and absolute discretion, and the Rights Agent shall
if the Company so directs, supplement or amend any provision of this Agreement
in any respect without the approval of any holders of the Rights. At any time
when the Rights are no longer redeemable, except as provided in the last
sentence of this Section 27, the Company may, and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights, provided that no such supplement or amendment may (a)
adversely affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), (b) cause
this Agreement again to become amendable other than in accordance with this
sentence or (c) cause the Rights again to become redeemable. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price. Upon the
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delivery of a certificate from an appropriate officer of the Company which
states that the supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment,
provided that any supplement or amendment that does not amend Sections 18, 19,
20 or 21 hereof in a manner adverse to the Rights Agent shall become effective
immediately upon execution by the Company, whether or not also executed by the
Rights Agent.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Determinations and Actions by the Board of Directors.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend or
not amend this Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) that are done or made by the Board of Directors of the
Company in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights, as such, and all other
parties, and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Florida and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
33
<PAGE> 37
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
34
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, all as of the day and year first above written.
ORIUS CORP.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
____________________, as Rights Agent
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
35
<PAGE> 39
Exhibit A
TERMS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
ORIUS CORP.
1. Designation and Amount. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 200,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
A-1
<PAGE> 40
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders
of any shares of any class or series of stock of the Corporation ranking prior
and superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December, in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 1000. In the event the
Corporation shall at any time after August __, 1999 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Junior Participating Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Junior Participating
A-2
<PAGE> 41
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law, by Section 3(C) and by
Section 10 hereof, holders of Series A Junior Participating Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
(C) If, at the time of any annual meeting of stockholders
for the election of directors, the equivalent of six quarterly dividends
(whether or not consecutive) payable on any share or shares of Series A Junior
Participating Preferred Stock are in default, the number of directors
constituting the Board of Directors of the Company shall be increased by two. In
addition to voting together with the holders of Common Stock for the election of
other directors of the Company, the holders of record of the Series A Junior
Participating Preferred Stock, voting separately as a class to the exclusion of
the holders of Common Stock, shall be entitled at said meeting of stockholders
(and at each subsequent annual meeting of stockholders), unless all dividends in
arrears on the Series A Junior Participating Preferred Stock have been paid or
declared and set apart for payment prior thereto, to vote for the election of
two directors of the Company, the holders of any Series A Junior Participating
Preferred Stock being entitled to cast a number of votes per share of Series A
Junior Participating Preferred Stock as is specified in paragraph (A) of this
Section 3. Each such additional director shall serve until the next annual
meeting of stockholders for the election of directors, or until his successor
shall be elected and shall qualify, or until his right to hold such office
terminates pursuant to the provisions of this Section 3(C). Until the default in
payments of all dividends which permitted the election of said directors shall
cease to exist, any director who shall have been so elected pursuant to the
provisions of this Section 3(C) may be removed at any time, without cause, only
by the affirmative vote of the holders of the shares of Series A Junior
Participating Preferred Stock at the time entitled to cast a majority of the
votes entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby created
may be filled by the vote of such holders. If and when such default shall cease
to exist, the holders of the Series A Junior Participating Preferred Stock shall
be divested of the foregoing special voting rights, subject to revesting in the
event of each and every subsequent like default in payments of dividends. Upon
the termination of the foregoing special voting rights, the terms of office of
all persons
A-3
<PAGE> 42
who may have been elected directors pursuant to said special voting rights shall
forthwith terminate, and the number of directors constituting the Board of
Directors shall be reduced by two. The voting rights granted by this Section
3(C) shall be in addition to any other voting rights granted to the holders of
the Series A Junior Participating Preferred Stock in this Section 3.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of Series A Junior
Participating Preferred Stock, or to such holders and holders of any such shares
ranking on a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a
A-4
<PAGE> 43
new series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to any conditions and restrictions on issuance set
forth herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, voluntary or otherwise, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received an amount per share (the
"Series A Liquidation Preference") equal to the greater of (i) $10 plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, or (ii) the Adjustment Number
times the per share amount of all cash and other property to be distributed in
respect of the Common Stock upon such liquidation, dissolution or winding up of
the Corporation.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other classes and series of
stock of the Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series A
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
7. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the outstanding shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series A Junior Participating
Preferred Stock shall not be subject to redemption by the Company.
9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Preferred Stock as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
A-5
<PAGE> 44
10. Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Articles of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of two-thirds of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately as a class.
11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
A-6
<PAGE> 45
Exhibit B
Form of Right Certificate
Certificate No. R-______
NOT EXERCISABLE AFTER AUGUST __, 2009 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS
SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME
NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
RIGHT CERTIFICATE
ORIUS CORP.
This certifies that ____________________________ or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of August __, 1999, as the same may
be amended from time to time (the "Rights Agreement"), between Orius Corp., a
Florida corporation (the "Company"), and ______________, as Rights Agent (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M.,
__________________ time, on August __, 2009 at the office or agency of the
Rights Agent designated for such purpose, or of its successor as Rights Agent,
one one-thousandth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"),
of the Company at a purchase price of $______ per one one-thousandth of a share
of Preferred Stock (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of _______________, based on the Preferred
Stock as constituted at such date. As provided in
B-1
<PAGE> 46
the Rights Agreement, the Purchase Price, the number of one one-thousandths of a
share of Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Rights and the number of Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates,
upon surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for shares
of the Company's Common Stock, par value $.01 per share, or shares of Preferred
Stock.
No fractional shares of Preferred Stock or Common Stock will be
issued upon the exercise or exchange of any Right or Rights evidenced hereby
(other than fractions of Preferred Stock which are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled
to vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights
B-2
<PAGE> 47
Agreement) or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised or exchanged as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _________ __, ____.
ORIUS CORP.
By:
-----------------------------
[Title]
ATTEST:
- ------------------------------------
[Title]
Countersigned:
__________________________, as Rights Agent
By
------------------------------------
[Title]
B-3
<PAGE> 48
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED __________________________ hereby
sells, assigns and transfers unto _____________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______ Rights represented by this Right Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
___________________________ Attorney, to transfer said Rights on the books of
the within-named Company, with full power of substitution.
Dated:
------------------------
------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company,
broker, dealer or other eligible institution participating in a recognized
signature guarantee medallion program.
...............................................................................
(To be completed)
The undersigned hereby certifies that the Rights
evidenced by this Right Certificate are not beneficially owned by, were not
acquired by the undersigned from, and are not being assigned to an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Rights
Agreement).
------------------------------------
Signature
B-4
<PAGE> 49
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To ORIUS CORP.:
The undersigned hereby irrevocably elects to exercise
________ Rights represented by this Right Certificate to purchase the shares of
Preferred Stock (or other securities or property) issuable upon the exercise of
such Rights and requests that certificates for such shares of Preferred Stock
(or such other securities) be issued in the name of:
- -------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- -------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------
Dated:________________________
------------------------------------
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a bank, trust company,
broker, dealer or other eligible institution participating in a recognized
signature guarantee medallion program.
B-5
<PAGE> 50
Form of Reverse Side of Right Certificate - continued
- -------------------------------------------------------------------------
(To be completed)
The undersigned certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by, and were not acquired by
the undersigned from, an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
------------------------------------
Signature
- -------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of
Election to Purchase, as the case may be, must conform to the name as written
upon the face of this Right Certificate in every particular, without alteration
or enlargement or any change whatsoever.
In the event the certification set forth above in the
Form of Assignment or the Form of Election to Purchase, as the case may be, is
not completed, such Assignment or Election to Purchase will not be honored.
B-6
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT ("Agreement"), made as of ___________,
1999, by and among Orius Corp., a Florida corporation (the "CORPORATION"), HIG
Cable, Inc., a Cayman Island corporation (the "INVESTOR," and together with its
successors and assigns, the "INVESTORS"), and the other persons set forth on the
signature pages hereto (each individually, together with its successors and
assigns, an "EXECUTIVE" and collectively, the "EXECUTIVES"). All of the
stockholders of the Corporation, other than the Investor and Management, are
sometimes referred to herein as the "COMPANY STOCKHOLDERS." The Investor and the
Executives are sometimes collectively referred to herein as the "STOCKHOLDERS"
and individually as a "STOCKHOLDER." Capitalized terms used herein are defined
in Section 10 hereof.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time, a majority of the
Investors may request registration under the Securities Act of all or part of
their Stockholder Shares on Form S-1 or any similar long-form registration
("LONG-FORM REGISTRATIONS"), and a majority of the Investors may request
registration under the Securities Act of all or part of their Stockholder Shares
on Form S-2 or S-3 or any similar short-form registration ("SHORT-FORM
REGISTRATIONS") if available. All registrations requested pursuant to this
Section 1(a) are referred to herein as "DEMAND REGISTRATIONS." Each request for
a Demand Registration shall specify the approximate number of Stockholder Shares
requested to be registered and the requested per share price range, if any, for
such offering.
(b) LONG-FORM REGISTRATIONS. The Investors shall be
collectively entitled to request (i) two Long-Form Registrations in which the
Corporation will pay all Registration Expenses ("CORPORATION-PAID LONG-FORM
REGISTRATIONS") and (ii) two Long-Form Registrations in which the Investors
shall pay their share of the Registration Expenses as set forth in Section 7
hereof. A registration will not count as one of the permitted Long-Form
Registrations until it has become effective, and no Long-Form Registration will
count as one of the permitted Long-Form Registrations unless the Investors are
able to register and sell at least fifty percent (50%) of the Stockholder Shares
requested by them to be included in such registration; provided that in any
event the Corporation will pay all Registration Expenses in connection with any
registration initiated as a Corporation-Paid Long-Form Registration whether or
not it has become effective.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to Section 1(b), a majority of the Investors
shall be entitled to request ten Short-Form Registrations in which the
Corporation will pay all Registration Expenses; provided that the Corporation
and the securities meet the eligibility requirements for such forms and provided
further that the Short Form Registration shall only be effective for 90 days and
shall be subject to
<PAGE> 2
no sale periods if in the reasonable judgment of the Corporation such Short Form
Registration conflicts with the Corporation's business plans or another existing
or proposed registration statement. Demand Registrations shall be Short-Form
Registrations whenever the Corporation is permitted to use any applicable short
form. The Corporation shall use its best efforts to make Short-Form
Registrations on Form S-3 available for the sale of Stockholder Shares.
(d) PRIORITY ON DEMAND REGISTRATIONS. Upon the Corporation's
commencement of a Demand Registration, the Corporation shall mail notice thereof
to all Investors and the Investors shall have twenty (20) days after such
mailing date to notify the Corporation of the number of shares they desire to
sell in such offering. The Corporation shall not include in any Demand
Registration any securities which are not Stockholder Shares owned by the
Investors without the prior written consent of a majority in interest of the
Investors. If a Demand Registration is an underwritten offering and the managing
underwriters advise the Corporation in writing that in their opinion the number
of registerable securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of securities which
can be sold in an orderly manner in such offering within a price range
acceptable to the Investors requesting registration, the Corporation shall
include in such registration prior to the inclusion of any securities which are
not Stockholder Shares owned by the Investors the number of Stockholder Shares
owned by the Investors requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Corporation
shall not be obligated to effect any Demand Registration within six months after
the effective date of a previous underwritten registration of equity securities.
The Corporation may postpone for up to six months the filing or the
effectiveness of a registration statement for a Demand Registration if the
Corporation notifies the Investors that such Demand Registration would
reasonably be expected to have an adverse effect on any business plan of the
Corporation or any of its subsidiaries; provided that in such event, the
Investors initially requesting such Demand Registration will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Corporation shall pay all Registration Expenses in connection
with such registration.
(f) SELECTION OF UNDERWRITERS. A majority in interest of the
Investors shall have the right to select the investment banker(s) and manager(s)
to administer any Demand Registration, subject to the approval of the
Corporation, which will not be unreasonably withheld. The Corporation will have
the right to select the investment banker(s) and manager(s) to administer any
offerings other than Demand Registrations.
(g) OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Corporation shall not grant to any person the right to request
the Corporation to register any equity securities of the Corporation, or any
securities convertible or exchangeable into or exercisable for such securities,
without the prior written consent of the Investors; provided that the
Corporation may grant rights to other persons to participate in Piggyback
Registrations so long as such rights are subordinate to the rights of the
Investors with respect to such Piggyback Registrations.
-2-
<PAGE> 3
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Corporation proposes to
register any of its Common Stock (either on its own behalf or on behalf of
others) under the Securities Act (other than a transaction described under Rule
145 of the Securities Act, a transaction registering securities convertible into
Common Stock or pursuant to Forms S-4, S-8 or their successor forms) and the
registration form to be used may be used for the registration of the Stockholder
Shares of the Stockholders (a "PIGGYBACK REGISTRATION"), the Corporation shall
give prompt written notice to the Stockholders of its intention to effect such a
registration and will include in such registration the Stockholder Shares of the
Stockholders with respect to which the Corporation has received written requests
for inclusion therein within 15 days after the receipt of the Corporation's
notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
Stockholders shall be paid by the Corporation in all Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Corporation shall
include in such registration (i) first, the securities the Corporation proposes
to sell, (ii) second, the Stockholder Shares of Mr. Jeffery J. Ebersole in the
amount of his Preference Amount if at least twenty percent (20%) of his
Stockholder Shares were not sold in the Corporation's initial Public Offering;
provided, however, that this priority shall only apply to such number of shares
received by Mr. Ebersole pursuant to that certain Stock Exchange Agreement among
North American Tel-Com Group, Inc. and Jeffery J. Ebersole, dated March 31,
1998, (iii) third, the Stockholder Shares of the Investors and the Company
Stockholders up to an amount equal to twenty-five percent (25%) of the
Stockholder Shares held by each of them as of the date they became stockholders
(as adjusted to reflect any stock split, stock dividend or other form of
recapitalization) (the "PREFERENCE AMOUNT"), and (iv) fourth, all other
Stockholder Shares of all Stockholders requested to be included in such
registration. The Preference Amount for each applicable Stockholder shall be
adjusted from time to time by (i) subtracting the number of Stockholder Shares
either (A) sold in a Public Sale by such Stockholder or (B) saleable in a
Piggyback Registration that was consummated and pursuant to which the
Stockholder declined to participate in whole or in part, and (ii) adding or
subtracting the number of Stockholder Shares to appropriately reflect stock
splits, dividends and other recapitalizations.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities, and the managing underwriters advise the
Corporation in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, the
Corporation shall include in such registration (i) first, the securities
requested to be included therein by the Stockholder exercising its Demand
Registration, (ii) second, the Stockholder Shares of the Investors and the
Company Stockholders to the extent of their Preference Amounts and (iii) third,
all other
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Stockholder Shares of all Stockholders requested to be included in such
registration.
(e) OTHER REGISTRATIONS. If the Corporation has previously
filed a registration statement with respect to the Stockholder Shares of the
Investors pursuant to Section 1 or pursuant to this Section 2, and if such
previous registration has not been withdrawn or abandoned, the Corporation shall
not without the consent of the Investors file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least six months has elapsed from the effective date of such previous
registration.
(f) PRORATION OF ELIGIBLE SHARES. In the event of any
registration pursuant to this Section 2 where the full amount of the Stockholder
Shares of a particular group of Stockholders (e.g., the Investors and/or the
Company Stockholders) requested to be included in such registration cannot be
included in full, then the number of Stockholder Shares available for
registration shall be allocated among such group pro rata based upon the number
of Stockholder Shares requested to be included in such registration by each
member of the group. The obligation of the Corporation to include any
Stockholder's Stockholder Shares in a Piggyback Registration shall be subject to
the advice of the managing underwriter of such Public Offering, which may take
into account the size of the offering, market conditions and the appropriateness
of the Stockholder's participation if he is an employee, officer or director of
the Corporation.
3. CURRENT STOCKHOLDING. The Stockholders acknowledge and agree that
Schedule A hereto is an accurate list of the number of shares of Common Stock
and the percentage ownership of the Corporation held by each of the Stockholders
as of the date hereof on a fully diluted basis.
4. LOCKUP AGREEMENTS.
(a) Each Stockholder agrees not to effect any Public Sale or
distribution (including sales pursuant to Rule 144) of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 180-day period
beginning on the effective date of any (i) underwritten Demand Registration or
any underwritten Piggyback Registration in which Stockholder Shares are included
(except as part of such underwritten registration) or (ii) a Public Offering, in
each case unless the underwriters managing such Public Offering and the
Corporation otherwise agree. In the event that (x) the Investors initiate a
Demand Registration prior to thirty (30) days after the expiration of a Public
Offering lockup period, (y) the Company Stockholders were prohibited from
participating in such Public Offering pursuant to Section 2(f), and (z) the
Company Stockholders are prohibited from participating in the Demand
Registration pursuant to Section 1(d), then the Company Stockholders shall be
allowed to sell their Stockholders Shares pursuant to Rule 144 of the Securities
Act for a period of at least thirty (30) days after the expiration of the lockup
period for such Public Offering before becoming subject to the lockup period for
the Investor's Demand Registration.
(b) The Corporation agrees (i) not to effect any public sale
or distribution of its
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<PAGE> 5
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the Public Offering otherwise
agree, and (ii) to use its reasonable best efforts to cause each holder of at
least 5% of its Common Stock, or any securities convertible into or exchangeable
or exercisable for Common Stock, purchased from the Corporation at any time
after the date of this Agreement (other than in a Public Offering) to agree not
to effect any public sale or distribution (including sales pursuant to Rule 144)
of any such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing such
Public Offering otherwise agree.
5. REGISTRATION PROCEDURES. Whenever a Stockholder has requested that
any securities be registered pursuant to this Agreement, the Corporation shall
use its best efforts to effect the registration and the sale of such securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Corporation shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Corporation shall furnish to the counsel selected by
the Investors covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review
and comment of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the securities owned by such seller;
(d) use its best efforts to register or qualify such
securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller
(provided that the Corporation shall not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction);
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(e) notify each seller of Stockholder Shares, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Corporation shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Stockholder Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such securities to be listed on each securities
exchange on which similar securities issued by the Corporation are then listed
and, if not so listed, to be listed on the NASD automated quotation system and,
if listed on the NASD automated quotation system, use its best efforts to secure
designation of all such securities covered by such registration statement as a
Nasdaq national market security within the meaning of Rule 11Aa2-1 of the
Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such securities with the NASD;
(g) provide a transfer agent and registrar for all such
securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Investor or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Corporation's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) permit the Stockholder which, in its sole and exclusive
judgment, might be deemed to be an underwriter or a controlling person of the
Corporation, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of
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<PAGE> 7
material, furnished to the Corporation in writing, which in the reasonable
judgment of the Investor and its counsel should be included;
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Corporation shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) obtain a cold comfort letter from the Corporation's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the Stockholder may
reasonably request (provided that the Stockholder's Stockholder Shares
constitute at least 10% of the securities covered by such registration
statement); and
(n) if the offering is underwritten and at the request of any
seller of Stockholder Shares, use its best efforts to furnish on the date that
the Stockholder Shares are delivered to the underwriters (if any) for sale
pursuant to such registration: (i) an opinion dated such date of counsel
representing the Corporation for the purpose of such registration, addressed to
the underwriters and to such seller, stating that such registration statement
has become effective under the Securities Act and that (A) to the best knowledge
of such counsel, no stop order suspending the effectiveness thereof has been
issued and no proceedings for that purpose have been instituted or are pending
or contemplated under the Securities Act, (B) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities Act (except that
such counsel need not express any opinion as to financial statements or other
financial data contained therein) and (C) to such other effects as reasonably
may be requested by counsel for the underwriters or by such seller or its
counsel and (ii) a letter dated such date from the independent public
accountants retained by the Corporation, addressed to the underwriters and to
such seller, stating that they are independent public accountants within the
meaning of the Securities Act and that, in the opinion of such accountants, the
financial statements of the Corporation included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act, and such letter shall additionally cover such other financial
matters (including information as to the period ending no more than five
business days prior to the date of such letter) with respect to such
registration as such underwriters reasonably may request.
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<PAGE> 8
6. REGISTRATION EXPENSES.
(a) All expenses incident to the Corporation's performance of
or compliance with this Agreement, including without limitation all
registration, listing and filing fees, fees and expenses of compliance with
securities or blue sky laws, NASD fees, fees of transfer agents and registrars,
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Corporation and all independent certified public accountants,
underwriters (excluding discounts and commissions) and other persons retained by
the Corporation (all such expenses being herein called "REGISTRATION EXPENSES"),
shall be borne as provided in this Agreement, except that the Corporation shall,
in any event, pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which similar
securities issued by the Corporation are then listed or on the NASD automated
quotation system.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Corporation shall reimburse the Stockholders for the
reasonable fees and disbursements of one counsel to the extent the Stockholders
request separate counsel from the Corporation.
(c) To the extent Registration Expenses are not required to be
paid by the Corporation, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
7. INDEMNIFICATION.
(a) The Corporation agrees to indemnify, to the extent
permitted by law, the participating Stockholders (in their capacity as a seller
of securities and not as an officer of the Corporation), their officers and
directors and each person who controls the Investors (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained in
any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Corporation by the Stockholder
expressly for use therein or by the Stockholder's failure to deliver a copy of
the registration statement or prospectus or any amendments or supplements
thereto after the Corporation has furnished the Stockholder with a sufficient
number of copies of the same. In connection with an underwritten offering, the
Corporation shall indemnify such underwriters, their officers and directors and
each person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the Investor.
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<PAGE> 9
(b) In connection with any registration statement in which the
Stockholder is participating, the Stockholder shall furnish to the Corporation
in writing such powers of attorney, custody agreements and letters of direction
and other information and affidavits as the Corporation reasonably requests for
use in connection with any such registration statement or prospectus and, to the
extent permitted by law, shall only have to indemnify the Corporation, its
directors and officers and each person who controls the Corporation (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by the Stockholder to the Corporation for specific use in
such registration statement, prospectus or amendment or supplement thereto and
which remained in the final prospectus delivered to the purchaser of such
securities; provided that the obligation to indemnify shall be limited to the
net amount of proceeds received by the Stockholder from the sale of Stockholder
Shares pursuant to such registration statement.
(c) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim. An indemnified party shall be able to assume defense if the indemnifying
party does not diligently pursue the defense of the indemnified party. In
addition, no indemnifying party should, except with the consent of each
indemnified party, consent to the entry of any judgment or enter into any
settlement.
(d) The indemnification provided for under this Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and shall survive the transfer of securities.
The Corporation also agrees to make such provisions, as are reasonably requested
by any indemnified party, for contribution to such party in the event the
Corporation's indemnification is unavailable for any reason.
(e) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
Stockholder exercising rights under this
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<PAGE> 10
Agreement, or any controlling person of any such Stockholder, makes a claim for
indemnification pursuant to this section but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this section provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling Stockholder or any such controlling person in circumstances for which
indemnification is provided under this section; then, and in each such case, the
Corporation and such Stockholder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Stockholder is responsible for the
portion represented by the percentage that the Public Offering price of its
registered securities offered by the registration statement bears to the Public
Offering price of all securities offered by such registration statement, and the
Corporation is responsible for the remaining portion; provided, however, that in
any such case, (A) no such Stockholder will be required to contribute any amount
in excess of the net proceeds received by it from the sale of its registered
securities covered by such registration statement (as further reduced by any
damages or other amounts such Stockholder was otherwise required to pay in
connection with such losses, claims, damages or liabilities); and (B) no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may
participate in any registration hereunder which is underwritten unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of securities included in any underwritten registration shall be required
to make any representations or warranties to the Corporation or the underwriters
other than representations and warranties regarding such holder and such
holder's intended method of distribution.
9. INFORMATION. The Corporation agrees, so long as any Stockholder
holds any Stockholder Shares, to use all reasonable efforts to (i) timely file
with the Securities and Exchange Commission all reports required to be filed by
the Corporation under the Securities Exchange Act of 1934, as amended, and (ii)
provide each Stockholder, upon request, information sufficient to enable such
Stockholder to sell Stockholder Shares under Rule 144 and Rule 144A of the
Securities Act; provided, however, the Corporation shall have no liability to
any Stockholder under this Section 9 unless the Corporation fails to perform
after 30 days prior written notice of a previous failure to perform.
10. DEFINITIONS.
"COMMON STOCK" means any and all of the Corporation's common stock
issued and outstanding at any given point (whether Vested Shares or Unvested
Shares), and includes (i) all classes of common stock, and (ii) any securities
issued or issuable with respect to the capital stock
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referred to in clause (i) above by way of stock dividends or stock splits or in
connection with a combination of shares, recapitalization, merger,
consolidation, or other reorganization.
"COMPANY STOCKHOLDERS" shall have the meaning set forth in the
preamble.
"CORPORATION" shall have the meaning set forth in the preamble and
shall include all of the Corporation's subsidiaries.
"CORPORATION-PAID LONG-FORM REGISTRATIONS" shall have the meaning set
forth in Section 1(b) hereof.
"DEMAND REGISTRATIONS" shall have the meaning set forth in Section 1(a)
hereof.
"EXECUTIVE" shall have the meaning set forth in the preamble and shall
include their permitted successors and assigns.
"INVESTOR" shall have the meaning in the preamble.
"LONG-FORM REGISTRATIONS" shall have the meaning set forth in Section
1(a) hereof.
"MANAGEMENT" means Mercurio & Associates, P.A., GMS Consulting Group,
Inc., Messrs. William J. Mercurio, Joseph Powers, Thomas Strahan, Robert Garrett
and Ms. Rosemarie Mulholland.
"PIGGYBACK REGISTRATION" shall have the meaning set forth in Section
2(a) hereof.
"PREFERRED STOCK" means any series of preferred stock issued by the
Corporation.
"PUBLIC OFFERING" means the offer and sale of the Corporation's Common
Stock in an offering registered under the Securities Act.
"PUBLIC SALE" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"REGISTRATION EXPENSES" shall have the meaning set forth in Section
6(a) hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SHORT-FORM REGISTRATIONS" shall have the meaning set forth in Section
1(a) hereof.
"STOCKHOLDER" shall have the meaning as set forth in the preamble and
shall include their permitted successors and assigns.
"STOCKHOLDERS" shall have the meaning as set forth in the preamble.
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"STOCKHOLDER SHARES" means (i) any Common Stock purchased or otherwise
acquired by any Stockholder, including without limitation, Unvested Shares and
Vested Shares, (ii) any equity securities issued or issuable directly or
indirectly with respect to the Common Stock referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization, (iii)
any Common Stock issuable upon conversion of the Preferred Stock, and (iv) any
other shares of any class or series of capital stock of the Corporation held by
a Stockholder. As to any particular shares constituting Stockholder Shares, such
shares shall cease to be Stockholder Shares when they have been sold to the
public through a Public Sale even if thereafter they are reacquired by a
Stockholder.
"UNVESTED SHARES" means (i) any Common Stock purchased or otherwise
acquired by an Executive which is subject to vesting requirements or, as a
result of an agreement with the Corporation or the Investor, other contractual
risk of forfeiture, and (ii) any equity securities issued or issuable directly
or indirectly with respect to the Common Stock referred to in clause (i) above
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization;
provided, however, upon the occurrence of the event or action which causes the
Executive to have vested rights in all or any portion of such Common Stock or
otherwise removes the substantial risk of forfeiture, the portion of such Common
Stock as to which "vesting" occurred shall become Vested Shares.
"VESTED SHARES" means (i) any Common Stock purchased or otherwise
acquired by a Stockholder which is free of vesting requirements and substantial
risk of forfeiture from contractual restrictions through an agreement with the
Corporation or the Investor, (ii) any Common Stock which would be issuable upon
conversion of the Preferred Stock at the Conversion Rate applicable at such
time, and (iii) any equity securities issued or issuable directly or indirectly
with respect to the Common Stock referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization; provided,
however, that, notwithstanding the foregoing, all of the Common Stock receivable
upon conversion of the Preferred Stock shall be "Vested Shares."
11. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective unless in writing and unless signed by the party against whom such
modification, amendment or waiver is to be enforced. The failure of any party to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
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13. ENTIRE AGREEMENT. Except as expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Stockholders and any
permitted subsequent holders of Stockholder Shares and the respective successors
and permitted assigns of each of them, so long as they hold Stockholder Shares.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. REMEDIES. The Corporation, the Investors, and the Executives shall
be entitled to enforce their rights under this Agreement specifically, to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that the Corporation, any Investors and
any Executive may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
17. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Corporation at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Corporation's records, or at such address or to the attention
of such other person as the recipient party has specified by prior written
notice to the sending party. Notices will be deemed to have been given hereunder
when delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Corporation's
address is:
Orius Corp.
1401 Forum Way, Suite 400
West Palm Beach, Florida 33401
Attn: William J. Mercurio, President
and a copy of all notices sent to the Corporation should be
sent to:
Akerman Senterfitt & Eidson, P.A.
Las Olas Centre, Suite 950
450 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Attn: Donn Beloff, Esq.
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18. GOVERNING LAW. This Agreement will be construed and interpreted in
accordance with and governed by the internal laws of the State of Delaware.
19. TERMINATION. The provisions of this Agreement shall expire on
February 26, 2009.
20. ENFORCEMENT. The Corporation shall use its best efforts to enforce
this Agreement for the equal benefit of all Stockholders and shall take all
actions necessary to effect the foregoing.
21. CONSENT TO JURISDICTION; SERVICE OF PROCESS. The Corporation and
the Stockholders all hereby irrevocably submit to the jurisdiction of the state
or federal courts located in Dade County, Florida or in New Castle County,
Delaware in connection with any suit, action or other proceeding arising out of
or relating to this Agreement and the transactions contemplated hereby, and
hereby agrees not to assert, by way of motion, as a defense, or otherwise in any
such suit, action or proceeding that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
by such courts.
22. WAIVER OF JURY TRIAL. THE CORPORATION AND THE STOCKHOLDERS ALL
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND TO THE FULLEST EXTENT PERMITTED BY LAW WAIVE ANY RIGHTS
THAT THEY MAY HAVE TO CLAIM OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN
CONNECTION WITH ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have agreed to this Registration
Rights Agreement as of the day and year first written above.
ORIUS CORP.
By:
----------------------------------
Its
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HIG CABLE, INC.
By:
----------------------------------
Its
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-14-
<PAGE> 1
Exhibit 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
450 EAST LAS OLAS BOULEVARD, 9TH FLOOR
FORT LAUDERDALE, FLORIDA 33301
July 28, 1999
Orius Corp.
1401 Forum Way
Suite 400
West Palm Beach, FL 33401
Re: Registration Statement on Form S-1 (File No. 333-79743)
Dear Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-1 (File No. 333-79743), filed by Orius Corp. (the "Company") with the
Securities and Exchange Commission, for the purpose of registering under the
Securities Act of 1933 an aggregate 12,535,000 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), to be offered to the
public pursuant to a proposed underwriting agreement (the "Underwriting
Agreement") between the Company and Deutsche Banc Alex. Brown, Banc of America
Securities LLC, Morgan Keegan & Company, Inc. and The Robinson-Humphrey
Company.
In connection with the foregoing registration, we have acted as
counsel for the Company, and have examined originals, or copies certified to
our satisfaction of all such corporate records of the Company, certificates of
public officials, and representatives of the Company, and other documents as we
deemed necessary to require as a basis for the opinion hereafter expressed.
Based upon the foregoing, and having regard for legal considerations
that we deem relevant, it is our opinion that:
The Common Stock will be, when issued in accordance with the
Underwriting Agreement and the Company's Articles of Incorporation, as amended,
duly authorized, legally issued, fully paid and non-assessable.
Sincerely,
/s/ AKERMAN, SENTERFITT & EIDSON, P.A.
AKERMAN, SENTERFITT & EIDSON, P.A.
<PAGE> 1
EXHIBIT 10.4
ORIUS CORP.
STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to further the interests of
Orius Corp., a Florida corporation, its subsidiaries and its shareholders by
providing incentives in the form of grants of stock options to key employees and
other persons who contribute materially to the success and profitability of the
Company. The grants will recognize and reward outstanding individual
performances and contributions and will give such persons a proprietary interest
in the Company, thus enhancing their personal interest in the Company's
continued success and progress. This program will also assist the Company and
its subsidiaries in attracting and retaining key persons.
2. DEFINITIONS. The following definitions shall apply to this Plan:
(a) "BOARD" means the board of directors of the Company.
(b) "CHANGE OF CONTROL" occurs when (i) any person, including
a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, becomes the beneficial owner of thirty percent or more of the total
number of shares entitled to vote in the election of directors of the Board,
(ii) the Company is merged into any other company or substantially all of its
assets are acquired by any other company, or (iii) three or more directors
nominated by the Board to serve as directors, each having agreed to serve in
such capacity, fail to be elected in a contested election of directors.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means the Compensation Committee consisting
solely of two or more nonemployee directors appointed by the Board.
(e) "COMMON STOCK" means the Common Stock of the Company, or
such other class of shares or securities as to which the Plan may be applicable
pursuant to Section 8 herein.
(f) "COMPANY" means Orius Corp., and any wholly-owned
subsidiary of Orius Corp.
(g) "DATE OF GRANT" means the date specified in the resolution
of the Committee authorizing the grant of the Option.
(h) "ELIGIBLE PERSON" means any person who performs or has in
the past performed services for the Company or any direct or indirect partially
or wholly-owned subsidiary
<PAGE> 2
thereof, whether as a director, officer, Employee, and any person who performs
services relating to the Company in his or her capacity as an employee of a
corporation that provides services for the Company.
(i) "EMPLOYEE" means any person employed as an employee of the
Company, excluding (i) any fee-for-service employee of the Company and (ii) any
leased or temporary employee of the Company who would be categorized as cost of
sales for financial reporting purposes.
(j) "DISPOSE OF" means any sale, gift, pledge, conveyance,
assignment, hypothecation or any other transfer.
(k) "FAIR MARKET VALUE" means the fair market value of the
Common Stock. If the Common Stock is not publicly traded on the date as of which
fair market value is being determined, the Board shall determine the fair market
value of the Shares, using such factors as the Board considers relevant, such as
the price at which recent sales of Common Stock have been made, the book value
of the Common Stock, and the Company's current and projected earnings. If the
Common Stock is publicly traded on the date as of which fair market value is
being determined, the fair market value shall be the mean between the high and
low sales prices of the Common Stock on the applicable stock exchange (or
automated quotation system, if quoted on The NASDAQ Stock Market) on that date
as reported in THE WALL STREET JOURNAL. If trading in the Common Stock or a
price quotation does not occur on the date as of which fair market value is
being determined, the next preceding date on which the Common Stock was traded
or a price was quoted will determine the fair market value.
(l) "INCENTIVE STOCK OPTION" means a stock option granted
pursuant to either this Plan or any other plan of the Company that satisfies the
requirements of Section 422 of the Code and that entitles the Recipient to
purchase stock of the Company or in a corporation that at the time of grant of
the option was a parent or subsidiary of the Company or a predecessor
corporation of any such corporation.
(m) "NONQUALIFIED STOCK OPTION" means a stock option granted
pursuant to the Plan that is not an Incentive Stock Option and that entitles the
Recipient to purchase stock of the Company or in a corporation that at the time
of grant of the option was a parent or subsidiary of the Company or a
predecessor corporation of any such corporation.
(n) "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option granted pursuant to the Plan.
(o) "OPTION AGREEMENT" means a written agreement entered into
between the Company and a Recipient which sets out the terms and restrictions of
an Option granted to the Recipient.
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<PAGE> 3
(p) "OPTION SHAREHOLDER" shall mean an Employee who has
exercised his or her Option.
(q) "OPTION SHARES" means Shares issued upon exercise of an
Option.
(r) "PLAN" means this Orius Corp. Stock Option Plan, as
amended and restated.
(s) "RECIPIENT" means an individual who receives an Option.
(t) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 8 of the Plan.
(u) "SUBSIDIARY" means any corporation 50 percent or more of
the voting securities of which are owned directly or indirectly by the Company
at any time during the existence of this Plan.
3. ADMINISTRATION. This Plan will be administered by the Committee. The
Committee has the exclusive power to select the Recipients of Options pursuant
to this Plan, to establish the terms of the Options granted to each Recipient,
and to make all other determinations necessary or advisable under the Plan. The
Committee has the sole and absolute discretion to determine whether the
performance of an Eligible Person warrants an Option under this Plan, and to
determine the size and type of the Option. The Committee has full and exclusive
power to construe and interpret this Plan, to prescribe, amend, and rescind
rules and regulations relating to this Plan, and to take all actions necessary
or advisable for the Plan's administration. The Committee, in the exercise of
its powers, may correct any defect or supply any omission, or reconcile any
inconsistency in the Plan, or in any Option Agreement, in the manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective. In
exercising this power, the Committee may retain counsel at the expense of the
Company. The Committee shall also have the power to determine the duration and
purposes of leaves of absence which may be granted to a Recipient without
constituting a termination of the Recipient's employment for purposes of the
Plan. Any determinations made by the Committee will be final and binding on all
persons. A member of the Committee will not be liable for performing any act or
making any determination in good faith.
4. SHARES SUBJECT TO PLAN. Subject to the provisions of Section 8 of
the Plan, the maximum aggregate number of Shares that may be subject to Options
under the Plan shall be 3,000,000. If an Option should expire or become
unexercisable for any reason without having been exercised, the unpurchased
Shares that were subject to such Option shall, unless the Plan has then
terminated, be available for other Options under the Plan.
5. ELIGIBILITY. Any Eligible Person that the Committee, in its sole
discretion, designates is eligible to receive an Option under this Plan. The
Committee's grant of an Option to a Recipient in any year does not require the
Committee to grant an Option to such Recipient in
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<PAGE> 4
any other year. Furthermore, the Committee may grant different Options to
different Recipients, and it has full discretion to choose whether to grant
Options to any Eligible Person. The Committee may consider such factors as it
deems pertinent in selecting Recipients and in determining the types and sizes
of their Options, including, without limitation (i) the financial condition of
the Company or its Subsidiaries; (ii) expected profits for the current or future
years; (iii) the contributions of a prospective Recipient to the profitability
and success of the Company or its Subsidiaries; and (iv) the adequacy of the
prospective Recipient's other compensation. Recipients may include persons to
whom stock, stock options, stock appreciation rights, or other benefits
previously were granted under this or another plan of the Company or any
Subsidiary, whether or not the previously granted benefits have been fully
exercised or vested. A Recipient's right, if any, to continue to serve the
Company and its Subsidiaries as an officer, Employee, or otherwise will not be
enlarged or otherwise affected by his designation as a Recipient under this
Plan, and such designation will not in any way restrict the right of the Company
or any Subsidiary, as the case may be, to terminate at any time the employment
or affiliation of any participant.
6. OPTIONS. Each Option granted to a Recipient under the Plan shall
contain such provisions as the Committee at the Date of Grant shall deem
appropriate. Each Option granted to a Recipient will satisfy the following
requirements:
(a) WRITTEN AGREEMENT. Each Option granted to a Recipient will
be evidenced by an Option Agreement. The terms of the Option Agreement need not
be identical for different Recipients. The Option Agreement shall include a
description of the substance of each of the requirements in this Section 6 with
respect to that particular Option.
(b) NUMBER OF SHARES. Each Option Agreement shall specify the
number of Shares that may be purchased by exercise of the Option.
(c) EXERCISE PRICE. Except as provided in Section 6(l), the
exercise price of each Share subject to an Incentive Stock Option shall equal
the exercise price designated by the Committee on the Date of Grant, but shall
not be less than the Fair Market Value of the Share on the Incentive Stock
Option's Date of Grant. The exercise price of each Share subject to a
Nonqualified Stock Option shall equal the exercise price designated by the
Committee on the Date of Grant.
(d) DURATION OF OPTION. Except as provided in Section 6(l), an
Incentive Stock Option granted to an Employee shall expire on the tenth
anniversary of its Date of Grant, or at such earlier date as is set by the
Committee in establishing the terms of the Incentive Stock Option at grant.
Except as provided in Section 6(l), a Nonqualified Stock Option granted to an
Employee shall expire on the tenth anniversary of its Date of Grant, or at such
earlier or later date as is set by the Committee in establishing the terms of
the Nonqualified Stock Option at grant. If the Recipient's employment with the
Company terminates before the expiration date of an Option granted to the
Recipient, the Option shall expire on the earlier of the date stated in this
subsection
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<PAGE> 5
or the date stated in following subsections of this Section. Furthermore,
expiration of an Option may be accelerated under subsection (i) below.
(e) VESTING OF OPTION. Each Option Agreement shall specify the
vesting schedule applicable to the Option. The Committee, in its sole and
absolute discretion, may accelerate the vesting of any Option at any time.
(f) DEATH. Subject to the provisions of Section 7 hereof, in
the case of the death of a Recipient, an Incentive Stock Option granted to the
Recipient shall expire on the one-year anniversary of the Recipient's death, or
if earlier, the date specified in subsection (d) above. During the one-year
period following the Recipient's death, the Incentive Stock Option may be
exercised to the extent it could have been exercised at the time the Recipient
died, subject to any adjustment under Section 8 herein. Subject to the
provisions of Section 7 of the Plan, in the case of the death of a Recipient, a
Nonqualified Stock Option granted to the Recipient shall expire on the one-year
anniversary of the Recipient's death, or if earlier, the date specified in
subsection (d) above, unless the Committee sets an earlier or later expiration
date in establishing the terms of the Nonqualified Stock Option at grant or a
later expiration date subsequent to the Date of Grant but prior to the one-year
anniversary of the Recipient's death. During the period beginning on the date of
the Recipient's death and ending on the date the Nonqualified Stock Option
expires, the Nonqualified Stock Option may be exercised to the extent it could
have been exercised at the time the Recipient died, subject to any adjustment
under Section 8 hereof.
(g) DISABILITY. Subject to the provisions of Section 7 hereof,
in the case of the total and permanent disability of a Recipient and a resulting
termination of employment or affiliation with the Company, an Incentive Stock
Option granted to the Recipient shall expire on the one-year anniversary of the
Recipient's last day of employment, or, if earlier, the date specified in
subsection (d) above. During the one-year period following the Recipient's
termination of employment or affiliation by reason of disability, the Incentive
Stock Option may be exercised as to the number of Shares for which it could have
been exercised at the time the Recipient became disabled, subject to any
adjustments under Section 8 hereof. Subject to the provisions of Section 7, in
the case of the total and permanent disability of a Recipient and a resulting
termination of employment or affiliation with the Company, a Nonqualified Stock
Option granted to the Recipient shall expire on the one-year anniversary of the
Recipient's last day of employment, or, if earlier, the date specified in
subsection (d) above, unless the Committee sets an earlier or later expiration
date in establishing the terms of the Nonqualified Stock Option at grant or a
later expiration date subsequent to the Date of Grant but prior to the one-year
anniversary of the Recipient's last day of employment or affiliation with the
Company. During the period beginning on the date of the Recipient's termination
of employment or affiliation by reason of disability and ending on the date the
Nonqualified Stock Option expires, the Nonqualified Stock Option may be
exercised as to the number of Shares for which it could have been exercised at
the time the Recipient became disabled, subject to any adjustments under Section
8 hereof.
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<PAGE> 6
(h) RETIREMENT. Subject to the provisions of Section 7 hereof,
if the Recipient's employment with the Company terminates by reason of normal
retirement under the Company's normal retirement policies, an Incentive Stock
Option granted to the Recipient shall expire 90 days after the last day of
employment, or, if earlier, on the date specified in subsection (d) above.
During the 90-day period following the Recipient's normal retirement, the
Incentive Stock Option may be exercised as to the number of Shares for which it
could have been exercised on the retirement date, subject to any adjustment
under Section 8 hereof. Subject to the provisions of Section 7, if the
Recipient's employment with the Company terminates by reason of normal
retirement under the Company's normal retirement policies, a Nonqualified Stock
Option granted to the Recipient shall expire 90 days after the last day of
employment, or, if earlier, on the date specified in subsection (d) above,
unless the Committee sets an earlier or later expiration date in establishing
the terms of the Nonqualified Stock Option at grant or a later expiration date
subsequent to the Date of Grant but prior to the end of the 90-day period
following the Recipient's normal retirement. During the period beginning on the
date of the Recipient's normal retirement and ending on the date the
Nonqualified Stock Option expires, the Nonqualified Stock Option may be
exercised as to the number of Shares for which it could have been exercised on
the retirement date, subject to any adjustment under Section 8 hereof.
(i) TERMINATION OF SERVICE. Subject to the provisions of
Section 7 hereof, if the Recipient ceases employment or affiliation with the
Company for any reason other than death, disability, or retirement (as described
above), an Incentive Stock Option granted to the Recipient shall expire 90 days
after the Recipient's last day of employment or affiliation with the Company,
or, if earlier, on the date specified in subsection (d) above, unless the
Committee sets an earlier expiration date in establishing the terms of the
Incentive Stock Option at grant. During the 90-day period following the
termination of the Recipient's employment or affiliation with the Company, the
Incentive Stock Option may be exercised as to the number of Shares for which it
could have been exercised on the date of termination, subject to any adjustment
under Section 8 hereof. Subject to the provisions of Section 7, if the Recipient
ceases employment or affiliation with the Company for any reason other than
death, disability, or retirement (as described above), a Nonqualified Stock
Option granted to the Recipient shall expire 90 days after the Recipient's last
day of employment or affiliation with the Company, or, if earlier, on the date
specified in subsec tion (d) above, unless the Committee sets an earlier or
later expiration date in establishing the terms of the Nonqualified Stock Option
at grant or a later expiration date subsequent to the Date of Grant but prior to
the end of the 90-day period following the Recipient's last day of employment or
affiliation with the Company. During the period following the termination of the
Recipient's employment or affiliation with the Company, the Nonqualified Stock
Option may be exercised as to the number of Shares for which it could have been
exercised on the date of termination, subject to any adjustment under Section 8
hereof. Notwithstanding any provisions set forth herein, if the Recipient shall
(i) commit any act of malfeasance or wrongdoing affecting the Company or any
parent or subsidiary, (ii) breach any covenant not to compete or employment
agreement with the Company or any parent or Subsidiary, or (iii) engage in
conduct that would warrant the Recipient's discharge for cause, any unexercised
part of the Option shall lapse immediately upon
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<PAGE> 7
the earlier of the occurrence of such event or the last day the Recipient is
employed by the Company.
(j) CHANGE OF CONTROL. If a Change of Control occurs, the
Board may vote to immediately terminate all Options outstanding under the Plan
as of the date of the Change of Control or may vote to accelerate the expiration
of the Options to the tenth day after the effective date of the Change of
Control. If the Board votes to immediately terminate the Options, it shall make
a cash payment to the Recipient equal to the difference between the Exercise
Price and the Fair Market Value of the Shares that would have been subject to
the terminated Option on the date of the Change of Control.
(k) CONDITIONS REQUIRED FOR EXERCISE. Options granted to
Recipients under the Plan shall be exercisable only to the extent they are
vested according to the terms of the Option Agreement. Furthermore, Options
granted to Employees under the Plan shall be exercisable only if the issuance of
Shares pursuant to the exercise would be in compliance with applicable
securities laws, as contemplated by Section 7 of the Plan. Each Agreement shall
specify any additional conditions required for the exercise of the Option.
(l) TEN PERCENT SHAREHOLDERS. An Incentive Stock Option
granted to an individual who, on the Date of Grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
either the Company or any parent or Subsidiary, shall be granted at an exercise
price of 110 percent of Fair Market Value on the Date of Grant and shall be
exercisable only during the five-year period immediately following the Date of
Grant. In calculating stock ownership of any person, the attribution rules of
Code Section 424(d) will apply. Furthermore, in calculating stock ownership, any
stock that the individual may purchase under outstanding options will not be
considered.
(m) MAXIMUM OPTION GRANTS. The aggregate Fair Market Value,
determined on the Date of Grant, of stock in the Company with respect to which
any Incentive Stock Option under the Plan and all other plans of the Company or
its Subsidiaries (within the meaning of Section 422(b) of the Code) may become
exercisable by any individual for the first time in any calendar year shall not
exceed $100,000.
(n) METHOD OF EXERCISE. An Option granted under this Plan
shall be deemed exercised when the person entitled to exercise the Option (i)
delivers written notice to the President of the Company (or his delegate, in his
absence) of the decision to exercise, (ii) concurrently tenders to the Company
full payment for the Shares to be purchased pursuant to the exercise, and (iii)
complies with such other reasonable requirements as the Committee establishes
pursuant to this Section 6 of the Plan. Payment for Shares with respect to which
an Option is exercised may be made in cash, or by certified check, or wholly or
partially in the form of Common Stock having a Fair Market Value equal to the
exercise price, or by delivery of a notice instructing the Company to deliver
the shares being purchased to a broker subject to the broker's delivery of cash
to the Company equal to the purchase price. No person will have the rights of
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<PAGE> 8
a shareholder with respect to Shares subject to an Option granted under this
Plan until a certificate or certificates for the Shares have been delivered to
him. A partial exercise of an Option will not affect the holder's right to
exercise the Option from time to time in accordance with this Plan as to the
remaining Shares subject to the Option.
(o) LOAN FROM COMPANY TO EXERCISE OPTION. The Committee may,
in its discretion and subject to the requirements of applicable law, recommend
to the Company that it lend the Recipient the funds needed by the Recipient to
exercise an Option. The Recipient shall make application to the Company for the
loan, completing the forms and providing the information required by the
Company. The loan shall be secured by such collateral and be subject to such
repayment terms and interest rate as the Company may require, subject to its
underwriting requirements and the requirements of applicable law. The Recipient
shall execute a promissory note and any other documents deemed necessary by the
committee.
(p) DESIGNATION OF BENEFICIARY. Each Recipient shall
designate, in the Option Agreement he executes, a beneficiary to receive Options
awarded hereunder in the event of his death prior to full exercise of such
Options; provided, that if no such beneficiary is designated or if the
beneficiary so designated does not survive the Recipient, the estate of such
Recipient shall be deemed to be his beneficiary. Recipients may, by written
notice to the Committee, change the beneficiary designated in any outstanding
Option Agreements.
(q) TRANSFERABILITY OF OPTION.
(1) To the extent permitted by tax, securities or
other applicable laws to which the Company, the Plan, Recipients or Eligible
Persons are subject, a Recipient of a Nonqualified Stock Option may transfer
such Option to (i) the Recipient's spouse, child, grandchild or parent, (ii) a
trust for the benefit of the Recipient's spouse, child, grandchild or parent, or
(iii) a partnership whose partners consist solely of the Recipient's spouse,
child, grandchild or parent, unless provided otherwise by the Committee in
establishing the terms of such Option at the Date of Grant.
(2) An Incentive Stock Option granted under this Plan
is not transferable except by will or the laws of descent and distribution.
During the lifetime of the Recipient, all rights of the Incentive Stock Option
are exercisable only by the Recipient. This Section 6(q)(2) shall apply to an
Incentive Stock Option granted under the Plan only so long as Code Section 422
(or a successor Code provision) requires application of this restriction on
transferability. In the event that this Section 6(q)(2) no longer applies to an
Incentive Stock Option granted under this Plan, such Option shall be subject to
Section 6(q)(1) of the Plan.
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<PAGE> 9
7. TAXES; COMPLIANCE WITH LAW; APPROVAL OF REGULATORY BODIES; LEGENDS.
The Company shall have the right to withhold from payments otherwise due and
owing to the Recipient (or his beneficiary) or to require the Recipient (or his
beneficiary) to remit to the Company in cash upon demand an amount sufficient to
satisfy any federal (including FICA and FUTA amounts), state, and/or local
withholding tax requirements at the time the Recipient (or his beneficiary)
recognizes income for federal, state, and/or local tax purposes with respect to
any Option under this Plan.
Options can be granted, and Shares can be delivered under this Plan,
only in compliance with all applicable federal and state laws and regulations
and the rules of all stock exchanges on which the Company's stock is listed at
any time. An Option is exercisable only if either (a) a registration statement
pertaining to the Shares to be issued upon exercise of the Option has been filed
with and declared effective by the Securities and Exchange Commission and
remains effective on the date of exercise, or (b) an exemption from the
registration requirements of applicable securities laws is available. This Plan
does not require the Company, however, to file such a registration statement or
to assure the availability of such exemptions. Any certificate issued to
evidence Shares issued under the Plan may bear such legends and statements, and
shall be subject to such transfer restrictions, as the Committee deems advisable
to assure compliance with federal and state laws and regulations and with the
requirements of this Section. No Option may be exer cised, and Shares may not be
issued under this Plan, until the Company has obtained the consent or approval
of every regulatory body, federal or state, having jurisdiction over such
matters as the Committee deems advisable.
Each person who acquires the right to exercise an Option may be
required by the Committee to furnish reasonable evidence of ownership of the
Option as a condition to his exercise of the Option. In addition, the Committee
may require such consents and releases of taxing authorities as the Committee
deems advisable.
With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934 ("1934 Act"), transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the 1934 Act, as such
Rule may be amended from time to time, or its successor under the 1934 Act. To
the extent any provision of the Plan or action by the Plan administrators fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
8. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other expansion or
contraction of the Common Stock of the Company occurs, the number and class of
Shares for which Options are authorized to be granted under this Plan, the
number and class of Shares then subject to Options previously granted to
Employees under this Plan, and the price per Share payable upon exercise of each
Option outstanding under this Plan shall be equitably adjusted by the Committee
to reflect such
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<PAGE> 10
changes. To the extent deemed equitable and appropriate by the Committee,
subject to any required action by shareholders, in any merger, consolidation,
reorganization, liquidation or dissolution, any Option granted under the Plan
shall pertain to the securities and other property to which a holder of the
number of Shares of stock covered by the Option would have been entitled to
receive in connection with such event.
9. LIABILITY OF THE COMPANY. The Company, its parent and any Subsidiary
that is in existence or hereafter comes into existence shall not be liable to
any person for any tax consequences incurred by a Recipient or other person with
respect to an Option.
10. AMENDMENT AND TERMINATION OF PLAN. The Board may alter, amend, or
terminate this Plan from time to time without approval of the shareholders of
the Company. The Board may, however, condition any amendment on the approval of
the shareholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws to which the Company, the
Plan, Recipients or Eligible Persons are subject. Any amendment, whether with or
without the approval of shareholders of the Company, that alters the terms or
provisions of an Option granted before the amendment (unless the alteration is
expressly permitted under this Plan) will be effective only with the consent of
the Recipient to whom the Option was granted or the holder currently entitled to
exercise it.
11. EXPENSES OF PLAN. The Company shall bear the expenses of
administering the Plan.
12. DURATION OF PLAN. Options may be granted under this Plan only
during the 10 years immediately following the effective date of this Plan.
13. APPLICABLE LAW. The validity, interpretation, and enforcement of
this Plan are governed in all respects by the laws of Florida and the United
States of America.
14. EFFECTIVE DATE. The effective date of this Plan shall be the
earlier of (i) the date on which the Board adopts the Plan or (ii) the date on
which the shareholders of the Company approve the Plan.
Adopted by the Board of Directors on
______________, 1999.
Approved by the Shareholders on
______________, 1999.
10
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports relating to the following financial statements which appear in such
Registration Statement.
Financial Statements Date of Report
- -------------------- --------------
Orius Corp. and Subsidiaries April 29, 1999, except as
to the stock split described
in Note 18 which is as
of July 7, 1999
U.S. Cable, Inc. April 1, 1999
CATV Subscriber Services, Inc April 23, 1999
DAS-CO of Idaho, Inc. May 3, 1999
Copenhagen Utilities and Construction, Inc. May 20, 1999
Texel Corporation May 14, 1999
We also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
July 28, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Network Cabling Services, Inc.
Houston, Texas
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on the pre-effective Amendment No. 2 to Form S-1 of Orius
Corp. of our report dated December 22, 1998, (except for Note 10, which date is
February 26, 1999) relating to the financial statements of Network Cabling
Services, Inc., which is contained in that Prospectus.
We also consent to the reference of us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
- --------------------------
BDO Seidman, LLP
Houston, Texas
July 27, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 17, 1999 related to the financial statements of Schatz
Underground Cable, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ Milhouse, Martz & Neal, LLP
-------------------------------
MILHOUSE, MARTZ & NEAL, LLP
Certified Public Accountants
July 22, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated February 27, 1998 and August 15, 1997, except as to the third
paragraph which is dated as of May 26, 1999, related to the financial statements
of Kenya Corporation and subsidiary (d/b/a Channel Communications), which appear
in such Registration Statement. We also consent to the references to us under
the headings "Experts" in such Registration Statement.
Williams Young, LLC
/s/ Williams Young, LLC
Madison, Wisconsin
July 23, 1999
<PAGE> 1
Exhibit 99.1
CONSENT
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to all references to him in the Form S-1
Registration Statement of Orius Corp., and the prospectus included therein,
including, without limitation, any references under the heading "Management" to
the undersigned serving as a future director of Orius Corp.
Dated: July 28, 1999 /s/ Leo J. Hussey
----------------------------
Leo J. Hussey
<PAGE> 1
Exhibit 99.2
CONSENT
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to all references to him in the Form S-1
Registration Statement of Orius Corp., and the prospectus included therein,
including, without limitation, any references under the heading "Management" to
the undersigned serving as a future director of Orius Corp.
Dated: July 28, 1999 /s/ Ronald J. Mittelstaedt
----------------------------
Ronald J. Mittelstaedt
<PAGE> 1
Exhibit 99.3
CONSENT
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to all references to him in the Form S-1
Registration Statement of Orius Corp., and the prospectus included therein,
including, without limitation, any references under the heading "Management" to
the undersigned serving as a future director of Orius Corp.
Dated: July 28, 1999 /s/ Gerald E. Wedren
----------------------------
Gerald E. Wedren
<PAGE> 1
Exhibit 99.4
CONSENT
Pursuant to Rule 438 of the Securities Act of 1933, as amended, the
undersigned hereby consents to all references to him in the Form S-1
Registration Statement of Orius Corp., and the prospectus included therein,
including, without limitation, any references under the heading "Management" to
the undersigned serving as a future director of Orius Corp.
Dated: July 28, 1999 /s/ Joseph P. Powers
----------------------------
Joseph P. Powers
