<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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>
FLORIDA 1623 65-0894212
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization Classification Code Number) No.)
</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)
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WILLIAM J. MERCURIO
CHIEF EXECUTIVE OFFICER
ORIUS CORP.
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)
Copies of all communications, including communications sent to agent for
service, should be sent to:
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DENNIS M. MYERS MARK C. SMITH
KIRKLAND & ELLIS SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP
200 EAST RANDOLPH DRIVE 4 TIMES SQUARE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10036
(312) 861-2000 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1)(2) AMOUNT OF REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.01 per share......... $250,000,000 $66,000
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</TABLE>
(1) Includes shares of Common Stock that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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 THIS 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 it is not soliciting an offer to
buy these securities in any State where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
Shares
(ORIUS LOGO)
ORIUS CORP.
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "ORIS."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ORIUS CORP.
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<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON DEUTSCHE BANC ALEX. BROWN
FIRST UNION SECURITIES, INC.
SUNTRUST EQUITABLE SECURITIES
The date of this prospectus is , 2000.
<PAGE> 3
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TABLE OF CONTENTS
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PAGE
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<S> <C>
PROSPECTUS SUMMARY................... 1
RISK FACTORS......................... 6
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS......... 14
USE OF PROCEEDS...................... 15
THE RECLASSIFICATION................. 16
CAPITALIZATION....................... 17
DIVIDEND POLICY...................... 18
DILUTION............................. 18
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS............... 19
SELECTED HISTORICAL FINANCIAL DATA... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 34
BUSINESS............................. 43
MANAGEMENT........................... 57
</TABLE>
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PAGE
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PRINCIPAL SHAREHOLDERS............... 66
CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS................. 68
DESCRIPTION OF CAPITAL STOCK......... 71
DESCRIPTION OF INDEBTEDNESS.......... 74
SHARES ELIGIBLE FOR FUTURE SALE...... 78
MATERIAL UNITED STATES TAX
CONSIDERATIONS FOR NON-UNITED
STATES HOLDERS..................... 80
UNDERWRITING......................... 83
NOTICE TO CANADIAN RESIDENTS......... 86
LEGAL MATTERS........................ 87
EXPERTS.............................. 87
WHERE YOU CAN FIND MORE
INFORMATION........................ 88
SUPPLEMENTAL UNAUDITED PRO FORMA
FINANCIAL DATA..................... 89
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
i
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(This Page Intentionally Left Blank)
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights the material information about our company and this
offering. This summary does not contain all of the information that may be
important to you in deciding to invest in our common stock. You should read the
entire prospectus, including the financial data and related notes, carefully
before making an investment decision. Unless otherwise indicated, pro forma
revenue data presented in this prospectus gives effect to the acquisitions we
completed in 1999 and 2000, as if each of these transactions had occurred at the
beginning of the period presented.
ORIUS CORP.
Orius is a leading nationwide provider of technical expertise and
comprehensive network services to the telecom industry, which includes the
telecommunications and broadband industries. With operations in 48 states, we
offer a full spectrum of network services, including the design, engineering,
deployment and maintenance of our customers' fiber optic, coaxial and copper
cable networks. We provide both internal network services, primarily within the
central offices of our customers, and external network services in the field. We
believe that we are the largest independent provider of central office services
in the U.S. We believe our comprehensive range of capabilities and mix of
internal and external network services are unique and position us to realize
multiple cross-selling opportunities and to satisfy all of our customers'
network infrastructure needs.
In 1999, we provided services to more than 300 customers and completed more
than 10,000 individual projects. We have developed strong and long-standing
relationships with many established and emerging telecommunications and
broadband service providers by providing high quality, responsive and reliable
service. Through our operating divisions, we have enjoyed business relationships
with many of our larger customers for more than 20 years. Our telecommunications
customers include Ameritech, AT&T, DTI, MCI Worldcom, Qwest, SBC Communications,
Verizon, Williams Communications and Universal Access. Our broadband customers
include Adelphia, AT&T Broadband & Internet Services, Charter Communications,
Clearsource, Comcast, Cox Communications and Digital Access. We provide
integrated premise services for commercial, governmental and institutional
customers such as Compaq, Dell, EDS and the World Bank. Additionally, we install
equipment from leading manufacturers such as NEC, Lucent Technologies, Nortel
Networks and Siemens. For the six months ended June 30, 2000, over 85% of our
pro forma revenue was generated from repeat customers. Our pro forma revenue has
increased 47.2% to $369.5 million in the first six months of 2000 from $251.1
million in the comparable 1999 period.
In our customers' competitive environment where speed to market is
essential, our comprehensive range of capabilities provides the critical, often
scarce, resources that our customers need. With more than 250 engineers and
significant technical expertise, we have the ability to design, engineer, deploy
and maintain networks more quickly and cost effectively than many of our
customers could themselves. We believe that our existing and new customers will
increasingly use our services as a result of our comprehensive range of
technical capabilities, mix of internal and external network services, ability
to provide high quality, responsive service on a consistent basis and our broad
geographic coverage.
We offer the following services:
- Internal Network Services. We design, engineer, deploy and maintain
a broad range of network solutions within the central offices of
our telecommunications customers, including broadband digital cross
connect systems, digital subscriber lines, or DSLs, and platforms.
We refer to this as "central office services." We also provide
interior wiring services to commercial, governmental and
institutional entities, which we refer to as "integrated premise
services." Our internal network services are characterized by
strong growth, low capital requirements and fragmented competition.
In addition, our maintenance services, which include the daily
maintenance and upgrades of systems to restore network integrity
and increase network capacity, provide steady, recurring revenues.
Our internal network services
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revenue increased on a pro forma basis 51.4% to $154.4 million for
the six months ended June 30, 2000 from $102.0 million for the six
months ended June 30, 1999.
- External Network Services. We design, engineer, deploy and maintain
entire communications networks located outside our customers'
central offices, including fiber optic, coaxial and copper cable
networks, as well as other Internet infrastructure. We provide
end-to-end solutions for our customers, from planning and designing
to deploying and maintaining our customers' networks. These
services complement our internal network capabilities and enhance
our ability to increase market share within our customer base.
Additionally, by providing on-going maintenance and network
upgrades, our external services generate steady, recurring
revenues. Our external network services revenue increased on a pro
forma basis 44.3% to $215.1 million for the six months ended June
30, 2000 from $149.0 million for the six months ended June 30,
1999.
We believe the overall market for our services in 1999 was approximately
$61 billion. Industry sources expect this market to grow 19% per annum to $103
billion by 2002. Included in this total market in 1999 is the approximately $7
billion central office services market, which industry sources expect to grow at
41% per annum to $20 billion by 2002.
We believe that we have significant growth opportunities for the following
reasons:
- Our customers are making large capital investments as they build
and expand their networks to accommodate the increased voice, video
and data traffic on their networks and as they race to enter new
markets in response to the Telecommunications Act of 1996.
- Our customers increasingly outsource the services we provide so
that they can focus on their core businesses.
- Our customers are beginning to simplify their vendor management and
rely on fewer preferred network infrastructure service providers.
Our comprehensive range of technical capabilities, mix of internal
and external network services, ability to provide high quality,
responsive service on a consistent basis and our broad geographic
coverage position us to fulfill an increasing percentage of our
customers' network service requirements.
- We are technology and vendor independent. This independence allows
us to provide service across nearly all competing network
infrastructure technologies and minimizes our risk of technological
obsolescence.
Our objective is to exploit the rapid growth within the telecom industry
and enhance our position as a leading nationwide provider of technical expertise
and comprehensive network services in the U.S. The key elements of our strategy
are to:
- Focus on the growth prospects of our existing operations, and
specifically:
-- Create new revenue streams by expanding our service offerings
and focusing on establishing new customers in both the
wireline and wireless markets,
-- Increase our market share within our existing customer base by
focusing on providing high quality, responsive service and on
realizing cross-selling opportunities between our internal and
external network services,
-- Continue to increase profitability by streamlining our
operations and gaining operating efficiencies through more
effective utilization of resources, and
-- Continue to enhance our national service capabilities through
ongoing expansion into new geographic markets.
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<PAGE> 7
- Pursue selected acquisitions that expand our service capabilities,
provide access to new customers and broaden our geographic
presence.
- Attract, motivate and retain a highly qualified workforce that is
capable of consistently delivering innovative customer solutions
and high quality service.
RECENT DEVELOPMENTS
In July 2000, we entered into a non-binding letter of intent to acquire a
northeastern provider of central office services for approximately $20 million.
This central office service provider generated approximately $15 million of
revenue in 1999. Completion of this acquisition is conditioned upon satisfactory
completion of due diligence and negotiation of a definitive agreement. If we
complete this acquisition, we would expect the closing to occur in the fourth
quarter of 2000.
ADDITIONAL INFORMATION
Orius Corp. was incorporated under the laws of Florida in January 1999. Our
principal executive office is located at 1401 Forum Way, Suite 400, West Palm
Beach, Florida 33401, and our telephone number is (561) 687-8300.
3
<PAGE> 8
THE OFFERING
Common stock offered....... shares
Common stock to be
outstanding after this
offering................. shares
Use of proceeds............ We intend to use the net proceeds of this offering:
- to repay a portion of the indebtedness
outstanding under our senior credit
facility;
- to repay a portion of our outstanding
senior subordinated notes and pay
prepayment premiums and interest accrued on
those notes;
- to repay a portion of our outstanding
junior subordinated notes and interest
accrued on those notes; and
- for general corporate purposes.
Proposed Nasdaq National
Market symbol............ ORIS
Unless otherwise indicated, the share numbers used in this prospectus are
based on the number of shares of common stock outstanding as of September ,
2000 and give effect to the automatic conversion of all of our series C
preferred stock into common stock immediately prior to this offering. See "The
Reclassification." Unless otherwise indicated, the share numbers exclude:
- shares of common stock that may be issued to cover over-allotments
of shares;
- shares of common stock issuable upon exercise of outstanding stock
options; and
- approximately additional shares of common stock expected
to be reserved for future grants, awards or sale under our stock
incentive plans. See "Management."
RISK FACTORS
Investing in our common stock involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of some of the risks you
should carefully consider before investing in our common stock.
4
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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below is summary unaudited pro forma financial data for Orius.
The summary unaudited pro forma financial data has been derived by the
application of pro forma adjustments to our historical consolidated financial
statements and to each of the companies acquired by us in 1999 and 2000. The
summary unaudited pro forma financial data presented below is intended to give
you a better understanding of what the results of operations of all of our
businesses might have looked like had they been combined as of the beginning of
the periods presented and what our combined financial position might have looked
like at June 30, 2000. You should read the summary unaudited pro forma financial
data in conjunction with the information contained in "Unaudited Pro Forma
Financial Statements," "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Supplemental Unaudited Pro Forma Financial Data" and the financial statements
and the related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1999 1999 2000
--------------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $587,179 $251,051 $369,501
Expenses:
Direct costs......................................... 422,223 181,885 263,334
General and administrative........................... 60,344 24,810 41,846
Depreciation and amortization........................ 26,795 13,397 14,522
-------- -------- --------
Total operating expenses........................ 509,362 220,092 319,702
Income from operations.................................. 77,817 30,959 49,799
Other expense (income):
Interest expense, net................................ 41,679 20,841 20,841
Other expense (income)............................... 142 (210) (105)
-------- -------- --------
Income before income tax provision...................... 35,996 10,328 29,063
Provision for income taxes.............................. 21,798 6,103 15,352
-------- -------- --------
Net income before extraordinary charges................. $ 14,198 $ 4,225 $ 13,710
Earnings per share:
Basic................................................ $ $ $
Diluted.............................................. $ $ $
Weighted average shares:
Basic................................................
Diluted..............................................
OTHER DATA:
Gross profit(1)......................................... $164,956 $ 69,166 $106,167
Gross margin percentage................................. 28.1% 27.6% 28.7%
Depreciation expense.................................... 9,857 4,928 6,053
Amortization expense.................................... 16,938 8,469 8,469
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
2000
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<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,623
Working capital........................................... 134,911
Goodwill.................................................. 418,713
Total assets.............................................. 714,872
Total debt................................................ 377,890
Total shareholders' equity................................ 242,887
</TABLE>
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(1) Gross profit is computed as revenues less direct costs.
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RISK FACTORS
You should carefully consider the following factors in addition to the
other information set forth in this prospectus before purchasing our common
stock. The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties that we do not presently know about or
that we currently believe are immaterial may also inadvertently impact our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations will likely suffer. This could
cause the trading price of our common stock to fall, and you may lose all or
part of the money you paid to buy our common stock.
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
WE HAVE EXPERIENCED RAPID GROWTH WITHIN THE PAST THREE YEARS, HAVING ACQUIRED 18
BUSINESSES AND HAVING EXPERIENCED SIGNIFICANT ORGANIC GROWTH. IF WE ARE UNABLE
TO MANAGE THIS GROWTH, OUR PROFITABILITY WILL BE REDUCED, WHICH COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
The growth of our business through acquisitions and organic growth at our
existing operations within the past three years has placed, and is expected to
continue to place, a significant strain on our managerial, operational and
financial resources. As part of our growth strategy, we expect to pursue
additional acquisitions in the future. If we are unable to manage our growth,
our profitability will be reduced. To manage any future growth, we must continue
to implement and improve our operational and financial systems, and must expand,
train and manage our expanded employee base. For example, we had 5,610 employees
at June 30, 2000, as compared to 4,422 employees at December 31, 1999. We may
encounter unexpected difficulties in managing the expansion of our operations,
and our systems, products and controls may be inadequate to support our expanded
operations. Any inability to manage growth effectively could reduce our
profitability.
IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES, OR IF A SHORTAGE OF
LABOR INCREASES OUR LABOR COSTS SUBSTANTIALLY, OUR PROFITABILITY WILL BE
REDUCED, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
Our ability to provide high-quality services on a timely basis requires
that we employ an adequate number of skilled engineers, installation
technicians, equipment operators, linemen, foremen, cable and fiber splicers and
project managers. As projects are completed, we typically experience a high
turn-over rate among these employees. If we are unable to attract and retain
qualified employees, our profitability will be reduced. We, like many of our
competitors, are currently experiencing shortages of qualified personnel. We may
not be able to maintain the skilled labor force necessary to operate efficiently
and to support our growth strategy. In addition, our labor expenses could
increase as a result of a shortage in the supply of skilled personnel. To the
extent we cannot hire employees on a full-time basis, we are often required to
hire independent contractors at rates higher than those we would pay to our own
employees for comparable work. As of June 30, 2000, we had approximately 1,800
subcontracted workers. A substantial increase in our labor costs would also
reduce our profitability.
IF WE ARE UNABLE TO ENHANCE OUR SERVICE OFFERINGS TO KEEP PACE WITH
TECHNOLOGICAL CHANGES, INCLUDING THE INCREASED DEMAND FOR WIRELESS TECHNOLOGY,
DEMAND FOR OUR SERVICES WOULD BE REDUCED.
New technologies could reduce the need for installation, repair and
replacement of wireline services, which could reduce the demand for our
services. The telecom 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. We do not currently design, install or repair wireless networks,
although we intend to expand our service offerings to include these services in
the future. We may not be successful in developing or marketing our services to
wireless network operators. If we do not successfully respond to the
technological advances and competitively address the needs of a changing
marketplace, the demand for our services will be reduced. In addition, our
customers may
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develop new technologies that allow users to receive enhanced services without a
significant upgrade of their existing telecommunications and broadband networks.
WE EXPECT OUR QUARTERLY RESULTS TO FLUCTUATE. IF WE FAIL TO MEET REVENUE AND
EARNINGS ESTIMATES, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
Quarterly variations in our revenues and net income result from many
factors, including:
- variations in the margins of projects performed during any
particular quarter;
- the timing and magnitude of acquisitions;
- the timing and volume of work under new agreements;
- the spending patterns of customers;
- the termination of existing agreements;
- costs we incur to support growth internally or otherwise;
- the change in mix of our customers, contracts and business;
- fluctuations in construction and design costs; and
- regional and general economic conditions.
Due to these factors, quarterly revenues, expenses and results of
operations could vary significantly in the future. You should take these factors
into account when evaluating past periods, and, because of the potential
variability due to these factors, you should not rely upon results of past
periods as an indication of our future performance. In addition, the long-term
viability of our business could be negatively impacted if there were a downward
trend in these factors. Because our operating results may vary significantly
from quarter to quarter based upon the factors described above, results may not
meet the expectations of securities analysts and investors, and this could cause
the price of our common stock to decline significantly.
OUR BUSINESS IS SEASONAL, EXPOSING US TO REDUCED REVENUE IN THE FIRST AND FOURTH
QUARTERS OF EACH YEAR, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK
TO DECLINE.
Our revenue and net income in the first quarter and the fourth quarter have
in the past been, and may in the future be, reduced by adverse holiday season
shutdowns, weather conditions and the year-end budgetary spending patterns of
our customers. We believe these variations are partly due to the fact that the
budgetary years of our customers end in December and their new budgets may not
be in place until well into the first quarter. We believe our customers
sometimes delay their work orders until their budgets are in place. The onset of
winter also affects our ability to render certain network services that must be
performed outdoors. The quarterly variations in our revenues and income could
negatively impact the trading price of our stock.
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<PAGE> 12
For example, our pro forma revenue for each of the four quarters of 1999
and the first and second quarters of 2000 were:
<TABLE>
<CAPTION>
PRO FORMA REVENUE
QUARTER (IN MILLIONS)
--------------------------------------------------- -----------------
<S> <C>
1999
First quarter............................ $111
Second quarter........................... 140
Third quarter............................ 166
Fourth quarter........................... 170
2000
First quarter............................ 171
Second quarter........................... 199
</TABLE>
Although our revenue did not decrease during the fourth quarter of 1999 and the
first quarter of 2000, our revenues remained relatively flat despite
comparatively large increases during the first three quarters of 1999 and the
second quarter of 2000. Because our operating results may vary significantly
from quarter to quarter based upon the factors described above, results may not
meet the expectations of securities analysts and investors, and this could cause
the price of our common stock to decline significantly.
IF WE WERE TO LOSE VERIZON AS A CUSTOMER, OUR REVENUE WOULD DECREASE
SUBSTANTIALLY, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE.
Our revenue from Verizon represented approximately 25% for the six months
ended June 30, 2000 and 20% of our pro forma revenue for 1999. In recent months,
our revenue from Verizon has increased in both absolute terms and as a
percentage of our revenue and this trend may continue for the foreseeable
future. The loss of Verizon as a customer or a significant decline in its demand
for our services would substantially reduce our revenue. Many of our contracts
with Verizon do not guarantee us a particular amount of work, therefore, despite
the long-term nature of some of these contracts, they do not provide us with the
security that a typical long-term contract might.
ALL OF OUR CUSTOMER CONTRACTS CAN BE CANCELED ON SHORT NOTICE. IF OUR CUSTOMER
CONTRACTS WERE CANCELED, OUR REVENUE WOULD DECREASE, WHICH COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
All of our customer contracts are cancelable upon 90 days' notice or less
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. Accordingly,
our future revenues may not approximate our historical performance. In addition,
because all of our customer contracts are cancelable, our backlog, which was
approximately $663 million as of June 30, 2000, is not necessarily indicative of
our future revenue. 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 revenue would decrease.
IF WE ARE UNABLE TO CONTINUE TO SUCCESSFULLY INTEGRATE THE COMPANIES WE HAVE
ACQUIRED AND TO MANAGE THE RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY, OUR
BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE.
If we are unable to integrate or successfully manage the companies we have
acquired or the businesses that we may acquire in the future, we may not realize
anticipated cost savings and revenue growth, which may result in reduced
profitability or operating losses.
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;
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<PAGE> 13
- 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
businesses.
The realization of all or any of the risks described above could materially
and adversely affect the reputation of our company and reduce our revenues.
IF WE ARE UNABLE TO IDENTIFY AND ATTRACT ACQUISITION CANDIDATES AND TO OBTAIN
FINANCING FOR FUTURE ACQUISITIONS, IT WOULD DISRUPT OUR GROWTH STRATEGY, WHICH
COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
Our recent growth has been due in part to acquisitions, and our growth
strategy includes making additional acquisitions. Increased competition for
acquisition candidates has raised prices for these targets and lengthened the
time period required to recoup our investment. Our acquisition strategy
incorporates the risks inherent in:
- assessing the value, strengths and weaknesses of growth
opportunities and
- evaluating the costs and uncertain returns of expanding our
operations.
We may not be able to continue to identify and acquire appropriate
businesses on favorable terms or at all or to obtain financing for acquisitions
on favorable terms, if at all. Financing our future acquisitions could also
result in:
- a likely issuance of additional shares of our capital stock, which
could dilute our existing shareholders,
- a likely increase in our indebtedness to finance the acquisitions,
which could require us to agree to restrictive covenants that might
limit our operational and financial flexibility,
- using our cash, which would reduce the funds we have available for
other corporate purposes or
- increased amortization expense from goodwill and other intangibles
related to acquisitions, which would decrease our net income.
In addition, we are required to obtain the consent of our senior lenders
for acquisitions that exceed minimum levels of cash consideration and the
aggregate amount we can borrow under the senior credit facilities to finance
acquisitions is limited. Our senior lenders may not permit us to complete future
acquisitions.
A DECLINE IN THE WORK ASSIGNED TO US UNDER OUR CONTRACTS WOULD REDUCE OUR
REVENUE AND MAKE IT DIFFICULT TO OFFSET EXPENDITURES FOR EQUIPMENT.
A significant decline in work assigned to us under our contracts could
reduce our revenue and make it difficult to offset expenditures for equipment.
Under our master service agreements, our customers have no obligation to
undertake any installation projects or other work with us. In addition, our
customers may use their own regularly employed personnel instead of us, which
would reduce our revenue. 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. Similarly, under our other maintenance agreements,
our customers do not generally guarantee us a particular amount of work.
BECAUSE SOME OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO AND BECAUSE
THERE ARE FEW BARRIERS TO ENTRY IN OUR INDUSTRY, WE MAY NOT BE ABLE TO MAINTAIN
AND ENHANCE OUR COMPETITIVE POSITION. IF WE ARE
9
<PAGE> 14
UNABLE TO DO SO, OUR BUSINESS WILL NOT BE SUCCESSFUL, WHICH COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
The industries in which we operate are highly competitive and we compete
with other companies in all of the markets in which we operate. We may also face
competition from existing or prospective customers who employ in-house personnel
to perform some of the same types of services as we provide. Our revenues would
decrease if these customers increased the amount of services performed by their
in-house organizations. There are relatively few significant 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 one of
our competitors.
We believe that the principal competitive factors in our market include
quality and responsiveness of service, industry experience, reputation, the
ability to deliver results on time and competitive pricing. In addition,
expertise in new and evolving technologies has become increasingly important. We
may not be able to compete effectively on these or other bases, and, as a
result, our revenues or income may decline. Some of our competitors have greater
market presence, engineering and marketing capabilities, and financial,
technological and personnel resources than we do. 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. Other competitors may have lower overhead cost structures and may,
therefore, be able to provide their services at lower rates than we can.
BECAUSE OUR SENIOR MANAGEMENT TEAM HAS AN AVERAGE OF OVER 20 YEARS OF EXPERIENCE
IN OUR INDUSTRY AND SIGNIFICANT ACQUISITION EXPERIENCE, THEY WOULD BE DIFFICULT
TO REPLACE. THE DEPARTURE OF THESE KEY PERSONNEL COULD DISRUPT OUR BUSINESS AND
REDUCE OUR PROFITABILITY, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE.
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. Our executive
management and the senior management of our operating divisions have an average
of over 20 years of experience in the network infrastructure services industry.
Our executive management team also has significant acquisition experience.
Because it would be difficult to replace these key employees, the loss of the
services of any of them could disrupt our business plan and growth strategy and
reduce our profitability.
IF THE CONTINUED TREND TOWARD OUTSOURCING NETWORK SERVICES DOES NOT CONTINUE,
OUR REVENUES MAY DECLINE, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE.
Our success is dependent on the continued trend by telecom service
providers to outsource their network design, engineering, deployment and
maintenance needs. If these companies elect to perform more of these network
services themselves, our revenues may decline.
IF THE CURRENT GROWTH IN THE DEPLOYMENT OF NETWORKS SYSTEMS DOES NOT CONTINUE,
OUR REVENUES MAY DECLINE, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE.
The telecom industry has experienced a dramatic rate of growth. If the rate
of growth slows and our customers reduce their capital investments in network
infrastructure or technology or fail to expand into new geographic areas, our
revenues may decline.
IF OUR CUSTOMERS DO NOT RECEIVE SUFFICIENT FINANCING, THE DEPLOYMENT OF NEW
NETWORKS WILL BE DELAYED AND OUR REVENUES MAY DECLINE, WHICH COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
A significant portion of our revenue is generated from telecom service
providers seeking to deploy and expand their networks. Some of these customers
and other potential customers are new companies with limited or no operating
histories and limited financial resources. These customers must obtain
significant
10
<PAGE> 15
financing to fund operations and deploy their networks. If these companies fail
to receive adequate financing, particularly after we have begun working with
them, our revenue and income may decline.
OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED IF WE INCREASE OUR
PERSONNEL IN ANTICIPATION OF A PROJECT AND UNDERUTILIZE OUR PERSONNEL BECAUSE
THE PROJECT IS DELAYED, REDUCED OR TERMINATED.
If we increase our personnel in anticipation of a project and the project
is delayed, reduced or terminated, we may underutilize this additional
personnel, which would increase our general and administrative expenses and
could negatively affect our results of operations.
CONSOLIDATION WITHIN THE TELECOM INDUSTRY COULD IMPACT OUR BUSINESS BY CREATING
COMPETITIVE PRESSURES THAT COULD REDUCE OUR REVENUES, WHICH COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE.
Recently, the telecom industry has been characterized by significant
consolidation activity. This consolidation may lead to a greater ability among
telecommunications and broadband service providers to provide a broad range of
network services, and could simplify integration and installation, which may
lead to a reduction in demand for our services. Moreover, the consolidation of
telecommunications and broadband service providers could have the effect of
reducing the number of our current or potential customers, which could result in
these customers having increased bargaining power. This potential increase in
bargaining power could create competitive pressures whereby a particular
customer may request our exclusivity with them in a particular market.
Accordingly, we may not be able to represent those customers who wish to retain
our services on an exclusive basis.
ENVIRONMENTAL AND SAFETY REQUIREMENTS COULD CAUSE US TO INCUR MATERIAL COSTS IN
THE FUTURE.
We are subject to the requirements of federal, state and local
environmental and occupational health and safety laws and regulations. It is
possible that these requirements may change in the future. These requirements
are complex, constantly changing and have tended to become more stringent over
time. It is possible that we have not been and will not be at all times in
complete compliance with all of these requirements and that we could incur
material costs or liabilities in the future as a result of our noncompliance.
INCREASED REGULATION OF THE TELECOM INDUSTRY COULD NEGATIVELY AFFECT OUR RESULTS
OF OPERATIONS.
Regulation of the telecom industry is changing rapidly, with ongoing
effects on our opportunities, competition and other aspects of our business.
Some of our customers are subject to extensive regulation, which could adversely
effect the benefits of our arrangements with them. We cannot assure you that
future regulatory, judicial or legislative activities will not have a material
adverse effect on us.
OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL CONTROL % OF
OUR COMMON STOCK AFTER THIS OFFERING AND, AS A RESULT, WILL BE ABLE TO EXERCISE
CONTROL OVER ALL MATTERS REQUIRING SHAREHOLDER APPROVAL.
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own, in the aggregate, approximately % of
our outstanding common stock. In particular, Willis Stein & Partners will
beneficially own, in the aggregate, approximately % of our outstanding common
stock. As a result, these shareholders will be able to exercise control over all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions, which may have the effect of
delaying or preventing a third party from acquiring control over us. These
transactions may include those that other shareholders deem to be in their best
interests and in which those other shareholders might otherwise receive a
premium for their shares over their current prices. For additional information
regarding our stock ownership, see "Principal Shareholders."
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
and telecom companies have been extremely
11
<PAGE> 16
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the price of our common stock.
OUR BUSINESS MAY BE ADVERSELY IMPACTED AS A RESULT OF OUR SUBSTANTIAL LEVERAGE,
WHICH REQUIRES THE USE OF A SUBSTANTIAL PORTION OF OUR EXCESS CASH FLOW AND MAY
LIMIT OUR ACCESS TO ADDITIONAL CAPITAL.
After the offering, we will continue to have a significant amount of
indebtedness, and we have the right to incur additional indebtedness. Our
substantial indebtedness could have important consequences to you. For example,
our indebtedness could:
- prevent us from satisfying our obligations with respect to our
outstanding indebtedness, which could lead to an event of default
and an acceleration of that indebtedness;
- increase our vulnerability to general adverse economic and industry
conditions by limiting our flexibility in planning for and reacting
to changes in our business and industry;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, which would reduce the
availability of our cash flow to fund working capital, capital
expenditures and for other general corporate purposes;
- limit our ability to make strategic acquisitions or take other
corporate action;
- place us at a competitive disadvantage compared to our competitors
that have proportionately less debt; and
- limit our ability to borrow additional funds and increase the cost
of funds that we can borrow.
IF WE WERE REQUIRED TO WRITE OFF A SIGNIFICANT AMOUNT OF OUR GOODWILL OR TO
SIGNIFICANTLY REDUCE THE PERIOD OVER WHICH WE AMORTIZE GOODWILL, IT WOULD REDUCE
OUR EARNINGS AND NET WORTH, WHICH COULD CAUSE THE TRADING PRICE OF OUR COMMON
STOCK TO DECLINE AND COULD CAUSE ALL OF OUR INDEBTEDNESS TO BE ACCELERATED.
We have a significant amount of goodwill. As of June 30, 2000, we had
unamortized goodwill of $418.7 million, which is currently being amortized over
a 25-year period. If we were to determine that this goodwill had become
impaired, meaning that the value of our business had declined, we would be
required to write-off a portion of this goodwill, which would reduce our
earnings and our net worth. Similarly, if we were required, due to a change in
accounting policy or otherwise, to significantly reduce the period over which we
amortize our goodwill, we might violate the net worth covenant in the new senior
credit facility. A reduction in the amortization period would result in an
increase in our amortization expense, which in turn would reduce our earnings
and net worth and could negatively impact the trading price of our common stock.
PROVISIONS OF OUR CHARTER DOCUMENTS COULD DISCOURAGE POTENTIAL ACQUISITION
PROPOSALS AND COULD DELAY, DETER OR PREVENT A CHANGE IN CONTROL.
Provisions of our restated articles of incorporation and by-laws may
inhibit changes in control of our company not approved by our board of directors
and would limit the circumstances in which a premium may be paid for the common
stock in proposed transactions, or a proxy contest for control of the board may
be initiated. These provisions provide for:
- creating a classified board of directors;
- the authority of our board of directors to issue, without
shareholder approval, preferred stock with terms as determined by
our board of directors;
- a prohibition on shareholder action through written consents;
12
<PAGE> 17
- a requirement that special meetings of shareholders be called only
by our chief executive officer or a majority of our board of
directors; and
- advance notice requirements for shareholder proposals and
nominations.
We are also subject to certain provisions of Florida law which prevent us
from entering into an affiliated transaction, including Section 607.901 of the
Florida Business Corporation Act, which prohibits a Florida corporation from
engaging in an affiliated transaction with an interested shareholder unless
certain conditions are met. See "Description of Capital Stock."
IN MAKING A DECISION WHETHER TO PURCHASE OUR COMMON STOCK, INVESTORS SHOULD
REALIZE THAT, DUE TO THE SIGNIFICANT NUMBER OF ACQUISITIONS THAT WE HAVE
COMPLETED WITHIN THE PAST THREE YEARS, OUR HISTORICAL FINANCIAL STATEMENTS ARE
GENERALLY NOT REFLECTIVE OF OUR ONGOING OPERATIONS.
Since March 1998, we have acquired 18 companies. All of these acquisitions
were accounted for using the purchase method of accounting. As a result, our
historical financial statements do not include the results of operations of
acquisitions prior to the date they were acquired. Due to the significant number
of acquisitions that we have completed over the last two years, our historical
financial statements are not reflective of our ongoing operations. In addition,
prior to their acquisition by us, many of the acquired companies were operated
with different strategic and financial objectives. Some of the former owners of
the businesses we acquired sought to maximize cash flow and shareholder
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, the historical financial
statements of these acquired businesses are generally not representative of
their operations following their acquisition.
RISKS RELATED TO THIS OFFERING
YOU WILL EXPERIENCE AN IMMEDIATE AND SIGNIFICANT DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT.
Because the initial public offering price is substantially higher than the
book value per share of common stock, purchasers of the common stock in this
offering will be subject to immediate and substantial dilution of $ per
share. In addition, the total amount of our capital will be less than what it
would have been had you and all of our existing shareholders and option holders
paid the same amount per share as you will pay in this offering. See "Dilution."
FUTURE SALES BY OUR EXISTING SHAREHOLDERS COULD CAUSE THE TRADING PRICE OF OUR
COMMON STOCK TO DECLINE.
Future sales of the shares of common stock held by existing shareholders
could significantly reduce the market price of our common stock. Upon completion
of this offering, we expect that:
- shares of common stock, or shares if the underwriters'
over-allotment option is exercised in full, sold in this offering
will be freely tradeable without restriction under the Securities
Act, except for any shares which that are acquired by an
"affiliate" of our company; and
- shares of common stock held by our existing shareholders will be
eligible for sale into the public market, subject to compliance
with the resale volume limitations and other restrictions of Rule
144 under the Securities Act, beginning 180 days after the date of
this prospectus.
Beginning 180 days after the completion of this offering, Willis Stein &
Partners will have the right to require us to register its shares of common
stock under the Securities Act at our expense. Willis Stein & Partners has
agreed not to exercise its registration rights until 180 days following the date
of this prospectus without the consent of Credit Suisse First Boston
Corporation. In addition, substantially all holders have agreed they will not
sell our common stock without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of the prospectus.
See "Shares Eligible For Future Sale -- Registration Rights."
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<PAGE> 18
THERE MAY NOT BE AN ACTIVE MARKET FOR OUR COMMON STOCK, MAKING IT DIFFICULT TO
SELL THE STOCK YOU PURCHASE.
Prior to this offering, there has been no public market for our common
stock. An active trading market for our common stock may not develop or may not
be sustained after the offering. The initial public offering price for our
common stock will be determined by negotiations between the underwriters and us.
The initial public offering price may not correspond to the price at which our
common stock will trade in the public market following the offering and the
price of our common stock available in the public market may not reflect our
actual financial performance.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DROP UNEXPECTEDLY FOLLOWING THIS
OFFERING.
Historically, stock prices and trading volumes for newly public companies
fluctuate widely for a number of reasons, including some reasons that may be
unrelated to their businesses or results of operations. This type of market
volatility could depress the price of our common stock without regard to our
operating performance. In addition, our operating results may be below the
expectations of public market analysts or investors. If this were to occur, the
market price of our common stock could decrease, perhaps significantly.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements other than statements of present or historical facts, and
our opinions and beliefs relating to these statements, included in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe" or "continue" or the negative thereof or
other variations of this terminology or similar terminology. All subsequent
written and oral forward-looking statements attributable to us, or persons
acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Although we believe that the expectations reflected in
our forward-looking statements are reasonable, we can give no assurance that
these expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from our expectations are disclosed
under "Risk Factors" and elsewhere in this prospectus, including, among others:
- our ability to attract and retain qualified key employees;
- changes in technology that could reduce demand for our services;
- changes in our relationships with our major customers;
- our ability to successfully integrate acquired businesses;
- the competitive nature of the network infrastructure industry; and
- changes in the laws and regulations governing the telecom industry.
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<PAGE> 19
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common
stock in this offering will be approximately $ million. The following table
sets forth our intended uses of these proceeds:
<TABLE>
<CAPTION>
USE OF PROCEEDS
---------------
<S> <C>
Repay senior credit facility in part........................ $
Prepay senior subordinated notes in part....................
Prepay junior subordinated notes in part....................
General corporate purposes..................................
Fees and expenses related to the foregoing..................
--------
Total.............................................
========
</TABLE>
Pending these uses, we will invest the proceeds in short-term, interest-bearing,
investment-grade securities.
We entered into our senior credit facility in December 1999 and used the
proceeds of the tranche A and the tranche B term loans to finance the
acquisition of LISN Holdings, Inc., or "LISN." We used the proceeds of the
tranche C term loan to repay our revolving term loan facility, which was used to
finance, in part, our acquisitions of Midwest Splicing and Hattech in the second
quarter of 2000, and for working capital and general corporate purposes. As of
September 1, 2000, the balance of each loan and the interest rate applicable to
each was as follows:
- $5.0 million revolving credit facility -- 9.8%;
- $72.0 million tranche A term loan -- 9.8%;
- $156.6 million tranche B term loan -- 10.3%; and
- $60.0 million tranche C term loan -- 10.6%.
The tranche A term loan has a final maturity of December 15, 2004, the
tranche B term loan has a final maturity of December 15, 2006 and the tranche C
term loan has a final maturity of December 15, 2007. The tranche A and tranche B
term loans are payable quarterly in arrears beginning March 31, 2000. The
tranche C term loan is payable quarterly in arrears beginning September 30,
2000. Under the terms of the credit facility, we have the ability to prepay any
outstanding amounts in full. Voluntary prepayments for the tranche B and tranche
C term loans must be prepaid at 101%.
Our senior subordinated notes due 2010 in the aggregate outstanding
principal amount of $150.0 million bear interest at the rate of 12 3/4% per
annum. Under the terms of the indenture governing the senior subordinated notes,
we are permitted to use the net proceeds of this offering to redeem up to $52.5
million of the aggregate outstanding principal amount of the senior subordinated
notes at a redemption price of 112.75%, or $59.2 million, plus accrued and
unpaid interest to the redemption date. We used the proceeds from the sale of
our senior subordinated notes to repay a senior subordinated term loan incurred
in connection with the acquisition of LISN, plus accrued interest on that loan,
and to repay a portion of the tranche B term loan of our senior credit facility.
As of June 30, 2000, there was $150.7 million in aggregated principal
amount of our junior subordinated notes outstanding. The junior subordinated
notes bear interest at 12.0% per annum and are due and payable on the later of
December 15, 2009 and the first anniversary of the date on which the senior
subordinated notes are repaid. We issued the junior subordinated notes to our
shareholders and the former shareholders of LISN in connection with the
acquisition of LISN as partial consideration for the exchange of a portion of
their existing equity interests.
Concurrently with the completion of this offering, we intend to refinance
the borrowings under our senior credit facility and enter into a new credit
facility to meet our working capital and general corporate needs. Affiliates of
certain of the underwriters are lenders under our existing senior credit
facility and are expected to be lenders under our new senior credit facility.
See "Underwriting."
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<PAGE> 20
THE RECLASSIFICATION
We currently have two outstanding classes of capital stock, series C
preferred stock and common stock. Immediately prior to this offering all of our
outstanding series C preferred stock will be converted into shares of our common
stock. Each share of series C preferred stock will be converted into (1) shares
of common stock plus (2) a number of shares of common stock equal to the
liquidation value of the series C preferred stock, which is $1,000, plus all
accrued and unpaid dividends on the preferred stock, divided by the initial
public offering price. The number of shares of common stock into which each
share of series C preferred stock is convertible is therefore dependent upon
both the date on which this offering occurs and the initial public offering
price. The share numbers in this prospectus assume a conversion date of
, 2000 and an initial public offering price of $ per share.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000:
- on an actual basis;
- on a pro forma as adjusted basis, giving effect to: (1) $60.0
million of additional borrowings under the tranche C term loan of
our senior credit facility, which was incurred in July 2000 and was
used to repay borrowings under our revolving credit facility; (2)
the conversion of our series C preferred stock into common stock;
(3) the sale of shares of common stock in this offering and the
application of the net proceeds from this offering; and (4) the
refinancing of our existing bank indebtedness under the new senior
credit facility.
This information should be read together with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 2000
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ -- $ 9,623
========= =========
Long-term debt, including current portion:
New senior credit facility(1)............................. -- 185,000
Existing senior credit facility........................... 285,573 --
Equipment debt, leases and other.......................... 4,683 4,683
Senior subordinated notes................................. 150,000 97,500
Junior subordinated notes................................. 150,710 90,707
--------- ---------
Total long-term debt.............................. 590,966 377,890
--------- ---------
Series C participating, redeemable preferred stock, par
value $.01 per share, 200,000,000 shares authorized and
205,740 shares issued and outstanding at June 30, 2000,
actual (200,000,000 shares authorized and no shares
authorized and issued, pro forma as adjusted)............. 241,246 --
Shareholders' equity (deficit):
Preferred stock, $.01 par value, no shares authorized and
no shares issued and outstanding at June 30, 2000,
actual and pro forma (10,000,000 shares authorized and
no shares issued and outstanding, pro forma as
adjusted).............................................. -- --
Common stock, $.01 par value, and paid in capital,
200,000,000 shares authorized and 25,887,559 shares
issued and outstanding at June 30, 2000, actual
(200,000,000 shares authorized and shares
issued and outstanding, pro forma as adjusted)......... 34,647 510,992
Note due from shareholder................................. (253) (253)
Retained deficit.......................................... (250,002) (267,852)
--------- ---------
Total shareholders' equity (deficit)........................ (215,608) 242,887
--------- ---------
Total capitalization.............................. $ 616,604 $ 620,777
========= =========
</TABLE>
---------------
(1) We anticipate that our new senior credit facility will provide for a $135
million tranche A loan, a $50 million tranche B loan and a $100 million
revolving credit facility. We expect that our revolving credit facility will
provide for up to $100 million of borrowings to be used for permitted
acquisitions and working capital purposes, with sublimits of $75 million for
acquisition loans and $50 million for working capital loans. See
"Description of Indebtedness -- New Senior Credit Facility."
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<PAGE> 22
DIVIDEND POLICY
The payment of dividends by us to holders of our common stock is currently
prohibited by our senior credit facility and is restricted by our indenture
relating to the senior subordinated notes. After this offering, we plan to enter
into a new senior credit facility that will restrict our ability to pay
dividends. We currently intend to retain any future earnings to finance the
growth and development of our business and therefore do not anticipate paying
any cash dividends in the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend
upon, among other factors, our results of operations, financial condition,
capital requirements and contractual restrictions. While our predecessor was an
S corporation, it made cash distributions to its shareholders of approximately
$1.2 million in 1998 and $6.1 million in 1999.
DILUTION
If you invest in our common stock, your interest will be diluted by the
difference between the public offering price per share of our common stock and
the pro forma net tangible book value per share of our common stock immediately
after this offering. Pro forma net tangible book value per share represents the
amount of total tangible assets less total liabilities at June 30, 2000, divided
by the pro forma number of shares of common stock outstanding at June 30, 2000.
The pro forma number of shares of common stock gives effect to the conversion of
all of our outstanding shares of series C preferred stock into common stock
immediately prior to this offering.
Our pro forma net tangible book value at June 30, 2000 was approximately
$ million, or $ per share of common stock. After giving effect to our
sale of common stock in this offering and our receipt of the estimated net
proceeds from the sale, our pro forma net tangible book value as of ,
2000 would have been approximately $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing shareholders and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
PER SHARE
-------------------
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
2000................................................... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 2000,
the number of shares purchased, the total consideration paid and the average
price per share paid by the existing shareholders and by the purchasers of
common stock in this offering, after adjustment for:
- the conversion of our series C preferred stock into common stock;
- our sale of shares of common stock at an assumed offering price
of $ per share, before deducting estimated underwriting
discounts and commissions.
<TABLE>
<CAPTION>
SHARES PURCHASED
OR CONVERTED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... % $ % $
New investors..............................
-------- ----- -------- -----
Total............................ 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
The discussion above assumes no exercise of stock options outstanding as of
June 30, 2000. As of June 30, 2000, there were options outstanding to purchase a
total of 2,646,219 shares of common stock, with a weighted average exercise
price of $6.39 per share. If holders exercise these outstanding options, there
will be further dilution. An additional shares of common stock are reserved
for grants, awards or sale under our stock incentive plans.
18
<PAGE> 23
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Set forth below are unaudited pro forma financial statements for Orius. The
unaudited pro forma financial statements have been prepared by the application
of pro forma adjustments to our historical financial statements and to each of
the companies acquired by us in 1999 and 2000 (the "Acquired Companies").
The unaudited pro forma financial statements presented below are intended
to give you a better understanding of what the results of operations of all of
our businesses might have been had they been combined as of the beginning of the
periods presented and what our combined financial position might have been at
June 30, 2000. We prepared the unaudited pro forma statements of operations data
by (1) combining our historical results with those of the acquired companies as
if we had acquired each of the companies at the beginning of the period
presented and applying those adjustments set forth in "Supplemental Unaudited
Pro Forma Data" and (2) further adjusting those combined historical results to
reflect:
(a) the refinancing of our existing bank indebtedness under the new
senior credit facility;
(b) the conversion of our series C preferred stock into common stock
in connection with this offering; and
(c) the issuance of shares of common stock in this offering and
the application of the proceeds from this offering.
The application of purchase accounting to the businesses acquired by Orius
resulted in certain fair value adjustments to property, plant and equipment and
these are reflected in the "Supplemental Unaudited Pro Forma Financial Data."
We prepared the unaudited pro forma balance sheet data of Orius by
adjusting the historical balance sheet to reflect items (a), (b) and (c)
described above. Orius and the acquired companies may have performed differently
if they had been combined as of or on the dates presented. You should not rely
on these unaudited pro forma financial statements as being indicative of the
historical results that we would have had or the future results that we will
experience.
You should read these unaudited pro forma financial statements in
conjunction with the information contained in "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Supplemental Unaudited Pro Forma Financial Data" and the
financial statements and the related notes appearing elsewhere in this
prospectus.
19
<PAGE> 24
ORIUS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUIRED OFFERING
ORIUS(1) COMPANIES(2) ADJUSTMENTS PRO FORMA
--------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................................ $349,868 $19,633 $ -- $369,501
Expenses:
Direct costs.......................... 250,682 12,652 -- 263,334
General and administrative............ 37,029 4,817 -- 41,846
Depreciation and amortization......... 13,760 762 -- 14,522
-------- ------- ----------- --------
Total operating expenses...... 301,471 18,231 -- 319,702
Income from operations.................. 48,397 1,402 -- 49,799
Other expense (income):
Interest expense, net................. 30,904 1,670 (11,733)(3) 20,841
Other expense (income)................ (96) (8) (104)
-------- ------- ----------- --------
Income (loss) before income tax
provision.......................... 17,589 (260) 11,733 29,062
Provision for income taxes............ 10,298 361 4,693(3) 15,352
-------- ------- ----------- --------
Net income (loss) before extraordinary
charges............................ 7,291 (621) 7,040 13,710
Accretion and dividends on series C
participating redeemable preferred
stock.............................. (31,479) -- 31,479 --
-------- ------- ----------- --------
Net income (loss) applicable to common
shareholders....................... $(24,188) $ (621) $ 38,519 $ 13,710
======== ======= =========== ========
Weighted average shares outstanding:(4)
Basic................................. 25,573
======== ========
Diluted............................... 25,573
======== ========
Earnings (loss) per share:
Basic................................. $ (0.95) $
======== ========
Diluted............................... $ (0.95) $
======== ========
</TABLE>
---------------
(1) Results for the six months ended June 30, 2000 represent the actual
historical consolidated results of Orius, including the results for the
Acquired Companies from their date of acquisition.
(2) Represents the results of the Acquired Companies in the related period prior
to the date of acquisition and related acquisition adjustments. See
"Supplemental Unaudited Pro Forma Financial Data" for further detail and
discussion.
(3) Reflects the decrease in interest expense at our borrowing rate under our
new senior credit facility on the indebtedness remaining after using the
proceeds from the initial public offering to repay a portion
20
<PAGE> 25
of our indebtedness and related tax effects. The decrease in pro forma interest
expense resulting from initial public offering consists of the following:
<TABLE>
<S> <C>
Revolving credit facility(i)................................ $ --
Tranche A term loan(ii)..................................... 5,927
Tranche B term loan(iii).................................... 2,383
Senior subordinated notes(iv)............................... 6,216
Junior subordinated notes(v)................................ 5,442
Commitment fee(vi).......................................... 250
Capital leases and equipment loans.......................... 131
Amortization of deferred financing costs(vii)............... 492
--------
Total pro forma interest expense............................ 20,841
Elimination of historical interest expense(viii)............ (32,574)
--------
Net decrease in interest expense.................. $(11,733)
========
</TABLE>
---------------
(i) On a pro forma basis as a result of the initial public offering,
there was no outstanding balance on the revolving credit facility.
(ii) Represents interest on the new $135.0 million tranche A term loan
using an assumed interest rate of 8.78% (LIBOR at September 13,
2000 plus margin of 2.00%).
(iii) Represents interest on the new $50.0 million tranche B term loan
using an assumed interest rate of 9.53% (LIBOR at September 13,
2000 plus margin of 2.75%).
(iv) Represents interest on the $97.5 million senior subordinated notes
at an interest rate of 12.75% following the repayment of $52.5
million (35%) with proceeds from the initial public offering.
(v) Represents interest on the $90.7 million junior subordinated notes
at an interest rate of 12.00% following the repayment of $60.0
million with proceeds from the initial public offering.
(vi) Represents 0.50% commitment fee on the unused portion of the
revolving credit facility.
(vii) Represents amortization of deferred financing costs of $5.9 million
over an average life of six years.
(viii) Represents the elimination of historical interest expense prior to
the initial public offering.
(4) Pro forma weighted average shares outstanding gives effect to the offering
and the conversion of our series C preferred stock in connection with this
offering.
21
<PAGE> 26
ORIUS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ACQUIRED OFFERING
AMOUNTS(1) COMPANIES(2) ADJUSTMENT PRO FORMA
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Revenues....................................... $188,783 $62,268 $ -- $251,051
Expenses:
Direct costs................................. 137,347 44,538 -- 181,885
General and administrative................... 17,889 6,921 -- 24,810
Depreciation and amortization................ 11,300 2,097 -- 13,397
-------- ------- -------- --------
Total operating expenses............. 166,536 53,556 -- 220,092
Income from operations......................... 22,247 8,712 -- 30,959
Other expense (income):
Interest expense, net........................ 32,304 2,785 (14,248)(3) 20,841
Other expense (income)....................... (198) (13) -- (210)
-------- ------- -------- --------
Income (loss) before income tax provision...... (9,859) 5,940 14,248 10,329
Provision for income taxes..................... (2,733) 3,214 5,622 6,103
-------- ------- -------- --------
Net income (loss) before extraordinary
charges...................................... $ (7,126) $ 2,726 $ 8,626 $ 4,226
======== ======= ======== ========
Weighted average shares outstanding, basic and
diluted(4)................................... 9,198
======== ========
Earnings per share, basic and diluted.......... $ 0.67 $
======== ========
</TABLE>
22
<PAGE> 27
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Amounts for the six months ended June 30, 1999 represent the historical
results of LISN and Orius and the adjustments necessary to give effect to
the LISN acquisition as if it had occurred at the beginning of the period
presented. Because LISN's former shareholders acquired control of Orius in
connection with the LISN acquisition, LISN has been treated as the acquiring
corporation for accounting purposes even though it became a subsidiary of
Orius in the acquisition.
<TABLE>
<CAPTION>
LISN
ACQUISITION
LISN ORIUS ADJUSTMENTS TOTAL
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues................................. $60,198 $128,585 $ -- $188,783
Expenses:
Direct costs........................... 40,202 98,645 (1,500)(i) 137,347
General and administrative............. 11,718 11,346 (5,175)(i) 17,889
Depreciation and amortization.......... 174 4,990 6,136(ii) 11,300
------- -------- -------- --------
Total operating expenses....... 52,094 114,981 (539) 166,536
------- -------- -------- --------
Income from operations......... 8,104 13,604 539 22,247
Other expense (income):
Interest expense, net.................. 1,372 5,262 25,670(iii) 32,304
Other income........................... (96) (102) -- (198)
------- -------- -------- --------
Income before provision from income
taxes.................................. 6,828 8,444 (25,131) (9,859)
Provision for income taxes............... 651 3,524 (6,908)(iv) (2,733)
------- -------- -------- --------
Net income before extraordinary
charges................................ $ 6,177 $ 4,920 $(18,223) $ (7,126)
======= ======== ======== ========
Weighted average shares outstanding,
basic and diluted................... 9,198
=======
Earnings per share, basic and
diluted............................. $ 0.67
=======
</TABLE>
---------------
(i) Reflects the decrease resulting from differentials between the
compensation levels of the former owners of LISN and the terms of their
employment agreements entered into with Orius. After the acquisition of
LISN, the duties and responsibilities of the owners who remained employed
with LISN have not and will not change and additional costs have not and
are not expected to be incurred related to their efforts.
(ii) The calculation of pro forma depreciation reflecting fixed asset basis
adjustments from the application of purchase accounting is included in
Note 3 to the Supplemental Unaudited Pro Forma Financial Data for the
Acquired Companies. While these basis adjustments reflect the purchase
accounting at the time of Orius' acquisition of these businesses, given
the nature of the fixed assets and the proximity of the acquisitions, book
value approximated fair value at the time of the acquisition. Pro forma
amortization of goodwill generated from the LISN acquisition and the
acquisition of the Acquired Companies based on a 25-year goodwill life is
calculated as follows:
<TABLE>
<S> <C>
Amortization of pro forma goodwill of $423,452 based on a
25 year life............................................ $ 8,469
Elimination of historical goodwill amortization........... (2,333)
-------
Net increase in goodwill amortization..................... $ 6,136
=======
</TABLE>
23
<PAGE> 28
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
(iii) The increase in pro forma interest expense resulting from the LISN
acquisition and the issuance of the senior subordinated notes consists of
the following:
<TABLE>
<S> <C>
Revolving credit facility(a)................................ $ --
Tranche A term loan(b)...................................... 3,379
Tranche B term loan(c)...................................... 7,435
Senior subordinated notes(d)................................ 9,563
Junior subordinated notes(e)................................ 8,262
Commitment fee(f)........................................... 250
Capital leases and equipment loans.......................... 130
Amortization of deferred financing costs(g)................. 1,108
Acquisition related interest(h)............................. 2,177
-------
Total pro forma interest expense............................ 32,304
Elimination of historical interest expense(i)............... (6,634)
-------
Net increase in interest expense............................ $25,670
=======
</TABLE>
---------------
(a) On a pro forma basis as a result of the offering of the senior
subordinated notes, there was no amount drawn on the revolving credit
facility.
(b) Represents interest on the $75.0 million tranche A term loan using an
assumed interest rate of 9.01%. (LIBOR at December 15, 1999 plus
margin of 3.00%)
(c) Represents interest on the remaining $156.4 million tranche B term
loan following the repayment of $43.6 million of the tranche B term
loan with the proceeds from the sale of the outstanding notes, using
an assumed interest rate of 9.51%. (LIBOR at December 15, 1999 plus
margin of 3.5%)
(d) Represents interest on the senior subordinated notes at an interest
rate of 12.75%.
(e) Represents interest on the $137.7 million junior subordinated notes at
an interest rate of 12%.
(f) Represents 0.50% commitment fee on the unused portion of the revolving
credit facility.
(g) Represents amortization of deferred financing costs of $13,290 over an
average life of six years.
(h) Represents interest on the $42.0 million used to fund the Fenix and
Hattech acquisitions at an assumed interest rate of 9.08% and interest
on the junior subordinated notes issued in connection with the Irwin,
Fenix, Midwest and Hattech acquisitions.
(i) Represents the elimination of historical interest expense prior to the
LISN acquisition and offering of the outstanding senior subordinated
notes.
(iv) Reflects the income tax rate that would have been in effect if the
Acquired Companies, LISN acquisition and the initial public offering had
occurred as of the beginning of the year using a Federal statutory rate of
35% plus applicable state taxes at statutory rates.
(2) Represents the results of the Acquired Companies in the related period prior
to the date of acquisition and related acquisition adjustments. See
"Supplemental Unaudited Pro Forma Financial Data" for further detail and
discussion.
(3) Reflects the decrease in interest expense at our borrowing rate under our
new senior credit facility on the indebtedness remaining after using the
proceeds from the initial public offering to repay a portion
24
<PAGE> 29
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
of our indebtedness. The decrease in pro forma interest expense resulting
from the initial public offering consists of the following:
<TABLE>
<S> <C>
Revolving credit facility(i)................................ $ --
Tranche A term loan(ii)..................................... 5,927
Tranche B term loan(iii).................................... 2,383
Senior subordinated notes(iv)............................... 6,216
Junior subordinated notes(v)................................ 5,442
Commitment fee(vi).......................................... 250
Capital leases and equipment loans.......................... 131
Amortization of deferred financing costs(vii)............... 492
--------
Total pro forma interest expense............................ 20,841
Elimination of interest expense(viii)....................... (35,089)
--------
Net decrease in interest expense............................ $(14,248)
========
</TABLE>
----------------
(i) On a pro forma basis as a result of the initial public offering,
there was no outstanding balance on the revolving credit facility.
(ii) Represents interest on the new $135.0 million tranche A term loan
using an assumed interest rate of 8.78%.(LIBOR at September 13,
2000 plus margin of 2.00%)
(iii) Represents interest on the new $50.0 million tranche B term loan
using an assumed interest rate of 9.53%. (LIBOR at September 13,
2000 plus margin of 2.75%)
(iv) Represents interest on the $97.5 million senior subordinated notes
at an interest rate of 12.75% following the repayment of $52.5
million (35%) with proceeds from the initial public offering.
(v) Represents interest on the $90.7 million junior subordinated notes
at an interest rate of 12.00% following the repayment of $60.0
million with proceeds from the initial public offering.
(vi) Represents 0.50% commitment fee on the unused portion of the
revolving credit facility.
(vii) Represents amortization of deferred financing costs of $5.9 million
over an average life of six years.
(viii) Represents the elimination of interest expense prior to the initial
public offering.
(4) Historical weighted average shares represent the weighted average shares of
LISN as it was our predecessor for accounting purposes. Pro forma weighted
average shares outstanding gives effect to the offering and the conversion
of our series C preferred stock in connection with this offering. There were
no other common stock equivalents outstanding during the period and,
accordingly, the weighted average shares outstanding for basic and diluted
are the same.
25
<PAGE> 30
ORIUS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMOUNTS
FROM ACQUIRED OFFERING
NOTE 1(1) COMPANIES(2) ADJUSTMENTS PRO FORMA
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues.................................... $481,839 $105,340 $ -- $587,179
Expenses:
Direct costs.............................. 354,691 67,532 -- 422,223
General and administrative................ 43,061 17,283 -- 60,344
Depreciation and amortization............. 24,666 2,129 -- 26,795
-------- -------- -------- --------
Total operating expenses.......... 422,418 86,944 -- 509,362
Income from operations...................... 59,421 18,396 -- 77,817
Other expense (income):
Interest expense, net..................... 64,611 4,662 (27,594)(3) 41,679
Other expense (income).................... 188 (46) -- 142
-------- -------- -------- --------
Income (loss) before income tax provision... (5,378) 13,780 27,594 35,996
Provision for income taxes.................. 5,481 5,508 10,809(4) 21,798
-------- -------- -------- --------
Net income (loss) before extraordinary
charges................................... (10,859) 8,272 16,785 14,198
Accretion and dividends on series C
participating redeemable preferred
stock..................................... (79,812) -- 79,812 --
-------- -------- -------- --------
Net income (loss) applicable to common
shareholders.............................. $(90,671) $ 8,272 $ 96,597 $ 14,198
======== ======== ======== ========
Weighted average shares outstanding:(5)
Basic..................................... 6,443
======== ========
Diluted................................... 6,443
======== ========
Earnings (loss) per share:
Basic..................................... $ (10.82) $
======== ========
Diluted................................... $ (10.82) $
======== ========
</TABLE>
26
<PAGE> 31
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) Amounts for the year ended December 31, 1999 represent the historical
results of LISN and Orius and the adjustments necessary to give effect to
the LISN acquisition as if it had occurred at the beginning of the period
presented. Because LISN's former shareholders acquired control of Orius in
connection with the LISN acquisition, LISN has been treated as the acquiring
corporation for accounting purposes even though it became a subsidiary of
Orius in the acquisition.
<TABLE>
<CAPTION>
LISN
ACQUISITION
LISN ORIUS ADJUSTMENTS TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $167,018 $314,821 $ -- $481,839
Expenses:
Direct costs................................. 118,539 237,652 (1,500)(i) 354,691
General and administrative................... 20,577 39,721 (5,175)(i) 43,061
(12,062)(ii)
Depreciation and amortization................ 1,358 10,293 13,015(iii) 24,666
-------- -------- -------- --------
Total operating expenses............. 140,474 287,666 (5,722) 422,418
-------- -------- -------- --------
Income from operations............... 26,544 27,155 5,722 59,421
Other expense (income):
Interest expense, net........................ 11,149 14,007 39,455(iv) 64,611
Other expense (income)....................... 362 (174) -- 188
-------- -------- -------- --------
Income before provision from income taxes...... 15,033 13,322 (33,733) (5,378)
Provision for income taxes..................... 4,937 6,134 (5,590)(v) 5,481
-------- -------- -------- --------
Net income (loss) before extraordinary
charges...................................... $ 10,096 $ 7,188 $(28,143) $(10,859)
Accretion and dividends on series C
participating redeemable preferred stock..... (79,812) -- -- (79,812)
-------- -------- -------- --------
Net income (loss) applicable to common
shareholders................................. $(69,716) $ 7,188 $(28,143) $(90,671)
======== ======== ======== ========
Weighted average shares outstanding:
Basic........................................ 6,443
========
Diluted...................................... 6,443
========
Earnings (loss) per share:
Basic........................................ $ (10.82)
========
Diluted...................................... $ (10.82)
========
</TABLE>
---------------
(i) Reflects the decrease resulting from differentials between the
compensation levels of the former owners of LISN and the terms of their
employment agreements entered into with Orius. After the acquisition of
LISN, the duties and responsibilities of the owners who remained employed
with LISN have not and will not change and additional costs have not and
are not expected to be incurred related to their efforts.
(ii) Reflects the elimination of one-time expenses associated with the LISN
acquisition included in Orius' historical statement of operations. As the
acquired company for accounting purposes, Orius reflected these costs as
expenses in the period incurred. Included in this adjustment are
professional fees totaling $6,248 for advisors, lawyers and accountants,
and compensation expense of $5,814
27
<PAGE> 32
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
associated with the accelerated vesting of options under Orius' stock
option plan at the time of the LISN acquisition.
(iii) The calculation of pro forma depreciation reflecting fixed asset basis
adjustments from the application of purchase accounting is included in
Note 3 to the Supplemental Unaudited Pro Forma Financial Data for the
Acquired Companies. While these basis adjustments reflect the purchase
accounting at the time of Orius' acquisition of these businesses, given
the nature of the fixed assets and the proximity of the acquisitions, book
value approximated fair value at the time of the acquisition. Pro forma
amortization of goodwill generated from the LISN acquisition and the
acquisition of the Acquired Companies based on a 25-year goodwill life is
calculated as follows:
<TABLE>
<S> <C>
Amortization of pro forma goodwill of $423,452 based on a 25
year life................................................. $16,938
Elimination of historical goodwill amortization............. (3,923)
-------
Net increase in goodwill amortization....................... $13,015
=======
</TABLE>
(iv) The increase in pro forma interest expense resulting from the LISN
acquisition and the issuance of the senior subordinated notes consists of
the following:
<TABLE>
<S> <C>
Revolving credit facility(a)................................ $ --
Tranche A term loan(b)...................................... 6,758
Tranche B term loan(c)...................................... 14,874
Senior subordinated notes(d)................................ 19,125
Junior subordinated notes(e)................................ 16,524
Commitment fee(f)........................................... 500
Capital leases and equipment loans.......................... 261
Amortization of deferred financing costs(g)................. 2,215
Acquisition related interest(h)............................. 4,354
--------
Total pro forma interest expense............................ 64,611
Elimination of historical interest expense (i).............. (25,156)
--------
Net increase in interest expense............................ $ 39,455
========
</TABLE>
---------------
(a) On a pro forma basis as a result of the offering of the senior
subordinated notes, there was no amount drawn on the revolving credit
facility.
(b) Represents interest on the $75.0 million tranche A term loan using an
assumed interest rate of 9.01%. (LIBOR at December 15, 1999 plus
margin of 3.00%)
(c) Represents interest on the remaining $156.4 million tranche B term
loan following the repayment of $43.6 million of the tranche B term
loan with the proceeds from the sale of the outstanding notes, using
an assumed interest rate of 9.51%. (LIBOR at December 15, 1999 plus
margin of 3.50%)
(d) Represents interest on the senior subordinated notes at an interest
rate of 12.75%.
(e) Represents interest on the $137.7 million junior subordinated notes at
an interest rate of 12.00%.
(f) Represents 0.50% commitment fee on the unused portion of the revolving
credit facility.
(g) Represents amortization of deferred financing costs of $13,290 over an
average life of six years.
(h) Represents interest on the $42.0 million used to fund the Fenix and
Hattech acquisitions at an assumed interest rate of 9.08% and interest
on the junior subordinated notes issued in connection with the Irwin,
Fenix, Midwest and Hattech acquisitions.
28
<PAGE> 33
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
(i) Represents the elimination of historical interest expense prior to the
LISN acquisition and offering of the outstanding senior subordinated
notes.
(v) Reflects the income tax rate that would have been in effect if the
Acquired Companies, LISN acquisition and the initial public offering had
occurred as of the beginning of the year using a Federal statutory rate of
35% plus applicable state taxes at statutory rates.
(2) Represents the results of the Acquired Companies in the related period prior
to the date of acquisition and related acquisition adjustments. See
"Supplemental Unaudited Pro Forma Financial Data" for further detail and
discussion.
(3) Reflects the decrease in interest expense at our borrowing rate under our
new senior credit facility on the indebtedness remaining after using the
proceeds from the initial public offering to repay a portion of our
indebtedness. The decrease in pro forma interest expense resulting from the
initial public offering consists of the following:
<TABLE>
<S> <C>
Revolving credit facility(i)................................ $ --
Tranche A term loan(ii)..................................... 11.853
Tranche B term loan(iii).................................... 4,765
Senior subordinated notes(iv)............................... 12,431
Junior subordinated notes(v)................................ 10,886
Commitment fee(vi).......................................... 500
Capital leases and equipment loans.......................... 261
Amortization of deferred financing costs(vii)............... 983
--------
Total pro forma interest expense............................ 41,679
Elimination of interest expense(viii)....................... (69,273)
--------
Net decrease in interest expense............................ $(27,594)
========
</TABLE>
---------------
(i) On a pro forma basis as a result of the initial public offering,
there was no outstanding balance on the revolving credit facility.
(ii) Represents interest on the new $135.0 million tranche A term loan
using an assumed interest rate of 8.78%. (LIBOR at September 13,
2000 plus margin of 2.00%)
(iii) Represents interest on the new $50.0 million tranche B term loan
following the repayment using an assumed interest rate of 9.53%.
(LIBOR at September 13, 2000 plus margin of 2.75%)
(iv) Represents interest on the $97.5 million senior subordinated notes
at an interest rate of 12.75% following the repayment of $52.5
million (35%) with proceeds from the initial public offering.
(v) Represents interest on the $90.7 million junior subordinated notes
at an interest rate of 12.00% following the repayment of $60.0
million with proceeds from the initial public offering.
(vi) Represents 0.50% commitment fee on the unused portion of the
revolving credit facility.
(vii) Represents amortization of deferred financing costs of $5.9 million
over an average life of six years.
(viii) Represents the elimination of interest expense prior to the initial
public offering.
(4) Reflects the income tax rate that would have been in effect if the Acquired
Companies, LISN acquisition and the initial public offering had occurred as
of the beginning of the year using a Federal statutory rate of 35% plus
applicable state taxes at statutory rates.
29
<PAGE> 34
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
(5) Historical weighted average shares outstanding represent the shares of LISN
as it was our predecessor for accounting purposes. Pro forma weighted
average shares outstanding gives effect to the offering, the conversion of
our series C preferred stock in connection with this offering, and, for
purposes of calculating diluted, our stock options.
30
<PAGE> 35
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, OFFERING
2000 ADJUSTMENTS PRO FORMA
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ -- $ 3,000(1) $ 9,623
6,623(5)
Accounts receivable.................................. 158,428 158,428
Costs and estimated earnings in excess of billings... 29,907 29,907
Inventories.......................................... 26,354 26,354
Other current assets................................. 882 882
--------- --------- ---------
Total current assets......................... 215,571 9,623 225,194
Property and equipment, net............................ 58,221 58,221
Goodwill, net.......................................... 418,713 418,713
Other assets........................................... 18,195 (11,351)(4) 12,744
5,900(5)
--------- --------- ---------
Total assets................................. $ 710,700 $ 4,172 $ 714,872
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowing under credit facility...................... $ 57,000 $ (57,000)(1) $ --
Current portion of debt and leases................... 12,031 (10,199)(3) 1,832
Accounts payable -- trade............................ 34,808 34,808
Accrued liabilities.................................. 40,775 40,775
Other current liabilities............................ 12,868 12,868
--------- --------- ---------
Total current liabilities.................... 157,482 (67,199) 90,283
Long-term debt and leases.............................. 218,377 60,000(1)
(100,000)(3)
(178,377)(5) --
Tranche A term loan.................................... -- 135,000(5) 135,000
Tranche B term loan.................................... 50,000(5) 50,000
Senior subordinated notes.............................. 150,000 (52,500)(3) 97,500
Junior subordinated notes.............................. 150,707 (60,000)(3) 90,707
Capital leases and equipment debt...................... 2,851 2,851
Deferred tax liability................................. 5,644 5,644
--------- --------- ---------
685,061 (213,076) 417,985
--------- --------- ---------
Commitments and contingencies.......................... -- --
Series C participating, redeemable preferred stock..... 241,246 (241,246)(2) --
Shareholders' equity (net capital deficiency):
Common stock and paid in capital..................... 34,647 241,246(2) 510,992
235,099(3)
Note due from shareholder............................ (253) (253)
Retained (deficit) earnings.......................... (250,001) (11,351)(4) (267,852)
(6,500)(3)
--------- --------- ---------
Total shareholders' equity (net capital
deficiency)................................ (215,607) 458,494 242,887
--------- --------- ---------
Total liabilities and shareholders' equity
(net capital deficiency)................... $ 710,700 $ 4,172 $ 714,872
========= ========= =========
</TABLE>
---------------
(1) Reflects the July 2000 proceeds from the tranche C term loan and repayment
of amounts outstanding under the revolving credit facility.
(2) Reflects the conversion of our series C preferred stock into common stock in
connection with this offering.
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<PAGE> 36
(3) Reflects the issuance of our common stock in conjunction with this offering
and the use of proceeds as follows (in millions):
<TABLE>
<S> <C>
Gross Proceeds.............................................. $250.0
Uses:
Senior credit facility(a)................................. 105.0
Senior subordinated notes................................. 52.5
Junior subordinated notes................................. 60.0
Associated fees and expenses.............................. 32.5
------
Total............................................. $250.0
</TABLE>
----------------
(a) Includes $5.0 million of indebtedness incurred after June 30, 2000 that
will be repaid using the proceeds of the offering.
(4) Reflects the write-off of deferred debt issue costs associated with
repayment of amounts outstanding.
(5) Reflects the capitalization of deferred financing fees incurred for the new
credit facilities estimated at $5.9 million.
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<PAGE> 37
SELECTED HISTORICAL FINANCIAL DATA
The selected historical data presented below for, and as of the end of,
each of the years in the five-year period ended December 31, 1999, are derived
from our consolidated financial statements. The audited consolidated financial
statements as of December 31, 1998 and 1999 and for each of the years in the
three-year period ended December 31, 1999 and the related reports are included
elsewhere in this prospectus. The selected consolidated financial data as of
June 30, 2000 and for the six months ended June 30, 1999 and 2000 are derived
from our unaudited consolidated financial statements. Our unaudited consolidated
financial statements are included elsewhere in this prospectus and, in our
management's opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of this data.
Historical results are not necessarily indicative of future results.
In connection with our acquisition of LISN in December 1999, LISN's former
shareholders acquired control of Orius. As a result, LISN has been treated as
the acquiring corporation for accounting purposes even though it became our
subsidiary in the acquisition. Therefore, LISN is our corporate predecessor for
accounting purposes and its historical financial statements are deemed to be our
historical financial statements. The selected historical financial data should
be read in conjunction with the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the consolidated financial statements and related notes of Orius Corp. (formerly
known as LISN Holdings, Inc.) and Orius Corp. (prior to the LISN acquisition),
each included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $13,876 $20,512 $40,226 $76,371 $167,018 $60,198 $349,868
Expenses:
Direct costs............................... 10,468 15,425 29,691 52,659 118,539 40,202 250,682
General and administrative................. 3,121 3,688 6,063 10,627 20,577 11,718 37,029
Depreciation and amortization.............. 148 145 179 383 1,358 174 13,760
------- ------- ------- ------- -------- ------- --------
Total operating expenses............... 13,737 19,258 35,933 63,669 140,474 52,094 301,471
Income from operations....................... 139 1,254 4,293 12,702 26,544 8,104 48,397
Other expense (income):
Interest expense, net...................... 108 139 178 450 11,149 1,372 30,904
Other expense (income)..................... 7 8 (53) (14) 362 (96) (96)
------- ------- ------- ------- -------- ------- --------
Income before provision for income taxes..... 24 1,107 4,168 12,266 15,033 6,828 17,589
Provision for income taxes................... -- -- -- -- 4,937 651 10,298
------- ------- ------- ------- -------- ------- --------
Net income before extraordinary charge....... $ 24 $ 1,107 $ 4,168 $12,266 $ 10,096 $ 6,177 $ 7,291
======= ======= ======= ======= ======== ======= ========
Net income (loss) applicable to common
shareholders............................... $ 24 $ 1,107 $ 4,168 $12,266 $(69,716) $ 6,177 $(24,188)
======= ======= ======= ======= ======== ======= ========
Net income (loss) per share..................
Basic...................................... -- $ 0.10 $ 0.38 $ 1.12 $ (10.82) $ 0.67 $ (0.95)
Diluted.................................... -- $ 0.10 $ 0.38 $ 1.12 $ (10.82) $ 0.67 $ (0.95)
Weighted average common shares outstanding...
Basic...................................... 11,000 11,000 11,000 11,000 6,443 9,198 25,573
Diluted.................................... 11,000 11,000 11,000 11,000 6,443 9,198 25,573
OTHER DATA:
Gross profit(1).............................. $ 3,408 $ 5,087 $10,535 $23,712 $ 48,479 $19,996 $ 99,186
Gross margin percentage...................... 24.6% 24.8% 26.2% 31.0% 29.0% 33.2% 28.3%
Capital expenditures......................... 82 189 1,039 1,924 4,015 1,325 13,165
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------------------------ --------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 1,468 $ 2,404 $ 5,137 $15,905 $112,117 $ 19,728 $ 58,089
Goodwill, net.............................. -- -- -- -- 359,882 -- 418,713
Total assets............................... 4,367 7,175 16,043 28,599 621,978 46,132 710,700
Total debt................................. 1,546 1,678 3,071 1,182 466,866 133,100 590,966
Preferred stock............................ -- -- -- -- 199,019 -- 241,246
Total shareholders' equity (net capital
deficit)................................. 1,855 11 7,141 18,248 (186,851) (110,269) (215,607)
</TABLE>
----------------
(1) Gross profit is computed as revenues less direct costs.
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<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Our pro forma revenue for the six months ended June 30, 2000 was $369.5
million. Of this revenue, approximately 41% was derived from internal network
services and 59% was derived from external network services. Our customers are
primarily large, established telecommunications and broadband service providers.
Of our pro forma revenues for the six months ended June 30, 2000, 60% was from
network services provided to telecommunications services providers, 33% was from
network services provided to broadband services providers and 7% was from
services provided to our commercial, governmental and other customers.
Many of our contracts are awarded on the basis of competitive bids, the
final terms and pricing of which are frequently negotiated with the customer.
However, many of our contracts that are with customers with whom we enjoy a
long-standing business relationship are renegotiated prior to expiration without
competing bids. Our internal network services contracts are provided on a
project-by-project basis, with revenue recognized on a percentage-of-completion
basis. Under this method, revenue is recognized on a cost-to-cost method based
on total cost incurred to date as a percentage of total estimated cost to
complete the contract. These projects generally require two weeks to three
months to complete, with an average revenue of $20,000. For the Regional Bell
Operating Companies for which we are their "preferred vendor," we perform these
projects under agreements referred to as turf contracts. Under our turf
contracts, we provide all specified services within a defined geographic region
typically for a two to three year period. We also provide our integrated premise
services under maintenance agreements, under which we agree to furnish a
specified unit of service for a specified price and bill our customers based on
the services performed.
Our external network services contracts generally provide that we will
furnish a specified unit of service for a specified unit price. For example, we
contract to install cable for a specified rate per foot. We recognize revenue 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. We also provide external network services under master service
agreements, under which we provide all specified services under a specified
dollar amount within a defined geographic area, and turnkey agreements, under
which we provide comprehensive design, engineering, deployment and maintenance
services.
Project-specific agreements are billed on either a unit basis, as work is
completed, or a deferred unit or milestone basis, when work on a specified
segment of an entire project is completed. 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 with bills delivered upon completion of a
unit of work. Turnkey agreements are billed both on a unit and deferred unit or
milestone basis. We generally bill our internal network services customers upon
job completion, with a lag of approximately two weeks between job completion and
billing.
Direct costs include all direct costs of providing services to our
customers, other than depreciation on fixed assets that we own or use under
capital leases. We utilize subcontracted labor when the volume of our work
exceeds the capacity of our regularly employed labor force. By utilizing an
established pool of experienced subcontractors, we are able to capture
additional business which we would otherwise be unable to perform utilizing only
our in-house labor force. The benefit of the additional revenue generated
through the use of subcontracted labor is partially offset by the relatively
higher labor costs as compared to the cost of our internal work force. Materials
are typically provided by our external network services customers, other than in
connection with turnkey agreements, for which we supply materials. As part of
our internal network services, we supply accessory equipment, such as shelves,
racks and cable for use in the installation of central office equipment.
34
<PAGE> 39
General and administrative costs include all costs of our management
personnel and the management of our operating divisions, rent, utilities, travel
and centralized costs such as insurance administration, professional costs and
clerical and administrative overhead. The senior management of our operating
divisions 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 beyond that included under
general and administrative expenses.
ACQUISITIONS
In 1998, we acquired Cablemasters Corp., Channel Communications, Inc.,
Excel Cable Construction, Inc., Mich-Com Cable Services, Incorporated, U.S.
Cable, Inc., CATV Subscriber Services, Inc., Burn-Techs, Inc. and State Wide
CATV, Inc. In 1999, we acquired DAS-CO of Idaho, Inc., Schatz Underground Cable,
Inc., Copenhagen Utilities & Construction, Inc., Network Cabling Services, Inc.,
Texel Corporation and LISN. In 2000, we acquired Irwin Utilities of Texas, Inc.
and three related entities, Fenix Communications, Inc. and Fenix Limited
Partnership, which we collectively refer to as "Fenix," Midwest Splicing &
Activation, Inc. and Hattech, Inc.
Prior to their acquisition by us, many of our acquired companies were
operated with different strategic and financial objectives. Some of the former
owners of the businesses we acquired sought to maximize cash flow and
shareholder 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, direct costs and general and administrative expenses as a percentage
of revenue may not be comparable among the acquired businesses on a historical
basis.
All of our acquisitions were accounted for using the purchase method of
accounting. The excess of the fair value of the consideration paid or to be paid
for the acquisitions of $423.5 million over the fair value of the net assets so
purchased 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 on our net income of these amortization expenses, a
majority of which are not deductible for tax purposes, is expected to be
approximately $16.9 million per year.
RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS
The following table, and the period-to-period comparisons which follow, set
forth unaudited pro forma financial data for the periods indicated. This
financial data gives pro forma effect to those transactions described under the
heading "Unaudited Pro Forma Financial Statements," as if those transactions had
occurred at the beginning of the periods presented. See "Unaudited Pro Forma
Financial Statements." For purposes of the discussion below, we have included
unaudited pro forma financial data because we believe it provides a more
meaningful basis for period-to-period comparisons than the actual historical
financial data. Due to the significant number of acquisitions that we have
completed within the last three years, our historical financial statements are
not reflective of our ongoing operations. To improve the comparability of the
periods set forth below, and to assist you in better understanding the changes
in our operations over these periods, we have provided this pro forma
information for informational purposes only. This pro forma financial data
should not be viewed as a substitute for our results of operations calculated in
accordance with generally accepted accounting principles. In addition, the
following pro forma financial data does not
35
<PAGE> 40
purport to represent our results of operations had these transactions occurred
at the beginning of the periods presented, nor does it purport to be indicative
of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1998 1999 1999 2000
-------------- -------------- -------------- --------------
$ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................... $390.6 100.0% $587.2 100.0% $251.1 100.0% $369.5 100.0%
Direct costs............... 279.5 71.6% 422.2 71.9% 181.9 72.4% 263.3 71.3%
General and administrative
expenses................ 45.8 11.7% 60.3 10.3% 24.8 9.9% 41.9 11.3%
Depreciation............... 9.9 2.5% 9.9 1.7% 4.9 2.0% 6.1 1.6%
Amortization............... 16.9 4.3% 16.9 2.9% 8.5 3.4% 8.5 2.3%
Income from operations..... 38.5 9.9% 77.8 13.3% 31.0 12.4% 49.8 13.5%
Interest expense, net...... 41.7 10.7% 41.7 7.1% 20.8 8.3% 20.8 5.6%
Provision for income
taxes................... 19.6 5.0% 21.8 3.7% 6.1 2.4% 15.4 4.2%
</TABLE>
Pro Forma Six Months Ended June 30, 2000 Compared to Pro Forma Six Months
Ended June 30, 1999
Revenue. Revenue increased 47.2%, or $118.5 million, from $251.1 million
for the six months ended June 30, 1999 to $369.5 million for the six months
ended June 30, 2000. This growth was attributable in part to a 44.3% increase in
revenue from our external network services customers, which accounted for $66.0
million or 55.7% of the total increase. A milder than expected winter and
improved pricing arrangements on certain jobs contributed to the increase in
external network services revenue. Revenue from our internal network services
customers increased 51.4%, which accounted for $52.4 million, or 44.3% of the
total increase. Included in that amount was a $52.3 million increase in revenue
from central office services, which increased 70.3% due primarily to an increase
in services provided to Verizon.
Direct Costs. Direct costs increased 44.7%, or $81.4 million, from $181.9
million for the six months ended June 30, 1999 to $263.3 million for the six
months ended June 30, 2000. The increase was the result of our increased level
of business activity. As a percent of revenue, direct costs decreased from 72.4%
for the six months ended June 30, 1999 to 71.3% for the six months ended June
30, 2000. Direct costs as a percent of revenue decreased most significantly with
respect to those broadband customers for whom we provide external network
services. In the first half of 1999, several of our operating divisions recorded
significant expenses relating to project accounting and accounts receivable.
Similar expenses did not need to be recorded during the first half of 2000, as
we have put in place more effective quality control procedures relating to
collections and lingering project costs. Improved pricing on certain projects
for our broadband customers contributed to the decrease in direct costs as a
percent of revenue.
General and Administrative Expenses. General and administrative expenses
increased 69.0%, or $17.1 million, from $24.8 million for the six months ended
June 30, 1999 to $41.9 million for the six months ended June 30, 2000. The
increase was due to increased payroll and other expenses resulting from our
growth. As a percent of revenue, the level of general and administrative
expenses increased from 9.9% for the six months ended June 30, 1999 to 11.3% for
the six months ended June 30, 2000. Management expects to be able to maintain
this level of general and administrative expenses as a percent of revenue
throughout 2000.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $13.4 million for the six months ended June 30, 1999 and $14.6
million for the six months ended June 30, 2000.
Interest Expense. Interest expense net, was $20.8 million for the six
months ended June 30, 1999 and $20.8 million for the six months ended June 30,
2000.
Provision for Income Taxes. Provision for income taxes increased $9.3
million to $15.4 million for the six months ended June 30, 2000. Our effective
tax rate is affected by the non-deductibility of $8.5 million of goodwill
attributable to acquisitions, which will cause us to experience a significantly
higher effective tax rate than statutory levels for the foreseeable future.
36
<PAGE> 41
Pro Forma Year Ended December 31, 1999 Compared to Pro Forma Year Ended
December 31, 1998
Revenue. Revenue increased 50.3%, or $196.6 million, from $390.6 million
for the year ended December 31, 1998 to $587.2 million for the year ended
December 31, 1999. This growth was attributable in part to a 45% increase in
revenue from our external network services customers, which accounted for $107.2
million, or 54.5%, of the total increase. Favorable weather conditions at key
external project sites and a general increase in demand for our external network
services contributed to this increase. Revenue from our internal network
services customers increased 57%, which accounted for $89.4 million, or 45.5%,
of the total increase. Included in that amount was a $69.0 million increase in
revenue for central office services, primarily performed for Verizon, which
accounted for 38% of the total increase. Revenue from integrated premise
services grew 10% over the comparable period, or $5.5 million, due to a general
increase in demand for our integrated premise services.
Direct Costs. Direct costs increased 51.1%, or $142.7 million, from $279.5
million for the year ended December 31, 1998 to $422.2 million for the year
ended December 31, 1999. The increase was the result of an increase in our level
of activity. As a percentage of revenue, direct costs remained flat from the
year ended December 31, 1998 to the year ended December 31, 1999.
General and Administrative Expenses. General and administrative expenses
increased 31.7%, or $14.5 million, from $45.8 million for the year ended
December 31, 1998 to $60.3 million for the year ended December 31, 1999. The
increase in general and administrative expenses was due to increased payroll and
other expenses required to service our increased level of activity. These
amounts represent a 1.4% decrease in general and administrative expenses as a
percentage of revenue from 11.7% for the year ended December 31, 1998 to 10.3%
for the year ended December 31, 1999. This decrease resulted from leveraging
these expenses over an increased revenue base. We expect to be able to maintain
this level of general and administrative expenses as a percentage of revenue for
the year ending December 31, 2000.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $26.8 million for the year ended December 31, 1998 and $26.8 million
for the year ended December 31, 1999.
Interest Expense. Interest expense was $41.7 million for the years ended
December 31, 1998 and 1999.
Provision for Income Taxes. The provision for income taxes and our
effective tax rate is affected by the non-deductibility of $16.9 million of
goodwill in each period attributable to acquisitions, which will cause us to
experience a significantly higher effective tax rate than statutory levels for
the foreseeable future.
HISTORICAL RESULTS OF OPERATIONS
In connection with the LISN acquisition, LISN's former shareholders
acquired control of Orius. As a result, LISN has been treated as the acquiring
corporation for accounting purposes even though it became our subsidiary in the
LISN acquisition. Therefore, LISN is our corporate predecessor for accounting
purposes and its historical financial statements are deemed to be our historical
financial statements. You should read the following discussion in connection
with the "Selected Historical Financial Data" section of this prospectus and the
consolidated financial statements of Orius Corp. (formerly known as LISN
Holdings, Inc.) included elsewhere in this prospectus.
37
<PAGE> 42
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenue. Revenue increased 481.2% or $289.7 million, from $60.2 million for
the six months ended June 30, 1999 to $349.9 million for the six months ended
June 30, 2000. This increase in revenue was the result of our acquisition by
LISN in December 1999. LISN's revenue, excluding the revenues attributable to
Orius, increased $52.1 million or 86.5%. The increase in LISN's revenue was
primarily due to increased revenue from central office services performed for
Verizon, AT&T and Ameritech in both new and existing geographic markets.
Direct Costs. Direct costs increased 523.6% or $210.5 million, from $40.2
million for the six months ended June 30, 1999 to $250.7 million for the six
months ended June 30, 2000. Excluding the direct costs attributable to Orius,
LISN's direct costs increased $36.6 million, or 91.1%, and remained constant as
a percent of revenue. This increase was primarily due to additions to LISN's
labor force in response to an increased level of activity.
General and Administrative Expenses. General and administrative expenses
increased 216.2%, or $25.3 million, from $11.7 million for six months ended June
30, 1999 to $37.0 million for the six months ended June 30, 2000. Excluding the
general and administrative expenses attributable to Orius, LISN's general and
administrative expenses increased $0.7 million or 5.0%. Excluding Orius, these
amounts represent a 8.9% decrease in general and administrative expenses as a
percentage of revenue from 19.5% in 1999 to 10.6% in 2000. The increase in
general and administrative expenses was primarily due to the increase in
administrative staff and salaries resulting from LISN's increased activity.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $13.6 million, from $0.2 million for the six months ended June
30, 1999 to $13.8 million for the six months ended June 30, 2000. This increase
in depreciation and amortization expense is the result of the inclusion of Orius
in the results for the six months ended June 30, 2000 and the inclusion of
amortization of goodwill from the LISN acquisition in our operating results.
Interest Expense. Interest expense increased $29.5 million, from $1.4
million for the six months ended June 30, 1999 to $30.9 million for the six
months ended June 30, 2000. This increase was due to higher levels of debt
incurred under our senior credit facilities in connection with the LISN
acquisition.
Provision for Income Taxes. The provision for income taxes increased $9.6
million from $0.7 million for the six months ended June 30, 1999 to $10.3
million for the six months ended June 30, 2000, reflecting an increase in the
effective tax rate of 58.5% for federal, state and local taxes for six months
ended June 30, 2000. This increase is the result of the change in LISN's status
from an S corporation to a C corporation in connection with the recapitalization
of LISN in May 1999. As an S corporation, LISN was generally not subject to
federal income tax at the corporate level.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue increased 118.6% or $90.6 million, from $76.4 million for
the year ended December 31, 1998 to $167.0 million for the year ended December
31, 1999. This increase was due primarily from increased revenue from central
office services performed for Verizon in both existing and new geographic
markets.
Direct Costs. Direct costs increased 124.9%, or $65.8 million, from $52.7
million for the year ended December 31, 1998 to $118.5 million for the year
ended December 31, 1999. The increase was the result of an increase in our labor
force due to our increased level of activity, and represents a 2% increase in
direct costs as a percentage of revenue from 69% for the year ended December 31,
1998 to 71% for the year ended December 31, 1999. This increase is attributable
to an increased use of subcontractors necessary to achieve revenue growth and a
one-time bonus of $1.5 million paid to installers and engineers in connection
with the recapitalization of LISN in May 1999.
General and Administrative Expenses. General and administrative expenses
increased 94.3%, or $10.0 million, from $10.6 million for the year ended
December 31, 1998 to $20.6 million for the year ended December 31, 1999. The
increase in general and administrative expenses was due primarily to a one-time
bonus of $5.0 million paid to LISN's administrative employees in connection with
the
38
<PAGE> 43
recapitalization of LISN in May 1999. These amounts represent a 1.6% decrease in
general and administrative expenses as a percentage of revenue from 13.9% for
the year ended December 31, 1998 to 12.3% for the year ended December 31, 1999.
This decrease resulted from leveraging these expenses over an increased revenue
base.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $0.4 million for the year ended December 31, 1998 and $1.4 million
for the year ended December 31, 1999. This increase was primarily due to the
amortization of $0.2 million of finance costs in connection with the
recapitalization of LISN in May 1999 and the amortization of $0.7 million in
goodwill in connection with the LISN acquisition.
Interest Expense. Interest expense was $0.5 million for the year ended
December 31, 1998 and $11.1 million for the year ended December 31, 1999. This
increase was due to higher levels of debt incurred in connection with the
recapitalization of LISN in May 1999.
Provision for Income Taxes. The provision for income taxes was $0.0 for the
year ended December 31, 1998 and $4.9 million for the year ended December 31,
1999, reflecting an effective tax rate of 32.8% for federal, state and local
taxes for the year ended December 31, 1999. This increase is the result of the
change in LISN's status from an S corporation to a C corporation in connection
with the recapitalization of LISN in May 1999. As an S corporation, LISN was
generally not subject to federal income tax at the corporate level.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue increased 90.0%, or $36.2 million, from $40.2 million for
the year ended December 31, 1997 to $76.4 million for the year ended December
31, 1998. This increase was primarily due to increased revenue from central
office services performed for Verizon, AT&T and Ameritech in existing and new
geographic markets.
Direct Costs. Direct costs increased 77.4%, or $23.0 million, from $29.7
million for the year ended December 31, 1997 to $52.7 million for the year ended
December 31, 1998. The increase was the result of an increase in LISN's labor
force due to an increased level of activity, and represents a 4.8% decrease in
direct costs as a percentage of revenue from 73.8% for the year ended December
31, 1997 to 69.0% for the year ended December 31, 1998. This decrease was
attributable to the improved productivity of LISN's labor force.
General and Administrative Expenses. General and administrative expenses
increased 73.8%, or $4.5 million, from $6.1 million for the year ended December
31, 1997 to $10.6 million for the year ended December 31, 1998. These amounts
represent a 1.2% decrease in general and administrative expenses as a percentage
of revenue from 15.1% for the year ended December 31, 1997 to 13.9% for the year
ended December 31, 1998. The increase in general and administrative expenses was
primarily due to increases in administrative staff and salaries, and accounted
for $3.0 million of the $4.5 million increase.
Depreciation and Amortization Expense. Depreciation and amortization
expense was $179,000 for the year ended December 31, 1997 and $383,000 for the
year ended December 31, 1998.
Interest Expense. Interest was $178,000 for the year ended December 31,
1997 and $450,000 for the year ended December 31, 1998.
QUARTERLY OPERATING RESULTS
The following table presents our unaudited pro forma quarterly results, in
dollars and as a percentage of revenues, for the six quarters ended June 30,
2000. The information for each of these quarters has been prepared on the same
basis as our unaudited pro forma financial statements appearing elsewhere in
this
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prospectus. We have included unaudited pro forma financial data because we
believe it provides a more meaningful basis for period-to-period comparisons
than our actual historical financial data.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1999 2000
--------------------------------- ---------------
Q1 Q2 Q3 Q4 Q1 Q2
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $111.4 $139.6 $166.5 $169.6 $171.1 $198.5
Gross profit.............................. 30.7 41.6 48.5 44.2 49.3 56.9
Gross margin percentage................... 27.5% 29.8% 29.1% 26.1% 28.8% 28.6%
EBITDA.................................... $ 16.7 $ 26.4 $ 33.0 $ 28.6 $ 23.7 $ 35.6
EBITDA margin............................. 15.0% 18.9% 19.8% 16.8% 16.8% 17.9%
</TABLE>
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 year-end budgetary spending patterns of our customers.
Accordingly, our operating results in any particular quarter may not be
indicative of the results that can be expected for any other quarter or for the
entire year. See "Risk Factors -- Our external network services business is
seasonal" and " -- We expect our quarterly results to fluctuate."
LIQUIDITY AND CAPITAL RESOURCES
We primarily finance our operations from cash flow generated from
operations and from borrowings. As of June 30, 2000, we had working capital of
$58.1 million, short-term debt of $69.0 million, and long-term debt, net of
current maturities of $521.9 million.
During the six months ended June 30, 2000, operating activities provided
$1.8 million of net cash primarily due to growth in our revenue, offset by the
working capital requirements related to this growth. We used $72.7 million in
cash in investing activities, which included $13.2 million for capital
expenditures and $59.5 million for acquisitions. Financing activities provided
cash of $42.2 million, resulting primarily from proceeds from the issuance of
our 12 3/4% senior subordinated notes and from borrowings under our senior
credit facility.
Our capital expenditures for the six months ended June 30, 2000 were
approximately $13.2 million, which were used primarily to purchase additional
vehicles and equipment. We anticipate that our capital expenditures for the full
year 2000 will be approximately $21.0 million.
During the year ended December 31, 1999, operating activities provided
$13.8 million. We used net cash in investing activities of $170.2 million,
including $166.1 million relating to the LISN acquisition. Financing activities
provided a net cash flow of $182.3 million, resulting primarily from borrowings
under the senior credit facilities.
Our capital expenditures for 1999 were approximately $13.0 million. Our
capital expenditures for 1999 included an upgrade to our management information
system and for additions to vehicles and equipment of approximately $8.9 million
and a $1.2 million expansion of LISN's Amherst, Ohio corporate offices,
including a $420,000 land purchase.
The majority of our working capital requirements are attributable to
accounts receivable. As of June 30, 2000, on a pro forma basis, our days sales
outstanding were 87 days. We believe our days sales outstanding are generally
in-line with the industry average and reflect the payment policies of telecom
services providers.
As of June 30, 2000, there was $288.6 million of outstanding indebtedness
under the senior credit facility (excluding $5.7 million of letters of credit
and $7.2 million of standby letters of credit), $50.0 million available under
the revolving credit facility for working capital and other corporate purposes
and $75.0 million available for acquisitions, although no more than $100.0
million in the aggregate may be borrowed under the revolving credit facility. As
of June 30, 2000, rates on borrowings under the senior credit facility ranged
from 9.6% to 10.3%.
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In February 2000, we completed the sale of $150.0 million in aggregate
principal amount of 12 3/4% senior subordinated notes due 2010. We used
approximately $43.2 million of the proceeds from this sale to repay $42.6
million in aggregate principal amount of the tranche B term loan at 101% of its
outstanding principal amount. We used approximately $102.0 million of the
proceeds from this sale to repay a $100.0 million senior subordinated term loan,
plus accrued interest, that was used to fund a portion of the acquisition of
LISN.
Our senior credit facility and the indenture governing the notes contain
numerous restrictive covenants, including, among other things, covenants that
limit our ability to borrow money, make capital expenditures, use assets as
security in other transactions, pay dividends, incur contingent obligations,
sell assets and enter into leases and transactions with affiliates.
If this offering is consummated, we expect to receive approximately $
million in net proceeds, $ million of which we will use to reduce borrowings
under our senior credit facility, $ million of which we plan to repay a
portion of our senior subordinated notes, and $ million of which we will use
to repay a portion of our junior subordinated notes. The remaining net proceeds
will be used to pay the fees and expenses of this offering and for working
capital and general corporate purposes. See "Use of Proceeds." In connection
with this offering, we also intend to enter into a new senior credit facility, a
portion of which will be used to repay the balance of our existing senior credit
facility. See "Description of Indebtedness -- New Senior Credit Facility" for a
discussion of the terms of the anticipated new senior credit facility.
Following the offering, we expect that our principal sources of liquidity
will be from cash flow generated from operations and borrowings under our new
senior credit facility. We believe that these funds will be sufficient to meet
our needs for the next twelve months. Our principal uses of liquidity will be to
meet our debt service obligations, provide working capital availability, finance
our capital expenditures and partially fund future acquisitions.
The estimates for the periods for which we expect the net proceeds from
this offering and our available cash balances to be sufficient to meet our
capital requirements are forward-looking statements that involve risks and
uncertainties as set forth under "Cautionary Statement Regarding Forward-Looking
Statements." Our capital requirements will depend on a number of factors,
including the timing of payments from customers, our ability to accelerate
billings to customers for completed and uncompleted projects and possible future
acquisitions. We cannot predict the timing, size or success of any prospective
acquisitions and the related capital commitments. To the extent that we seek to
grow by acquisitions that involve consideration other than our securities, our
capital requirements may increase. We expect to fund future acquisitions
primarily with issuances of additional securities, borrowings under our new
senior credit facility and cash flow from operations.
MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. Although
we are not subject to material foreign currency exchange risk, we are exposed to
changes in interest rates. All of our debt, other than the notes, is variable
rate debt. Interest rate changes generally do not affect the fair market value
of variable rate debt but do impact future earnings and cash flows, assuming
other factors are held constant. Conversely, for fixed rate debt, interest
changes do not impact future cash flow and earnings, but do impact the fair
market value of fixed rate debt, assuming other factors are held constant. At
June 30, 2000, we had variable rate debt of approximately $285.8 million and
fixed rate debt of approximately $150.0 million. Holding other variables
constant (such as debt levels) a one percentage point increase in interest rates
would have had an estimated impact on pre-tax earnings and cash flows for next
year of approximately $2.6 million. In order to manage our interest rate risk,
we have entered into interest rate cap agreements and swaps with a notional
amount of $118.0 million as of June 30, 2000. These agreements limit, but do not
eliminate, our exposure in the event LIBOR exceeds 7.0%.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 2001
financial statements. 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.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" (SAB 101), which affects the recognition and disclosures
about revenues. SAB 101 is applicable for our fourth quarter 2000 financial
statements. We do not expect the adoption of SAB 101 to have a significant
impact on our financial statements.
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BUSINESS
INTRODUCTION
We are a leading, nationwide provider of technical expertise and
comprehensive network services to the telecom industry. With operations in 48
states, we offer a comprehensive range of network services, including the
design, engineering, deployment and maintenance of our customers' fiber optic,
coaxial and cooper cable networks. We provide both internal network services,
primarily within the central offices of our customers, and external network
services in the field. Additionally, our business is characterized by steady,
recurring revenues associated with our maintenance services. We believe that
both our existing and new customers will increasingly use our services as a
result of our comprehensive capabilities, mix of internal and external network
services, ability to provide high quality, responsive service on a consistent
basis and our broad geographic coverage.
In 1999, we provided service to more than 300 customers and completed more
than 10,000 individual projects. We have developed strong and long-standing
relationships with many established and emerging telecommunications and
broadband service providers by providing high quality, responsive and reliable
service. Our telecommunications customers include Ameritech, AT&T, DTI, MCI
Worldcom, Qwest, SBC Communications, Verizon, Williams Communications and
Universal Access. Our broadband customers include Adelphia, AT&T Broadband &
Internet Services, Charter Communications, Clearsource, Comcast, Cox
Communications and Digital Access. We provide integrated premise services for
commercial, governmental and institutional customers such as Compaq, Dell, EDS
and the World Bank. Additionally, we install equipment from leading
manufacturers such as NEC, Lucent Technologies, Nortel Networks and Siemens.
INDUSTRY OVERVIEW
Market data used throughout this prospectus are based on our internal
estimates and from industry publications, including reports generated by the
Multimedia Telecommunications Association, World Information Technologies, Inc.
and Dataquest. Neither we nor any of our affiliates requested that these reports
be prepared, nor have we independently verified these reports. These
organizations have not consented to the inclusion of data from their reports in
our prospectus, nor have we sought their consent. Similarly, our internal
estimates, while we believe them to be reliable, have not been verified by an
independent source.
We estimate that the market for network infrastructure services was
approximately $61 billion in 1999 and that the market possesses positive growth
dynamics. The MultiMedia Telecommunications Association estimates that
telecommunications and broadband services providers spent over $21 billion on
network infrastructure services in 1999 and projects expenditures will grow at a
compound annual rate of approximately 15% through 2003. According to World
Information Technologies, Inc., expenditures for central office services
accounted for approximately $7 billion of the total network infrastructure
services expenditures by telecommunications and broadband services providers in
1999, and are projected to grow at a compound annual rate of approximately 41%
through 2002. Expenditures for integrated premise services by commercial,
governmental and institutional entities are estimated by Dataquest to have
exceeded $30 billion in 1999 and are estimated by Dataquest to grow at a
compound annual rate of approximately 17% through 2002.
We believe that our industry presents substantial growth opportunities for
large companies like us with a comprehensive range of technical capabilities,
the ability to provide high quality, responsive service on a consistent basis,
broad geographic coverage and significant capital resources. Growth in our
industry has been driven by the following trends:
- Increased Voice, Video and Data Traffic on Telecom Networks. Growth
in demand for Internet services, telecommunications voice and data
traffic, electronic commerce, delivery of information and
entertainment services, and the growth, use and reliance on
personal computers has accelerated the need for greater bandwidth.
Bandwidth refers to both the speed
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and breadth of voice, video and data communications. Bandwidth is
limited by the size and the physical and technological
characteristics of the cable, equipment or other facilities through
which communications flow. Because of the physical limitations of
existing network facilities, telecom services providers are
upgrading facilities with new and innovative technology, expanding
and, in many cases, replacing existing network infrastructure to
allow for increased bandwidth in order to offer a faster and
greater volume of communications flow.
- Telecom Deregulation. The Telecommunications Act of 1996
substantially revised prior law by preempting state and local
government control over access to the telecommunications and
broadband markets. The Telecommunications Act eliminated regulatory
barriers to competition such as the antitrust consent decree that
had restricted the Regional 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. In response to these changes, existing and
newly created companies have raced to install new networks and
upgrade existing networks to enter new markets to maintain or gain
market share. The Telecommunications Act also required that
competitive local exchange carriers be granted access to existing
central offices of incumbent local exchange carriers, a practice
known as co-location, which requires rewiring of the switches and
has significantly increased demand for central office services. We
believe the elimination of these entry barriers has increased and
will continue to increase competition among telecom services
providers and drive additional investment in network
infrastructure. In addition, many state regulatory commissions have
eliminated pricing regulations for telecom providers, thus
requiring these providers to become efficient in installing and
maintaining their telecom and cable television networks so as to be
price competitive. As a result, providers are entering new markets,
offering services that once were reserved for incumbent providers,
and expanding and improving their existing networks.
- Increased Outsourcing. The level of outsourcing by telecom services
providers is expected to continue to increase due to the need of
these service providers to upgrade and expand their networks as a
result of increased competition. The outsourcing trend has largely
been driven by the efforts of telecom services providers 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 network
infrastructure services to the telecom industry are generally able
to provide these services on a lower cost basis. In addition, we
believe that telecom services providers are seeking to reduce the
number of their network infrastructure services providers, and
thereby the administrative expense and managerial burden of
managing their services providers, by establishing preferred
relationships with a select number of services providers that are
able to consistently offer comprehensive solutions to their network
needs across a broad geographic area.
- Customer Consolidation. While deregulation has created new market
participants, consolidation in the telecom industry has created
geographically diverse and in some cases integrated providers. The
expansion of the geographic markets served by telecom services
providers has increased the requirement for network infrastructure
services providers to have broad geographic coverage capabilities.
As the size and scope of telecom services providers have expanded,
they are increasingly requiring network infrastructure services
providers to provide design, engineering, deployment and
maintenance services simultaneously over multiple geographic
regions. Many of the smaller regional and local companies in our
industry do not have the financial resources or personnel necessary
to provide a comprehensive range of network services over a broad
geographic area or the ability to manage multiple projects.
- Emergence of Preferred Service Providers. We believe that telecom
services providers increasingly prefer to simplify vendor
management through the use of network infrastructure service
providers with significant capital resources, broad geographic
coverage, a comprehensive range of technical capabilities and the
ability to provide responsive, quality service on a
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consistent basis. Network infrastructure 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 telecom services
providers expand their geographic market, we believe they often
desire to extend existing relationships with their existing network
infrastructure service providers to these new markets and are
increasing the use of turnkey and master service agreements.
Turnkey agreements typically require the network infrastructure
service provider to design, engineer, deploy and often maintain a
comprehensive network for a specific project. Master service
agreements typically require the network infrastructure service
provider to design, engineer, deploy and maintain systems and
equipment for a variety of projects over a three to five year
period in a specified geographic area. Network infrastructure
services providers must be able to support the substantial initial
working capital and equipment commitments required for these
turnkey and master service agreements. This trend favors large
services providers like us with significant capital resources over
smaller industry competitors.
COMPETITIVE STRENGTHS
We believe that we possess a number of competitive strengths that position
us as a leading provider of network infrastructure services and provide us with
the ability to meet the increased demand for these services and to take
advantage of the strong technology-driven growth occurring in the telecom
industry, including:
- Comprehensive Service Capabilities. We believe that we are one of
the few service providers with the capability to offer our
customers integrated and comprehensive network infrastructure
services, including design, engineering, deployment and maintenance
services. This capability is important to our customers, who
increasingly prefer to simplify their vendor management through the
use of fewer preferred service providers who can offer
comprehensive solutions to their network infrastructure needs.
- Technology and Vendor Independence. We are technology and vendor
independent. This independence allows us to provide services across
nearly all competing network infrastructure technologies and
minimizes our risk of technological obsolescence.
- Broad Geographic Coverage. We have significantly broadened our
geographic presence within the past three years through internal
growth and strategic acquisitions, and currently have operations in
48 states. Consolidation in the telecom industry has created
geographically diverse services providers who require network
infrastructure services providers with similarly broad geographical
capabilities. The network infrastructure services industry is
highly fragmented, with the eight largest public companies,
including us, accounting for less than 6% of estimated total
industry revenues in 1999, and includes hundreds of significantly
smaller local and regional companies that can only offer their
services over a limited geographic area. We believe that our
ability to provide our services to customers on a nationwide basis
positions us to be a preferred service provider to our customers
and provides us with a competitive advantage over local and
regional companies in our industry.
- Strong Customer Relationships. More than 85% of our pro forma
revenue for the six months ended June 30, 2000 and more than 80% of
our 1999 pro forma revenue was derived from repeat customers.
Through our operating divisions, we have enjoyed business
relationships with many of our larger customers for more than 20
years. In addition, we are a preferred service provider to a number
of these customers. As a result of our strong customer
relationships, we are well positioned to capitalize on the
increasing trend of service providers towards greater outsourcing
of their network infrastructure needs.
- Reputation and Commitment to Quality. We believe that we have a
reputation in our industry for responsive, high quality service, as
evidenced by our receipt of customer service awards, including
Siemens' "1998 Contractor of the Year" and GTE's "Supplier
Recognition
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Award" in 1997. This is further supported by a Quality Assurance
Director at our corporate level who coordinates quality control
procedures throughout our operation. Our commitment to quality is
further evidenced by the achievement in September 1998 and
continued renewal of ISO 9002 certification at our LISN operating
division.
- Decentralized Operating Strategy. We manage our operations on a
decentralized basis while maintaining overall operating and
financial controls and strategic planning at our corporate
headquarters. Our operating divisions have been in business for an
average of more than 20 years and 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'
customer relationships, local and regional market knowledge, local
brand name recognition and specialized skills. At the same time,
our management team coordinates overall marketing strategies to
maximize the utilization of our resources and reviews operations at
our subsidiaries to identify those practices that can be
implemented successfully throughout our operations.
- Experienced Management. Our executive management and the senior
management of our operating divisions have an average of over 20
years of experience in the network infrastructure services industry
and our chief executive officer, William J. Mercurio, has more than
25 years of experience in this industry. Our executive management
team also has substantial acquisition experience, having completed
multiple acquisitions since 1998. In addition, we have generally
retained key personnel from the companies we acquire, which has
enabled us to strengthen our management team. After the offering,
our senior management will own common stock and options
representing % of our outstanding common stock on a fully diluted
basis.
BUSINESS STRATEGY
Our objective is to enhance what we believe is our position as one of the
largest independent providers of comprehensive network infrastructure services
in the U.S. We seek to utilize our competitive strengths to take advantage of
substantial growth opportunities in the telecom industry that favor large
companies like us with significant capital resources. Key elements of our growth
and operating strategies include the following:
- Continue to Grow our Existing Operations. We believe we can achieve
further growth at our existing operations by focusing on providing
high quality, responsive service and by:
Expanding Our Service Offerings. We believe that opportunities
exist to grow internally by expanding the services we offer. We are
targeting new services that are complementary to the services we
currently offer, such as installing telecommunications software,
installing and maintaining wireless networks and providing testing,
turn-up, monitoring and dispatch repair and maintenance services. We
believe that opportunities also exist in the internal network services
market to generate additional revenue by providing our current
services for a broader set of manufacturers' products. In addition, we
are expanding our design and engineering services, which are in
particularly high demand by telecom services providers. The expansion
of our design and engineering services can provide us with both an
increased revenue stream and the opportunity to exert greater control
over project flow and specifications, which in turn can provide us
with a competitive advantage in bidding for the related installation
and maintenance work.
Focusing on Cross-Selling Opportunities. Our comprehensive service
offerings and broad geographic coverage provide us with the
opportunity to expand our service offerings across existing and new
customer bases. For example, we believe that our strong relationships
with our external network services customers located in the
Southwestern and Western regions of the U.S. provide us with the
opportunity to expand our internal network services in these
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regions. Similarly, our strong relationships with our internal network
services customers in the Northeastern and Mid-Atlantic regions of the
U.S. provide us with the opportunity to expand our external network
services in these regions. In addition, we anticipate cross-selling
our services to the wireless customer base. We will identify
opportunities with our existing wireline customers and their wireless
operating divisions and develop new customer relationships.
Maximizing Performance of Existing Operations. We have been able
to increase our organic growth by enhancing the performance of the
businesses we have acquired through the integration of their resources
with our existing operations. Although our operating divisions retain
responsibility for the operations, profitability and growth of their
individual divisions, our executive management team has responsibility
for overall operations, financing, capital expenditures, corporate
strategy, acquisitions and the coordination of overall marketing and
bidding strategies to maximize the utilization of our resources. By
combining overlapping operations of the businesses we have acquired,
we have achieved, and believe we can continue to achieve, more
efficient asset and personnel utilization and reductions in
incremental overhead and general and administrative expenses. 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 the establishment of best
practices.
Continuing to Enhance National Service Capabilities. To meet our
customers' increasing preference for service providers who can provide
network infrastructure services on a nationwide basis, we have
expanded our business to include operations in 48 states. Continued
expansion into markets in which we do not currently have a significant
presence is fundamental to our strategy of enhancing what we believe
is our position as one of the largest providers of comprehensive
network infrastructure services in the U.S. Part of this strategy
involves securing large, long-term contracts in new geographic markets
that provide us with the local presence necessary to capture business
from other potential customers in these markets.
- Selectively Pursuing Strategic Acquisitions. We plan to continue to
pursue strategic acquisitions in the fragmented network
infrastructure services industry. We have made numerous
acquisitions since March 1998 and have gained significant
experience in identifying, purchasing and integrating network
infrastructure businesses.
- 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 and managerial
training programs throughout their careers, competitive
compensation and employee benefits, career development
opportunities, geographic mobility and equity participation in our
success.
NETWORK INFRASTRUCTURE SERVICES
INTERNAL NETWORK SERVICES
Central Office Services
Design and Engineering. We design and engineer configurations for a broad
range of equipment installations, ranging from low-end frame relays, which serve
as an interface between the user and the network equipment, to advanced
broadband digital cross-connect systems and digital subscriber lines, or DSLs,
and platforms, which enable high speed data and video transmission. Our
engineers create computer-generated schematic drawings that are tailored to each
specific installation project. All drawings are verified for accuracy with the
central office records through site surveys or on-line database checks. Our
engineers develop creative solutions to installation and upgrade projects for
central office switching, transmission and power systems. Our engineers work
closely with customers' engineers to develop detailed
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installation instructions and drawings to ensure that the installation process
is performed efficiently and correctly.
Deployment and Maintenance. Our team of over 2,000 installation technicians
has extensive experience installing and maintaining a full range of central
office equipment, including asynchronous and synchronous optical network
multiplexers, T1 repeaters, digital loop carrier systems, data bridges, network
monitoring devices, alarming systems, routers, power equipment, DSL and other
equipment. The responsibilities of the installation team include taking
inventory of equipment, mounting, cabling and wiring to schematics, performing
functional equipment tests, integrating new equipment with the existing
exchange, and updating all specifications and drawings. Prior to beginning
installation, the installation technician reviews engineering drawings and
checks job site materials against specifications. The technician also confirms
that we have provided the appropriate accessory equipment, such as shelves,
racks and cable for use in the installation of central office equipment. Our
equipment furnishing service ensures an availability of supplies and enables us
to meet accelerated installation timetables. After the network is prewired and
installed at the job site, the installation team then tests the system prior to
reporting a completed package to engineering in order to ensure that the
equipment functions properly. Our experienced technicians combined with our
furnishing operations provides us with a significant competitive advantage as we
are able to install a full range of equipment and provide all the materials
necessary for the job on a just-in-time and lower cost basis.
Integrated Premise Services
We provide a variety of interior wiring services which include the design,
engineering, deployment and maintenance of communications networks in
commercial, institutional and governmental facilities. These services generally
include the establishment and maintenance of computer operations, telephone
systems, local area networks and wide area networks, Internet access and systems
for monitoring environmental controls or security procedures.
EXTERNAL NETWORK SERVICES
Design and Engineering. We offer a variety of design and engineering
capabilities as part of our external network services. We design aerial, buried
and underground fiber optic, coaxial and copper cable systems for all segments
of our customers' network infrastructure. Our engineering services include the
design of service area concept boxes, terminals, buried and aerial drops 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 provide installation management and inspection personnel in
conjunction with engineering services or on a stand-alone basis and, when
necessary, obtain rights of way and permits in support of engineering
activities. In addition, for broadband services providers we perform make ready
studies, strand mapping, field walk out, computer-aided radio frequency design
and drafting, and fiber optic cable routing and design.
Deployment and Maintenance. We provide a full range of deployment and
maintenance services to our external network services 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. 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 due to the
disruptive effect of trenching on the surrounding area. We also employ a
licensed rail plow device which enables us to bury cable on railway easements
expeditiously at a low cost.
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ACQUISITION PROGRAM
We believe that we are regarded by acquisition candidates as an attractive
acquirer because of the following factors:
- our strategy for creating a nationwide comprehensive and
professionally managed business servicing the telecom industry,
- opportunities to participate in a larger organization with greater
access to capital resources,
- our decentralized operating strategy which retains the
entrepreneurial spirit of the acquired businesses by allowing
acquired companies to retain responsibility for their own
individual operations, profitability and growth,
- our potential for increased profitability due to centralized
administrative functions, enhanced management information systems
and economies of scale, and
- the potential for owners of the businesses being acquired to
realize some liquidity, while continuing to participate in our
planned growth through continued equity ownership in our company.
We have developed a set of financial, geographic and management criteria
designed to assist our management in the evaluation of acquisition candidates.
We seek out acquisition candidates that have strong historical and projected
financial performance and experienced management teams that will be compatible
with our corporate culture and operating philosophy. In addition, we look for
acquisition candidates that satisfy one or all of the following criteria:
- whether the acquisition will add additional and/or complementary
technical capabilities,
- whether the acquisition will augment our market share or increase
our range of services,
- 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, and
- potential synergies gained by combining the acquisition candidate
with our existing operations.
We anticipate that acquisition candidates will typically have annual
revenues ranging from $10 million to $40 million, although we would consider
acquiring a company with revenues outside this range. 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. We expect the management of our acquired companies to continue to
play an instrumental role in identifying and assisting in the completion of
future acquisitions.
Following an acquisition, we work quickly to integrate the acquired
company's operations. Although our operating divisions retain responsibility for
their operations and profitability, we believe our operating divisions'
efficiency is increased and overall administrative costs are reduced due to the
centralization of certain business functions. For example, we maintain overall
operating and financial control at our corporate headquarters and, following an
acquisition, quickly integrate the acquired company's information systems to our
centralized system network. In addition, our management team coordinates overall
marketing strategies to maximize the utilization of our resources. Our operating
divisions also benefit from our centralized purchasing, risk management,
treasury and human resource departments.
Since March of 1998, we have acquired 18 network infrastructure services
providers. For a list of the businesses we have acquired, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Acquisitions."
We believe that the success of our acquisition program is demonstrated by
the ongoing growth and profitability of our acquired operations. For example,
revenues for the first four acquisitions grew at a
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compound annual growth rate of 56% from 1997 to 1999. We believe that we can
continue to improve the utilization of our resources and increase our
profitability by continuing to pursue our strategy of growth through selective
acquisitions.
We expect to use our equity or debt securities for all or a portion of the
consideration for future acquisitions. We may also be required to utilize our
cash resources to pursue our acquisition program, whether through additional
borrowings under our senior credit facilities, cash on hand or otherwise.
BIDDING AND CONTRACTS
Our senior management team coordinates overall bidding strategies to
maximize the utilization of our resources, with all bids over $1.0 million being
approved by our senior management. Bids are prepared utilizing the local
expertise of our operating divisions. When appropriate, our operating divisions
work together in bidding for, winning and executing new contracts by pooling
their available resources, technical expertise and coverage in different
geographic areas.
EXTERNAL NETWORK SERVICES
Our three primary types of external network services 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 projects with a duration of
one year or longer. The majority of these contracts provide that we will furnish
a specified unit of service for a specified price. For example, we contract to
install cable for a specified rate per foot. Pro forma revenue for
project-specific contracts was approximately $156 million in 1997, $194 million
in 1998, $269 million in 1999 and $166 million for the six months ended June 30,
2000.
Master Service Agreements. We refer to contracts with telecom services
providers to perform all work 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 resulting in less than $50,000
in revenue per project. These agreements generally have a term ranging from
three to five years and often contain price adjustment provisions based on
inflation. Under our master service agreements, our customers generally reserve
the right to use their own regularly employed personnel to perform services. In
addition, our customers generally retain the right to solicit competitive bids
with respect to projects that exceed a specified dollar amount, generally
$50,000. Pro forma revenue for master service agreements was approximately $41
million in 1997, $41 million in 1998, $40 million in 1999 and $31 million for
the six months ended June 30, 2000.
Turnkey Agreements. We refer to contracts covering a comprehensive spectrum
of services, including the design, engineering, deployment and maintenance of
telecommunications and broadband 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. Because turnkey contracts are invoiced
based on units of work completed at specified milestones per the contracts'
terms, these agreements require substantial initial working capital and
equipment, which historically have been partially funded by customer
prepayments. Pro forma revenue for turnkey agreements was approximately $0 in
1997, $5 million in 1998, $38 million in 1999 and $23 million for the six months
ended June 30, 2000.
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Our contracts for external network services 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 design, engineering, deployment 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 telecommunications and broadband networks, we believe that
more master service agreements will be awarded on the basis of negotiated terms
to the telecommunications or broadband services providers' preferred providers,
as opposed to the competitive bidding process. All of our external network
services contracts are generally terminable upon 90 days' notice or less.
INTERNAL NETWORK SERVICES
Central Office Services Contracts. We generally provide central office
services on a project-by-project basis. Each of these projects generates average
revenue of approximately $20,000 and requires from two weeks to three months to
complete, with the majority completed in less than a month. We completed
approximately 5,000 individual central office services projects in 1998,
approximately 8,000 additional projects in 1999 and approximately 6,000 projects
during the six months ended June 30, 2000. Pro forma revenue for central office
services contracts was $21 million in 1996, $40 million in 1997, $76 million in
1998, $145 million in 1999 and $127 million for the six months ended June 30,
2000.
Regional Bell Operating Companies are our primary customers for central
office services. We typically secure two or three-year, fixed price agreements
with the Regional Bell Operating Companies, who generally establish non-binding
contracts with only "preferred" vendors. We refer to these contracts as turf
contracts, under which a majority of the work performed is for specified
services within a defined geographic region and typically relate to the
maintenance and upgrade of systems. We have achieved preferred status with many
of our customers, including Verizon, Ameritech, U.S. West and SBC
Communications. These non-binding contracts outline the payment terms and
pricing parameters for various types of projects. Although these contracts do
not stipulate a minimum amount of work to be designated to a vendor during the
term of the contract, preferred provider status does act as a barrier to entry,
allowing preferred providers to perform their services at their maximum service
capacity. Regional Bell Operating Companies such as Verizon typically limit
their number of preferred vendors to between three and six vendors per region.
We calculate the pricing of our projects for other customers based on the
type of equipment to be installed and the complexity of the engineering and
installation services required. We generally recognize revenue from central
office services contracts on our books as a percentage of project completion,
with completion being measured by comparing actual costs incurred to estimated
project costs, and bill our customers at job completion. Because our central
office projects are generally short in duration (two weeks to three months, but
generally less than one month) and are for less than $20,000, this method of
revenue recognition does not present any material risk of misstating revenues.
The lag between completion and billing is approximately two weeks and payments
are due within 45 days from the billing date (net 30 terms). Progress billing is
only allowed in the Verizon contract and on a job-by-job negotiated basis with
other customers.
Integrated Premise Services Contracts. We generally provide our integrated
premise services on a project-by-project basis for a fixed fee and recognize
revenue on a percentage of completion basis as our costs are incurred. Each of
these projects generates average revenue of approximately $15,000 and generally
requires one week to 30 days to complete. These contracts are generally billed
upon project completion. We also provide our integrated premise services under
maintenance agreements, under which
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we agree to furnish a specified unit of service for a specified price and bill
our customers based on the services performed.
CUSTOMERS
We regularly serve a diverse group of more than 300 customers, which can be
categorized in three broad market segments:
- telecommunications services providers, such as Regional Bell
Operating Companies, incumbent local exchange carriers, competitive
local exchange carriers, long-distance service providers and
independent telephone companies, which accounted for approximately
60% of our pro forma revenue for the six months ended June 30,
2000;
- broadband services providers, such as Media One and Time Warner,
which accounted for approximately 33% of our pro forma revenue for
the six months ended June 30, 2000; and
- commercial entities, such as Dell and Compaq, governmental entities
such as the FDIC, and institutional entities, such as utility
providers and public school districts, which together accounted for
approximately 7% of our pro forma revenue for the six months ended
June 30, 2000.
The following table sets forth our top ten customers, which accounted for
approximately 69.7% of our pro forma revenue for the six months ended June 30,
2000:
<TABLE>
<CAPTION>
% OF REVENUE FOR THE
SIX MONTHS ENDED
NAME MARKET SEGMENT SERVICES PROVIDED JUNE 30, 2000
---- -------------- ----------------- --------------------
<S> <C> <C> <C>
Verizon.................................. Telecommunications Internal 25.2
AT&T Broadband........................... Broadband External 12.4
MetroMedia Fiber......................... Telecommunications External 5.5
Charter Communications................... Broadband External 4.8
Time Warner.............................. Broadband External 4.6
AT&T..................................... Telecommunications Internal 4.3
Williams Communications.................. Telecommunications External 4.0
U.S. West................................ Telecommunications External 3.4
DTI...................................... Telecommunications External 3.3
Adelphia................................. Broadband External 2.2
</TABLE>
In recent months, our revenue from Verizon has increased in both absolute
terms and as a percentage of our revenue and this trend may continue for the
foreseeable future. Because our business relationship with Verizon is governed
by 13 separate relationships with individual Verizon operating units that are
each independently responsible for issuance of work orders to us within their
operating regions, customer diversification effectively exists within the
Verizon relationship, since a change in our relationship with one unit will not
necessarily affect our relationship with the other units.
INFORMATION SYSTEMS
We utilize a fully integrated enterprise software system that allows
ongoing reporting and tracking of all of our operating divisions at the
corporate level. This system enables management to monitor all projects on
either a daily or weekly basis and provides a detailed analysis of costing data
and billings. Output is regularly reviewed by both the local and division
controllers, as well as by our division managers and our senior management in
order to monitor job profitability. Our system is managed by an information
technology staff of 18 professionals.
Following each acquisition, we quickly integrate the acquired company's
information system to our computer system and network. Next, an established team
of consultants led by one of our information technology directors carefully
evaluates the acquired company's current project costing and billing system
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needs and establishes a standardized chart of accounts. During the
implementation of our system, we will upload accounting and project data from
the acquisition for the past two years. Typically, after our assessment of the
acquired company's systems, we complete system implementation within 45 to 120
days. We believe that our ability to rapidly, and successfully, integrate the
information systems of an acquisition company with our own is one of our
competitive strengths.
SALES AND MARKETING
Our sales and marketing efforts are focused on increasing the value of
comprehensive services provided to existing customers, actively cross-marketing
additional services to our existing customer base and developing new customer
relationships. These efforts are primarily the responsibility of regional
management, supplemented by our executive management team with respect to
national accounts. Regional management at each of our operating divisions 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 currently have a sales and marketing integration team, comprised of our
executive management and senior management of our subsidiaries working to
maximize our sales and marketing opportunities. This team is actively
identifying logical cross-selling opportunities, developing procedures for
joint-bidding and developing procedures for delivering sales opportunities to
the business unit best positioned to respond to the customer's requirements.
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. This customer
approval process has been expedited by LISN's achievement in September 1998 of
ISO 9002 certification. We strive to maintain our status as a preferred and
qualified vendor to these customers.
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 agreements and other
contracts. As of June 30, 2000, our backlog was approximately $663 million. Of
that amount, approximately $303 million was for work scheduled to be performed
in 2000 and approximately $318 million is for work scheduled to be performed in
2001, with the remainder to be performed in 2002. All our backlog can be
canceled at any time upon the notice provided in these agreements 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 historically had any significant cancellations. We are unable to provide
comparable backlog information for periods prior to the fiscal year end of 1999
since our subsidiaries did not maintain any consistent information on contract
backlog prior to their acquisition by us.
Under our master service agreements and certain of our maintenance
contracts, our customers do not commit to the volume of services to be
purchased. 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.
QUALITY ASSURANCE, SAFETY AND RISK MANAGEMENT
We have a quality control program that includes defined objectives, goal
setting and performance monitoring on a regular basis. We also have in place a
process to independently review customer satisfaction and take action to resolve
any deficiencies on a timely basis. Our Director of Quality
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Assurance is based at our corporate headquarters and is fully responsible for
our quality assurance program. We consider quality to be an essential attribute
of our company.
We are also 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 divisions 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, 2000, we had approximately 5,610 employees, approximately
15% of whom were salaried, approximately 80% of whom were paid on an hourly
basis and approximately 5% of whom were paid on a production basis. Our hourly
employees have an average hourly wage of $15 per hour. Our employees are
generally non-union, although we do provide union labor when required, as in
certain markets such as New York City. As of June 30, 2000, approximately 20% of
our employees were affiliated with unions. 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
manpower to complete specific projects. As of June 30, 2000, we had
approximately 1,800 subcontracted workers. We consider relations with our
employees to be good.
We employ more than 750 qualified technicians with skill levels that meet
or exceed Bellcore GR-1275-CORE section 23, an industry-wide quality standard.
Technicians go through a two-week formal training period and an estimated 12 to
18 more months on the job before they are fully trained. Most of the technicians
have a trade school/high school education or have prior experience in the
telecom sector. Recruiting, training and retaining technicians is a key focus
area for us.
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 is approximately 2,200 units. We believe that
these vehicles generally are well-maintained and adequate for our present
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 a leased space in West Palm
Beach, Florida. The total leased area for our corporate headquarters and our
operating divisions' headquarters is approximately 283,611 square feet and the
total annual base rent for these facilities is approximately $2.0 million. The
leases for these facilities have terms ranging from month-to-month to five
years. None of the individual leases is material to our operations.
The following is a list of our facilities, each of which is leased, with
the exception of the headquarters for Schatz Underground Cable in Villa Ridge,
which includes the training, warehouse and distribution facility, the Schatz
Underground Cable regional office in Kansas City, Missouri, the LISN
headquarters in Amherst, Ohio and LISN's training and regional office in Lorain,
Ohio, which we own. In addition to those facilities listed, our operating
divisions 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 any facilities
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or securing additional facilities, if needed. All of our owned properties and
our leases are pledged to secure repayment of the senior credit facilities.
<TABLE>
<CAPTION>
FACILITY LOCATION
-------- -------------------
<S> <C>
Orius headquarters.......................................... West Palm Beach, FL
Texel headquarters.......................................... Reston, VA
Copenhagen Utilities headquarters........................... Clackamas, OR
Network Cabling Services headquarters....................... Houston, TX
Schatz Underground Cable headquarters....................... Villa Ridge, MO
Schatz Underground Cable regional facility.................. Kansas City, MO
DAS-CO of Idaho headquarters................................ Nampa, ID
State Wide CATV headquarters................................ Tampa, FL
CATV Subscriber Services headquarters....................... Greensboro, NC
U.S. Cable headquarters..................................... O'Fallon, MO
Channel Communications headquarters......................... Sheboygan, WI
Cablemaster headquarters.................................... Fairview, PA
Mich-Com Cable headquarters................................. Stuart, FL
Excel Cable headquarters.................................... Jacksonville, FL
LISN headquarters........................................... Amherst, OH
LISN regional office facility............................... Beltsville, MD
LISN regional office facility............................... E. Rutherford, NJ
LISN regional office facility............................... Dallas, TX
LISN regional office facility............................... Green Bay, WI
LISN regional office facility............................... Elkhorn, WI
LISN regional office facility............................... Washington, DC
LISN regional office facility............................... Hunt Valley, MD
LISN engineering facility................................... Westborough, MA
LISN regional office facility............................... Chicago, IL
LISN training and regional office facility.................. Lorain, OH
LISN regional office facility............................... Denver, CO
LISN regional office facility............................... King of Prussia, PA
LISN regional office facility............................... Atlanta, GA
LISN regional office facility............................... Livermore, CA
LISN regional office facility............................... Pittsburgh, PA
Fenix headquarters.......................................... Green Bay, WI
Midwest Splicing headquarters............................... Arden Hills, MN
Irwin headquarters.......................................... Dallas, TX
Hattech headquarters........................................ Chantilly, VA
Hattech regional office facility............................ Keiser, OR
</TABLE>
COMPETITION
The network infrastructure services industry is highly fragmented. We
believe that the eight largest public companies in the industry, including
Orius, accounted for less than 6% of total estimated industry revenues in 1999,
with Orius accounting for approximately 1%. The industry consists of a small
number of large companies with a national presence and hundreds of smaller local
and regional companies that generally have more limited service capabilities and
geographic coverage. The network infrastructure industry is highly competitive,
requiring substantial capital resources and skilled and experienced personnel.
We compete with other companies in all of the markets in which we operate, some
of the larger of which may have greater financial, technical and marketing
resources than we do. Although there are relatively few barriers to entry into
the markets in which we operate, our combination of capital resources, access to
technical expertise and customer relationships are a competitive advantage for
us. We may also face competition from the in-house service organizations of our
existing or prospective customers which often
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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, we cannot assure you 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 the network
infrastructure industry include quality of service, technical expertise,
reputation, availability of skilled technical personnel, price, 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.
ENVIRONMENTAL MATTERS
Our facilities and operations are subject to federal, state and local
environmental and occupational health and safety requirements, including those
relating to discharges of substances to the air, water and land, the handling,
storage and disposal of wastes and the cleanup of properties affected by
pollutants. We do not currently anticipate any material adverse effect on our
business or financial condition as a result of our efforts to comply with such
requirements.
In the future, federal, state, local or foreign governments could enact new
or more stringent laws or issue new or more stringent regulations concerning
environmental and worker health and safety matters that could effect our
operations. Also, in the future, contamination may be found to exist at our
facilities or off-site locations where we have sent wastes. We could be held
liable for any newly-discovered contamination. It is possible that changes in
environmental and worker health and safety requirements or liabilities from
newly-discovered contamination could have a material effect on our business.
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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................... 59 President, Chief Executive Officer and
Chairman of the Board of Directors
Robert E. Agres....................... 40 Vice President and Chief Financial
Officer
Joseph P. Powers...................... 54 Vice President and Chief Operating
Officer
Martin Kobs........................... 49 President -- Telecommunications
Services Group
Donald J. Vanke....................... 57 President and CEO -- LISN and Director
John J. Leonbruno..................... 41 President -- Central Office Services
E. Scott Kasprowicz................... 47 President -- Integrated Premise
Services
Catherine Caudell..................... 51 Vice President -- Human Resources
Robert E. Beardsley................... 45 Vice President -- Information Systems
Gregory M. Barr....................... 34 Director
Robert C. Froetscher.................. 42 Director
Jack E. Reich......................... 49 Director
Avy H. Stein.......................... 45 Director
</TABLE>
We intend to add two additional independent directors shortly after the
completion of this offering.
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 telecom 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.,
a then publicly-traded network 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 certified public accountant,
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 Orius.
Joseph P. Powers has been our Vice President and Chief Operating Officer
since our formation in August 1997. Mr. Powers has more than 32 years of
experience in the network 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
Voltelcon, the telecom installation, design, engineering and maintenance
services division of Volt Information Sciences.
Martin Kobs was appointed President -- Telecommunications Services Group in
October 1999. Prior to that position, Mr. Kobs served as Director -- Operations
from July 1998 to October 1999. Mr. Kobs has over 26 years of experience in the
telecom industry. From 1996 to 1998, Mr. Kobs served as President of Able
Integrated Systems, a subsidiary of Able Telcom. From 1993 to 1996, Mr. Kobs was
Director of Operations for Volt Information Sciences. From 1986 to 1993, he
served as Operations Manager of Burnup & Sims Communications Services.
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Donald J. Vanke has served as a Director since the LISN acquisition in
December 1999. Mr. Vanke has been President and CEO of LISN since 1998 and,
prior to that time, was Vice President of LISN. As Vice President, Mr. Vanke was
responsible for quality, purchasing, finance and information systems. Prior to
joining LISN, he was President and CEO of DCM, a manufacturer of direct current
motors, from 1978 until 1984. Prior to that Mr. Vanke was Vice President of
Tenna, a manufacturer of electric antennae and mirrors, from 1972 until 1978.
From 1964 until 1972, Mr. Vanke was a Manager at Ernst & Young.
John J. Leonbruno was appointed President -- Central Office Services in
September 2000. Prior to that position, Mr. Leonbruno served as Senior Vice
President of Sales and Marketing at LISN from March 2000 to September 2000. Mr.
Leonbruno has over 16 years of experience in the telecommunications industry.
From 1996 to 2000, Mr. Leonbruno served as Vice President of Global Sales and
Service with MCI Worldcom. From 1994 to 1996, Mr. Leonbruno served as General
Manager of Custom Business with Ameritech.
E. Scott Kasprowicz was appointed President -- Integrated Premise Services
in September 2000. Mr. Kasprowicz is the founder of Texel Corporation, one of
our operating divisions, which we acquired from Mr. Kasprowicz in 1999. Mr.
Kasprowicz has been the President of Texel since 1983 and has over 20 years of
experience in the telecom industry. Texel is a provider of voice and data cable
installation, and system design and engineering services.
Catherine Caudell joined Orius as Vice President -- Human Resources in
August 2000. Ms. Caudell has over 20 years of experience in the field of human
resource management and performance technology. Prior to joining Orius, Ms.
Caudell was Executive Vice President of Human Resources for Service
Intelligence, a multi-state call center and customer service organization, from
1995 until 2000. From 1987 to 1995, Ms. Caudell was Vice President of Human
Resources for Telstar Communications, where she was involved in taking the
organization from 800 to over 25,000 employees.
Robert E. Beardsley has served as Vice President -- Information Systems
since June 2000. Prior to joining Orius, Mr. Beardsley was employed as a
principal consultant with PricewaterhouseCoopers, LLP in its Management
Consulting Services group from 1998 to 2000. From 1996 to 1998, Mr. Beardsley
acted as Internal Project Manager for Harris Publishing. From 1994 to 1996, Mr.
Beardsley was a principal at Practical Systems, which sold and deployed Solomon
financial software. Mr. Beardsley is a certified public accountant.
Gregory M. Barr has served as a Director since the LISN acquisition in
December 1999. Mr. Barr is a principal at Navis Partners, a subsidiary of Fleet
Financial Group, Inc. that focuses on private equity investing. Prior to joining
Fleet in 1994, Mr. Barr was with McKinsey & Company where he worked as a
management consultant in a variety of industries and at Goldman, Sachs & Company
as a financial analyst in the Investment Banking Division. Mr. Barr serves on
the board of directors of Simonds Industries Inc. and several other
privately-held companies.
Robert C. Froetscher has served as a Director since the LISN acquisition in
December 1999. Mr. Froetscher is a Managing Director of Willis Stein & Partners,
a private equity investment firm. Prior to joining Willis Stein & Partners in
1998, Mr. Froetscher was Senior Vice President and General Manager of APAC
Teleservices, Inc., with responsibility for running two of APAC's divisions from
1996 to 1997. From 1994 to 1996, he was Vice President, Sales and Service for
Ameritech's Consumer Division, during which he directed 5,300 employees and had
responsibility for a business unit that generated $4.5 billion in revenue in
1996. Previously, Mr. Froetscher spent almost nine years with MCI in a variety
of executive positions in marketing, sales, service and operations.
Jack E. Reich has served as a Director since the LISN acquisition in
December 1999. Mr. Reich has spent 25 years in the communications industry and
held various positions in the local, long distance, data, equipment
manufacturing and Internet segments of this industry. Currently, Mr. Reich is
President of KJE, Inc., a management and investment consulting firm. From
December 1996 through November 1998, Mr. Reich served as President and Chief
Executive Officer of e.spire Communications, Inc., a publicly-traded competitive
local exchange carrier. Prior to joining e.spire, Mr. Reich served as President
of
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Custom Business Service with Ameritech, Inc. Mr. Reich joined Ameritech from MCI
where he held various positions from April 1986 to April 1994. Mr. Reich
departed MCI as their President of the Multi-National Accounts Division
responsible for marketing and operations to that company's largest customers.
Mr. Reich currently serves on the board of directors of Digex, Inc., a
publicly-traded web-hosting company.
Avy H. Stein has served as a Director since the LISN acquisition in
December 1999. Mr. Stein is a Managing Director of Willis Stein & Partners.
Prior to the formation of Willis Stein & Partners in 1994, Mr. Stein was a
Managing Director of Continental Illinois Venture Corporation from 1989 through
1994. Previously, Mr. Stein served as a consultant to the CEO of NL Industries,
Inc. From 1985 to 1988, he was founder/CEO of Regent Corporation. From 1984 to
1985, Mr. Stein was President of Cook Energy Corporation and Vice President of
Corporate Planning and Legal Affairs at Cook International, Inc. From 1980
through 1983, Mr. Stein was an attorney with Kirkland & Ellis. He also serves as
a director of Racing Champions Corporation, CTN Media Group, Inc., Tremont
Corporation and Aavid Thermal Technologies, Inc. as well as a number of private
companies.
At present, all directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal.
All members of our board of directors were elected pursuant to a investor rights
agreement. See "Certain Relationships and Related Party Transactions -- Investor
Rights Agreement." There are no family relationships between any of our
directors or executive officers. Our executive officers are elected by, and
serve at the discretion of, the board of directors.
Prior to the completion of this offering, our board will be divided into
three classes, as nearly equal in number as possible, with each director serving
a three-year term and one class being elected at each year's annual meeting of
shareholders. At each annual meeting of our shareholders, successors to the
class of directors whose term expires at such meeting will be elected to serve
for three-year terms or until their respective successors are elected and
qualified.
DIRECTOR COMPENSATION
We do not currently pay any fees to our directors. However, all directors
are reimbursed for out-of-pocket expenses incurred in connection with the
rendering of services as a director. Following this offering, our independent
directors will receive compensation that is commensurate with arrangements
offered to directors of companies that are similar to our company. Compensation
arrangements for independent directors established by our board could be in the
form of cash payments and/or option grants.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the closing of this offering, the board of directors will have an
audit committee and a compensation committee. The audit committee will report to
the board regarding the appointment of our independent public accountants, the
scope and results of our annual audits, compliance with our accounting and
financial policies and management's procedures and policies relative to the
adequacy of our internal accounting controls. Upon the completion of the
offering, the audit committee will consist of a minimum of three directors and
be comprised of independent directors only. The compensation committee of the
board of directors will review and make recommendations to the board regarding
our compensation policies and all forms of compensation to be provided to our
executive officers. In addition, the compensation committee will review bonus
and stock compensation arrangements for all of our other employees. Upon the
completion of the offering, the compensation committee will consist of at least
two nonemployee directors, as defined in Rule 16b-3 under the Exchange Act, and
we expect to appoint at least one additional independent director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Mercurio,
Froetscher and Reich. Mr. Mercurio is an executive officer of Orius and both Mr.
Froetscher and Mr. Reich are members of our board of directors.
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Mr. Reich receives consulting payments from us in an amount of $15,000 per
month. In exchange, Mr. Reich provides consulting services for five days per
month, in such areas as identifying and consummating acquisitions, sales and
marketing and human resources. We compensate Mr. Reich for consulting in excess
of five days per month at a rate of $3,000 per day. Our agreement with Mr. Reich
expires on November 30, 2000. Mr. Reich received options to purchase shares of
LISN common stock at the time this agreement was entered into, which were
converted into options to purchase 93,949.9 shares of our common stock and
634.92 shares of our series C preferred stock. Following the offering, Mr. Reich
will hold shares of our common stock and options to purchase
shares of our common stock.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 1999 and 1998 concerning compensation we paid to our chief
executive officer and the four other executive officers who were our most highly
compensated officers during those years who were compensated over $100,000
during that year. Other annual compensation primarily represents amounts paid
for auto allowances.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
William J. Mercurio............................... 1999 $373,750(1) $100,000 $9,000
President and Chief Executive Officer 1998 135,375 100,000 6,750
Robert E. Agres................................... 1999 155,833 25,000 0
Vice President and Chief Financial Officer
Joseph P. Powers.................................. 1999 191,667 60,000 6,000
Vice President and Chief Operating Officer 1998 101,250 60,000 4,500
William G. Mullen(2).............................. 1999 157,693 40,000 1,014
President -- Broadband Services Group
Donald J. Vanke................................... 1999 300,000 505,770 0
President and CEO -- LISN
</TABLE>
---------------
(1) In connection with certain of our 1999 acquisitions, we paid Mercurio and
Associates, P.A., an affiliate of Mr. Mercurio, a consulting fee of $550,000
for assistance in identification of, and due diligence with respect to,
acquisition candidates.
(2) Due to his recent death, Mr. Mullen no longer serves as
President -- Broadband Services Group.
OPTION GRANT TABLE
No stock options were granted to the named executive officers during the
year ended December 31, 1999. Our former stock option plan was terminated in
connection with the LISN acquisition. Each of the outstanding options was
terminated in exchange for an amount equal to the difference between (1) the per
share price paid to the holders of our common stock who received cash for their
shares of common stock in connection with the LISN acquisition, less (2) the
exercise price of each option. In connection with the LISN acquisition, Mr.
Agres received $132,949 in exchange for his options to purchase our common
stock.
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OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows aggregate exercises of options in the year ended
December 31, 1999 by the named executive officers and the aggregate value of
unexercised options held by each named executive officer as of December 31,
1999.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
YEAR END (#) YEAR END ($)
SHARES ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
William J. Mercurio....................... -- -- -- --
Robert E. Agres(1)........................ 15,541 132,949 -- --
Joseph P. Powers.......................... -- -- -- --
William G. Mullen......................... -- -- -- --
Donald J. Vanke(2)........................ -- -- 0/252,226 $0/$1,664,166
</TABLE>
---------------
(1) Mr. Agres' options became vested and were exercised in connection with the
LISN acquisition.
(2) At the time of the LISN acquisition, Mr. Vanke held options to purchase
679.66 shares of LISN common stock. In connection with the LISN acquisition,
these options were converted into the right to purchase 250,533.2 shares of
our common stock (as adjusted for our March 2000 10-for-1 stock split) and
1,693.12 shares of our series C preferred stock. The calculated value of
these options is based on the values per share at the time of the LISN
acquisition.
EXECUTIVE EMPLOYMENT AGREEMENTS
Mr. Mercurio. In connection with the LISN acquisition, we entered into a
senior management agreement with Mr. Mercurio. The agreement provides that Mr.
Mercurio shall serve as president, chief executive officer and chairman of our
board and shall devote his full business time and attention to our affairs. The
agreement is for a term ending on February 28, 2003. Mr. Mercurio is entitled
under the agreement to a base salary equal to $470,000 per year, which may be
increased by the board in its discretion and will be subject to yearly increases
based on the Consumer Price Index. In addition to his base salary, Mr. Mercurio
is entitled to receive an annual bonus based upon our financial performance, as
measured by its EBITDA. Mr. Mercurio will not receive a bonus unless our EBITDA
is greater than 1.125 times its prior year's EBITDA. If EBITDA exceeds this
amount, Mr. Mercurio is entitled to receive a bonus ranging from 50% to 100% of
his base salary.
We and Mr. Mercurio may each terminate the agreement at any time, with or
without cause, provided that, if we terminate Mr. Mercurio without "cause," or
if he terminates his employment with "good reason," we must continue to pay him
his base salary for two years and must pay him a pro rata portion of his bonus
for the year of his termination. "Cause" includes the commission of a felony or
a crime involving moral turpitude; an act or omission with respect to the
company involving dishonesty or fraud that has resulted in or is likely to
result in material harm to the company; chronic drug or alcohol use; the
repeated failure to perform his duties as directed by the board; negligent or
willful misconduct with respect to the company; or the material breach of the
terms of his management agreement. "Good reason" means the relocation of our
executive offices outside of West Palm Beach, Florida; a material breach by us
of the terms of the management agreement; or the assignment to Mr. Mercurio of
duties inconsistent with his position.
If we terminate Mr. Mercurio for cause or if he terminates his employment
without good reason, he would be entitled to receive only his base salary
through the date of termination. If Mr. Mercurio is terminated for disability,
he is entitled to receive his base salary for six months. In the event the
agreement is terminated according to its terms in February 2003, we may, at our
option, continue to pay
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Mr. Mercurio his base salary for one year as a severance payment. Mr. Mercurio
has agreed not to compete with us until the later of (1) the second anniversary
of the termination of the management agreement if Mr. Mercurio resigns without
good reason or is terminated with cause or (2) the time as we cease making any
severance payments to him under the management agreement.
Under the management agreement, we agreed to sell to Mr. Mercurio shares of
common stock equal to .75% of our outstanding common stock for a price per share
equal to the price at which shares were purchased by all investors in the LISN
acquisition. Mr. Mercurio purchased these shares on January 16, 2000 by issuance
of a promissory note in the amount of $252,633, which is secured by a pledge of
the 188,810 shares purchased. The note bears interest at a rate of 5.88% per
annum. Fifty percent of these shares will vest over four years. The remaining
50% vest on the fifth anniversary of the closing of the LISN acquisition,
provided that vesting will be accelerated with respect to 25% of this 50% in
each year that we achieve our EBITDA target. All of Mr. Mercurio's shares will
become immediately vested upon the occurrence of the following events: (1)
Willis Stein & Partners ceases to own 50% of the shares owned by it as of the
closing of the LISN acquisition, (2) if prior to this offering, a person or
group of persons who were not shareholders immediately after the LISN
acquisition acquire a number of shares necessary to elect a majority of the
board or (3) a change of control occurs. A "change of control" means (1) any
person who was not a shareholder immediately following the LISN acquisition owns
the greater of (a) 25% of our voting stock or (b) the greatest combined voting
power of any person who was a shareholder immediately following the LISN
acquisition; (2) during any two year period, persons who constituted the board
at the beginning of the period cease to constitute a majority of the board; (3)
if we consummate a merger and shareholders who were shareholders prior to the
merger cease to own 80% of the surviving company's equity; (4) a sale of all or
substantially all of our assets; or (5) any person commences a tender offer or
receives an option to acquire 25% or more of our voting stock, unless the board
makes a good faith determination that this action would not constitute a
material change in the control of the company.
If Mr. Mercurio ceases to be employed by us for any reason, we will have
the option to repurchase his unvested shares at their original cost. We will be
able to purchase his vested shares only if he fails to repay the promissory note
issued to purchase the shares within 60 days following his termination. Mr.
Mercurio's shares will be subject to the restrictions on transfer contained in
the investor rights agreement, described under the heading "Certain
Relationships and Related Party Transactions -- Investor Rights Agreement."
Messrs. Agres and Powers. We also entered into employment agreements with
Mr. Agres and Mr. Powers. Mr. Agres' agreement provides that he will be employed
as Chief Financial Officer for a term ending December 14, 2001 and will receive
a base salary of $195,000 per year. Mr. Powers agreement provides that he will
be employed as a Vice President for a term ending February 28, 2003 and will
receive a base salary of $230,000 per year. We may terminate Messrs. Agres' and
Powers' employment at any time for "cause," which includes (1) a material breach
of the terms of the executive's agreement, (2) willful misconduct in the
performance of the executive's duties; (3) an act of fraud intended to result in
the executive's enrichment at our expense, (4) conviction of a felony or fraud,
(5) entry of an order preventing the executive from performing activities that
are essential to the performance of the executive's agreement, or (6) willful or
deliberate conduct intended to materially damage our business. If either of
Messrs. Agres or Powers is terminated for cause or voluntarily terminates his
employment, he would be entitled to receive his base salary through the date of
termination. If either Messrs. Agres or Powers is terminated due to disability,
he would be entitled to receive his base salary for one year following
termination. If either is terminated without cause, he would be entitled to
receive his base salary for the remainder of his employment term. Mr. Agres has
agreed not to compete with us for a period ending the later of (1) December 14,
2001 and (2) one year after the termination of his employment. Mr. Powers has
agreed not to compete with us for a period ending the later of (1) February 28,
2003 or (2) one year after the termination of his employment.
Mr. Vanke. Mr. Vanke has an employment agreement with LISN, dated May 28,
1999, which expires on May 27, 2001. Mr. Vanke's employment agreement provides
that he will serve as President and
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Chief Executive Officer of LISN and will receive a base salary of $300,000. In
addition, Mr. Vanke receives a bonus equal to 100% of his base salary based on
the achievement of certain EBITDA targets by LISN, as determined by Mr. Vanke
and LISN's board of directors prior to the start of each fiscal year. If LISN
terminates Mr. Vanke without cause or if he terminates his employment for good
reason prior to May 2001, LISN must pay Mr. Vanke his base salary through the
later of six months following his termination or through May 2001. If Mr.
Vanke's employment is terminated for cause or if he terminates his employment
without good reason, he will be entitled to only his base salary through the
date of termination. "Cause" includes (1) the commission of a felony or fraud,
(2) chronic drug or alcohol abuse or conduct causing LISN substantial public
disgrace, (3) substantial and repeated failure to perform his duties as directed
by LISN's board of directors, (4) gross negligence or willful misconduct or (5)
any other material breach of his employment agreement. "Good Reason" includes
the relocation of LISN's offices outside of the Cleveland, Ohio area or our
breach of the terms of the employment agreement. Mr. Vanke has agreed not to
compete with LISN during his employment and for two years thereafter.
Mr. Mullen. Pursuant to Mr. Mullen's employment agreement with us, we will
pay his estate an amount equal to his base salary of $225,000 through August
2001.
2000 LONG-TERM EQUITY INCENTIVE PLAN
Prior to the closing of the offering, we will adopt the Orius Corp.
Long-Term Equity Incentive Plan. The equity incentive plan provides for grants
of stock options, stock appreciation rights, restricted stock and performance
awards. Directors, officers and other employees of Orius and its subsidiaries
and persons who engage in services for us are eligible for grants under the
plan. The purpose of the equity incentive plan is to provide these individuals
with incentives to maximize shareholder value and otherwise contribute to the
success of the Company and to enable us to attract, retain and reward the best
available persons for positions of responsibility.
A total of shares of our common stock, representing % of our
currently outstanding common stock, will be available for issuance under the
equity incentive plan, subject to adjustment in the event of a reorganization,
stock split, merger or similar change in the corporate structure of Orius or the
outstanding shares of common stock. In the event of any of these occurrences, we
may make any adjustments we consider appropriate to, among other things, the
number and kind of shares, options or other property available for issuance
under the equity incentive plan or covered by grants previously made under the
plan. The shares available for issuance under the equity incentive plan may be,
in whole or in part, authorized and unissued or held as treasury shares.
The compensation committee of our board of directors will administer the
equity incentive plan. Our board also has the authority to administer the plan
and to take all actions that the compensation committee is otherwise authorized
to take under the plan.
The following is a summary of the material terms of the equity incentive
plan, but does not include all of the provisions of the plan. For further
information about the plan, we refer you to the equity incentive plan, which we
have filed as an exhibit to the registration statement of which this prospectus
is a part.
Stock Options. Under the equity incentive plan, the compensation committee
or the board may award grants of incentive stock options conforming to the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and other, non-qualified stock options. The
compensation committee may not, however, award to any one person in any calendar
year options to purchase common stock equal to more than 5% of the total number
of shares authorized under the plan, and it may not award incentive options
first exercisable in any calendar year whose underlying shares have a fair
market value greater than $100,000, determined at the time of grant.
The compensation committee has the power to determine the terms of the
options granted, including the exercise price of any option, the number of
shares subject to each option, the exercisability of the option, and the form of
consideration payable upon exercise. In addition, our board of directors has the
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authority to amend, suspend pr term the equity incentive plan, provided that no
action may affect any shares of common stock previously issued and sold or any
option previously granted under the equity incentive plan.
Restricted Stock. Under the equity incentive plan, the compensation
committee may award restricted stock subject to the conditions and restrictions,
and for the duration, which will generally be at least six months, that it
determines in its discretion. Unless the compensation committee determines
otherwise, all restrictions on a grantee's restricted stock will lapse when the
grantee ceases to be a director, officer or employee of, or to otherwise perform
services for, Orius and its subsidiaries.
Vesting and Transferability of All Awards. The terms and conditions of each
award made under the equity incentive plan, including vesting requirements, will
be set forth consistent with the plan in a written agreement with the grantee.
Except in limited circumstances, no award under the equity incentive plan may
vest and become exercisable within six months of the date of grant, unless the
compensation committee determines otherwise.
Unless the compensation committee determines otherwise, no award made under
the equity incentive plan will be transferable other than by will or the laws of
descent and distribution or to a grantee's family member by gift or a qualified
domestic relations order, and each award may be exercised only by the grantee,
his or her qualified family member transferee, or any of their respective or his
or her executors, administrators, guardians, or legal representatives.
Amendment and Termination of the Equity Incentive Plan. The board may amend
or terminate the equity incentive plan in its discretion, except that no
amendment will become effective without prior approval of Orius' shareholders if
such approval is necessary for continued compliance with the performance-based
compensation exception of Section 162(m) of the Internal Revenue Code or any
stock exchange listing requirements. Furthermore, any termination may not
materially and adversely affect any outstanding rights or obligations under the
equity incentive plan without the affected participant's consent. If not
previously terminated by the board, the equity incentive plan will terminate on
the tenth anniversary of its adoption.
EMPLOYEE STOCK PURCHASE PLAN
The 2000 Employee Stock Purchase Plan, or the "Stock Purchase Plan," will
be adopted by our board of directors and our shareholders prior to the
completion of this offering. The Stock Purchase Plan will be established to give
employees desiring to do so a convenient means of purchasing shares of common
stock through payroll deductions or lump sum cash payments. The Stock Purchase
Plan provides an incentive to participate by permitting purchases at a
discounted price. We believe that ownership of stock by employees will foster
greater employee interest in the success, growth and development of Orius.
A total of shares of our common stock will be reserved for issuance
under the Stock Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code. The Stock Purchase Plan will be implemented through a
series of overlapping periods of 24 months in duration, with new offering
periods (other than the first offering period) commencing on April 1, July 1,
October 1 and January 1 of each year. Each offering period will consist of eight
consecutive purchase periods of three months duration. The initial offering
period, however, is expected to commence on the date of this offering and end on
October 31, 2002, and the initial purchase period is expected to end on January
31, 2000. The Stock Purchase Plan will be administered by our board of directors
or by a committee appointed by the board.
Our employees, including officers and employee directors, and the employees
of any majority-owned subsidiary designated by our board of directors, are
eligible to participate in the Stock Purchase Plan if they are employed by us or
any such subsidiary for at least 20 hours per week and more than five months per
year. The Stock Purchase Plan permits eligible employees to purchase shares of
our common stock through payroll deductions or lump sum cash payments, which may
not exceed 15% of an employee's compensation, at a price equal to the lower of
85% of the fair market value of our common stock at the
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beginning of each offering period or at the end of the applicable purchase
period. In circumstances described in the Stock Purchase Plan, the purchase
price may be adjusted during an offering period to avoid having to incur adverse
accounting charges. Employees may end their participation in the offering at any
time during the offering period, and participation in the Stock Purchase Plan
ends automatically upon termination of employment with us. Unless terminated
earlier by our board of directors, the Stock Purchase Plan will have a term of
ten years.
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PRINCIPAL SHAREHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
(1) each person who beneficially owns more than five percent of our
common stock;
(2) each of our directors;
(3) named executive officers; and
(4) all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Except as indicated by footnote, the persons named in the table below have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The percentage of beneficial ownership prior to the
offering is based on 25,887,559.27 shares of common stock and 205,739.77 shares
of series C preferred stock outstanding as of June 30, 2000. After the offering,
the percentage of beneficial ownership is adjusted to reflect the conversion of
all outstanding shares of series C preferred stock into common stock immediately
prior to this offering and the issuance of shares of common stock in
connection with the offering. Fractional shares have been rounded to the nearest
whole number. The table assumes no exercise of the underwriters' over-allotment
option.
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------------------------------- --------------------
SERIES C PREFERRED COMMON STOCK COMMON STOCK
-------------------- --------------------- --------------------
NUMBER OF PERCENT NUMBER OF PERCENT NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERS SHARES OF CLASS SHARES OF CLASS SHARES OF CLASS
------------------------------------- --------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Willis Stein & Partners(1)..................... 84,896.6 41.3% 10,730,017 41.5%
227 West Monroe Street, Suite 4300
Chicago, IL 60606
Navis Partners(2).............................. 12.073.9 5.9 1,526,009 5.9
50 Kennedy Plaza
Providence, RI 02903
Goldman, Sachs & Co.(3)........................ 10,643.8 5.2 1,345,258 5.2
One New York Plaza, 40th Floor
New York, NY 10004
Abu Dhabi Investment Authority(4).............. 10,643.8 5.2 1,345,258 5.2
P.O. Box 7106 Corniche Street
Abu Dhabi, United Arab Emirates
William J. Mercurio(5)......................... 4,187.6 2.0 727,396 2.8
Robert E. Agres................................ 147.6 * 18,650 *
Joseph P. Powers(6)............................ 1,042.6 * 131,775 *
Donald J. Vanke................................ 2,106.6 1.0 266,252 1.0
Gregory M. Barr(2)............................. -- -- -- --
Robert C. Froetscher(1)........................ -- -- -- --
Jack E. Reich.................................. 423.3 * 62,633 *
Avy H. Stein(1)................................ -- -- -- --
All Directors and Officers as a group (9
persons)..................................... 108,546.6 52.8 13,926,383 53.8
</TABLE>
---------------
* Less than one percent.
(1) Includes shares held by Willis Stein & Partners II, L.P. and shares held by
Willis Stein & Partners Dutch, L.P. (the "Willis Stein entities"). John R.
Willis and Avy H. Stein, as managers of Willis Stein & Partners Management
II, L.L.C., which is the general partner of Willis Stein & Partners
Management II, L.P., which is the general partner of the Willis Stein
entities, may each be deemed to beneficially own the shares held of record
by the Willis Stein entities. Each of these persons disclaims beneficial
ownership of these shares. Mr. Froetscher is a Managing Director of Willis
Stein & Partners. Mr. Froetscher disclaims beneficial ownership of the
shares held of record by the Willis Stein entities.
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(2) Includes shares held by Chisholm Partners III, L.P., shares held by Kennedy
Plaza Partners, shares held by Fleet Venture Resources, Inc. and shares held
by Fleet Equity Partners VI, L.P. These entities are affiliates of Navis
Partners (formerly known as Fleet Equity Partners), of which Mr. Barr is a
principal. Mr. Barr disclaims beneficial ownership of the shares held by
these entities.
(3) Includes shares held by GS Private Equity Partners III, L.P., shares held by
GS Equity Partners II, L.P., shares held by GS Private Equity Partners II
Offshore, shares held by GS Private Equity Partners II Direct Fund, shares
held by GS Private Equity Partners III Offshore and shares held by GS
Private Equity Partners Connecticut, which are private equity investment
funds affiliated with Goldman, Sachs & Co.
(4) The Abu Dhabi Investment Authority is an instrumentality of the government
of the Emirate of Abu Dhabi and is wholly owned and controlled by that
government.
(5) Includes shares held by various trusts in which Mr. Mercurio's wife serves
as trustee.
(6) Includes shares held of record by Mr. Powers' wife.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
GENERAL
We have, from time to time, entered into various transactions with certain
of our officers, directors and principal shareholders 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.
TRANSACTIONS IN CONNECTION WITH THE LISN ACQUISITION
General
In connection with the LISN acquisition, Messrs. Mercurio, Agres, Powers
and Mullen received the following in exchange for their prior equity interests
in Orius and Mr. Vanke received the following in exchange for his equity
interest in LISN:
<TABLE>
<CAPTION>
SERIES C JUNIOR
COMMON PREFERRED SUBORDINATED
NAMED EXECUTIVE OFFICER CASH STOCK(1) STOCK NOTES
----------------------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C>
William J. Mercurio(2)............................ $8,007,183 538,590 4,261 $2,945,133
Robert E. Agres(3)................................ 410,213 18,650 148 101,981
Joseph P. Powers(4)............................... 1,959,105 131,780 1,043 720,581
William G. Mullen................................. 3,415,154 229,710 1,818 1,256,132
Donald J. Vanke(5)................................ -- 266,250 2,107 1,455,934
</TABLE>
---------------
(1) As adjusted for our March 2000 10-for-1 stock split.
(2) Includes amounts received by trusts in which Mr. Mercurio's wife serves as
trustee.
(3) Includes $132,949 received by Mr. Agres in exchange for his options to
purchase our common stock.
(4) Includes amounts received by Mr. Powers' wife.
(5) Includes amounts received by Mr. Vanke in exchange for his additional
investment of $900,000 at the time of the LISN acquisition.
Investor Rights Agreement
In connection with the LISN acquisition, we and each of our shareholders
entered into an investor rights agreement. This agreement provides that our
board of directors will be established at seven directors or any higher number
designated by Willis Stein & Partners. The agreement provides that the board
will consist of:
- our chief executive officer, who will initially be Mr. Mercurio;
- one person designated by our shareholders prior to the LISN
acquisition, provided that the designee is one of our or our
subsidiaries' senior executives and the designee is reasonably
acceptable to Willis Stein & Partners;
- one person designated by Willis Stein & Partners, provided that the
designee is one of our or our subsidiaries' senior executives and
the designee is reasonably acceptable to our chief executive
officer, and who will initially be Mr. Vanke; and
- the remainder shall be designated by Willis Stein & Partners, and
initially will be Mr. Stein, Mr. Froetscher, Mr. Barr and Mr.
Reich.
The investor agreement generally restricts the transfer of any shares of
our stock or junior subordinated notes held by the parties to the investor
agreement by requiring that Willis Stein & Partners approve any transfers of
these securities, with some limited exceptions. The parties to the investor
agreement have granted us a right of first refusal with respect to its stock and
junior subordinated notes,
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which, if not exercised by us, may be exercised by Willis Stein & Partners and
some of its other shareholders. Each party to the investor agreement has the
right to participate in any transfer of shares by any other party to the
agreement, with some limited exceptions. In addition, we have agreed not to
issue any equity securities to Willis Stein & Partners or its affiliates unless
the parties to the investor agreement are given the opportunity to purchase
their pro rata share on substantially the same terms. Each party to the investor
agreement has agreed to consent to a sale of our company if Willis Stein &
Partners votes to approve the sale.
The investor agreement also provides that Willis Stein & Partners may
request, at any time, that all or any portion of its common stock be registered
with the SEC. In the event that Willis Stein & Partners makes a request for
registration, the other parties to the investor agreement who hold common stock
will be entitled to participate in the registration. We have also granted the
parties to the investor agreement piggyback registration rights with respect to
registrations by and we have agreed to pay all expenses relating to the
piggyback registrations.
Consulting Agreement with Mr. Reich
Mr. Reich receives consulting payments from us in an amount of $15,000 per
month. In exchange, Mr. Reich provides consulting services for five days per
month, in such areas as identifying and consummating acquisitions, sales and
marketing and human resources. We compensate Mr. Reich for consulting in excess
of five days per month at a rate of $3,000 per day. Our agreement with Mr. Reich
expires on November 30, 2000. Mr. Reich received options to purchase shares of
LISN common stock at the time this agreement was entered into, which were
converted into options to purchase 9,394.99 shares of our common stock and
634.92 shares of our series C preferred stock in connection with the LISN
acquisition.
RELATED PARTY LEASES
We are a party to two leases with entities controlled by Mr. Ebersole, a
former director of Orius, for the lease of Channel's headquarters and office
space. The combined monthly rent for both leases is approximately $12,100. These
leases expire in April 2000 and April 2001, respectively. The lease expiring in
April 2000 has been on a year-to-year basis since 1995.
U.S. Cable, Inc., one of our subsidiaries, is a party to a lease agreement
with WMC Properties, a general partnership that was 25% owned by William Mullen,
a former director of Orius, at the time the lease was entered into. The lease is
for U.S. Cable's headquarters and office space located in O'Fallon, Missouri at
a current rate of $61,800 per year, subject to an increase of 3% per annum. The
lease expires July 2003.
Texel Corporation, one of our subsidiaries, is a party to a lease agreement
with Trison, LLC, an affiliate of Mr. Kasprowicz, one of our executive officers.
The lease is for Texel's headquarters in Reston, Virginia at a base rate of
$406,042 per year, subject to an increase of 3% per annum. The lease expires
June 30, 2005, and contains a renewal option for an additional five-year term.
1999 ACQUISITIONS
In February 1999, we acquired Schatz, DAS-CO, Copenhagen and Network
Cabling Services in a transaction that was designed to give tax-free treatment
to the issuance of stock to the former shareholders of the acquired companies.
To complete these acquisitions all of the existing shareholders of these
companies exchanged their interests in the respective companies for new
interests in Orius. HIG Capital, LLC, one of our former principal shareholders,
acquired 7,546.38 shares of our series B preferred stock for $7.6 million, which
was redeemed in connection with the LISN acquisition for an aggregate of $44.0
million in cash. We also sold 1,066,219 shares of our common stock to our then
existing shareholders and employees for $2.4 million. The following officers,
directors and former principal shareholders, and their immediate family members
and affiliated entities, purchased the number of shares indicated at $2.34 per
share in cash: Mr. Mercurio-132,319, Mr. Agres-41,444, and Mr. Mullen-106,717.
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In connection with the 1999 acquisitions, we paid (1) Mercurio and Associates,
PA., an affiliate of Mr. Mercurio, a consulting fee of $550,000 for assistance
in identification of, and due diligence with respect to, acquisition candidates
and (2) HIG $267,000 for fees and expenses.
In May 1999, we acquired the stock of Texel Corporation from Mr.
Kasprowicz, one of our executive officers, for $26.3 million in cash plus the
issuance of 1,030,335 shares of our common stock. In September 2000, we paid Mr.
Kasprowicz approximately $3.0 million (including interest) in settlement of
litigation brought by Mr. Kasprowicz, alleging that amounts were owed to him as
a purchase price adjustment in connection with that purchase. In return for this
payment, Mr. Kasprowicz has released all claims against Orius relating to this
matter.
RECAPITALIZATION OF LISN
LISN was recapitalized in May 1999 by an investor group led by Willis Stein
& Partners, certain co-investors and members of LISN's management. Willis Stein
& Partners and its co-investors contributed approximately $70.3 million in
capital. Willis Stein & Partners and its co-investors received $49.2 million in
junior subordinated notes, $10.6 million in preferred stock and $10.5 million in
common stock. Members of management retained approximately 15% of LISN's equity.
In connection with the recapitalization, LISN agreed to make a cash payment
to three of its former shareholders based on LISN's results of operations for
the year ended December 31, 1999, including Mr. Vanke. Based on LISN's results
of operations, LISN paid these shareholders an aggregate of $4.0 million, $0.5
million of which was paid to a trust formed for the benefit of Mr. Vanke.
FAMILY RELATIONSHIPS
Rosemarie Mulholland, the daughter of Mr. Mercurio, is our Secretary and
Treasurer. Ms. Mulholland, a certified public accountant, received total
compensation of $90,967 from us in 1999, including a salary of $80,467 and an
accrued bonus of $10,500. Ms. Mulholland also received options to purchase 9,325
shares of our common stock, which were repurchased in connection with the LISN
acquisition for $77,701 in cash.
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon completion of this offering, the total amount of our authorized
capital stock will consist of 200 million shares of common stock and 10 million
shares of preferred stock. As of June 30, 2000, we had outstanding 205,316.49
shares of series C preferred stock and 25,824,926.53 shares of common stock.
Prior to the effectiveness of the registration statement, we will convert all of
the outstanding shares of our series C preferred stock into shares of
common stock. See "The Reclassification." Upon completion of this offering, we
will have shares of common stock and no shares of any series of preferred
stock outstanding. As of June 30, 2000, we had approximately 115 shareholders of
record with respect to our series C preferred stock and our common stock.
The following summary of provisions of our capital stock describes all
material provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, our restated articles of incorporation and our
amended and restated by-laws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable law.
Our restated articles of incorporation and by-laws contain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of delaying,
deferring or preventing a future takeover or change in control of our company
unless such takeover or change in control is approved by our board of directors.
COMMON STOCK
The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be, validly
issued, fully paid and nonassessable. Subject to the prior rights of the holders
of any series of preferred stock, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available for the
payment of dividends at the times and in the amounts determined by our board of
directors from time to time. See "Dividend Policy." The shares of common stock
are not convertible and the holders of common stock have no preemptive or
subscription rights to purchase any of our securities. Upon liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to receive pro rata our assets that are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of shareholders. There is no cumulative voting.
Except as otherwise required by law or our restated articles of incorporation,
the holders of common stock vote together as a single class on all matters
submitted to a vote of shareholders.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "ORIS."
PREFERRED STOCK
Our board of directors may, without further action by our shareholders,
from time to time, direct the issuance of shares of preferred stock in a series
and may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds available
for the payment of dividends on shares of common stock. Holders of shares of
preferred stock may be entitled to receive a preference payment in the event of
any liquidation, dissolution or winding-up of our company before any payment is
made to the holders of shares of common stock. The issuance of shares of
preferred stock may render more difficult or tend to discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of our securities or the removal of incumbent management. Upon the affirmative
vote of a majority of the total number of directors then in office, the board of
directors, without shareholder approval, may issue shares of preferred stock
with voting and conversion rights which could adversely affect the holders
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of shares of common stock. Upon completion of this offering, no shares of
preferred stock will be outstanding, and we have no present intention to issue
any shares of preferred stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF FLORIDA LAW AND OUR RESTATED ARTICLES OF
INCORPORATION AND BYLAWS
Some provisions of Florida law and our restated articles of incorporation
and bylaws, which are summarized in the following paragraphs, may have an
antitakeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders.
Authorized but Unissued Shares of Preferred Stock. Our restated articles of
incorporation authorizes our board of directors to issue one or more series of
preferred stock and to establish the powers, preferences and rights of those
shares without any further vote or action by our shareholders. The existence of
authorized but unissued shares of preferred stock may enable the board of
directors to render more difficult or discourage an attempt to obtain control of
Orius by means of a proxy contest, tender offer or other extraordinary
transaction. Any issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
the loss of voting control to others. The existence of authorized but unissued
shares of preferred stock will also enable our board of directors, without
shareholder approval, to adopt a "poison pill" takeover defense mechanism. We
have no present plans to issue any shares of preferred stock.
Shareholders Action; Special Meeting of Shareholders. Our restated articles
of incorporation provides that, subject to the rights of any holders of
preferred stock, shareholder action can be taken only at an annual or special
meeting of shareholders, and may not be taken by written consent in lieu of a
meeting. Our restated articles of incorporation further provides that special
meetings of our shareholders may only be called by a majority of the board of
directors or by our chief executive officer. Shareholders are not permitted to
call a special meeting of shareholders or to require the board to call a special
meeting. Our restated articles of incorporation and by-laws also provide that
the affirmative vote of holders of at least 66 2/3% of the total votes entitled
to be cast in the election of directors is required to amend, alter, change or
repeal certain of their respective provisions. The requirement of a
super-majority vote to approve amendments to the articles of incorporation or
by-laws could enable a minority of our shareholder's to exercise veto power over
an amendment.
Number of Directors; Removal; Filling of Vacancies. Our restated articles
of incorporation provides that, subject to any rights of holders of preferred
stock, the number of directors will be fixed by resolution of the board of
directors adopted by a majority of the whole board. In addition, our restated
articles of incorporation and bylaws provide that, subject to any rights of
holders of preferred stock, and unless the board of directors otherwise
determines, any vacancies, or newly created directorships, may only be filled by
the affirmative vote of a majority of the remaining directors, though it may be
less than a quorum. Accordingly, shareholders will not be able to increase the
size of the board and fill the newly created directorships with shareholder
nominees. These provisions could prevent shareholders, including parties who
want to take over or acquire Orius, from removing incumbent directors and
filling the resulting vacancies with their own nominees.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. Our by-laws establish an advance notice procedure for shareholder
proposals to be brought before an annual meeting of our shareholders, including
proposed nominations of persons for election to the board. Shareholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
board or by a shareholder who was shareholder of record on the record date for
the meeting, who is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of such shareholder's intention
to bring that business before the meeting. Although the by-laws do not give the
board the power to approve or disapprove shareholder nominations of candidates
or proposals regarding other business to be conducted at a special or annual
meeting, the by-laws may have the effect of precluding the conduct of business
at a meeting if the proper
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procedures are not followed or may discourage or defer a potential acquiror from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of our company.
Affiliated Transactions; Control Share Acquisitions. Florida has enacted
legislation that may deter or frustrate a takeover of a Florida corporation. We
are subject to the "Affiliated Transactions" provisions of the Florida Business
Corporation Act. In general, such provisions prohibit a publicly held Florida
corporation from engaging in various "affiliated transactions" with any
"interested shareholder" unless:
- the transaction is approved by a majority of the disinterested
directors;
- the "interested shareholder" owns 90% or more of the corporation's
outstanding voting shares, or has owned 80% or more for five years;
or
- the consideration paid in connection with the "affiliated
transaction" satisfies the statutory "fair price" formula and meets
certain other requirements.
An "affiliated transaction" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a shareholder. In general,
an "interested shareholder" is a person who, together with affiliates and
associates, owns 10% or more of the corporation's voting shares.
We are also subject to the "Control Share Acquisition" provisions of the
Florida Business Corporation Act. In general, under such provisions, "control
shares" of a publicly held Florida corporation acquired in a "control share
acquisition," with certain exceptions, have no voting rights unless such rights
are granted pursuant to a vote of the holders of a majority of the corporation's
voting securities excluding all "interested shares." "Control shares" are shares
that, when added to all other shares which a person owns or has the power to
vote, would give that person any of the following grants of voting power: (i)
one-fifth or more but less than one-third of the voting power; (ii) one-third or
more but less than a majority of the voting power; and (iii) more than a
majority of the voting power. A "control share acquisition" is the acquisition
of ownership of, or the power to vote, outstanding control shares. "Interested
shares" include shares held by the person attempting to effect the control share
acquisition, and shares held by employee-directors or officers of the
corporation. A corporation may elect not to be subject to the "Control Share
Acquisition" provisions by amendment to its articles or by-laws.
The provisions described above are intended to enhance the likelihood of
continuity and stability in the composition of our board of directors and in the
policies formulated by the board of directors. The provisions are also meant to
discourage transactions that may involve a change of control of Orius. These
provisions are intended to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions are also intended to discourage tactics
that may be used in proxy fights. However, these provisions could have the
effect of discouraging others from making tender offers for our shares and, as a
consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in our management.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our restated articles of incorporation limits the liability of directors to
the fullest extent permitted by the Florida Business Corporation Act. In
addition, our restated articles of incorporation provides that we will indemnify
our directors and officers to the fullest extent permitted by law. We expect to
enter into indemnification agreements with our current directors and executive
officers prior to the completion of the offering and expect to enter into a
similar agreement with any new directors or executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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DESCRIPTION OF INDEBTEDNESS
NEW SENIOR CREDIT FACILITY
General. In connection with the closing of this offering, we intend to
enter into a new senior credit facility with certain of our existing lenders and
new lenders, a portion of the proceeds of which will be used to repay the
amounts outstanding under our existing senior credit facility. Bankers Trust
Company has issued to us a commitment letter wherein it agreed, subject to the
conditions set forth therein, to provide us with a new senior credit facility
providing for aggregate borrowings of approximately $285.0 million. The senior
credit facilities will consist of the following:
- $135.0 million tranche A term loan,
- $50.0 million tranche B term loan, and
- $100.0 million revolving credit facility to be used for permitted
acquisition loans and for working capital purposes, with sublimits of
$75.0 million for acquisition loans and $50.0 million for working capital
loans and a maximum of $100.0 million in borrowings at any one time.
Interest. Amounts outstanding under the senior credit facilities bear
interest, at our option, at a rate per annum equal to either (1) the base rate
or (2) the eurodollar rate, as determined by Bankers Trust Company, in each case
plus an additional margin. The base rate is the higher of (x) the rate announced
from time to time by Bankers Trust Company as its prime lending rate, and (y)
the overnight federal funds rate plus 0.5%. The additional margin for each loan
is as follows:
<TABLE>
<CAPTION>
REVOLVING LOAN A TERM LOAN B TERM LOAN
-------------- ----------- -----------
<S> <C> <C> <C>
Base Rate Margin....................... 1.00% 1.00% 1.75%
Eurodollar Margin...................... 2.00% 2.00% 2.75%
</TABLE>
The additional margin on the A term loan and revolving loans will be
subject to step-downs (beginning six months after the closing date) based on us
meeting certain leverage ratios.
Maturity. Borrowings under the revolving credit facility will be due five
years after the closing date and may be borrowed, repaid and reborrowed prior to
maturity. Borrowings under the tranche A term loan will be due five years after
the closing date and borrowings under the tranche B term loan will be due six
years after the closing date. Borrowings under the tranche A and tranche B term
loans may not be reborrowed after the closing date. The tranche A and tranche B
term loans will be repaid pursuant to the following annual amortization
schedule:
<TABLE>
<CAPTION>
AMORTIZATION
-----------------------------------------
YEAR TRANCHE A TERM LOAN TRANCHE B TERM LOAN
---- ------------------- -------------------
<S> <C> <C>
1.................... $13,500,000 $ 1,250,000
2.................... 20,250,000 2,500,00
3.................... 27,000,000 5,000,000
4.................... 33,750,000 7,500,000
5.................... 40,500,000 10,000,000
6.................... -- 23,750,000
</TABLE>
Security and Guarantees. Our new senior credit facility will be secured by
a first priority security interest in substantially all of our existing and
after-acquired tangible and intangible assets, including, without limitation,
receivables, contract rights, securities, intellectual property, inventory,
equipment, real estate and all stock and promissory notes, with the exception
that no more than 65% of the voting stock of any of our foreign subsidiaries
shall be pledged. All of our obligations under the senior credit facility will
be fully and unconditionally guaranteed by all of our present and future
domestic subsidiaries and by Orius Corp.
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Covenants. Our new senior credit facility will require us to meet certain
financial tests, including, without limitation, minimum net worth, maximum
leverage ratio, minimum interest coverage ratio and maximum capital expenditure
tests. In addition, borrowings under the acquisition facility are subject to
additional debt incurrence tests. The new senior credit facility will contain
certain covenants, including the following:
- restrictions on indebtedness;
- restrictions on mergers, consolidations and some types of acquisitions
and asset sales;
- restrictions on dividends and stock repurchases; and
- restrictions on the types of businesses in which we can engage.
Events of Default. The new senior credit facility will contain customary
events of default, including, without limitation:
- payment defaults;
- breaches of representations and warranties;
- covenant defaults;
- cross-defaults to certain other indebtedness, including the Notes;
- certain events of bankruptcy and insolvency;
- the failure of any guaranty or security document supporting the senior
credit facilities to be in full force and effect; and
- a change of control of Orius Corp.
SENIOR SUBORDINATED NOTES
The senior subordinated notes were issued pursuant to an indenture, dated
as of February 9, 2000, by and among NATG Holdings, LLC and Orius Capital Corp.,
as issuers, each of our other subsidiaries, as guarantors, Orius Corp., as the
parent guarantor, and United States Trust Company of New York, as trustee. The
senior subordinated notes are limited in aggregate principal amount to $300.0
million and will mature on February 1, 2010. There is an aggregate of $150.0
million of senior subordinated notes outstanding. Interest on the senior
subordinated notes accrues at the rate of 12% per annum and is payable
semiannually in cash. The senior subordinated notes are not entitled to the
benefit of any mandatory sinking fund. The senior subordinated notes are general
obligations of the issuers and are subordinated in right of payment to all of
the issuers' current and future senior debt. The subordinated notes rank pari
passu in right of payment with all other senior unsecured obligations of the
issuers.
The senior subordinated notes are redeemable, at our option, in whole at
any time or in part from time to time, on and after February 1, 2005 at the
following redemption prices, expressed as percentages of the principal amount of
the notes, if redeemed during the twelve-month period beginning on February 1 of
the year set forth below, plus, in each case, accrued interest to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2005..................................................... 106.375%
2006..................................................... 104.250%
2007..................................................... 102.125%
2008 and thereafter...................................... 100.000%
</TABLE>
At any time, or from time to time, on or prior to February 3, 2003, we may,
at our option, use the net cash proceeds of one or more equity offerings to
redeem up to 35% of the aggregate principal amount of the senior subordinated
notes at a redemption price equal to 112.75% of the principal amount of the
notes
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plus accrued and unpaid interest on the notes, if any, to the date of
redemption, provided that at least $97.5 million aggregate principal amount of
senior subordinated notes remains outstanding immediately after the redemption.
The indenture provides that, upon the occurrence of a change of control,
each holder will have the right to require that we purchase all or a portion of
the senior subordinated notes, at a purchase price equal to 101% of the
principal amount of the notes plus accrued interest on the notes to the date of
purchase. After this offering, a "change of control" will be deemed to occur
upon:
- any sale, lease or transfer of all or substantially all of the
assets of NATG Holdings, LLC and its subsidiaries, taken as a
whole, to any person or group, as that term is used in Section
13(d)(3) of the Exchange Act;
- the liquidation or dissolution of Orius Corp. or of either of the
issuers;
- any person or group, as that term is used in Section 13(d)(3) of
the Exchange Act, other than Willis Stein & Partners and its
affiliates becomes the owner, directly or indirectly, of shares
representing more than 35% of our outstanding voting securities if
the percentage of voting securities beneficially owned by Willis
Stein and its affiliates is less than the percentage owned or
acquired by that person or group;
- the replacement of a majority of the directors on our board over a
two-year period from the directors who constituted our board of
directors at the beginning of that period, if the replacement has
not been approved by a vote of at least a majority of our board of
directors then still in office who either were members of the board
of directors at the beginning of that period or whose election as a
member of the board of directors was previously so approved; or
- Orius Corp. ceases to beneficially own and have the exclusive power
to vote with respect to all of the issued and outstanding capital
stock of NATG Holdings, LLC free and clear of all liens other than
liens arising under our senior credit facility.
The following events are defined in the indenture as "events of default":
- the failure to pay interest on any senior subordinated notes if the
default continues for a period of 30 days;
- the failure to pay the principal on any senior subordinated notes;
- a default in the observance or performance of any other covenant or
agreement contained in the indenture which default continues for a
period of 30 days after we receive written notice specifying the
default;
- the failure to pay at final stated maturity the principal amount of
any of our indebtedness or any restricted subsidiary of ours if the
failure continues for a period of 20 days or more, if the aggregate
principal amount of the indebtedness, together with the principal
amount of any other indebtedness that is in default for failure to
pay principal at final maturity or that has been accelerated,
aggregates $10.0 million or more at any time;
- one or more judgments in an aggregate amount in excess of $10.0
million have been rendered against NATG Holdings or any of its
significant subsidiaries and these judgments remain undischarged,
unpaid or unstayed for a period of 60 days after the judgment or
judgments become final and non-appealable;
- except as permitted by the indenture, our guarantee of the notes or
the guarantee of any of our significant subsidiaries is held in any
judicial proceeding to be unenforceable, invalid or ceases for any
reason to be in full force and effect or if we or any of the
subsidiary guarantors denies or disaffirms its obligations under
its guarantee of the notes; and
- events of bankruptcy affecting us or any of our significant
subsidiaries.
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The indenture contains covenants for the benefit of the holders of the
senior subordinated notes that, among other things, limit the ability of the
issuers and any of their restricted subsidiaries to:
- enter into transactions with affiliates;
- pay dividends or make other restricted payments;
- consummate asset sales;
- incur indebtedness that is senior in right of payment to the senior
subordinated notes;
- incur liens;
- impose restrictions on the ability of a subsidiary to pay dividends
or make payments to us and our subsidiaries;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of our assets.
The foregoing summary of the material provisions of our senior credit
facility and the indenture is qualified in its entirety by reference to all of
the provisions of the senior credit facility and the indenture, respectively,
previously filed with the SEC. See "Where You Can Find More Information."
JUNIOR SUBORDINATED NOTES
As of June 30, 2000, there was an aggregate of $150.7 million of our junior
subordinated notes outstanding. The LISN acquisition resulted in each of our
shareholders owning common stock, series C preferred stock and junior
subordinated notes with fair values representing approximately 9%-54%-37%,
respectively, of the aggregate fair market value of those securities at that
time. Our obligations under the junior subordinated notes are subordinated to
all of our senior debt, including our guarantee in respect of our senior credit
facilities and the senior subordinated notes.
The junior subordinated notes bear interest at a rate of 12.0% per annum.
The junior subordinated notes currently provide that a maximum of 40% of this
interest is payable in cash beginning on January 15, 2001 and that the remainder
of this interest is deferred and accrues as additional principal. Following the
completion of this offering, the junior subordinated notes will be amended to
provide that we may pay up to 100% of the interest on the notes in cash, at our
option. In addition, after December 15, 2004, if at the end of any interest
accrual period the amount of accrued and unpaid original issue discount exceeds
an amount equal to the product of the issue price and the yield to maturity (the
"Maximum Amount"), then interest will be paid so as to reduce the unpaid
original issue discount to an amount less than the Maximum Amount. Cash interest
can be paid by us only to the extent we have available funds and only so long as
the payments are permitted under the terms of, among other things, our senior
credit facility and the senior subordinated notes.
The junior subordinated notes become due and payable on the later of (1)
December 15, 2009 and (2) the first anniversary of the date on which the senior
subordinated notes are repaid.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no market for our common stock. We can
make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of our common stock in
the public market, or the perception that these sales may occur, could adversely
affect prevailing market prices.
SALE OF RESTRICTED SHARES
Upon completion of this offering, we will have shares of common stock
outstanding. In addition, upon the completion of this offering, shares of common
stock are issuable upon the exercise of currently exercisable outstanding stock
options. Of the shares outstanding after the offering, shares of common stock,
or shares if the underwriters' over-allotment is exercised in full, are
freely tradeable without restriction under the Securities Act, except for (1)
any shares that may be held or acquired by an "affiliate" of our company, as
that term is defined in Rule 144 promulgated under the Securities Act, which
shares will be subject to the volume limitations and other restrictions of Rule
144 described below, and (2) shares that are subject to the restrictions on
transfer contained in the lock-up agreements described in "Underwriting." An
aggregate of shares of common stock held by our existing shareholders upon
completion of the offering will be "restricted securities," as that phrase is
defined in Rule 144, and may not be resold in the absence of registration under
the Securities Act or pursuant to an exemption from registration, including
among others, the exemptions provided by Rule 144 under the Securities Act.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, if a period of at least one year has
elapsed since the later of the date the "restricted securities" were acquired
from us or the date they were acquired from an affiliate, then the holder of the
restricted securities, including an affiliate, is entitled to sell in the public
market a number of shares within any three-month period that does not exceed the
greater of:
- 1% of the then outstanding shares of the common stock; or
- the average weekly reported volume of trading of the common stock
on the Nasdaq National Market during the four calendar weeks
preceding the sale.
The holder may only sell the shares through "brokers' transactions" or in
transactions directly with a "market maker," as these terms are defined in Rule
144. Sales under Rule 144 are also subject to requirements regarding providing
notice of the sales and the availability of current public information
concerning us. Affiliates may sell shares not constituting restricted securities
in accordance with the volume limitations and other requirements but do not need
to comply without the one-year holding period.
Rule 144(k). Under Rule 144(k), if a period of at least two years has
elapsed between the later of the date restricted securities were acquired from
us or the date they were acquired from an affiliate, as applicable, a holder of
the restricted securities who is not an affiliate at the time of the sale and
has not been an affiliate for at least three months prior to the sale would be
entitled to sell the shares in the public market without regard to the volume
limitations and other restrictions described above.
Rule 701. Securities issued in reliance on Rule 701, such as shares of
common stock acquired upon exercise of options granted under our stock plans,
are also restricted and, beginning 90 days after the effective date of this
prospectus, may be sold by shareholders other than our affiliates, subject only
to the manner of sale provisions of Rule 144, and by affiliates under Rule 144
without compliance with its one-year holding period requirement.
OPTIONS
We intend to file registration statements on Form S-8 under the Securities
Act to register approximately million shares of common stock issuable
under our stock plans. These registration statements are expected to be filed
within six months of the effective date of the registration statement of which
this prospectus is a part and will be effective upon filing. Shares issued upon
the exercise of stock
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options after the effective date of the Form S-8 registration statements will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to affiliates and the lock-up agreements described in
"Underwriting."
REGISTRATION RIGHTS
In connection with the LISN acquisition, we and each of our shareholders
entered into an investor rights agreement which provides that Willis Stein &
Partners may request, at any time, that all or any portion of its common stock
be registered with the SEC. Willis Stein & Partners will hold shares of
common stock following this offering. In the event that Willis Stein & Partners
makes a request for registration, the other parties to the investor agreement
who hold common stock will be entitled to participate in the registration. We
have also granted the parties to the investor agreement piggyback registration
rights with respect to registrations by and we have agreed to pay all expenses
relating to the piggyback registrations. The parties to the investor agreement
will hold an aggregate of shares following the offering. Willis Stein &
Partners has agreed not to exercise its registration rights until 180 days
following the date of this prospectus without the consent of Credit Suisse First
Boston Corporation.
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MATERIAL UNITED STATES TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common stock applicable to non-United States holders of our common stock. A
"non-United States holder" is any holder that for United States federal income
tax purposes is not a United States person. For purposes of this discussion, the
term "United States person" means: (1) a citizen or resident of the United
States for United States federal income tax purposes; (2) a corporation or other
entity taxable as a corporation created or organized in the United States or
under the laws of the United States or of any political subdivision of the
United States; (3) an estate the income of which is included in gross income for
United States federal income tax purposes regardless of its source; or (4) a
trust if its administration is subject to the primary supervision of a United
States court and one or more United States persons have the authority to control
all substantial decisions of the trust. In the case of a partnership that holds
our common stock, any partner described in any of (i) through (iv) above is also
a United States person.
This discussion is limited to non-United States holders who hold shares of
common stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. Moreover, this discussion does not address all aspects of
United States federal income and estate taxation that may be relevant in light
of a non-United States holder's particular facts and circumstances, including
being a U.S. expatriate, the tax consequences applicable to shareholders or
beneficiaries of a non-United States holder, special tax rules that may apply to
some non-United States holders, including banks, insurance companies, dealers in
securities and traders in securities who elect to apply a mark-to-market method
of accounting or special tax rules that may apply to a non-United States holder
that holds our common stock as part of a "straddle," "hedge" or "conversion
transaction," and, further, does not address any tax consequences arising under
the laws of any state, local or non-United States taxing jurisdiction.
Furthermore, the following discussion is based on current provisions of the
Internal Revenue Code, applicable Treasury regulations and administrative and
judicial interpretations of the Internal Revenue Code, all as in effect as of
the date of this prospectus, and all of which are subject to change, possibly
with retroactive effect.
We have not and will not seek a ruling from the Internal Revenue Service
with respect to the United States federal income and estate tax consequences
described below, and as a result, there can be no assurance that the IRS will
not disagree with or challenge any of the conclusions set forth in this
discussion.
DIVIDENDS
We have never paid, and do not anticipate that we will pay, cash dividends
on our common stock. If, however, we ever pay a cash dividend, any such dividend
paid to a non-United States holder of common stock generally would be subject to
United States withholding tax at the then-effective U.S. withholding tax rate,
which is currently 30% of the gross amount of the dividend, or a lower rate as
may be specified by an applicable tax treaty. To claim the benefit of a lower
rate under an income tax treaty, a non-United States holder of common stock must
properly file with the relevant paying agent payer an IRS Form W-8BEN, or other
applicable form, claiming an exemption from or reduction in withholding under
such tax treaty. Dividends received by a non-United States holder that (1) are
effectively connected with a United States trade or business conducted by that
non-United States holder, or (2) if a tax treaty applies, attributable to a
permanent establishment or in the case of an individual, a "fixed base" in the
United States, as provided in that treaty, which we refer to as U.S. trade or
business income, would be exempt from the withholding tax, provided that such
non-United States holder complies with applicable certification and disclosure
requirements. However, any U.S. trade or business income, net of related
deductions and credits would be taxed at the same graduated rates that apply to
United States persons. Any U.S. trade or business income received by a
non-United States holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
a lower rate as specified by an applicable income tax treaty.
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Information Reporting and Backup Withholding
Dividends may be subject to backup withholding at the rate of 31% unless
the non-United States holder certifies to required information as specified in
United States Treasury Regulations applicable to withholding and information
reporting. Currently, backup withholding does not apply to dividends paid to a
non-United States holder at an address outside the United States. However, under
final regulations regarding withholding and information reporting, which will
generally be effective for payments made after December 31, 2000, dividends paid
to a non-United States holder at an address outside of the United States may be
subject to backup withholding unless such non-United States holder satisfies
applicable certification requirements, or documentary evidence procedures, if
applicable. Backup withholding, if applied, is not an additional tax. Rather,
the tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the IRS.
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Under tax treaties or other agreements,
the IRS may make those reports available to tax authorities in the recipient's
country of residence.
GAIN ON DISPOSITION OF COMMON STOCK
A non-United States holder generally will not be subject to United States
federal income tax on any gain recognized upon the sale or other disposition of
its common stock unless: (1) that gain is U.S. trade or business income, (2) the
non-United States holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code
and who is present in the United States for a period or periods aggregating 183
days or more during the taxable year in which the sale or disposition occurs and
certain other conditions are met, or (3) we are or have been a "United States
real property holding corporation" for United States federal income tax purposes
at any time within the shorter of the five-year period preceding the disposition
or that non-United States holder's holding period of its common stock, as
discussed below. An individual non-United States holder who falls under clause
(1) above will, unless an applicable treaty provides otherwise, be taxed on his
or her net gain derived from the sale under same graduated U.S. federal income
tax rates that apply to individuals who are U.S. citizens or residents. An
individual non-United States holder who falls under clause (2) above will be
subject to a flat 30% tax on the gain derived from the sale, which may be offset
by certain U.S. capital losses. A non-United States holder that is a foreign
corporation falling under clause (1) above will be taxed on its gain under same
corporate U.S. federal income tax rates that apply to U.S. corporations and may
be subject to an additional branch profits tax at the rate of 30% or lower
treaty rate, if applicable.
We have determined that we are not and do not believe that we are likely to
become a United States real property holding corporation for United States
federal income tax purposes. However, no assurance can be provided that we will
not become a United States real property holding corporation. If we were to
become a United States real property holding corporation, gains realized by a
non-United States holder which did not directly or indirectly own more than 5%
of our common stock at any time during the shorter of a five-year period
preceding the disposition or that holder's holding period generally would not be
subject to United States federal income tax as a result of the status of our
company as a United States real property holding corporation, provided that our
common stock was regularly traded on an established securities market.
Non-United States holders should consult their tax advisors concerning any U.S.
tax consequences that may arise if we were to become a United States real
property holding corporation.
Information Reporting and Backup Withholding
The payment of the proceeds of a sale of common stock to or through the
United States office of a broker is currently subject to both information
reporting and backup withholding at the rate of 31% unless the non-United States
holder certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of proceeds of a
disposition by a non-United States
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holder of common stock outside the United States to or through a foreign office
of a broker will not be subject to backup withholding or information reporting.
However, those payments will be subject to information reporting but not backup
withholding if the broker is, for U.S. federal income tax purposes: (1) a United
States person; (2) a "controlled foreign corporation" (3) a foreign person 50%
or more of whose gross income for certain periods is effectively connected with
a United States trade or business or (4) with respect to payments made after
December 31, 2000, a foreign partnership, if at any time during its taxable
year, one or more of its partners are United States persons who in the aggregate
hold more than 50% of the income or capital interest in the partnership or if,
at any time during its taxable year, the foreign partnership is engaged in a
United States trade or business, unless the non-United States holder establishes
an exemption as specified in the current or final United States Treasury
Regulations regarding backup withholding and information reporting, as
applicable. Backup withholding, if applied, is not an additional tax. Rather the
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the IRS.
The final regulations regarding withholding and information reporting unify
current certification procedures and forms and clarify reliance standards.
Except as noted above with respect to foreign brokers that are partnerships, the
final regulations generally do not significantly alter the substantive
withholding and information reporting requirements but do alter the procedures
for claiming the benefits of an income tax treaty and change the certification
procedures relating to the receipt by intermediaries of payments on behalf of
the beneficial owner of shares of common stock. Non-United States holders should
consult their own tax advisors regarding the effect, if any, of the final
regulations on their particular situations.
ESTATE TAX
Common stock owned or treated as owned at the time of death by an
individual who is not a citizen or resident of the United States for federal
estate tax purposes will be included in that individual's estate for United
States federal tax purposes, unless an applicable estate tax or other treaty
provides otherwise, and therefore, may be subject to United States federal
estate tax.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES
FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER
DISPOSITION OF OUR COMMON STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY,
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE INCOME
TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK, INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAXING JURISDICTION.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated September , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities, Inc., First Union Securities, Inc. and SunTrust Equitable Securities
Corporation are acting as representatives, the following respective numbers of
shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities, Inc. .............................
First Union Securities, Inc. ...............................
SunTrust Equitable Securities Corporation...................
--------
Total..................................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share.
The underwriters and selling group members may allow a discount of $
per share on sales to other broker/dealers. After the initial public offering,
the public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us........................... $ $ $ $
Expenses payable by us................. $ $ $ $
</TABLE>
We intend to use more than 10% of the net proceeds of the sale of our
common stock to repay indebtedness under our existing senior credit facilities
owed by us to banking affiliates of certain of the underwriters. Accordingly,
the offering is being made in compliance with the requirements of Rule
2701(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of our common stock, not including underwriting compensation, is
paid to the underwriters or their affiliates, the initial public offering price
of the stock may not be higher than that recommended by a "qualified independent
underwriter" meeting certain standards. Accordingly, Credit Suisse First Boston
Corporation is assuming the responsibilities of acting as the qualified
independent underwriter in pricing the offering and conducting due diligence.
Credit Suisse First Boston Corporation will be paid a fee of $10,000 for its
services as qualified independent underwriter. The initial public offering price
of shares of our common stock is no higher than the price recommended by Credit
Suisse First Boston Corporation.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of common stock or securities convertible into or exchangeable or
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exercisable for any shares of our common stock, or publicly disclose the
intention to make any offer, sale, pledge, disposition or filing, without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus except issuances pursuant to the
exercise of employee stock options outstanding on the date hereof, stock option
grants or stock sales under existing equity incentive plans or the issuance by
us of shares of common stock as consideration for the purchase by us of any
business or assets to parties that agree to be bound by the restrictions
described in the next paragraph.
Our officers and directors and substantially all of the holders of our
common stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or exercisable for any
shares of our common stock, enter into a transaction which would have the same
effect, or enter into any swap, hedge or other arrangement that transfers, in
whole or in part, any of the economic consequences of ownership of our common
stock, whether any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or enter into any of
these transactions, swap, hedge or other arrangement, without, in each case, the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing common
stock in the offering. The number of shares available for sale to the general
public in the offering will be reduced to the extent these persons purchase the
reserved shares. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "ORIS."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be negotiated
among us and the representatives. Among the principal factors to be considered
in determining the initial public offering price will be:
- market conditions for initial public offerings;
- the history of and prospects for our business;
- our past and present operations;
- our past and present earnings and current financial position;
- an assessment of our management;
- the market of securities of companies in businesses similar to
ours; and
- the general condition of the securities markets.
There can be no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market will develop
and continue after the offering.
Credit Suisse First Boston Corporation, Deutsche Bank Securities, Inc.,
First Union Securities, Inc. and Sun Trust Equitable Securities Corporation and
their respective affiliates have performed and expect to continue to perform
financial advisory and investment and commercial banking services for us for
which they have received and will receive customary compensation. In addition,
Deutsche Bank Securities, Inc. was one of the initial purchasers in the offering
of our senior subordinated notes and DB Capital Investors
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L.P., an affiliate of Deutsche Bank Securities, Inc., owns 4,656.6 shares of our
series C preferred stock and 588,550 shares of our common stock.
Concurrently with the completion of this offering, we intend to refinance
the borrowings under our senior credit facility and enter into a new credit
facility to meet our working capital and general corporate needs. Affiliates of
certain of the underwriters are lenders under our existing senior credit
facility and are expected to be lenders under our new senior credit facility.
We are currently in compliance with the terms of our existing senior credit
facilities. The decision of underwriters to distribute our common stock was made
independent of the banking affiliates of certain of the underwriters who are
lenders under our existing senior credit facilities and DB Capital Investors
L.P. that owns shares of our common stock, which entities had no involvement in
determining whether or when to distribute our common stock under this offering
or the terms of this offering. The underwriters will not receive any benefit
from this offering other than their respective portion of the underwriting fee
as paid by us.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
- Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
- Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number of
shares that they may purchase in the over-allotment option. In a
naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters
may close out any short position by either exercising their
over-allotment option and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been completed
in order to cover syndicate short positions. In determining the
source of shares to close out the short position, the underwriters
will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which
they may purchase shares through the over-allotment option. If the
underwriters sell more shares than could be covered by the
over-allotment option -- a naked short position -- that position
can only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally
sold by the syndicate member is purchased in a stabilizing or
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic form will be available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws, which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities
laws to purchase the common stock without the benefit of a
prospectus qualified under those securities laws,
- where required by law, the purchaser is purchasing as principal and
not as agent, and
- the purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon or such
persons. All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors for the tax consequences of an investment in the common stock in their
particular circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale, Florida and Kirkland &
Ellis, a partnership that includes professional corporations, Chicago, Illinois,
will pass upon certain other legal matters for us. Some partners of Kirkland &
Ellis, through an investment company, have a limited partnership interest in
Willis Stein & Partners II, L.P. These partners do not have the power to vote or
dispose of the shares owned by Willis Stein & Partners. Kirkland & Ellis has
from time to time represented, and may continue to represent Willis Stein &
Partners and some of its affiliates, including our company, in connection with
various legal matters. Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York will pass upon certain legal matters for the underwriters.
EXPERTS
The consolidated financial statements of Orius Corp. and subsidiaries
(formerly LISN Holdings, Inc.) as of December 31, 1999 and 1998 and for each of
the three years ended December 31, 1999 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 Orius Corp. and subsidiaries
(formerly NATG Holdings Inc.) as of December 14, 1999 and December 31, 1998 and
for the period ended December 14, 1999 and the year 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 consolidated financial statements of Channel Communications, Inc.,
f/k/a Kenya Corp., as of December 31, 1997 and for the year then ended included
in this prospectus have been included in reliance on the report of Williams
Young, 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, 1997 and
June 30, 1998 and for the year ended September 30, 1997 and 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 of the report of
PricewaterhouseCoopers LLP, independent accountants, given the authority of said
firm as experts in auditing and accounting.
The financial statements of DAS-CO of Idaho, Inc. as of February 26, 1999
and for the period ended February 26, 1999 included in this prospectus have been
included in reliance of 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, 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.
The financial statements of Schatz Underground Cable, Inc. as of December
31, 1998 and for each of the two 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.
87
<PAGE> 92
The financial statements of Texel Corporation as of May 24, 1999 and for
the period ended May 24, 1999 included in this prospectus have been included in
reliance of the report of PricewaterhouseCoopers LLP, independent accountants,
given 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.
The financial statements of Hattech, Inc. as of December 31, 1999, December
31, 1998 and for each of the three years ended December 31, 1999 included in
this prospectus have been included in reliance on the report of Offutt Childers
& Putman, P.C., independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Copenhagen Utilities & Construction Inc. as of
December 31, 1997 and 1998 and February 26, 1999 and for the period January 1,
1999 through February 26, 1999, 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.
WHERE YOU CAN FIND MORE INFORMATION
We are currently subject to the informational requirements of the Exchange
Act, and in accordance therewith we are required to file periodic reports and
other information with the SEC. The reports and other information filed by us
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC as described below.
We have filed with the SEC a registration statement on Form S-1 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) under the Securities Act, and the rules and
regulations promulgated under the Securities Act, with respect to the shares of
common stock offered by this prospectus. This prospectus, which constitutes part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, parts of which are permitted to be omitted under the
rules and regulations of the SEC. For further information with respect to us and
the common stock offered by this prospectus, reference is made to the
Registration Statement. Statements made in this prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the document or matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional
Offices of the SEC at 7 World Trade Center, 13th Floor, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of these materials can be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. For further information, please call the SEC at
1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of this site is http://www.sec.gov.
We intend to furnish our shareholders with annual reports containing
financial statements audited by an independent accounting firm, and to make
available quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.
88
<PAGE> 93
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below is supplemental unaudited pro forma financial data for the
Acquired Companies. The supplemental unaudited pro forma financial data has been
derived by the application of pro forma adjustments to the historical financial
statements of each of the Acquired Companies. Orius acquired eight businesses in
1998, six in 1999 and completed the acquisition of Irwin in January 2000, the
acquisitions of Fenix and Midwest Splicing in April 2000 and the acquisition of
Hattech in May 2000.
The supplemental unaudited pro forma financial data presented below is
intended to give you additional information as to how the amounts set forth in
the unaudited pro forma statement of income under the column "Acquired
Companies" in the Unaudited Pro Forma Financial Statements were calculated. We
obtained the pro forma statements of operations data by (1) combining the
historical results of each of the Acquired Companies from the beginning of the
period until their acquisition by Orius and (2) adjusting the combined
historical results to reflect (a) the application of purchase accounting to the
acquisitions, (b) the elimination of certain non-recurring expenses and
adjustments reflecting different depreciation and amortization policies and (c)
the financing transactions associated with the acquisitions. The Acquired
Companies may have performed differently if they had been combined as of or on
the dates presented. You should not rely on the supplemental unaudited pro forma
data as being indicative of the historical results that we would have had or the
future results that we will experience.
You should read this supplemental unaudited pro forma financial data in
conjunction with the information contained in "Unaudited Pro Forma Financial
Statements," "Selected Historical Financial Data," "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.
89
<PAGE> 94
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA(1)
SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
IRWIN FENIX MIDWEST HATTECH ADJUSTMENTS PRO FORMA
----- ----- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $1,475 $3,849 $3,070 $11,239 $ -- $19,633
Expenses:
Direct costs..................... 1,092 2,447 1,903 7,423 (213)(2) 12,652
General and administrative....... 195 411 555 3,798 (142)(3) 4,817
Depreciation and amortization.... 58 87 76 152 389(4) 762
------ ------ ------ ------- ------- -------
Total expenses..................... 1,345 2,945 2,534 11,373 34 18,231
Income from operations............. 130 904 536 (134) (34) 1,402
Other (income) expense:
Interest expense, net............ 3 2 (9) 175 1,499(5) 1,670
Other (income) expense........... (8) -- -- -- -- (8)
------ ------ ------ ------- ------- -------
Income before income tax
provision........................ 135 902 545 (309) (1,533) (260)
Provision for income taxes......... 361 -- -- -- 361
------ ------ ------ ------- ------- -------
Income (loss)...................... $ (226) $ 902 $ 545 $ (309) $(1,533) $ (621)
====== ====== ====== ======= ======= =======
</TABLE>
90
<PAGE> 95
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) Results for the six months ended June 30, 2000 represent the results of the
Acquired Companies purchased in the related period prior to their date of
acquisition.
(2) The acquisition adjustments to direct costs reflect a one-time bonus paid by
Midwest Splicing in connection with the sale of the business.
(3) The acquisition adjustments to general and administrative expenses consist
of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
Owner's compensation(i)..................................... $(157)
Rent expense(ii)............................................ 15
-----
$(142)
=====
</TABLE>
(i) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Companies and the
terms of their employment agreements with Orius. After the acquisition
of the Acquired Companies, the duties and responsibilities of the
owners who remained employed with Orius have not and will not change,
and additional costs have not and 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 Companies immediately prior to their
dates of acquisition.
(ii) 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 the corresponding decrease in
real estate tax expense resulting from our leasing rather than owning
certain related facilities which were not, and in the case of Irwin
will not be, purchased from the former owners of the Acquired
Companies.
(4) Depreciation has been derived utilizing the property, plant and equipment
values of each of the Acquired Companies at the time of their acquisition,
rather than utilizing values of property, plant and equipment actually held
by each of the Acquired Companies in the period presented. Reflects the
impact on depreciation resulting from (1) the application of Orius'
depreciation policy rather than those of the former owners of the Acquired
Companies and (2) any decrease in depreciation resulting from leasing rather
than owning certain related facilities.
The acquisition adjustments to depreciation and amortization expense consist
of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
<S> <C>
Depreciation resulting from change in depreciable lives:
Pro forma depreciation using Orius depreciation
policies(i)............................................. 204
Less historical depreciation of acquired companies(ii).... (373)
----
(169)
Depreciation resulting from write up of fixed assets(iii)... 45
Amortization of goodwill(iv)................................ 513
----
389
====
</TABLE>
<TABLE>
<CAPTION>
(II)
(I) ELIMINATION OF
PRO FORMA HISTORICAL
ENTITY DEPRECIATION DEPRECIATION ADJUSTMENT
------ ------------ -------------- ----------
<S> <C> <C> <C>
Irwin....................................................... 34 (58) (24)
Fenix....................................................... 57 (87) (30)
Midwest..................................................... 30 (76) (46)
Hattech..................................................... 83 (152) (69)
--- ---- ----
204 (373) (169)
</TABLE>
<TABLE>
<CAPTION>
(III)
PRO FORMA AMORTIZATION
BASED ON 5 YR AVERAGE
ENTITY PP&E WRITE UP LIFE OF WRITE UP
------ ------------- ----------------------
<S> <C> <C>
Fenix....................................................... 900 45
</TABLE>
<TABLE>
<CAPTION>
(IV)
PRO FORMA PRO FORMA
ENTITY GOODWILL ADJUSTMENT
------ --------- ----------
<S> <C> <C>
Irwin....................................................... 12,250 41
Fenix....................................................... 14,164 142
Midwest..................................................... 8,105 95
Hattech..................................................... 23,514 235
---
513
</TABLE>
(5) Represents interest of $1,355 on amounts drawn on the revolving credit
facility to fund the Fenix and Hattech acquisitions using an assumed
interest rate of 9.08% and interest of $144 on the junior subordinated notes
issued in connection with the acquisitions of Irwin, Fenix, Midwest and
Hattech using an assumed interest rate of 12%.
91
<PAGE> 96
ORIUS CORP. AND SUBSIDIARIES
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA(1)
SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NETWORK
DAS-CO SCHATZ COPENHAGEN CABLING TEXEL IRWIN FENIX MIDWEST HATTECH ADJUSTMENTS
------ ------ ---------- -------- ------- ------- ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $3,660 $5,127 $3,877 $3,520 $10,363 $10,492 $6,511 $4,504 $14,214 $ --
Expenses
Direct costs........... 1,910 3,847 2,783 2,851 7,462 8,273 5,654 2,358 9,400 --
General and
administrative....... 369 1,006 330 313 635 1,489 578 1,322 3,832 (2,953)(2)
Depreciation and
amortization......... 121 317 160 48 72 260 28 220 158 713(3)
------ ------ ------ ------ ------- ------- ------ ------ ------- -------
Total expenses... 2,400 5,170 3,273 3,212 8,169 10,022 6,260 3,900 13,390 (2,240)
Income from
operations............. 1,260 (43) 604 308 2,194 470 251 604 824 2,240
Other (income) expense
Interest expense,
net.................. (2) (4) (10) 31 (43) 50 32 41 601 2,089(4)
Other (income)
expense.............. (1) -- -- 1 (18) 13 (4) (4) -- --
------ ------ ------ ------ ------- ------- ------ ------ ------- -------
Income before income
tax provision and
extraordinary charge... 1,263 (39) 614 276 2,255 407 223 567 223 151
Provision for income
taxes.................. 17 -- -- 172 61 382 54 2,528(5)
------ ------ ------ ------ ------- ------- ------ ------ ------- -------
Income before
extraordinary charge... $1,246 $ (39) $ 614 $ 104 $ 2,194 $ 407 $ 223 $ 185 $ 169 $(2,377)
====== ====== ====== ====== ======= ======= ====== ====== ======= =======
<CAPTION>
PRO FORMA
---------
<S> <C>
Revenues................ $62,268
Expenses
Direct costs........... 44,538
General and
administrative....... 6,921
Depreciation and
amortization......... 2,097
-------
Total expenses... 53,556
Income from
operations............. 8,712
Other (income) expense
Interest expense,
net.................. 2,785
Other (income)
expense.............. (13)
-------
Income before income
tax provision and
extraordinary charge... 5,940
Provision for income
taxes.................. 3,214
-------
Income before
extraordinary charge... $ 2,726
=======
</TABLE>
92
<PAGE> 97
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA SUPPLEMENTAL FINANCIAL DATA
SIX MONTHS ENDED JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
(1) Results for the six months ended June 30, 1999 represent the results of the
Acquired Companies purchased in the related period prior to their date of
acquisition.
(2) The acquisition adjustments to general and administrative expenses consist
of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
Owner's Compensation(i)..................................... $(2,959)
Rent Expense(ii)............................................ 6
-------
$(2,953)
=======
</TABLE>
---------------
(i) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Companies and the
terms of their employment agreements with Orius. After the acquisition
of the Acquired Companies, the duties and responsibilities of the
owners who remained employed with Orius have not and will not change,
and additional costs have not and 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 Companies immediately prior to their
dates of acquisition.
(ii) 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 the corresponding decrease
in real estate tax expense resulting from our leasing rather than
owning certain related facilities which were not, and in the case of
Irwin will not be, purchased from the former owners of the Acquired
Companies.
(3) Depreciation has been derived utilizing the property, plant and equipment
values of each of the Acquired Companies at the time of their acquisition,
rather than utilizing values of property, plant and equipment actually held
by each of the acquired companies in the period presented. Reflects the
impact on depreciation resulting from (1) the application of Orius'
depreciation policy rather than those of the former owners of the Acquired
Companies and (2) any decrease in depreciation resulting from leasing rather
than owning certain related facilities.
(4) Represents interest of $1,907 on amounts drawn on the revolving credit
facility to fund the Fenix and Hattech acquisitions using an assumed
interest rate of 9.08% and interest of $162 on the junior subordinated notes
issued in connection with the acquisitions of Fenix, Midwest and Hattech
using an assumed interest rate of 12%.
(5) Reflects the income tax rate that would have been in effect if the Acquired
Companies 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.
93
<PAGE> 98
ORIUS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA SUPPLEMENTAL FINANCIAL DATA -- (CONTINUED)
SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA(1)
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NETWORK
DAS-CO SCHATZ COPENHAGEN CABLING TEXEL IRWIN FENIX MIDWEST HATTECH
------ ------ ---------- ------- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $3,660 $5,127 $3,877 $3,520 $10,363 $19,180 $15,426 $12,340 $31,847
Expenses:
Direct costs................ 1,910 3,847 2,783 2,851 7,462 13,096 9,272 6,285 20,026
General and
administrative............ 369 1,006 330 313 635 3,874 4,402 1,724 10,622
Depreciation and
amortization.............. 121 317 160 48 72 628 245 274 275
------ ------ ------ ------ ------- ------- ------- ------- -------
Total expenses............... 2,400 5,170 3,273 3,212 8,169 17,598 13,919 8,283 30,923
Income from operations....... 1,260 (43) 604 308 2,194 1,582 1,507 4,057 924
Other (income) expense:
Interest expense, net....... (2) (4) (10) 31 (43) 34 75 41 186
Other (income) expense...... (1) -- -- 1 (18) (12) (6) (10)
------ ------ ------ ------ ------- ------- ------- ------- -------
Income before income tax
provision................... 1,263 (39) 614 276 2,255 1,548 1,444 4,022 748
Provision for income taxes... 17 -- -- 172 61 (34) 100 185
------ ------ ------ ------ ------- ------- ------- ------- -------
Net income (loss)............ $1,246 $ (39) $ 614 $ 104 $ 2,194 $ 1,582 $ 1,344 $3,837 $ 748
====== ====== ====== ====== ======= ======= ======= ======= =======
<CAPTION>
ADJUSTMENTS PRO FORMA
----------- ---------
<S> <C> <C>
Revenues..................... $ -- $105,340
Expenses:
Direct costs................ -- 67,532
General and
administrative............ (5,992)(2) 17,283
Depreciation and
amortization.............. (11)(3) 2,129
------- --------
Total expenses............... (6,003) 86,944
Income from operations....... 6,003 18,396
Other (income) expense:
Interest expense, net....... 4,354(4) 4,662
Other (income) expense...... -- (46)
------- --------
Income before income tax
provision................... 1,649 13,780
Provision for income taxes... 5,007(5) 5,508
------- --------
Net income (loss)............ $(3,358) $ 8,272
======= ========
</TABLE>
94
<PAGE> 99
NOTES TO SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(1) Results for the year ended December 31, 1999 represent the results of the
Acquired Companies purchased in the related period prior to their date of
acquisition.
(2) The acquisition adjustments to general and administrative expenses consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Owner's compensation(i)..................................... $(6,174)
Rent expense(ii)............................................ 182
-------
$(5,992)
=======
</TABLE>
(i) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Companies and the
terms of their employment agreements with Orius. After the acquisition
of the Acquired Companies, the duties and responsibilities of the
owners who remained employed with Orius have not and will not change,
and additional costs have not and 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 Companies immediately prior to their
dates of acquisition.
(ii) 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 the corresponding decrease in
real estate tax expense resulting from our leasing rather than owning
certain related facilities which were not, and in the case of Irwin
will not be, purchased from the former owners of the Acquired
Companies.
(3) Depreciation has been derived utilizing the property, plant and equipment
values of each of the Acquired Companies at the time of their acquisition,
rather than utilizing values of property, plant and equipment actually held
by each of the Acquired Companies in the period presented. Reflects the
impact on depreciation resulting from (1) the application of Orius'
depreciation policy rather than those of the former owners of the Acquired
Companies and (2) any decrease in depreciation resulting from leasing rather
than owning certain related facilities. In addition, reflects the change in
depreciation resulting from the write-up of property, plant and equipment to
fair value arising from purchase accounting.
The acquisition adjustments to depreciation expense consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Depreciation resulting from change in depreciable lives:
Pro forma depreciation using Orius depreciation
policies(i)............................................. $ 1,603
Less historical depreciation of acquired companies(ii).... (2,096)
-------
(493)
Depreciation resulting from write up of fixed assets(iii)... 482
-------
$ (11)
=======
</TABLE>
<TABLE>
<CAPTION>
(II)
(I) ELIMINATION OF
PRO FORMA HISTORICAL
ENTITY DEPRECIATION DEPRECIATION ADJUSTMENT
------ ------------ -------------- ----------
<S> <C> <C> <C>
NCS......................................................... 14 (48) (34)
Schatz...................................................... 228 (317) (89)
Copenhagen.................................................. 206 (160) 46
DAS-CO...................................................... 161 (121) 40
Texel....................................................... 40 (72) (32)
Irwin....................................................... 413 (628) (215)
Fenix....................................................... 200 (245) (45)
Midwest..................................................... 136 (230) (94)
Hattech..................................................... 205 (275) (70)
----- ------ ----
1,603 (2,096) (493)
</TABLE>
<TABLE>
<CAPTION>
(III)
PRO FORMA AMORTIZATION
BASED ON 5 YR AVERAGE
ENTITY LIFE OF WRITE UP
------ ----------------------
<S> <C>
Schatz...................................................... 36
Copenhagen.................................................. 144
DAS-CO...................................................... 62
Fenix....................................................... 240
---
482
</TABLE>
(4) Represents interest of $3,814 on amounts drawn on the revolving credit
facility to fund the Fenix and Hattech acquisitions using an assumed
interest rate of 9.08% and interest of $540 on the junior subordinated notes
issued in connection with the acquisitions of Irwin, Fenix and Midwest using
an assumed interest rate of 12%.
(5) Reflects the income tax rate that would have been in effect if the Acquired
Companies 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.
95
<PAGE> 100
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
Interim Financial Statements -- June 30, 2000 and 1999
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Income......................... F-4
Consolidated Statements of Cash Flow...................... F-5
Notes to Consolidated Financial Statements................ F-6
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
Financial Statements -- December 31, 1999, 1998 and 1997
Report of Independent Accountants......................... F-11
Consolidated Balance Sheets............................... F-12
Consolidated Statements of Income......................... F-13
Consolidated Statements of Cash Flows..................... F-14
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-16
Notes to Consolidated Financial Statements................ F-17
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
Financial Statements -- December 14, 1999, December 31,
1998 and December 31, 1997
Report of Independent Accountants......................... F-31
Consolidated Balance Sheets............................... F-33
Consolidated Statements of Income......................... F-34
Consolidated Statements of Cash Flows..................... F-35
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-36
Notes to Consolidated Financial Statements................ F-37
U.S. CABLE, INC.
Financial Statements -- September 30, 1997 and June 30,
1998
Report of Independent Accountants......................... F-50
Balance Sheets............................................ F-51
Statements of Operations.................................. F-52
Statements of Cash Flows.................................. F-53
Statements of Changes in Shareholders' Equity............. F-54
Notes to Financial Statements............................. F-55
DAS-CO OF IDAHO, INC.
Financial Statements -- December 31, 1997 and 1998 and
February 26, 1999
Report of Independent Accountants......................... F-60
Balance Sheet............................................. F-62
Statements of Income...................................... F-63
Statements of Changes in Stockholders' Equity............. F-64
Statements of Cash Flows.................................. F-65
Notes to Financial Statements............................. F-66
SCHATZ UNDERGROUND CABLE, INC.
Financial Statements -- December 31, 1998 and 1997
Independent Auditor's Report.............................. F-69
Balance Sheet............................................. F-70
Statement of Income and Retained Earnings................. F-71
Statement of Cash Flows................................... F-72
Notes to Financial Statements............................. F-73
</TABLE>
F-1
<PAGE> 101
<TABLE>
<S> <C>
CATV SUBSCRIBER SERVICES, INC. AND ITS SUBSIDIARY
Financial Statements -- December 31, 1997 and August 31,
1998
Report of Independent Accountants......................... F-77
Balance Sheets............................................ F-78
Statements of Operations.................................. F-79
Statements of Cash Flows.................................. F-80
Statements of Changes in Shareholders' Equity............. F-81
Notes to Financial Statements............................. F-82
TEXEL CORPORATION
Financial Statements -- December 31, 1997 and 1998 and May
24, 1999 and March 31, 1998 and 1999 unaudited
Report of Independent Accountants......................... F-87
Balance Sheets............................................ F-89
Statements of Operations.................................. F-90
Statements of Cash Flows.................................. F-91
Statements of Changes in Shareholders' Equity............. F-92
Notes to Financial Statements............................. F-93
HATTECH, INC.
Financial Statements -- December 31, 1999, 1998 and 1997
Report of Independent Accountants......................... F-97
Balance Sheets............................................ F-98
Statements of Income and Retained Earnings................ F-99
Statements of Cash Flows.................................. F-100
Notes to Financial Statements............................. F-101
COPENHAGEN UTILITIES & CONSTRUCTION INC.
Financial Statements -- December 31, 1997 and 1998 and
February 26, 1999
Report of Independent Accountants......................... F-110
Balance Sheets............................................ F-112
Consolidated Statements of Operations..................... F-113
Statements of Cash Flows.................................. F-114
Notes to Financial Statements............................. F-115
</TABLE>
F-2
<PAGE> 102
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 28,664,199
Accounts receivable....................................... 158,427,789 128,780,860
Costs and estimated earnings in excess of billings........ 29,907,675 24,675,434
Inventories............................................... 26,353,743 16,453,878
Other current assets...................................... 881,957 4,728,028
------------- -------------
Total current assets.............................. 215,571,164 203,302,399
------------- -------------
Property and equipment, net................................. 58,220,756 44,399,631
Goodwill, net............................................... 418,713,182 359,881,615
Other assets................................................ 18,194,921 14,394,187
------------- -------------
Total assets...................................... $ 710,700,023 $ 621,977,832
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowing under credit facility........................... $ 57,000,000 $ --
Current portion of debt and leases........................ 12,031,243 8,796,941
Accounts payable -- trade................................. 34,808,300 29,640,803
Accrued liabilities....................................... 40,775,106 34,050,765
Payable to shareholder.................................... -- 11,454,413
Other current liabilities................................. 12,867,692 7,240,943
------------- -------------
Total current liabilities......................... 157,482,341 91,183,865
------------- -------------
Long-term debt and leases................................... 521,934,804 458,069,425
Deferred tax liability...................................... 5,643,962 5,609,352
------------- -------------
685,061,107 554,862,642
------------- -------------
Commitments and contingencies
Securities subject to put and call arrangements............. -- 54,946,000
Series C participating, redeemable preferred stock,
200,000,000 authorized, 205,317 and 194,371 issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively.............................................. 241,246,473 199,019,074
Stockholders' equity (net capital deficiency):
Common stock $.01 par value, 200,000,000 shares
authorized............................................. 258,250 250,254
Paid in capital........................................... 34,388,640 33,365,746
Note due from stockholder................................. (252,633) --
Retained deficit.......................................... (250,001,814) (220,465,884)
------------- -------------
Total stockholders' equity (net capital
deficiency)..................................... (215,607,557) (186,849,884)
------------- -------------
Total liabilities and stockholders' equity (net
capital deficiency)............................. $ 710,700,023 $ 621,977,832
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 103
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Revenues.................................................... $349,868,233 $60,197,910
Expenses:
Direct costs.............................................. 250,681,695 40,202,186
General and administrative................................ 37,028,933 11,717,592
Depreciation and amortization............................. 13,760,478 174,374
------------ -----------
Total operating expenses.......................... 301,471,106 52,094,152
------------ -----------
Income from operations...................................... 48,397,127 8,103,758
------------ -----------
Other expense (income):
Interest expense, net..................................... 30,903,961 1,372,246
Other expense (income).................................... (95,783) (95,751)
------------ -----------
Total other expenses.............................. 30,808,178 1,276,495
------------ -----------
Income before provision for income taxes.................... 17,588,949 6,827,263
------------ -----------
Provision for income taxes................................ 10,297,878 651,268
------------ -----------
Net income.................................................. $ 7,291,071 $ 6,175,995
============ ===========
Net income applicable to common shareholders:
Net income as reported.................................... $ 7,291,071 $ 6,175,995
Accretion and dividends on Series C participating
redeemable preferred stock............................. (31,479,452) --
------------ -----------
Net (loss) income applicable to common shareholders......... $(24,188,381) $ 6,175,995
============ ===========
Pro forma net income data:
Net income as reported.................................... $ 7,291,071 $ 6,175,995
Pro forma adjustment to provision for income taxes........ -- --
------------ -----------
Pro forma net income...................................... $ 7,291,071 $ 6,175,995
============ ===========
Earnings per share
Basic and diluted......................................
Net (loss) income available to common shareholders........ $ (0.95) $ 0.67
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 104
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Operating activities:
Net income.................................................. $ 7,291,071 $ 6,175,995
Adjustments to reconcile net cash provided by (used in)
operating activities:
Depreciation and amortization............................. 13,760,478 174,374
Changes in assets and liabilities
Accounts receivable.................................... (25,315,688) (11,897,049)
Inventories............................................ (7,260,264) (1,351,780)
Other assets........................................... 417,416 (93,564)
Accounts payable and accrued liabilities............... 8,846,591 (1,276,016)
Other liabilities...................................... 4,053,623 --
------------- -------------
Net cash provided by (used in) operating
activities...................................... 1,793,227 (5,716,008)
------------- -------------
Investing activities:
Capital expenditures...................................... (13,165,801) (1,325,874)
Acquisitions.............................................. (59,522,642) --
------------- -------------
Net cash used in investing activities............. (72,688,443) (1,325,874)
------------- -------------
Financing activities:
Borrowings on debt facilities............................. 108,533,287 --
Proceeds from issuance of long-term debt.................. 150,000,000 75,000,000
Distributions paid to stockholders........................ (11,454,413) (6,141,864)
Repayment of long-term debt............................... (151,639,902) (1,182,200)
Amounts paid for deferred financing costs................. (4,626,719) (2,269,238)
Retirement of Common Stock................................ -- (125,718,555)
Issuance of Common Stock.................................. (48,581,236) 67,731,151
Redemption of securities subject to put and call
arrangements........................................... --
------------- -------------
Net cash provided by financing activities......... 42,231,017 7,419,294
------------- -------------
Net decrease in cash and cash equivalents................... (28,664,199) 377,412
Cash and cash equivalents at beginning of period............ 28,664,199 2,788,838
------------- -------------
Cash and cash equivalents at end of period.................. $ -- $ 3,166,250
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 105
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
OVERVIEW
The interim consolidated financial statements of Orius Corp. ("Orius"), the
successor to LISN Holdings, Inc. ("LISN"), and its subsidiaries (the "Company")
as of June 30, 2000 and December 31, 1999 and for the period ended June 30, 2000
and 1999 include the accounts of Orius 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. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, 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 prospectus. Reported interim
results of operations are based in part on estimates, and are not necessarily
indicative of those expected for the year.
The financial information as of and for the period ended June 30, 1999
represents the information of LISN, which was deemed the accounting acquirer in
the December 15, 1999 business combination.
ORIUS/LISN TRANSACTION
On December 15, 1999, Orius and LISN entered into a business combination in
which the former stockholders of LISN acquired control of Orius and its
subsidiaries. Accordingly, LISN is considered the acquiring corporation and
corporate predecessor for accounting purposes. Also in connection with the
transaction, the Company entered into a $275.0 loan and credit facility and a
$100.0 million bridge loan that were utilized to pay off all the outstanding
debt of the Company and LISN as of December 14, 1999 (the valuation date). The
bridge loan and a portion of the loan and credit facility have been retired with
the proceeds of a private placement of Senior Subordinated Debt in February
2000.
2. STOCK SPLIT
On March 9, 2000, the Orius Board of Directors authorized a 10 for 1 stock
split. All share amounts presented in these financial statements have been
restated to reflect the split.
3. ORIUS/LISN TRANSACTION
On December 15, 1999, LISN's former shareholders acquired control of Orius
and its wholly-owned subsidiary, NATG, through the following steps:
- Former LISN shareholders, members of management and certain co-investors
invested an aggregate cash amount of $112.2 million in LISN immediately
prior to the transaction. In exchange for this investment, a "strip" of
Orius securities were issued comprised of $41.3 million of junior
subordinated notes, $60.8 million of Series C redeemable preferred stock
and $10.1 million of common stock.
- Former LISN shareholders exchanged LISN common stock, preferred stock and
junior subordinated notes for a similar strip of securities issued by
Orius.
- NATG borrowed $328.5 million under the new multi-tranche senior credit
facilities and the senior subordinated term loan, and repaid
approximately $256.1 million of LISN and Orius indebtedness.
F-6
<PAGE> 106
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- Convertible preferred stock, junior subordinated notes, warrants and a
portion of the common stock of Orius were redeemed. This redemption
included put and call arrangements with certain Orius security holders
which will require payment of approximately $54.9 million and the
issuance of additional strips of Orius securities in the first half of
2000.
- Orius management rolled over approximately one-half of the value of their
equity interests in Orius for a strip of securities comprised of $30.4
million in aggregate principal amount of Orius junior subordinated notes,
$44.7 in preferred stock and $8.3 million in common stock. Although LISN
is the acquiring corporation for accounting purposes, the transaction
resulted in LISN becoming a wholly-owned subsidiary of NATG which is a
wholly-owned subsidiary of Orius.
As the accounting predecessor, LISN's historical financial statements are
the historical financial statements of Orius.
The total purchase consideration of $165.5 million in cash and $83.5
million in Orius rollover value (excluding amounts payable under put/call
arrangements) plus transaction related expenses of $6.3 million exceeded the
fair value of the tangible net assets acquired by $360.5 million, which is being
amortized on a straight-line basis over 25 years.
4. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $974,581 and $916,601 at June 30,
2000 and December 31, 1999, respectively. Included in accounts receivable at
June 30, 2000 are unbilled receivables of $13,545,667 and retainage of
$12,475,593.
The balances billed but not paid by customers pursuant to retainage
provisions in customer contracts will be due upon completion of the contracts,
substantially all of the retention balances at March 31, 2000 are expected to be
collected within the next twelve months. Unbilled accounts receivable relate to
the Company's unit based contracts and represent revenue the Company is entitled
to based upon the units delivered as of the balance sheet date.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings, and related billings on uncompleted projects
at June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts.... $114,826,073 $107,039,766
Billings to date......................................... 84,918,298 82,364,332
------------ ------------
Net costs and earnings in excess of billings............. $ 29,907,775 $ 24,675,434
============ ============
Costs and estimated earnings in excess of billings....... $ 30,107,379 $ 27,098,079
Billings in excess of costs and estimated earnings....... (199,064) (2,422,645)
------------ ------------
Net costs and earnings in excess of billings............. $ 29,907,775 $ 24,675,434
============ ============
</TABLE>
6. ACQUISITIONS
On January 25, 2000, the Company acquired Irwin Utilities of Texas Inc.
(Irwin). Irwin is a provider of external telecom services to broadband customers
throughout the southern and central regions of the U.S. The total purchase
consideration of $16.0 million, consisting of $12.0 million in cash and $4.0
million in common stock, preferred stock and junior subordinated debt, exceeded
the fair value of the tangible net assets acquired by $12.3 million, which is
being amortized on a straight-line basis over 25 years. Results for Irwin have
been included in the consolidated results of the Company from the date of
acquisition.
F-7
<PAGE> 107
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In April 2000, the Company acquired Fenix Communications, Inc. (Fenix) and
Midwest Splicing and Activation, Inc. (Midwest). Fenix and Midwest provide
external telecom services to broadband service providers. In May 2000, the
Company acquired Hattech, Inc. (Hattech). Hattech provides a wide range of
network integration services. The total purchase consideration of $57.2 million
consisting of $48.7 million cash (excluding of $2.2 million of transaction
related expenses) and $8.5 million in common stock, preferred stock and junior
subordinated debt exceeded the fair value of the tangible net assets acquired by
$45.3 million which is being amortized on a straight-line basis over 25 years.
Results of Fenix, Midwest and Hattech have been included in the consolidated
results of the Company from the date of acquisition.
Total purchase consideration for these acquisitions is as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED JUNIOR
------------------- ----------------- SUBORDINATED
CASH SHARES VALUE SHARES VALUE NOTES TOTAL
---- ------ ----- ------ ----- ------------ -----
(NUMBERS IN THOUSANDS, EXCEPT SHARE NUMBERS)
<S> <C> <C> <C> <C> <C> <C> <C>
Irwin..................... $12,000 269,052.30 $ 361 2,128.76 $2,152 $1,471 $15,984
Fenix..................... 15,675 114,347.21 758 904.72 993 625 18,051
Midwest................... 7,750 16,313.09 108 932.21 1,023 736 9,617
Hattech................... 25,252 33,685.08 262 2,086.85 2,324 1,670 29,508
------- ---------- ------ -------- ------ ------ -------
$60,677 $1,489 $6,492 $4,502 $73,160
======= ====== ====== ====== =======
</TABLE>
Shares issued in connection with these transactions were valued using
valuation models that take into account earnings multiples of comparable
companies.
The following unaudited pro forma financial information represents the
unaudited pro forma results of operations as if the aforementioned acquisitions
were completed on January 1, 1999. These pro forma results give effect to
increased interest expense for acquisition-related 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 operations which would have
been achieved had these acquisitions been completed on January 1, 1999, nor are
the results indicative of the Company's future results of operations.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,
-----------------
2000 1999
------- -------
IN MILLIONS
<S> <C> <C>
Revenues.................................................... $369.5 $251.1
Net Income.................................................. 6.7 (3.9)
</TABLE>
7. LONG-TERM DEBT AND CAPITAL LEASES
In December 1999 NATG entered into a new credit agreement with Deutsche
Bank Securities Inc., Bankers Trust and a syndication of banks. The new credit
agreement includes a revolving credit facility, in an aggregate amount not to
exceed $100 million at any time, maturing on December 12, 2004, and a $275
million senior secured term loan credit facility. The term loan facility was
allocated among a $75 million Term Loan A with a letter of credit facility,
maturing on December 15, 2004; and a $200 million Term Loan B facility, maturing
December 15, 2006.
During the first quarter of 2000, the company completed a private offering
of $150 million of 12.75% Senior Subordinated Notes due in 2010. A portion of
the proceeds from this offering was used to pay down the principal amount
outstanding on Term Loan B.
Amounts under the revolving credit facility and Term Loan A facility bear
interest, at NATG's choice, of either the Federal Funds Rate plus 0.50% or the
Eurodollar rate, in each case plus an applicable margin of 0.75% to 2.00% and
1.75% to 3.00%, respectively, determined on the most recent total debt to
F-8
<PAGE> 108
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
EBITDA ratio. Amounts under Term Loan B facility bear interest, at the Company's
choice, of either Bankers Trust Prime Rate or the Federal Funds Rate plus 0.50%,
in either case plus a margin of 2.50%. Loans made under the revolving credit
facility and the Term Loan A facility are collateralized by a pledge of all the
assets of the Company and its subsidiaries. The credit facility also contains
affirmative and negative covenants relating to the Company's operations. The
Company was in compliance with these covenants at June 30, 2000.
As of June 30, 2000 and December 31, 1999, long-term debt and capital lease
obligations consisted of the following:
Bank Credit Facilities:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revolving credit facility, maturing on December 15, 2004;
interest rate of prime or Federal Funds Rate plus 0.50% or
Eurodollar Rate, plus a margin of 0.75% to 2.0% or 1.75%
to 3.0%, respectively, determined based on the most recent
total debt to EBITDA ratio................................ $ 57,000,000 $ --
Term Loan A, amortizing with final payment due December 15,
2004; interest rate of prime or Federal Funds Rate plus
0.50% or Eurodollar Rate, plus margin of 0.75% to 2.0% or
1.75% to 3.0%, respectively, determined based on most
recent total debt to EBITDA ratio......................... 72,000,000 28,531,511
Term Loan B, amortizing with final payment due December 15,
2006; interest rate of prime or Federal Funds Rate plus
0.50%, in either case plus a margin of 2.5%............... 156,572,528 200,000,000
Senior Subordinated Notes, interest paid semiannually with
maturity on February 1, 2010; interest rate of 12.75%..... 150,000,000 --
Senior Subordinated bridge loan maturing December 15, 2007;
interest rate of LIBOR plus 6.5%.......................... -- 100,000,000
Junior Subordinated Notes including accrued interest of
$9,095,879 and $671,505 at June 30, 2000 and December 31,
1999, respectively, maturing on the later of December 15,
2009 or the first anniversary of the date on which any
debt in a high yield offering is repaid; interest rate of
12%....................................................... 150,710,184 134,972,505
Other debt and capital lease obligations.................... 4,683,335 3,362,350
------------ ------------
Total debt and capital lease obligations.......... 590,966,047 466,866,366
Less current portion........................................ (69,031,243) (8,796,941)
------------ ------------
Long-term debt.................................... $521,934,804 $458,069,425
============ ============
</TABLE>
8. SECURITIES SUBJECT TO PUT AND CALL ARRANGEMENTS
At June 30, 2000 and December 31, 1999, securities subject to put and call
arrangements are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Securities subject to put and call arrangements:
Series B preferred stock................................. $ -- $39,420,000
Redeemable common stock.................................. -- 15,526,000
----------- -----------
$ -- $54,946,000
=========== ===========
</TABLE>
F-9
<PAGE> 109
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
As discussed in the footnotes to the December 31, 1999 audited financial
statements certain of the Orius securities were subject to put and call
arrangements whereby Orius Corp. had a call and the security holders had a put.
In March 2000, the Series B preferred stock and $3,610,964 of the redeemable
common stock were redeemed by Orius Corp. In connection with those redemptions,
NATG borrowed $41.1 million from its credit facilities. The remainder of the
redeemable common stock was redeemed by the Company in the second quarter
through borrowings from its credit facilities and the issuance of junior
subordinated debt and preferred stock.
9. SERIES C PARTICIPATING PREFERRED STOCK
The Orius Series C participating preferred stock accrues dividends daily at
a rate of 12% per annum based on a liquidation value $1,000 per share and
participates in any dividends paid to holders of the common stock. The Series C
participating preferred stock will be redeemed on December 31, 2019 at its
purchase price, plus accrued dividends and the liquidation value of the common
stock into which it is convertible.
At June 30, 2000 and December 31, 1999, the total recorded value of the
Series C preferred stock has been determined based upon purchase price of $1,000
per share, accrued and unpaid dividends of $11,852,610 and $995,918,
respectively, and a value per common share of $7.77 and $1.34 (adjusted for the
stock split discussed in Note 2), respectively. The purchase price of $1,000 per
share and the value per common share of $1.34 were based upon the values of the
preferred and common stock purchased in connection with the Orius/LISN
transaction. Subsequent value per common share is adjusted quarterly based upon
the Company's performance, recent transactions and comparable trading multiples.
For the period ended December 31, 1999, the amount attributable to the
accretion of the Series C preferred stock of $78,816,000, reflects the
adjustment to the preferred stock held by the former LISN shareholders. For the
six months ended June 30, 2000 the resulting accretion is $19,626,842. Accretion
is recorded as an increase in the retained deficit and a reduction of the income
available to common shareholders.
10. NOTE DUE FROM STOCKHOLDER
In January 2000, pursuant to an employment agreement, the Company issued
188,810 shares of restricted common stock with a 5-year vesting period to its
chairman and chief executive officer. These shares were purchased at fair value
as determined by the LISN transaction in return for a full recourse promissory
note with a term of 5 years and a stated interest rate of 6.46%. At June 30,
2000, the balance due of $252,633 is shown as a reduction in stockholders'
equity.
11. SUBSEQUENT EVENTS
In July 2000 the Company entered into additional borrowings of $60 million
under Term Loan C of the senior credit facility which were primarily used to pay
down amounts due under the revolving credit facility. Amounts under the Term
Loan C due September 30, 2007 facility bear interest, at the Company's option,
of either the higher of the Prime Rate or the overnight Federal Funds Rate plus
0.50% and a margin of 2.75%, or the Eurodollar rate and a margin of 3.75%.
F-10
<PAGE> 110
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 income, stockholders' equity (net capital
deficiency) and of cash flows present fairly, in all material respects, the
financial position of Orius Corp. and Subsidiaries (formerly LISN Holdings,
Inc., the Company) as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States, 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
March 31, 2000
F-11
<PAGE> 111
ORIUS CORP AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 28,664,199 $ 2,788,838
Accounts receivable....................................... 128,780,860 13,260,102
Costs and estimated earnings in excess of billings........ 24,675,434 6,632,421
Inventories............................................... 16,453,878 2,405,224
Other current assets...................................... 4,728,028 70,825
------------- -----------
Total current assets.............................. 203,302,399 25,157,410
Property and equipment, net................................. 44,399,631 3,386,839
Goodwill, net............................................... 359,881,615 --
Other assets................................................ 14,394,187 54,520
------------- -----------
Total assets...................................... $ 621,977,832 $28,598,769
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt and leases........................ $ 5,505,387 $ 82,933
Accounts payable -- trade................................. 29,640,803 3,294,811
Accrued liabilities....................................... 34,050,765 5,874,098
Payable to shareholder.................................... 11,454,413 --
Deferred tax liability.................................... 5,948,752 --
Other current liabilities................................. 1,292,191 --
------------- -----------
Total current liabilities......................... 87,892,311 9,251,842
------------- -----------
Long-term debt and leases................................... 461,360,979 1,099,267
Deferred tax liability...................................... 5,609,352 --
------------- -----------
466,970,331 1,099,267
------------- -----------
Commitments and contingencies
Securities subject to put and call arrangements............. 54,946,000 --
Series C participating, redeemable preferred stock,
200,000,000 authorized; 194,372 issued and outstanding.... 199,019,074 --
Stockholders' equity (net capital deficiency):
Common stock, no par value, 200,000 shares authorized..... -- 11,000
Common stock $.01 par value, 200,000,000 shares
authorized............................................. 25,025 --
Paid in capital........................................... 33,590,975 --
Retained (deficit) earnings............................... (220,465,884) 18,236,660
------------- -----------
Total stockholders' equity (net capital
deficiency)..................................... (186,849,884) 18,247,660
------------- -----------
Total liabilities and stockholders' equity (net
capital deficiency)............................. $ 621,977,832 $28,598,769
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE> 112
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenues............................................. $167,018,298 $76,371,641 $40,226,291
Expenses:
Direct costs....................................... 118,539,189 52,659,507 29,690,823
General and administrative......................... 20,576,668 10,626,753 6,062,985
Depreciation and amortization...................... 1,357,765 383,469 179,247
------------ ----------- -----------
Total operating expenses................... 140,473,622 63,669,729 35,933,055
------------ ----------- -----------
Income from operations..................... 26,544,676 12,701,912 4,293,236
Other expense (income):
Interest expense, net.............................. 11,148,761 450,595 177,822
Miscellaneous...................................... 362,105 (14,913) (52,600)
------------ ----------- -----------
Total other expenses....................... 11,510,866 435,682 125,222
------------ ----------- -----------
Income before provision from income taxes
and extraordinary charge................. 15,033,810 12,266,230 4,168,014
Provision for income taxes........................... 4,936,866 -- --
------------ ----------- -----------
Income before extraordinary charge................... 10,096,944 12,266,230 4,168,014
Extraordinary charge for debt retirement, net of tax
benefit of $897,000................................ 1,372,239 -- --
------------ ----------- -----------
Net income........................................... $ 8,724,705 $12,266,230 $ 4,168,014
============ =========== ===========
Pro forma net income data:
Net income as reported............................. $ 8,724,705 $12,266,230 $ 4,168,014
Pro forma adjustment to provision for income
taxes........................................... 1,199,320 4,293,180 1,417,125
------------ ----------- -----------
Pro forma net income............................... $ 7,525,385 $ 7,973,050 $ 2,750,889
============ =========== ===========
Net income applicable to common shareholders:
Net income as reported............................. $ 8,724,705 $12,266,230 $ 4,168,014
Accretion and dividends on Series C participating
redeemable preferred stock...................... (79,811,918) -- --
------------ ----------- -----------
Net (loss) income applicable to common
shareholders.................................... $(71,087,213) $12,266,230 $ 4,168,014
============ =========== ===========
Earnings per share
Basic and diluted
(Loss) income applicable to common shareholders
before extraordinary item.......................... $ (10.82) $ 1.12 $ 0.38
Extraordinary item................................. $ (0.21) -- --
Net (loss) income applicable to common
shareholders.................................... $ (11.03) $ 1.12 $ 0.38
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE> 113
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 8,724,705 $12,266,230 $ 4,168,014
Adjustments to reconcile net income to net cash used
for operating activities:
Depreciation and amortization..................... 1,357,765 383,469 179,247
Extraordinary charge.............................. 1,372,239 -- --
Deferred taxes.................................... 64,100 -- --
Change in assets and liabilities:
Accounts receivable............................ (4,705,053) (6,190,981) (5,601,655)
Costs and estimated earnings in excess of
billings..................................... (8,755,989) (2,513,966) --
Inventories.................................... (82,260) (1,527,110) --
Other assets................................... 2,919,324 17,677 (56,401)
Accounts payable -- trade...................... 4,849,725 388,861 1,078,044
Accrued expenses............................... 8,039,232 3,095,168 1,545,116
------------- ----------- -----------
Net cash provided by operating
activities.............................. 13,783,788 5,919,348 1,312,365
------------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment............... (4,015,434) (1,923,554) (1,038,702)
Purchase of Orius Corp., net of cash acquired..... (166,130,033) -- --
Investment in other entities...................... (100,000) -- --
Increase in accounts receivable -- related
party.......................................... -- (619,521)
------------- ----------- -----------
Net cash used for investing activities.... (170,245,467) (1,923,554) (1,658,223)
------------- ----------- -----------
Cash flows from financing activities:
Amounts paid for deferred financing costs......... (12,391,361) -- --
Decrease in overdraft............................. -- (164,525) --
Distributions paid to shareholders................ (6,141,864) (1,160,000) --
Proceeds from notes payable -- bank............... 403,531,510 --
Payments of notes payable -- bank................. (256,131,105) (2,562,200) 821,508
Issuance of junior notes.......................... 637,000 -- --
Issuance of common stock.......................... 67,867,196 -- --
Issuance of preferred stock....................... 136,955 -- --
Investment by LISN shareholders................... 112,239,334 -- --
Advances from bank for construction costs......... -- 673,742 570,658
Retirement of common stock........................ (127,410,625) -- --
------------- ----------- -----------
Net cash provided by (used for) financing
activities.............................. 182,337,040 (3,212,983) 1,392,166
------------- ----------- -----------
Net increase in cash.............................. 25,875,361 782,811 1,046,308
Cash at beginning of period....................... 2,788,838 2,006,027 959,719
------------- ----------- -----------
Cash at end of period............................. $ 28,664,199 $ 2,788,838 $ 2,006,027
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 114
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Supplemental information disclosure:
Interest paid............................................ $ 9,172,948 $111,875 $159,519
Income taxes paid........................................ $ 1,055,422 $ -- $ --
Non-cash activity:
Deferred stock redemption................................ $ 7,885,450 $ -- $ --
Deferred taxes resulting from conversion to C
corporation........................................... 4,574,200 -- --
Exchange of common stock for junior notes................ 58,100,000 -- --
Exchange of common stock for preferred stock............. 12,491,500 -- --
Deemed dividend on preferred stock....................... 826,042 -- --
Transfer of junior notes and accrued interest to Orius... 62,677,993 -- --
Rollover of Orius Corp. common stock..................... 83,421,453 -- --
Exchange of common stock for Orius Corp. common stock.... 15,260,297 -- --
Exchange of Series A preferred stock for Orius Series C
participating, redeemable preferred stock............. 13,525,078 -- --
Accretion associated with Series C participating,
redeemable preferred stock............................ 79,811,918 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 115
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON STOCK RETAINED EQUITY (NET
------------------------- EARNINGS CAPITAL
SHARES AMOUNT (DEFICIT) DEFICIENCY)
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 1996................ 11,000,000 $ 11,000 $ -- $ 11,000
Adjustment for LISN Holdings, Inc. and
LISN Inc. combination.............. 2,962,416 2,962,416
Net income............................ 4,168,014 4,168,014
---------- ------------ ------------- -------------
Balances at December 31, 1997........... 11,000,000 11,000 7,130,430 7,141,430
Distributions to S Corporation
stockholders....................... (1,160,000) (1,160,000)
Net income............................ 12,266,230 12,266,230
---------- ------------ ------------- -------------
Balances at December 31, 1998........... 11,000,000 11,000 18,236,660 18,247,660
Distributions to S Corporation
stockholders....................... (6,141,864) (6,141,864)
Effects of recapitalization
transaction:
Retirement of common stock......... (9,514,990) (9,515) (127,401,110) (127,410,625)
Issuance of common stock........... 5,055,480 67,731,151 67,731,151
Exchange of common stock for junior
notes and Series A redeemable
preferred stock.................. (5,080,050) (52,608,384) (17,983,116) (70,591,500)
Conversion to C corporation........ (4,577,600) (4,577,600)
Accretion of amounts due for
redemption of common stock....... (11,511,641) (11,511,641)
Proceeds from private placement of
Strips............................. 9,730 136,045 136,045
Effects of December 15, 1999
transaction with Orius Corp.:
Issuance of Orius common stock to
LISN shareholders................ 9,867,780
Investment by LISN shareholders.... 7,518,040 10,101,540 10,101,540
Exchange of former Orius
shareholder interests............ 6,169,490 8,254,163 8,254,163
Accretion associated with Series C
participating, redeemable
preferred stock including
dividends........................ (79,811,918) (79,811,918)
Net income............................ 8,724,705 8,724,705
---------- ------------ ------------- -------------
Balances at December 31, 1999........... 25,025,480 $ 33,616,000 $(220,465,884) $(186,849,884)
========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 116
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. BASIS OF PRESENTATION
OVERVIEW
Orius Corp. (Orius or the Company), a holding company with no independent
operations, is the parent of NATG Holdings, LLC (NATG) and is the successor to
LISN Holdings, Inc. (LISN, formerly Arion, Inc.). NATG is engaged in the
business of providing telecommunications infrastructure services in the
continental United States.
Prior to the Orius/LISN transaction discussed below, LISN and Orius Corp.
and its subsidiaries operated separate businesses. During 1999, LISN underwent a
recapitalization, and later in 1999 LISN and Orius entered into a business
combination. See Note 15 for further discussion. The 1998 and 1997 financial
statements presented herein are those of LISN. The 1999 statement of income
presents the operation of only LISN through December 14, 1999 and includes the
operations of NATG from December 15, 1999 through December 31, 1999.
LISN RECAPITALIZATION
On May 28, 1999, Arion, Inc. (Arion) entered into a Recapitalization
Agreement whereby, Arion was renamed LISN Holdings, Inc. The assets of Arion
were then transferred to Arion Sub, Inc., a wholly-owned subsidiary of Arion.
Also, on May 28, 1999, the shareholders of LISN, Inc. contributed all of their
shares to Arion. Arion was formed in 1997 to purchase and warehouse LISN's
inventory. The combination of LISN Holdings, Inc. and LISN, Inc. has been
accounted for in a manner similar to a pooling of interests, as Arion and LISN
were owned by the same shareholders in exactly the same ownership percentages
and share amounts, and both the ownership and assets of the combined entity were
identical before and after the two companies were combined. Accordingly, the
1998 Arion financial statements have been restated and referred to here as LISN
Holdings, Inc. LISN, Inc. continued to operate as a wholly-owned subsidiary of
Arion. In connection with this reorganization, Arion entered into a $75,000,000
credit facility that was utilized to pay off all outstanding debt of LISN, Inc.
as of May 27, 1999, and to finance the redemption of Arion's outstanding shares.
For further information, see Note 3.
ORIUS/LISN TRANSACTION
On December 15, 1999, Orius and LISN entered into a business combination in
which the former stockholders of LISN acquired control of Orius and its
subsidiaries. Accordingly, LISN is considered the acquiring corporation and
corporate predecessor for accounting purposes. Also in connection with the
transaction, the Company entered into a $275,000,000 loan and credit facility
and a $100 million bridge loan that were utilized to pay off all the outstanding
debt of the Company and LISN as of December 14, 1999 (the valuation date). For
further information, see Note 5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions 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. Significant estimates made in the preparation of these
financial
F-17
<PAGE> 117
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements include those related to the revenue recognized and costs and
expenses associated with contracts in process at period end, allowances for
doubtful accounts, and the estimated lives of long-lived assets. Actual results
could differ from those estimates and such differences may be material to the
financial statements.
REVENUE RECOGNITION
Prior to the Orius/LISN transaction, substantially all of the Company's
revenues were earned from contracts under fixed price arrangements. For fixed
price contracts, the Company recognizes revenue and the related costs under the
percentage-of-completion method. Revenues and earnings from these contracts are
recognized as the related costs are incurred based on the relationship of costs
incurred to total estimated contract costs. Costs and estimated earnings in
excess of billings for contracts-in-progress represents revenue recognized but
not yet billed. Billings in excess of costs and estimated earnings represents
billings on contracts for which costs have not yet been incurred and revenue and
earnings have not been recognized.
In connection with the Orius/LISN transaction, the Company assumed and
continues to offer contracts that provide for payments for units delivered by
the Company. These contracts generally entitle the Company to revenue for each
unit of work completed. Accordingly, the Company accounts for revenue and
related costs associated with these types of contracts 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.
Additionally, the Company recognizes revenues from short-term contracts
with duration less than two weeks under the completed contract method. Billings
and costs are accumulated on the balance sheet, and no profit is recorded before
completion or substantial completion of the work.
At the time a loss on any contract becomes known, the entire amount of the
estimated loss is accrued.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents. For purposes of the
consolidated statements of cash flows, the Company considers these to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets ranging from 3 to 39 years. Leasehold improvements
are amortized over the remaining term of the facilities' lease. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is recognized in
the period. Expenditures for maintenance and repairs are expensed as incurred.
INVENTORY
Inventories are stated at the lower of cost, on a first-in, first-out
basis, or market. Inventory consists of items purchased for use in projects and
substantially all of the Company's inventories can be used in multiple projects.
F-18
<PAGE> 118
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
For federal tax purposes and in selected states, LISN had elected to be
treated under Subchapter S of the Internal Revenue Code. As such, all income,
expenses, and tax credits were passed through to the individual stockholders.
State taxes were paid by LISN and recorded in general and administrative
expenses in 1998 and 1997.
Effective May 28, 1999, LISN converted to a C Corporation and accounts for
income taxes in accordance with Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the use of the
liability method of computing deferred income taxes. Under this method deferred
income taxes are recorded to reflect the income tax consequences on future years
of temporary differences between the income tax and financial reporting bases of
assets and liabilities as of the balance sheet date. Under the liability method,
deferred income taxes are adjusted for tax rate changes as they occur. A net
deferred tax liability of $4,577,600 was established on May 28, 1999 as a result
of the conversion to a C corporation.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximate the
recorded values due to the relatively short terms of the instruments and the
floating interest rate on a substantial portion of the Company's debt. The
Company has entered interest rate cap arrangements, but the fair values of those
caps approximate their recorded 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 its estimated useful life of 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 from the date of the
Orius/LISN transaction and included in these financial statements was $602,498
for 1999. The intangible assets at December 31, 1999 are net of accumulated
amortization of $602,498.
Included in other assets are intangible assets for deferred financing costs
which are amortized over the term of the related debt facility. At December 31,
1999 deferred financing costs of $9,876,058 are included in other assets. For
1999, $755,267 of amortization expense related to these costs has been included
in interest expense.
CONCENTRATIONS OF CREDIT RISK
Substantially all of the Company's accounts receivable are due from
companies within the telecommunications industry located throughout the United
States. Credit is extended based on an evaluation of the customer's financial
condition and, generally, collateral is not required. Credit losses are provided
for in the consolidated financial statements.
The Company maintains various bank accounts and at times, amounts may be in
excess of FDIC insurance limits.
F-19
<PAGE> 119
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
arrangements 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 recognized compensation
based on the intrinsic value of the equity instrument awarded. The Company
applies APB Opinion No. 25 to its stock based compensation awards to employees.
See Note 19.
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 the Company's 2001 financial statements. Due to the complexity of
this statement, the Company is still evaluating its impact, if any, on our
financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" (SAB 101), which affects the recognition and disclosures
about revenues. SAB 101 is applicable for the Company's fourth quarter 2000
financial statements. Management expects its adoption will not be significant to
the financial statements.
3. RECAPITALIZATION
On May 28, 1999, the Company sold 50.554778 shares of common stock for
$70,250,000 (less $2,518,849 of transaction related fees) and redeemed 95.149888
shares for $133,910,625 (less $6,500,000 which remained in the Company to fund
employee bonuses which were recorded as expenses). An additional $11,454,413
will be redeemed during 2000 and is reflected as a liability at December 31,
1999. Also on May 28, 1999, 41.81114 shares of common stock were converted to
Junior Notes (see Note 12) payable in the amount of $58,100,000 and 8.9894
shares of common stock were exchanged for 8.989394 shares of Series A Preferred
stock with a market value of $12,491,500. In accordance with the
Recapitalization Agreement, an additional 5.67469 shares of common stock were to
be redeemed for $7,885,450 on January 2, 2000.
4. STOCK SPLIT
The LISN Board of Directors authorized a stock split (10,000 to 1)
effective August 16, 1999 resulting in 146,042.82 shares of common stock
outstanding and 89,894 shares of Preferred Series A stock outstanding. All share
amounts presented in these financial statements have been restated to reflect
the share split.
5. ORIUS/LISN TRANSACTION
On December 15, 1999, LISN's former shareholders acquired control of Orius
and its wholly-owned subsidiary, NATG, through the following steps:
- Former LISN shareholders, members of management and certain co-investors
invested an aggregate cash amount of $112.2 million in LISN immediately
prior to the transaction. In exchange for this
F-20
<PAGE> 120
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investment, a "strip" of Orius securities were issued comprised of $41.3
million of junior subordinated notes, $60.8 million of Series C
redeemable preferred stock and $10.1 million of common stock.
- Former LISN shareholders exchanged LISN common stock, preferred stock and
junior subordinated notes for a similar strip of securities issued by
Orius.
- NATG borrowed $328.5 million under the new multi-tranche senior credit
facilities and the senior subordinated term loan, and repaid
approximately $256.1 million of LISN and Orius indebtedness.
- Convertible preferred stock, junior subordinated notes, warrants and a
portion of the common stock of Orius were redeemed. This redemption
included put and call arrangements with certain Orius security holders
which will require payment of approximately $54.9 million and the
issuance of additional strips of Orius securities in the first half of
2000. See Notes 15 and 21.
- Orius management rolled over approximately one-half of the value of their
equity interests in Orius for a strip of securities comprised of $30.4
million in aggregate principal amount of Orius junior subordinated notes,
$44.7 in preferred stock and $8.3 million in common stock.
Although LISN is the acquiring corporation for accounting purposes (because
former LISN shareholders acquired approximately 75% of common equity interests)
the transaction resulted in LISN becoming a wholly-owned subsidiary of NATG,
which is a wholly-owned subsidiary of Orius. As the accounting predecessor,
LISN's historical financial statements are the historical financial statements
of Orius and include the results of Orius' operations from December 15, 1999
through December 31, 1999.
Of the total purchase price of $314.5 million, $163.7 million was paid in
cash to Orius stockholders in connection with the redemption for their existing
equity interests, $83.5 million represents the value of the Orius securities
which were retained by Orius stockholders or exchanged for new Orius equity, $61
million represents the amount of cash paid to Orius stockholders to redeem their
equity securities pursuant to the put/call arrangements (of which $54.9 million
remains outstanding at December 31, 1999) and $6.3 million represents
transaction related expenses. The purchase price of $314.5 million exceeded the
fair value of the tangible net assets acquired by $360.5 million, which is being
amortized on a straight-line basis over 25 years.
The excess purchase price over the fair value of the assets acquired has
been allocated to goodwill. While the various synergies of the Orius/LISN
combination are readily identifiable, the company believes that these are not
reliably measurable and, accordingly, considers these to be elements of
goodwill.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
In addition to the recapitalization discussed in Note 3 and the Orius/LISN
transaction discussed in Note 5, Orius acquired twelve companies at various
times during 1998 and 1999 prior to the Orius/LISN transaction. The following
unaudited pro forma financial information represents the unaudited results of
operations as if the Orius/LISN transaction and the twelve Orius acquisitions
had occurred on January 1 of each year (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues.................................................... $508,386 $341,097
Net income (loss)........................................... 7,092 (10,600)
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the combination had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations.
F-21
<PAGE> 121
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $916,601 and $252,000 at December
31, 1999 and 1998, respectively. Included in accounts receivable at December 31,
1999 are unbilled receivables of $13,532,519 and retainage of $8,188,908.
The balances billed but not paid by customers pursuant to retaining
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, 1999 are
expected to be collected within the next twelve months. Unbilled accounts
receivable relate to the Company's unit based contracts and represent revenue
the Company is entitled to based upon the units delivered as of the balance
sheet date.
8. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Contracts totaling $174.5 million and $57.4 million were in process at
December 31, 1999 and December 31, 1998, respectively. Costs and estimated
earnings, and related billings on uncompleted projects at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts....... $107,039,766 $40,008,845
Billings to date............................................ 82,364,332 33,376,424
------------ -----------
Net costs and earnings in excess of billings................ $ 24,675,434 $ 6,632,421
============ ===========
Costs and estimated earnings in excess of billings.......... 27,098,079 7,025,078
Billings in excess of costs and estimated earnings.......... (2,422,645) (392,657)
------------ -----------
Net costs and earnings in excess of billings................ $ 24,675,434 $ 6,632,421
============ ===========
</TABLE>
9. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Land................................................... $ 519,250 $ 99,250
Building and improvements.............................. 3-39 years 7,026,897 2,152,599
Office equipment....................................... 3-6 years 5,598,133 1,027,062
Vehicles............................................... 5 years 9,558,244 903,581
Machinery and equipment................................ 10 years 23,539,784 482,515
----------- -----------
46,242,308 4,665,007
Less: accumulated depreciation......................... (1,842,677) (1,278,168)
----------- -----------
Property and equipment, net............................ $44,399,631 $ 3,386,839
=========== ===========
</TABLE>
Depreciation expense amounted to $606,767, $383,469 and $179,247 for the
years ended December 31, 1999, 1998 and 1997, respectively.
F-22
<PAGE> 122
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1999:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Accrued compensation & benefits............................. $19,761,433 $5,021,189
Accrued post acquisition adjustments........................ 8,570,441 --
Accrued interest............................................ 1,655,952 --
Other....................................................... 4,062,939 852,909
----------- ----------
$34,050,765 $5,874,098
=========== ==========
</TABLE>
Included in accrued liabilities are post acquisition adjustments related to
companies acquired by NATG prior to the Orius/LISN transaction. Pursuant to
certain of the purchase agreements, the Company will be required to give
additional consideration of cash and Orius common stock to the former acquired
company shareholders upon attainment of specified financial criteria over the
period ended December 31, 1999 and the year ended December 31, 2000. The amount
of cash and shares to be issued cannot be determined until the periods expire
and the attainment of the criteria is established. The Company accounts for this
additional consideration when the specified financial criteria are achieved and
it is probable it will be paid. At December 31, 1999, based upon the attainment
of fiscal 1999 targets for certain acquisitions, additional consideration of
$3.0 million has been recorded as additional purchase price and included as a
liability to the former stockholders of the acquired companies. If targets are
achieved in 2000, the Company may be obligated to pay additional consideration
of $2.9 million and issue up to 120,000 shares of common stock. Additionally, at
December 31, 1999, certain purchase price adjustments in the amount of
approximately $5.6 million related to 1999 acquisitions have also been recorded.
11. INVESTMENTS
During 1999, LISN purchased 49% interests in two telecommunications
infrastructure companies for aggregate consideration of $100,000. LISN also
entered into credit agreements totaling $1.15 million with these investees
pursuant to which LISN is committed to loaning funds for the investees' working
capital. The Company accounts for these investments under the equity method.
Losses of $468,000 were recorded as part of other expense for 1999 which
represented the Company's 49% interest in the losses of the investees and
charges associated with anticipated losses on loans made under the credit
agreement to one of the investees. The investment value at December 31, 1999 is
zero.
12. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
As of December 31, 1998, the Company had a line of credit which allowed it
to borrow up to $10.0 million. The line of credit expired in May 1999. There
were no borrowings on this line of credit as of December 31, 1998.
On May 28, 1999, in connection with the Recapitalization Agreement (see
Note 3), LISN entered into a new $100.0 million Credit Agreement with
BankBoston. N.A. ("BankBoston"). The balance due of $75.0 million plus accrued
interest of $1,689,522 was repaid in connection with the Orius/LISN transaction.
Unamortized deferred financing fees of $2,269,239 were written off resulting in
an extraordinary charge to income of $1,372,239, net of tax benefits of
$897,000.
The Company moved into a new building in Amherst, Ohio in January 1998. The
Company entered into a 15 year mortgage note for $1.2 million with an annual
fixed interest rate of 9%, and monthly principal payments of $6,911 plus
interest through March 16, 2013. The balance due on this debt was $1.2 million
as of December 31, 1998. The outstanding balance was repaid in connection with
the Orius/ LISN transaction.
F-23
<PAGE> 123
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 15, 1999, NATG entered into a new credit agreement with
Deutsche Bank Securities Inc., Bankers Trust and a syndication of banks. The new
credit agreement includes a revolving credit facility, in an aggregate amount
not to exceed $100 million at any time, maturing on December 15, 2004, and a
$275 million senior secured term loan credit facility. The term loan facility is
allocated among a $75 million Term loan A with a letter of credit facility,
maturing on December 15, 2004; and a $200 million Term loan B facility, maturing
on December 15, 2006. At December 31, 1999, the total letters of credit issued
under the $100 million revolving credit facility and the $75 million Term A loan
facility were approximately $9.3 million and $46.5 million, respectively.
Amounts under the revolving credit facility and Term loan A facility bear
interest, at NATG's choice, of either the Federal Funds Rate plus 0.50% or the
Eurodollar rate, in each case plus an applicable margin of 0.75% to 2.00% and
1.75% to 3.00%, respectively, determined on the most recent total debt to EBITDA
ratio. Amounts under Term loan B facility bear interest, at NATG's choice, of
either Bankers Trust Prime Rate or the Federal Funds Rate plus 0.50%, in either
case plus a margin of 2.50%. Loans made under the revolving credit facility and
the Term loan A facility are collateralized by a pledge of all of the assets of
the Company and its subsidiaries. The credit facility also contains affirmative
and negative covenants relating to NATG's operations.
On December 15, 1999, NATG also entered into a credit agreement with
various lending institutions for a $100 million senior subordinated bridge loan
(the Bridge Loan) maturing December 15, 2007. Amounts under the Bridge Loan bear
interest at the lower of LIBOR plus 6.5% or 16% per annum.
At December 31, 1999, long-term debt and capital lease obligations
consisted of the following:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Bank credit facilities:
Revolving credit facility, maturing on December 15, 2004;
interest rate of prime or Federal Funds Rate plus 0.50%
or Eurodollar Rate, plus a margin of 0.75% to 2.0% or
1.75% to 3.0%, respectively, determined based on the
most recent total debt to EBITDA ratio................. $ --
Term loan A, amortizing with final payment due December
15, 2004; interest rate of prime or Federal Funds Rate
plus 0.50% or Eurodollar Rate, plus a margin of 0.75%
to 2.0% or 1.75% to 3.0%, respectively, determined
based on the most recent total debt to EBITDA ratio.... 28,531,511
Term loan B, amortizing with final payment due December
15, 2006; interest rate of prime or Federal Funds Rate
plus 0.50%, in either case plus a margin of 2.5%....... 200,000,000
Senior subordinated bridge loan maturing December 15,
2007; interest rate of LIBOR plus 6.5%................. 100,000,000
Junior subordinated notes including accrued interest of
$671,505 maturing on the later of December 15, 2009 or
the first anniversary of the date on which any debt
raised in a high yield offering is repaid; See Note 12;
interest rate of 12%................................... 134,972,505
Other debt and capital lease obligations.................... 3,362,350
------------
Total debt and capital lease obligations.................... 466,866,366
Less current portion........................................ (5,505,387)
------------
Long-term debt.............................................. $461,360,979
============
</TABLE>
In order to manage its interest rate risk, the Company entered into
interest rate cap agreements with aggregate notional amounts of $68.9 million at
December 31, 1999. These agreements limit the Company's exposure to increases in
LIBOR over 8%. The premiums paid for the interest rate caps were deferred and
are being amortized over the life of the caps and recognized as interest
expense.
F-24
<PAGE> 124
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITAL LEASE OBLIGATIONS AND EQUIPMENT LOANS
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.
MATURITIES
At December 31, 1999, the estimated aggregate annual repayments for
long-term debt and capital lease obligations are as follows:
<TABLE>
<S> <C>
Maturities for fiscal years ending:
2,000..................................................... $ 5,505,387
2,001..................................................... 7,128,321
2,002..................................................... 8,280,205
2,003..................................................... 9,538,802
2,004..................................................... 11,441,146
Thereafter................................................ 424,972,505
------------
$466,866,366
============
</TABLE>
12. JUNIOR SUBORDINATED NOTES
On May 28, 1999, in connection with the Recapitalization Agreement, LISN
junior subordinated notes were issued for an aggregate principal balance of
$58.1 million in exchange for common stock. These notes bear interest at a rate
of 12% per annum compounded quarterly. On August 31, 1999, LISN issued an
additional $637,000 in junior notes in association with a private placement (see
Note 14).
In connection with the Orius/LISN transaction, these notes were exchanged
for $62.6 million of Orius junior subordinated notes representing the aggregate
unpaid principal and accrued interest outstanding at December 15, 1999.
In addition to the $62.6 million of junior subordinated notes exchanged
with the former LISN note holders, Orius junior subordinated notes were issued
to Orius management in the amount of $30.4 million in partial exchange for the
rollover of their equity value, and to new and existing investors in the amount
of $41.3 million in partial exchange for their cash investment.
The Orius junior subordinated notes bear interest at a rate of 12% per
annum. A maximum of 40% of the interest is payable in cash beginning January 15,
2001 and the remainder is deferred and accrues as additional principal. Cash
interest may be paid by Orius only to the extent Orius has available funds. NATG
is limited by the terms of its debt agreements as to the amount of dividends
which may be paid to Orius. In the event of default by Orius, the holders of the
junior notes are prohibited from seeking remedy against NATG until all senior
debt obligations are repaid.
13. LISN SERIES A PREFERRED STOCK
On May 28, 1999 the Company authorized 200,000 shares of Series A Preferred
Stock, par value $.01 per share. These shares bear interest at 12% per annum
paid in kind (no dividends to be received until liquidity event). These shares
rank senior to the common stock as to dividends and distributions upon the
Company's liquidation, winding up and dissolution. These shares are subordinated
to all of the Company's current and future liabilities and shall be redeemed on
December 31, 2019.
F-25
<PAGE> 125
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Orius/LISN transaction, these shares were converted
into shares of Orius Series C preferred stock and at December 31, 1999 no shares
of the Series A preferred stock remain outstanding.
14. PRIVATE PLACEMENTS OF LISN STRIPS
During 1999, LISN sold to its employees strips of its securities for
$10,000 each. Each strip consisted of 10.7586 shares of LISN's Company's Class B
common stock, 10.8306 shares of LISN's Series A preferred stock, and $7,000
principal 12% Junior Subordinated Notes. LISN raised $910,000 through these
sales resulting in the issuance of 979.03 shares of common stock and 985.58
shares of Series A preferred stock for $136,045 and $136,955, respectively.
15. SECURITIES SUBJECT TO PUT AND CALL ARRANGEMENTS
At December 31, 1999, securities subject to put and call arrangements are
as follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Securities subject to put and call arrangements:
Series B preferred stock.................................. $39,420,000
Redeemable common stock................................... 15,526,000
-----------
$54,946,000
===========
</TABLE>
As discussed in Notes 1 and 5, certain of the Orius securities are subject
to put and call arrangements whereby Orius Corp. has a call and the security
holders have a put. In March 2000, the Series B preferred stock and a portion of
the redeemable common stock were redeemed by Orius Corp. In connection with
those redemptions, NATG borrowed $41.1 million from its credit facilities and
paid Orius Corp. the funds. It is expected that the remainder of the redeemable
common stock will be retired by the Company in the first half of 2000 and NATG
will be required to fund that redemption through borrowings from its credit
facilities.
16. SERIES C REDEEMABLE PARTICIPATING PREFERRED STOCK
The Orius Series C participating preferred stock accrues dividends daily at
a rate of 12% per annum based on a liquidation value of $1,000 per share and
participates in any dividends paid to holders of the common stock. Upon a
liquidation of the Company, the holders of the Series C preferred stock would be
entitled to receive the liquidation value of their stock plus accrued and unpaid
dividends prior to any distributions to the holders of common stock. The Series
C preferred stock will be redeemed on December 31, 2019 at its purchase price,
plus accrued dividends and the liquidation value of the common stock into which
it is convertible.
Upon an initial public offering, the Series C preferred stock is
convertible at the option of the holders of a majority of the Series C preferred
stock into shares of Series D preferred stock and common stock. Each share of
Series C preferred stock is convertible into (1) a number of shares of Series D
preferred with a liquidation value equal to $1,000 plus accrued and unpaid
dividends on the Series C preferred stock, plus (2) a number of shares of common
stock equal to $1,000 divided by the conversion price of the Series C preferred
stock.
The Series D preferred stock is similar in rights and preferences to the
Series C preferred stock but is not convertible into common stock and is
redeemable by the company at any time. In addition, the holders of majority of
the Series D preferred stock can cause the company to redeem some or all of
their shares of Series D preferred stock at any time.
F-26
<PAGE> 126
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the total recorded value of the Series C preferred
stock has been determined based upon a purchase price of $1,000 per share,
accrued and unpaid dividends of $995,918 and a value per common share of $1.34.
The purchase price of $1,000 per share and the value per common share of $1.34
were based upon the values of the preferred and common stock purchased in
connection with the Orius/LISN transaction. Subsequent value per common share
and accretion will be adjusted quarterly based on the Company's performance,
recent transactions and comparable trading multiples.
The amount attributable to the accretion to the redemption value of the
Series C preferred stock of $78,816,000 is recorded as a direct reduction of
retained earnings and is a reduction of income available to common shareholders
and reflects the adjustment to the fair value of the preferred stock held by the
former LISN shareholders.
17. INCOME TAXES
The components of the provision for income taxes for the period ended
December 31, 1999 are:
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Current
Federal................................................... $2,866,250
State..................................................... 1,109,517
----------
3,975,767
----------
Deferred.................................................... 47,346
Federal................................................... 16,754
----------
State..................................................... 64,100
----------
Total tax provision............................... $4,039,867
==========
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their net financial reporting amounts that give rise to the
deferred liabilities and assets at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Accrued liabilities and reserves............................ $ 870,906
Other....................................................... 146,521
-----------
Total deferred tax assets................................... 1,017,427
-----------
Unbilled accounts receivable................................ 4,272,295
Accumulated depreciation and amortization................... 5,468,413
Reversal of cash basis...................................... 931,371
Contract differences........................................ 249,385
Other....................................................... 636,640
-----------
Total deferred tax liabilities.............................. 11,558,104
-----------
Net deferred tax liability.................................. $10,540,677
===========
</TABLE>
The expected provision for income taxes at the statutory Federal income tax
rate and the actual provision for the period ended December 31, 1999 differs due
primarily to the effects of state taxes and non-deductible goodwill
amortization.
18. PROFIT SHARING AND 401(k) PLANS
The Company has a profit sharing plan covering all eligible employees, as
defined in the plan, which provides, in part, for annual discretionary Company
contributions not to exceed the maximum amount allowable as a deduction for
income tax purposes. Company contributions, included in general and
F-27
<PAGE> 127
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
administrative expenses, were $1,050,000, $500,000 and $200,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
The Company has a 401(k) plan for all eligible employees. Effective with
the payroll dates after January 1, 1998, the Company contribution rate was 75%
of the first 5% of compensation contributed by the employee. Total Company
contributions amounted to $317,294, $221,501 and $61,685 for the years ended
December 31, 1999, 1998 and 1997, respectively.
19. STOCK OPTION PLAN
On July 19, 1999, the shareholders of the Company approved the Management
Equity Agreement Plan (the "Plan"). The Plan authorized the granting of stock
options for an aggregate of 3,398 shares of common stock to certain officers and
key employees of the Company at an option price of $138.96 which is the
estimated fair value on the effective date of the grant. The Options may be
exercised only to the extent they have vested. As long as an employee investor
remains employed by the Company or its Subsidiaries, 10% of such employee
investor's options will become vested annually on March 31 of each year for a
five year period commencing March 31, 2000 (each a "Vesting Date"). An
additional 10% of an employee investor's options may vest and become exercisable
on each Vesting Date, subject to achievement by the Company of target operating
performance levels for the Company's then most recently completed fiscal year,
which performance targets shall be determined annually in advance by the Board.
All remaining options shall vest and become exercisable on July 19, 2006 as long
as such employee investor has been and remains continuously employed by the
Company as of such date. Upon sale of the Company, all or any portion of the
options which have not previously vested shall become vested and exercisable
upon the occurrence of such event. The options shall expire on July 19, 2009, if
not earlier exercised. No options had vested as of December 31, 1999.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" for measuring compensation
expense. The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation". If the Company had adopted the measurement criteria for
calculating compensation expense prescribed by SFAS 123, there would have been
no effect on the Company's consolidated financial statements for the nine months
ended December 31, 1999.
In connection with the LISN/Orius transaction, these options were equitably
adjusted and converted into options of Orius common stock.
20. SEGMENTS
Prior to the Orius/LISN transaction on December 15, 1999, the Company
operated as one segment in the internal telecom service market providing
engineering, furnishing and installation of network equipment and related
components and maintenance services. Subsequent to the transaction and to
strategically manage its business, the Company has designated an additional
operating segment. The external telecom services segment provides installation,
design engineering and maintenance of fiber optic, coaxial and copper cable
networks for the telecom industry.
F-28
<PAGE> 128
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Identifiable assets for each operating segment at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Internal telecom services................................... $ 91,905,511
External telecom services................................... 152,597,325
------------
Total identifiable assets................................... 244,502,836
------------
Goodwill.................................................... 359,881,615
Corporate................................................... 17,593,381
------------
Total assets................................................ $621,977,832
============
</TABLE>
Revenues and operating income for the year ended December 31, 1999 are
primarily related to the internal telecom services operating segment.
21. COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies certain facilities under noncancelable lease
agreements classified as operating leases expiring at various dates through
fiscal 2002, some of which have options to renew. The Company also leases
certain vehicles and equipment under noncancelable operating agreements.
Aggregate rental expense was approximately $559,000 and $313,000 for the years
ended December 31, 1999 and 1998, respectively. Future minimum lease commitments
under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
For fiscal years ending:
2000...................................................... $ 2,967,589
2001...................................................... 2,562,525
2002...................................................... 2,431,040
2003...................................................... 2,282,787
2004...................................................... 1,712,527
Thereafter................................................ 382,307
-----------
$12,338,775
===========
</TABLE>
CREDIT LINES ISSUED TO INVESTEES
As discussed in Note 10, the Company has made loan commitments to two
investees. Any loans made pursuant to these commitments are exclusively for
working capital purposes. At December 31, 1999, open commitments under these
loan agreements total $890,000.
LITIGATION
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, it is expected that the
ultimate resolution of these matters will not have a material effect on the
Company's consolidated financial position or results of operations and cash
flows.
22. RELATED PARTY TRANSACTIONS
Certain subsidiaries of NATG 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 for the
period December 15, 1999 to December 31, 1999, was insignificant. Future minimum
F-29
<PAGE> 129
ORIUS CORP. AND SUBSIDIARIES (FORMERLY LISN HOLDINGS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lease commitments under these arrangements are $140,715 in 2000, $121,500 in
2001, $83,070 in 2002 and $33,768 in 2003.
23. SUBSEQUENT EVENTS
On January 31, 2000, the Company purchased Irwin Utilities of Texas, Inc.
for $16.8 million.
On February 9, 2000, NATG and Orius Capital Corp. (the "Issuers"), a wholly
owned subsidiary of NATG, issued $150 million of 12 3/4% Senior Subordinated
Notes due 2010 (the Notes). The proceeds from the Notes were used to repay the
Bridge Loan and a portion of the Senior Term B. The Notes are fully and
unconditionally guaranteed by the Company and all operating subsidiaries.
Because (i) the direct and indirect subsidiaries are wholly owned by the
Company, (ii) there are no nonguarantor direct or indirect subsidiaries, (iii)
the guarantees and all direct and indirect subsidiaries are full and
unconditional, and joint and several and (iv) management has determined that the
financial statements of the guarantors would not be material to investors,
financial information of the Issuers and the guarantor subsidiaries has not been
disclosed in these financial statements. Additionally, there are no significant
restrictions on the Issuers' ability to obtain funds from the subsidiaries by
dividend or loan.
During March 2000, Orius exercised its option to purchase $39.4 million of
its outstanding preferred stock and $1.7 million of its common stock. The funds
for the exercise of the call options were obtained from the Company's credit
facilities and the payment to Orius was reflected as a decrease in the Orius
Corp. securities subject to put and call arrangements.
On March 9, 2000, the Orius Board of Directors authorized a 10 for 1 stock
split. All share amounts presented in these financial statements have been
restated to reflect the split.
F-30
<PAGE> 130
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
of Orius Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, stockholders' equity (deficit) and
cash flows present fairly, in all material respects, the financial position of
Orius Corp. and its subsidiaries (formerly NATG Holdings, Inc.) at December 14,
1999 and December 31, 1998, and the results of their operations and their cash
flows for the year ended December 31, 1998 and the period ended December 14,
1999, in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the United States,
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
March 31, 2000
F-31
<PAGE> 131
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, LLC
Madison, Wisconsin
February 27, 1998
F-32
<PAGE> 132
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 14, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,513,136 $ 2,252,303
Accounts receivable, net.................................. 101,953,422 33,673,017
Inventory................................................. 13,966,393 9,542,743
Costs and estimated earnings in excess of billings, net... 10,340,896 --
Other current assets...................................... 4,932,153 852,481
------------ -----------
Total current assets.............................. 136,706,000 46,320,544
Property and equipment, net................................. 37,794,883 15,474,071
Goodwill, net............................................... 102,430,132 26,860,511
Deferred financing costs, net............................... 4,835,284 1,400,527
Other assets, net........................................... 4,583,608 917,986
------------ -----------
$286,349,907 $90,973,639
============ ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current portion of long term debt......................... $ 10,696,082 $ 5,864,268
Borrowings under credit facility.......................... 13,500,000 6,750,000
Accounts payable.......................................... 22,196,695 8,288,999
Accrued liabilities....................................... 20,049,076 5,889,749
Other liabilities......................................... 1,751,450 3,277,386
------------ -----------
Total current liabilities......................... 68,193,303 30,070,402
------------ -----------
Long term debt, less current portion........................ 157,848,906 42,649,585
Deferred income tax liability............................... 5,718,317 2,594,697
------------ -----------
Total liabilities........................................... 231,760,526 75,314,684
------------ -----------
Convertible preferred stock................................. 86,355,722 7,340,649
Value of redemption rights associated with junior
subordinated convertible note............................. 9,417,349 493,358
------------ -----------
95,773,071 7,834,007
------------ -----------
Stockholders' equity (deficit):
Warrants.................................................. 868,538 --
Common stock, par value $.01 per share; 51,804,555 shares
authorized; 14,437,509 and 10,897,151 shares issued and
outstanding at December 14, 1999 and December 31, 1998,
respectively........................................... 140 105
Additional paid-in capital................................ 31,483,834 7,427,745
Retained earnings (accumulated deficit)................... (73,536,202) 397,098
------------ -----------
Total stockholders' (deficit) equity.............. (41,183,690) 7,824,948
------------ -----------
Total liabilities and stockholders' (deficit)
equity......................................... $286,349,907 $90,973,639
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 133
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 14, 1999, AND DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CHANNEL
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Revenues............................................. $314,821,066 $81,550,425 $20,267,800
Expenses:
Direct costs....................................... 237,651,744 59,896,854 15,256,758
General and administrative......................... 39,721,043 8,645,007 2,260,758
Depreciation and amortization...................... 10,293,153 3,758,708 823,602
------------ ----------- -----------
Total operating expenses................... 287,665,940 72,300,569 18,341,307
------------ ----------- -----------
Income from operations..................... 27,155,126 9,249,856 1,926,493
Other expense (income):
Interest expense, net.............................. 14,006,556 2,507,395 (66,314)
Other income....................................... (173,317) (72,345) (69,812)
------------ ----------- -----------
Total other expenses....................... 13,833,239 2,435,050 (136,126)
------------ ----------- -----------
Income before provision from income taxes and
extraordinary item.............................. 13,321,887 6,814,806 2,062,619
Provision for income taxes........................... 6,133,638 3,328,290 (137,387)
------------ ----------- -----------
Income before extraordinary charge......... 7,188,249 3,486,516
Extraordinary charge for debt retirement, net of tax
benefit of $578,000................................ 770,000 -- --
------------ ----------- -----------
Net income........................................... $ 6,418,249 $ 3,486,516 $ 2,200,006
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 134
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 14, 1999 AND DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
CHANNEL
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 6,418,249 $ 3,486,516 $ 2,200,006
Adjustments to reconcile net income to net cash
(used in) operating activities:
Provision for uncollectible accounts............. 874,880 405,284 14,047
Depreciation and amortization.................... 10,293,153 3,758,708 823,602
Extraordinary Charge............................. 770,000 -- --
Amortization of deferred financing costs......... 636,502 166,919 --
Loss (gain) on disposal of assets................ -- 53,150 (13,705)
Deferred income tax benefit...................... 272,546 (307,439) (220,276)
Charge associated with stock compensation........ 5,814,000 -- --
Changes in assets and liabilities:
(Increase) in accounts receivable............. (40,727,147) (3,859,919) (2,982,762)
(Increase) in inventories..................... (3,593,650) (9,542,743) --
(Increase) in costs and estimated earnings in
excess of billings.......................... (6,701,936) -- --
(Increase) in other assets.................... (7,046,518) 114,337 95,673
Increase in accounts payable and accrued
liabilities................................. 16,845,962 2,318,033 (112,602)
(Decrease) in other liabilities............... (977,343) (641,807) (2,185,326)
------------- ------------ -----------
Net cash (used in) operating
activities............................. (17,121,302) (4,048,961) (2,381,343)
------------- ------------ -----------
Cash flows from investing activities:
Capital expenditures............................. (8,924,866) (3,923,200) (211,947)
Proceeds from the sale of assets................. -- 75,510 57,542
Collection on notes receivable from
stockholder................................... -- -- 548,614
Purchases of subsidiaries, net of cash acquired,
including payment to accounting acquiror in
1998.......................................... (93,644,558) (40,934,547) --
------------- ------------ -----------
Net cash (used in) investing
activities............................. (102,569,424) (44,782,237) 394,209
------------- ------------ -----------
Cash flows from financing activities:
Borrowings on notes payable and line of credit... 302,441,669 61,306,677 --
Principal payments on notes payable and line of
credit........................................ (184,012,666) (13,434,749) --
Amounts paid for deferred financing costs........ (5,449,944) (1,567,446) --
Distributions paid to stockholders............... -- (6,117) (2,593,439)
Proceeds from issuance of common stock........... 2,403,123 -- --
Proceeds from issuance of convertible preferred
stock, net of costs........................... 7,569,377 4,438,500 --
------------- ------------ -----------
Net cash provided by financing
activities............................. 122,951,559 50,736,865 (2,593,439)
------------- ------------ -----------
Net increase in cash and cash equivalents.......... 3,260,833 1,905,667 (4,580,573)
Cash and cash equivalents at beginning of year..... 2,252,303 346,636 4,927,209
------------- ------------ -----------
Cash and cash equivalents at end of year........... $ 5,513,136 $ 2,252,303 $ 346,636
============= ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................... $ 11,832,699 $ 2,306,701 $ 19,858
============= ============ ===========
Income taxes..................................... $ 6,109,426 $ 2,769,243 $ 2,185,326
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 135
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED DECEMBER 14, 1999 AND DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS STOCKHOLDERS'
----------------- ------------------- PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) (DEFICIT)
------ -------- ---------- ------ -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 275 $ 27,500 -- -- -- $ 386 $ 8,512,674 $ 8,540,560
Distributions................. (2,593,439) (2,593,439)
Net Income.................... 2,200,006 2,200,006
---- -------- ---------- ---- -------- ----------- ------------ ------------
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
acquiror.................... (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
Warrants issued............... 868,538 868,538
Common stock issued for
acquisitions................ 2,511,279 25 15,838,476 15,838,501
Other common stock
issuances................... 1,029,079 10 2,403,613 2,403,623
Charge associated with stock
compensation................ 5,814,000 5,814,000
Accretion associated with
junior subordinated
convertible note............ (8,923,991) (8,923,991)
Accretion associated with
junior convertible preferred
stock, including
dividends................... (71,427,558) (71,427,558)
Net income.................... 6,418,249 6,418,249
---- -------- ---------- ---- -------- ----------- ------------ ------------
Balance at December 14, 1999.... -- $ -- 14,437,509 $140 $868,538 $31,483,834 $(73,536,202) $(41,183,690)
==== ======== ========== ==== ======== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 136
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 14, 1999 AND DECEMBER 31, 1998 AND 1997
1. COMMENCEMENT AND NATURE OF OPERATIONS
North American Tel-Com Group, Inc. (NATG) was formed in 1997 to create a
nationwide provider of comprehensive telecom infrastructure services. Prior to
March 31, 1998, NATG had no substantive operations. As further discussed in Note
2, NATG entered into a series of transactions with four other companies on March
31, 1998 and NATG began its commercial operations (the Simultaneous Business
Combination). Also discussed in Note 2, NATG went through a reorganization
during 1999 that resulted in the formation of Orius Corp. and NATG became an
indirect wholly-owned subsidiary of Orius Corp. (the Reorganization).
Orius Corp. entered into a business combination with LISN Holdings, Inc. on
December 15, 1999. That transaction was accounted for as a reverse acquisition
purchase with LISN Holdings, Inc. being deemed the accounting acquiror. As a
result of the acquisition by LISN Holdings, Inc., the 1999 financial statements
present the operations for Orius Corp. and its subsidiaries (the Company) as of
and for the period ended December 14, 1999.
2. THE SIMULTANEOUS BUSINESS COMBINATION AND THE REORGANIZATION
THE SIMULTANEOUS BUSINESS COMBINATION
On March 31, 1998, NATG and several other parties simultaneously entered
into a series of transactions and agreements including: a new stockholders'
agreement; preferred stock coupled with a redemption agreement (Notes 9 and 10)
and a junior subordinated note (Note 8) was issued to HIG Cable, Inc. (HIG), a
subsidiary of HIG Capital Management; a credit facility and loan agreement were
entered; and four stock exchange agreements were entered. The result of these
transactions was the commencement of Orius' operations.
Pursuant to the new stockholders agreement and the four stock exchange
agreements, Channel Communications, Inc. (Channel); Cablemasters Corp.
(Cablemasters); Excel Cable Construction, Inc. (Excel); and Mich-Com Cable
Services Incorporated (Mich-Com) each exchanged its common stock for common
stock of NATG and cash. In accordance with APB Opinion No. 16, Channel was
deemed to be the accounting acquiror 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 $12.1 million
to the former Channel shareholders was accounted for as a reduction of Channel's
March 31, 1998 equity and no value was ascribed to the NATG shares of common
stock received by the former Channel shareholders.
The 1997 financial statements presented herein are those of Channel.
THE REORGANIZATION
At December 31, 1998, the organization consisted of eight subsidiaries
operating under NATG: Channel; Cablemasters; Excel; Mich-Com; U.S. Cable, Inc.
(U.S. Cable); CATV Subscriber Services, Inc. (CATV); Statewide CATV, Inc.
(Statewide); and Burn-Techs, Inc. (Burn-Techs). At December 31, 1998, the common
stock of NATG was owned by the former owners of these companies and certain
executive officers and founders of NATG. HIG Cable, Inc. owned all the
outstanding preferred stock.
On February 8, 1999, a reorganization 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 (NATG Holdings), a
Delaware limited liability company. Orius Corp. held all of the interest in NATG
Holdings. NATG Holdings formed a subsidiary, NATG Merger Sub., which was merged
with and
F-37
<PAGE> 137
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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. 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 Orius Corp. and its
subsidiaries, all of which are wholly-owned. All material intercompany accounts
and transactions 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. Significant estimates made in the preparation of these
financial statements include those related to the revenue recognized and costs
and expenses associated with contracts in process at period end, allowances for
doubtful accounts, and the estimated lives of long-lived assets. Actual results
could differ from those estimates and such differences may be material to the
financial statements.
REVENUES
Prior to the acquisitions made in 1999, substantially all of the Company's
revenues were earned from contracts that provided for payments for units
delivered by the Company. These contracts generally entitle the Company to
revenue for each unit completed. Accordingly, the Company accounts for revenue
and related costs associated with these types of contracts 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. The Company also receives
advances from customers related to certain of these contracts which are
reflected as deferred revenues on the balance sheet.
With the acquisitions discussed in Note 4, 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 price contracts, the Company recognizes revenue and the related costs
under the percentage-of-completion method. Revenues and earnings from these
contracts are recognized as the related costs are incurred based on the
relationship of costs incurred to total estimated contract costs. Costs and
estimated earnings in excess of billings for contracts-in-progress represents
revenue recognized but not yet billed. Billings in excess of costs and estimated
earnings represents billings on contracts for which costs have not yet been
incurred and revenue and earnings have not been recognized.
F-38
<PAGE> 138
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, NATG recognizes revenues from short-term contracts with
duration less than two weeks under the completed contract method. Billings and
costs are accumulated on the balance sheet, and no profit is recorded before
completion or substantial completion of the work.
At the time a loss on any contract becomes known, the entire amount of the
estimated loss is accrued.
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 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
returned, 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.
Substantially all of the Company's inventories can be used in multiple
contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments approximate their
recorded values due to the relatively short-terms of the instruments and the
floating interest rate of the Company's debt. CONCENTRATIONS OF CREDIT RISK
Substantially all of the Company's accounts receivable are due from
companies within the telecommunications industry located throughout the United
States. Credit is extended based on an evaluation of the customer's financial
condition and, generally, collateral is not required. Credit losses are provided
for in the consolidated financial statements.
The Company maintains various bank accounts and at times, amounts may be in
excess of FDIC insurance limits.
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
F-39
<PAGE> 139
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $3,321,242 and $766,953 for the fiscal
periods ending December 14, 1999 and December 31, 1998, respectively. The
intangible assets at December 14, 1999 and December 31, 1998 are net of
accumulated amortization of $4,088,196 and $766,953, respectively.
Deferred financing costs of $5,471,786 and $1,567,446 at December 14, 1999
and December 31, 1998, respectively, are being amortized over the term of the
related debt facility. For the period ended December 14, 1999 and December 31,
1998, $636,502 and $166,919, respectively, of amortization expense related to
these costs has been included in interest expense.
INCOME TAXES
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.
Prior to the transaction on March 31, 1998, the Company, with the consent
of its stockholder, has elected to be an S corporation under the Internal
Revenue Code. Therefore, no provision or liability for federal and state income
taxes has been included for these periods.
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
arrangements 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
applies APB Opinion No. 25 to its stock based compensation awards to employees
and properly discloses the required pro forma effect of applying SFAS No. 123 on
net income included in Note 15.
RECLASSIFICATIONS
Certain amounts presented in the prior year financial statements have been
reclassified to conform to the current year presentation.
4. ACQUISITIONS
Orius acquired seven companies during 1998 (excluding Channel) for total
consideration of $39.6 million plus transaction related expenses of $1.2
million. The cash paid for acquisitions totaled $27.6 million (net of cash
acquired of $3.0 million) and the value of the common stock issued totaled $11.8
million. Additionally, approximately $7.5 million of debt was assumed. All of
the 1998 acquisitions were accounted for as purchases and were included in the
Company's operations from the dates of acquisition. The total goodwill
associated with these transactions was approximately $27.6 million.
During 1999, five companies were acquired for total consideration of
$107.75 million plus transaction related expenses of $1.65 million.
Additionally, approximately $7.1 million of debt was assumed. Cash paid for the
four acquisitions totaled $91.9 million (net of cash acquired of $4.8 million)
and the value of common stock issued (2,511,279 shares) totaled $15.8 million.
The purchase price of each acquisition is subject to a customary purchase price
adjustment mechanism. All the 1999 acquisitions were accounted
F-40
<PAGE> 140
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for as purchases and were included in the results of operations from the date of
acquisition. The goodwill associated with the 1999 acquisitions totaled $78.9
million.
Pursuant to certain of the purchase agreements, the Company may be required
to give additional consideration of cash and Orius common stock to the former
acquired-company shareholders upon attainment of specified financial criteria
over the periods ended December 31, 1999 and the year ending December 31, 2000.
The amount of shares and cash to be issued cannot be determined until the
periods expire and the attainment of the criteria is established. The Company
accounts for this additional consideration when the specified financial criteria
are achieved and it is probable it will be paid. At December 14, 1999, based
upon the expected attainment of fiscal 1999 targets for certain acquisitions,
additional consideration of $1.5 million has been recorded as additional
purchase price and included as a liability to the former stockholders of the
acquired companies. If targets are achieved in 2000, the Company may be
obligated to pay additional consideration of $2.9 million and issue up to
120,000 shares of common stock.
Since its commencement of operations, the following acquisitions have been
made by Orius:
<TABLE>
<CAPTION>
ACQUISITION PRIMARY PRINCIPAL
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
Schatz Underground Cable...................... 2/26/99 Missouri Telecommunications
Copenhagen Utilities & Construction,.......... 2/26/99 Oregon Telecommunications
Das-Co of Idaho............................... 2/26/99 Idaho Telecommunications
Network Cabling Services...................... 2/26/99 Texas Network Services
Texel Corporation............................. 5/25/99 Virginia Network Services
</TABLE>
The following unaudited pro forma financial information represents the
unaudited pro forma results of operations as if the aforementioned acquisitions
completed during the periods ended December 31, 1998 and December 14, 1999 had
been completed on January 1, 1998. These pro forma results give effect to
increased interest expense for acquisition-related 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 and unaudited).
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 14, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues.................................................... $341,368 $264,740
Net income.................................................. $ 10,236 $ 9,777
</TABLE>
F-41
<PAGE> 141
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
At December 14, 1999, contracts accounted for using the
percentage-of-completion method totaling $89.7 million were in process. Costs
and estimated earnings, and related billings on uncompleted projects at December
14, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
Costs and estimated earnings on uncompleted contracts....... $41,189,851
Billings to date............................................ 30,848,955
-----------
Net costs and estimated earnings in excess of billings...... 10,340,896
===========
Costs and estimated earnings in excess of billings.......... 10,955,078
Billings in excess of costs and estimated earnings.......... (614,182)
-----------
Net costs and estimated earnings in excess of billings...... $10,340,896
===========
</TABLE>
6. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 14, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Contract billings........................................... $ 84,751,120 $23,673,522
Unbilled accounts receivable................................ 9,606,214 7,519,615
Retainage................................................... 8,197,404 2,818,579
------------ -----------
102,554,738 34,011,716
Less allowance for doubtful accounts........................ (601,316) (338,699)
------------ -----------
Accounts receivable, net.................................... $101,953,422 $33,673,017
============ ===========
</TABLE>
The balances billed but not paid by customers pursuant to retaining
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 14, 1999 are
expected to be collected within the next twelve months. Unbilled accounts
receivable relate to the Company's unit based contracts and represent revenue
the Company is entitled to based upon the units delivered as of the balance
sheet date.
7. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 14, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Land, building and leasehold improvements................... $ 4,247,324 $ 616,258
Vehicles.................................................... 13,823,791 12,957,646
Equipment and machinery..................................... 28,276,378 7,579,213
Office equipment, including furniture and fixtures, and
computer equipment and software........................... 5,367,356 770,931
------------ -----------
51,714,849 21,924,048
Less: accumulated depreciation............................ (13,919,966) (6,449,977)
------------ -----------
Property and equipment, net................................. $ 37,794,883 $15,474,071
============ ===========
</TABLE>
F-42
<PAGE> 142
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain subsidiaries of the Company have entered into lease arrangements
accounted for as capitalized leases. The carrying value of assets under capital
leases at December 14, 1999 and December 31, 1998 was $950,227 and $474,326, net
of accumulated depreciation of $283,895 and $76,628, respectively. Assets under
capital leases are included as a component of vehicles and equipment and
machinery.
8. DEBT AND CAPITAL LEASE OBLIGATIONS
BANK CREDIT FACILITY
<TABLE>
<CAPTION>
DECEMBER 14, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <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
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............. 13,500,000 --
Term loan, amortizing with final payment due April 1,
2003; interest rate of LIBOR or Federal Funds 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 plus
0.50%, in either case plus a margin of 2.375% or
0.876%, respectively................................... -- 18,950,000
Term loan A, amortizing with final payment due December 1,
2003; interest rate of LIBOR or Federal Funds 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.......................................... 92,400,000 --
Term loan B, amortizing with final payment due December 1,
2004; interest rate LIBOR on Federal Funds Rate plus
0.50%, in either case plus a margin of 3.75% or 2.75%,
respectively........................................... 57,600,000 --
Term loan C, amortizing with final payment due December 1,
2005; interest rate LIBOR on Federal Funds Rate plus
0.50%, in either case plus a margin of 5.00% or 4.00%,
respectively........................................... 14,231,464 --
Junior subordinated convertible note, due April 15, 2005,
interest rate of 9.00%................................. 1,150,000 1,063,750
Other debt and capital lease obligations.................. 3,163,524 875,103
------------ ------------
Total debt and capital lease obligations.......... 182,044,988 55,263,853
Less: current portion..................................... (24,196,082) (12,614,268)
------------ ------------
Long-term debt............................................ $157,848,906 $ 42,649,585
============ ============
</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, which was amended on May 24
and September 23, 1999, includes a $50.0 million revolving credit facility,
F-43
<PAGE> 143
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturing in five years, and a $168.5 million senior secured term loan credit
facility. The term loan facility is allocated among a $95.5 million Term A
facility, maturing on December 1, 2003; a $58 million Term loan B facility,
maturing of December 1, 2004; and a $15 million Term loan C facility, maturing
on December 1, 2005. NATG Holdings borrowed under the New Credit Agreement to
complete its acquisitions in February and May 1999 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 revolving credit facility and term loan facility bear
interest, at NATG Holdings' 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 the Term loan C facility. For
ABR loans, the margin is 2.00% for the revolving facility and Term loan A
facility, 2.75% for the Term loan B facility and 4.00% for the Term loan C
facility. Outstanding amounts under the revolving credit facility and term loan
facility are secured by substantially all of NATG Holdings' assets and the
pledge of all the outstanding shares of common stock of each of Orius' direct
and indirect subsidiaries, including NATG. The credit facility also contains
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.
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.
MATURITIES
At December 14, 1999, the estimated aggregate annual repayments for notes
payable and capital lease obligations are as follows:
<TABLE>
<S> <C>
Maturities for fiscal years:
2000...................................................... $ 24,196,082
2001...................................................... 24,348,597
2002...................................................... 27,073,905
2003...................................................... 26,905,927
2004...................................................... 48,861,646
Thereafter................................................ 30,658,831
------------
$182,044,988
============
</TABLE>
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).
The debt may be converted at any time, at the option of HIG or at the Company's
option upon an initial public offering, into 692,627 shares of the Company's
common stock. As further discussed in Note 10, 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
F-44
<PAGE> 144
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 14, 1999, the fair market value of
the common stock is estimated at $13.38 per share. Accordingly, the liability
for the Junior Convertible Note is recorded at $9,267,349. The amount
attributable to the accretion to the fair value of the converted common stock
for the periods ended December 14, 1999 and December 31, 1998 of $8,923,991 and
$493,358, respectively, is recorded as a reduction of retained earnings and on a
separate line in the balance sheet. The interest charge for the periods ended
December 14, 1999 and December 31, 1998 totaled $90,000 and $63,500,
respectively and was recorded as interest expense.
9. CONVERTIBLE PREFERRED STOCK
During 1998, The company issued 10,000 shares of Series A Convertible
Preferred Stock (Series A Preferred) to HIG for $4,438,500, net of $61,500 of
issue costs. The Series A Preferred has an 8% cumulative dividend, is
convertible to shares of Orius common stock, has full voting rights on an as-if
converted basis and its conversion is at the discretion of HIG. Further, HIG was
given certain redemption rights discussed in Note 10. In connection with the
Reorganization discussed above, the number of shares of common stock into which
the Series A Preferred was convertible was changed to 3,116,828. At December 14,
1999 and December 31, 1998, the total recorded value of the Series A Preferred
has been determined based upon the convertible common shares into which the
Series A Preferred was convertible as of those dates at $2.34 per common share
and $13.38 per common share, respectively. The 1998 per common share price was
based upon the pricing of the February 26, 1999 Series B Convertible Preferred
Stock discussed below and the value of the common stock used in the December 15,
1999 transaction with LISN Holdings, Inc. discussed in Note 19. The accretion to
estimated fair value and dividends during the periods ended December 14, 1999
and December 31, 1998 was $34,993,495 and $2,902,149, respectively.
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 3,252,290 shares of Orius Corp.
common stock. At December 14, 1999, the recorded value of the Series B Preferred
has been determined based upon the converted common shares of 3,252,290 at
$13.38 per share, or $43,515,640. The accretion to estimated fair value and
dividends from February 26, 1999 to December 14, 1999 totaled $36,434,063.
10. 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 Series A and Series B Preferred 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 of 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.
11. 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
F-45
<PAGE> 145
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the 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 $858,538 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.
12. ISSUANCE OF COMMON STOCK
On February 26, 1999, the Company issued to certain of its then existing
stockholders 1,029,079 shares of common stock in exchange for cash of
$2,403,623.
13. 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 periods ended
December 14, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Current
Federal................................................... $3,512,646 $2,912,700
State..................................................... 1,770,446 723,029
---------- ----------
5,283,092 3,635,729
---------- ----------
Deferred.................................................... 267,205 (555,460)
Federal................................................... 5,341 (82,213)
---------- ----------
State..................................................... 272,546 (637,693)
---------- ----------
Total tax provision............................... $5,555,638 $2,998,036
========== ==========
</TABLE>
F-46
<PAGE> 146
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The types of temporary differences between the tax bases of assets and
liabilities and their net financial reporting amounts that give rise to the
deferred liabilities and assets at December 14, 1999 and December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 525,750 $ 463,327
Other....................................................... 146,521 103,088
---------- ----------
Total deferred tax assets......................... 672,271 566,415
---------- ----------
Accumulated depreciation and amortization................... 5,718,307 1,893,553
Reversal of cash basis...................................... 931,371 1,267,559
Other....................................................... 886,025 --
---------- ----------
Total deferred tax liabilities.................... 7,535,703 3,161,112
---------- ----------
Net deferred tax liability........................ $6,863,432 $2,594,697
========== ==========
</TABLE>
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 14, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
AMOUNT % AMOUNT %
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Expected total tax at statutory rate.................... $3,753,360 35.0 $2,317,034 34.0
State taxes, net of federal benefit..................... 1,150,673 10.7 519,677 6.8
Nondeductible amortization.............................. 919,821 8.6 268,452 2.8
Other, net.............................................. (268,216) (2.5) (107,127) (1.5)
---------- ---- ---------- ----
$5,555,638 51.8 $2,998,036 42.1
========== ==== ========== ====
</TABLE>
14. 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.
15. STOCK OPTION PLANS
The Company has reserved 518,045 shares of common stock under its 1998
Incentive Stock Option Plan (the "Plan") which was approved by the stockholders
on March 30, 1998. The Plan provides for the granting of options to key
employees. Options are exercisable over a period of 10 years. A summary of the
status of the Plan as of December 14, 1999 and December 31, 1998 and the changes
during the years then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER EXERCISE
SHARES SHARE PRICE
------- ---------- --------
<S> <C> <C> <C>
Options granted............................................. 340,060 $4.83-8.69 $5.46
------- ---------- -----
Options outstanding, December 31, 1998...................... 340,060 4.83-8.69 5.46
------- ---------- -----
Options granted............................................. 366,820 6.76-8.69 7.37
Options forfeited........................................... 54,868 4.83-8.69 5.99
------- ---------- -----
Options outstanding, December 14, 1999...................... 652,012 $4.83-8.69 $6.55
======= ========== =====
</TABLE>
F-47
<PAGE> 147
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 period
ended December 31, 1998 had compensation cost been determined under the
provisions of SFAS 123 regarding the minimum fair value of each grant. For
purposes of this calculation in 1998, 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. There would have been no difference in net income for the
period ended December 14, 1999 because the Company accelerated the vesting of
all options in connection with the transaction discussed in Note 19. As a result
of the acceleration, compensation expense of $5,814,000 was recognized and that
amount would have been approximately the same under SFAS No. 123.
16. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The operating subsidiaries obtain contracts from both public and private
concerns. For the periods ended December 14, 1999 and December 31, 1998, and
1997 approximately 36%, 56%, and 72%, respectively, of the contract revenues
were from three customers (TCI, Time Warner, and MediaOne), with the largest
customer representing approximately 16% and 24%, for the two most recent
periods, respectively, of the contract revenues.
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 14, 1999 and December 31, 1998, the total
outstanding trade receivables from these customers was approximately $37.4
million and $13 million, respectively, or 38% and 50%, respectively, of the
Company's outstanding trade receivables.
17. 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 the
periods ended December 14, 1999 and December 31, 1998 and 1997, were
approximately $4,325,647, $1,183,300 and $352,913, respectively.
<TABLE>
<S> <C>
For fiscal years ending:
2000...................................................... $ 2,669,705
2001...................................................... 2,250,375
2002...................................................... 2,159,168
2003...................................................... 2,045,102
2004...................................................... 1,459,250
Thereafter................................................ 382,307
-----------
Total payments............................................ $10,965,907
===========
</TABLE>
18. 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 $1,145,747 during the period ended December 14, 1999. The future minimum
lease commitments under these arrangements are $700,814 in 2000, $365,140 in
2001, $329,140 in 2002 and 2003 and $55,028 in 2004.
F-48
<PAGE> 148
ORIUS CORP. AND SUBSIDIARIES (FORMERLY NATG HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SUBSEQUENT EVENTS
On December 15, 1999, the Company merged with LISN Holdings, Inc. In
connection with that transaction, all Orius common stock and common stock
equivalents (including the Series A and B Preferred Stock, Junior Convertible
Note and stock options) were either cashed out or exchanged for new securities
at an equivalent value of $13.38 per share. Additionally, all of the Orius debt
was retired.
F-49
<PAGE> 149
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, 1997 and June 30, 1998,
and the results of its operations and its cash flows for the year 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-50
<PAGE> 150
U.S. CABLE, INC.
BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,251,340 $ 2,069,038
Accounts receivable....................................... 2,426,636 3,771,432
Deferred billings......................................... 1,393,030 2,706,321
Inventory................................................. 315,112 204,609
Prepaid expenses.......................................... 105,678 81,133
Income tax receivable..................................... -- 574,211
----------- -----------
Total current assets.............................. 8,491,796 9,406,744
----------- -----------
Property and equipment, net................................. 1,465,180 1,079,415
----------- -----------
Other assets................................................ 235,111 176,255
----------- -----------
Total assets...................................... $10,192,087 $10,662,414
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 167,433 $ --
Accounts payable.......................................... 665,798 1,014,495
Accrued payroll and payroll taxes......................... 3,294,402 3,026,879
Accrued expenses.......................................... 74,351 30,918
Income taxes payable...................................... 103,389 --
----------- -----------
Total current liabilities......................... 4,305,373 4,072,292
----------- -----------
Long-term debt.............................................. 649,187 --
----------- -----------
Shareholders' equity:
Redeemable common stock, no par value, 40,000 shares
authorized; 36,720 (1997) and 27,356 (1998) shares
issued and outstanding................................. 901,541 1,904,022
Retained earnings......................................... 6,329,855 4,686,100
Less treasury stock, 16,267 (1997) shares at cost......... (1,993,869) --
----------- -----------
Total shareholders' equity........................ 5,237,527 6,590,122
----------- -----------
Total liabilities and shareholders' equity........ $10,192,087 $10,662,414
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 151
U.S. CABLE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Revenues.................................................... $16,111,159 $12,354,223
----------- -----------
Cost of revenues:
Materials................................................. 404,374 466,178
Subcontracting fees....................................... 6,299,154 5,006,676
Direct labor.............................................. 1,860,541 1,445,939
Overhead expenses......................................... 3,543,693 2,326,318
----------- -----------
Total cost of revenues............................ 12,107,762 9,245,111
----------- -----------
Gross profit................................................ 4,003,397 3,109,112
General and administrative expenses......................... 2,175,709 3,440,357
----------- -----------
Income (loss) from operations............................... 1,827,688 (331,191)
----------- -----------
Other (income) expenses:
Interest income........................................... (125,026) (134,320)
Interest expense.......................................... 58,885 30,150
Miscellaneous............................................. (22,738) (145,101)
----------- -----------
Total other (income).............................. (88,879) (249,271)
----------- -----------
Income (loss) before income taxes........................... 1,916,567 (81,974)
Provision (Benefit) for income taxes........................ 766,725 (19,598)
----------- -----------
Net income (loss)........................................... $ 1,149,842 $ (62,376)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE> 152
U.S. CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
AND THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)......................................... $1,149,842 $ (62,376)
---------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on investments, net.................................. (2,599) (29,629)
Gain on sale of equipment, net............................ (40,028) (70,947)
Depreciation.............................................. 458,508 334,187
Equity in earnings of affiliated company.................. (8,398) (20,259)
Deferred income tax provision............................. (25,000) 15,000
Changes in assets and liabilities
Accounts receivable.................................... 774,118 (1,344,796)
Deferred billings...................................... 650,560 (1,313,291)
Inventory.............................................. 71,361 110,503
Other assets........................................... 6,396 24,545
Accounts payable....................................... (421,080) 348,697
Accrued payroll and payroll taxes...................... 894,596 (267,523)
Accrued expenses....................................... (18,385) (43,433)
Income taxes payable/receivable........................ 78,569 (692,600)
---------- -----------
Total adjustment.................................. 2,418,618 (2,949,546)
---------- -----------
Net cash provided (used) by operating activities............ 3,568,460 (3,011,922)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (699,134) (493,830)
Proceeds from sale of property and equipment.............. 146,856 616,355
Proceeds from distributions of investment earnings........ 30,654 --
Proceeds from sale of investments......................... -- 120,049
Net increase in cash value of life insurance.............. (15,026) (11,305)
---------- -----------
Net cash (used in) provided by investing activities......... $ (536,650) $ 231,269
---------- -----------
Cash flows from financing activities:
Proceeds from borrowing on long-term debt................. 391,730 --
Principal payments on long-term debt...................... (561,999) (816,620)
Payments of dividends to shareholders..................... (207,392) (205,056
Sales of treasury stock................................... 1,132,328 1,620,027
Purchases of treasury stock............................... (391,730) --
---------- -----------
Net cash provided by financing activities................... 362,937 598,351
---------- -----------
Net decrease increase in cash and cash equivalent........... 3,394,747 (2,182,302)
Cash and cash equivalent --
Beginning of year......................................... 856,593 4,251,340
---------- -----------
Cash and cash equivalent --
End of year............................................... $4,251,340 $ 2,069,038
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE> 153
U.S. CABLE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 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, 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 (6,903) 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-54
<PAGE> 154
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
THE YEAR ENDED SEPTEMBER 30, 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 $288,770 and $607,200 as of September
30, 1997 and 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. 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.
F-55
<PAGE> 155
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
1997 1998
-------- -------
<S> <C> <C>
Cash paid during the year for:
Interest.................................................... $ 59,714 $49,732
======== =======
Income taxes................................................ $713,156 $83,791
======== =======
</TABLE>
F-56
<PAGE> 156
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 140,075 $ --
Buildings and improvements.................................. 414,903 --
Vehicles.................................................... 1,170,674 1,398,052
Construction equipment...................................... 848,179 885,981
Office equipment............................................ 117,477 68,701
----------- -----------
2,691,308 2,352,734
Accumulated depreciation.................................... (1,598,441) (1,614,133)
----------- -----------
Total............................................. $ 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 $19,026 at
September 30 1997. 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, 1997 consists of the following:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
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....................... $ 415,714
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% secured
by certain land........................................... 37,232
Promissory note to shareholder payable in monthly
installments of $1,032 including interest at 8.75% secured
by certain land........................................... 37,232
Promissory note to shareholder, payable in annual
installments of $65,288 plus interest (tied to the rate on
US Treasury Bills)........................................ 326,442
---------
Total............................................. 816,620
Less current portion........................................ (167,433)
---------
Total............................................. $ 649,187
=========
</TABLE>
NOTE 6 -- INCOME TAXES
The components of the provision for income taxes are:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- --------
<S> <C> <C>
Current:
Federal................................................... $664,369 $(20,676)
State..................................................... 127,356 (13,922)
-------- --------
791,725 (34,598)
Deferred.................................................... (25,000) 15,000
-------- --------
Total tax provision (benefit)............................... $766,725 $(19,598)
======== ========
</TABLE>
F-57
<PAGE> 157
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $38,937 for the year ended September 30, 1997, 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 $4,251,340 and
$2,069,038 at September 30, 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 year ended
September 30, 1997 and the period ended June 30, 1998 were $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, 1997 and June
30, 1998 were $3,475,362, and $6,102,784, and, respectively representing 91% and
94% of account receivable balance, respectively.
NOTE 11 -- DIVIDEND
The Board of Directors of the Company declared and paid the dividends of
$11 and $8 per share for the year ended September 30, 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.
F-58
<PAGE> 158
U.S. CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-59
<PAGE> 159
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of Das-Co of Idaho, Inc.:
In our opinion, the accompanying balance sheet and the related statements
of income, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Das-Co of Idaho, Inc. (the
"Company") at February 26, 1999, and the results of its operations and its cash
flows for the period January 1, 1999 through February 26, 1999 in conformity
with accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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
August 16, 2000
F-60
<PAGE> 160
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of Das-Co of Idaho, Inc.
In our opinion, the accompanying balance sheets and the related statements
of income, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Das-Co of Idaho, Inc. (the
"Company") at 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 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 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-61
<PAGE> 161
DAS-CO OF IDAHO, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
FEBRUARY 26, -----------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,498,988 $ 826,986 $ 283,383
Accounts receivable................................ 5,213,097 4,551,536 4,182,269
Unbilled accounts receivable for
contracts-in-process............................. 390,136 433,416 844,114
Inventory.......................................... 213,501 166,881 159,526
Other current assets............................... 19,087 3,213 59,412
----------- ---------- ----------
Total current assets.......................... 7,334,809 5,982,032 5,528,704
Property and equipment, net............................. 2,966,524 3,097,182 3,422,112
----------- ---------- ----------
Total assets.................................. $10,301,333 $9,079,214 $8,950,816
=========== ========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt.................. $ 175,780 $ 208,500 $ 206,180
Accounts payable................................... 2,359,590 1,258,516 683,810
Accrued liabilities................................ 205,482 115,662 127,982
Profit sharing contribution payable................ 16,667 100,000 100,000
Deferred revenue................................... -- 306,669 --
----------- ---------- ----------
Total current liabilities..................... 2,757,519 1,989,347 1,117,972
Long-term debt.......................................... 284,829 284,828 510,154
----------- ---------- ----------
Total liabilities............................. 3,042,348 2,274,175 1,628,126
----------- ---------- ----------
Contingencies and Commitments (Note 8).................. -- -- --
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 5,000
Retained earnings....................................... 7,259,292 6,805,346 7,322,997
----------- ---------- ----------
Total......................................... 7,264,292 6,810,346 7,327,997
Less treasury stock, at cost............................ (5,307) (5,307) (5,307)
----------- ---------- ----------
Total stockholders' equity.................... 7,258,985 6,805,039 7,322,690
----------- ---------- ----------
Total liabilities and stockholders' equity.... $10,301,333 $9,079,214 $8,950,816
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE> 162
DAS-CO OF IDAHO, INC.
STATEMENTS OF INCOME
FOR THE PERIOD AND YEARS ENDED:
<TABLE>
<CAPTION>
JANUARY 1, 1999
THROUGH DECEMBER 31,
FEBRUARY 26, -------------------------
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................. $5,292,295 $21,778,456 $19,126,148
---------- ----------- -----------
Costs and expenses:
Cost of revenues................................... 3,639,454 15,415,090 13,682,534
Selling, general and administrative................ 402,357 3,900,768 3,502,691
---------- ----------- -----------
Total...................................... 4,041,811 19,315,858 17,185,225
---------- ----------- -----------
Income from operations............................... 1,250,484 2,462,598 1,940,923
Other income (expense):
Interest income.................................... 9,121 86,981 62,683
Interest expense................................... (5,659) (42,914) (72,991)
Gain (loss) on disposal of assets.................. -- (4,238) 6,848
---------- ----------- -----------
Income before income tax provision................... 1,253,946 2,502,427 1,937,463
Provision for income taxes........................... -- -- --
---------- ----------- -----------
Net income................................. $1,253,946 $ 2,502,427 $ 1,937,463
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE> 163
DAS-CO OF IDAHO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
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
Net income............................... 1,253,946 1,253,946
Distributions............................ (800,000) (800,000)
----- ------ ----------- ------- -----------
Balance at February 26, 1999............. 5,000 $5,000 $ 7,259,292 $(5,307) $ 7,258,985
===== ====== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE> 164
DAS-CO OF IDAHO, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD AND YEARS ENDED:
<TABLE>
<CAPTION>
JANUARY 1, 1999
THROUGH DECEMBER 31,
FEBRUARY 26, -----------------------
1999 1998 1997
---------------- ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents from:
OPERATING ACTIVITIES:
Net income.......................................... $1,253,946 $2,502,427 $1,937,463
Adjustments to reconcile net cash provided by
operating activities:
Depreciation and amortization.................... 131,229 937,988 883,658
(Gain) loss on disposal of assets................ -- 4,238 (6,848)
Changes in assets and liabilities:
Accounts receivable.............................. (661,561) (369,267) (1,439,915)
Unbilled accounts receivable for
contracts-in-process........................... 43,280 410,698 (352,258)
Inventories...................................... (46,620) (7,355) (139,356)
Other current assets............................. (15,875) 56,199 (15,852)
Accounts payable................................. 1,101,074 574,706 30,677
Accrued liabilities.............................. 89,820 (12,320) 62,631
Deferred revenue................................. (306,669) 306,669 --
Other............................................ (83,902) -- --
---------- ---------- ----------
Net cash inflow from operating activities........... 1,504,722 4,403,983 960,200
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures............................. -- (1,014,322) (758,280)
Proceeds from sale of assets..................... -- 90,362 6,848
---------- ---------- ----------
Net cash outflow from investing activities.......... -- (923,960) (751,432)
---------- ---------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term debt............. (32,720) (223,006) (177,713)
Distributions.................................... (800,000) (2,713,414) (1,330,000)
---------- ---------- ----------
Net cash outflow from financing activities.......... (832,720) (2,936,420) (1,507,713)
---------- ---------- ----------
Net cash inflow (outflow) from all activities....... 672,002 543,603 (1,298,945)
Cash and cash equivalents at beginning of year...... 826,986 283,383 1,582,328
---------- ---------- ----------
Cash and cash equivalents at end of year............ $1,498,988 $ 826,986 $ 283,383
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest.............................. $ 4,448 $ 42,914 $ 72,991
Noncash investing and financing activities:
Distribution of equipment to stockholders........ $ -- $ 306,664 $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE> 165
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DAS-CO of Idaho, Inc. (the Company) is primarily engaged in the business of
installing underground utility, telephone, and cable transmission lines. The
Company is headquartered in Nampa, Idaho, and has offices in Twin Falls and
Pocatello, Idaho. The Company performs work under contracts with utility and
communications companies primarily in the Western United States.
On February 26, 1999 (the "acquisition date"), the Company was sold to
North American Tel-Com Group, Inc.(NATG) 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.
Subsequent to the acquisition date, the Company became part of the
consolidated group for federal income tax purposes.
F-66
<PAGE> 166
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
FEBRUARY 26, -----------------------
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Contract billings........................................ $4,385,190 $4,117,007 $4,180,459
Retainages............................................... 827,907 434,529 1,810
---------- ---------- ----------
Total.......................................... $5,213,097 $4,551,536 $4,182,269
========== ========== ==========
</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,
FEBRUARY 26, -------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Land and leasehold improvements....................... $ 282,400 $ 282,400 $ 267,601
Equipment and machinery............................... 5,083,807 5,149,400 5,224,075
Vehicles.............................................. 2,274,269 2,274,269 2,048,723
Office equipment...................................... 252,865 252,865 256,175
Computer equipment.................................... 128,337 128,337 134,337
----------- ----------- -----------
8,021,678 8,087,271 7,930,911
Less accumulated depreciation and amortization........ (5,055,154) (4,990,089) (4,508,799)
----------- ----------- -----------
Property and equipment, net........................... $ 2,966,524 $ 3,097,182 $ 3,422,112
=========== =========== ===========
</TABLE>
4. DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
FEBRUARY 26, ---------------------
1999 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Contract payable with monthly payments of $19,802,
including interest at 7.062%, due April 2001; equipment
is pledged as collateral................................ $ 460,609 $ 493,328 $ 704,606
Contract payable with monthly payments of $1,099,
including interest at 7.9%, due November 1998; equipment
is pledged as collateral................................ -- -- 11,728
--------- --------- ---------
460,609 493,328 716,334
Less current portion...................................... (175,780) (208,500) (206,180)
--------- --------- ---------
Total long-term debt...................................... $ 284,829 $ 284,828 $ 510,154
========= ========= =========
</TABLE>
At February 26, 1999, 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 (7.94% at February 26, 1999). The note was guaranteed
by the stockholders. There were no amounts outstanding at February 26,
F-67
<PAGE> 167
DAS-CO OF IDAHO, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999 and December 31, 1998 and 1997. As part of the acquisition, the line of
credit agreement was terminated.
Maturities of long-term debt at February 26, 1999 are as follows:
<TABLE>
<S> <C>
1999........................................................ $175,780
2000........................................................ 223,583
2001........................................................ 61,246
--------
$460,609
========
</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
$16,667, $100,000 and $100,000 for 1999, 1998 and 1997, respectively.
6. TRANSACTIONS WITH RELATED PARTY:
During 1999, 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. Rental expense for these leases
totalled $169,200, $155,000 and $28,124 for 1997, 1998 and 1999, respectively.
7. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
In 1999, revenues from two customers represented approximately 67% and 21%;
in 1998, revenues from three customers represented approximately 41%, 13%, and
12% of total revenue; and in 1997, revenues from three customers represented
approximately 50%, 16%, and 15% 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.
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.
9. SALE OF COMMON STOCK
On February 26, 1999 the Company's shareholders entered into a stock
exchange agreement with NATG. Pursuant to the agreement, 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 February
26, 1999 do not reflect the share exchange agreement.
F-68
<PAGE> 168
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Schatz Underground Cable, Inc. and Orius Corp.
We have audited the accompanying balance sheet of Schatz Underground Cable,
Inc. as of December 31, 1998 and 1997, and the related statements of income,
retained earnings and cash flows for the two years 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 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 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, 1998 and 1997, and the results of its operations and its
cash flows for the two years 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-69
<PAGE> 169
SCHATZ UNDERGROUND CABLE, INC.
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash (Note 12)............................................ $ 2,080,720 $ 917,337
Accounts receivable, trade (Notes 1, 4 & 11).............. 5,533,608 4,947,062
Inventory (Notes 1, 2 & 4)................................ 873,287 391,886
Prepaid expenses.......................................... 269,579 210,762
Deferred income tax benefit (Note 6)...................... 1,193,204 47,200
Prepaid income taxes...................................... -- --
----------- -----------
Total current assets.............................. 9,950,398 6,514,247
Property, plant and equipment (Notes 1 & 3)................. 7,483,645 6,858,690
Other assets (Note 1)....................................... 19,332 13,615
----------- -----------
Total assets...................................... $17,453,375 $13,386,552
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, line of credit (Note 4).................... $ -- $ --
Notes payable, current (Note 5)........................... 2,543,486 2,115,383
Accounts payable.......................................... 540,973 535,598
Accrued salaries.......................................... 3,672,358 473,300
Accrued income taxes...................................... 225,784 448,877
Other accrued expenses.................................... 268,775 200,469
Customer deposits......................................... 316,498 386,233
----------- -----------
Total current liabilities......................... 7,567,874 4,159,860
Notes payable, long-term (Note 5)........................... 4,182,397 3,829,194
Deferred income taxes (Note 6).............................. 163,769 186,000
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......................................... 5,530,943 5,203,106
----------- -----------
Total stockholders' equity........................ 5,539,335 3,211,498
----------- -----------
Total liabilities and stockholders equity......... $17,453,375 $13,386,552
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-70
<PAGE> 170
SCHATZ UNDERGROUND CABLE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues, net............................................... $31,254,221 $29,530,683
Direct costs................................................ 21,065,985 2,229,328
----------- -----------
Gross margin.............................................. 10,188,236 7,237,398
General and administrative expenses......................... 9,136,881 4,948,418
----------- -----------
Income from operations.................................... 1,051,355 2,288,980
Other income (expense):
Interest income........................................... 61,373 33,031
Other income.............................................. 34,699 56,104
Gain on sale of equipment................................. 41,249 (4,282)
Interest expense.......................................... (636,850) (582,709)
Total other expense....................................... (499,529) (497,856)
----------- -----------
Income before provision for income taxes.................. 551,826 1,791,124
Provision for income taxes (Note 6):
Current................................................... 1,392,224 728,420
Deferred.................................................. (1,168,235) (20,084)
----------- -----------
223,989 701,336
----------- -----------
Net income................................................ 327,837 1,082,788
Retained earnings, beginning of year........................ 5,203,106 4,120,318
----------- -----------
Retained earnings, end of year............................ $ 5,530,943 $ 5,203,106
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-71
<PAGE> 171
SCHATZ UNDERGROUND CABLE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 327,837 $ 1,082,788
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on disposal of property, plant and equipment...... (41,249) 4,282
Depreciation and amortization........................ 2,200,018 1,972,539
Deferred taxes....................................... (1,168,235) (20,084)
Changes in assets and liabilities:
Increase in accounts receivable................... (586,546) (43,572)
Increase in inventory............................. (481,401) 468,387
Increase in prepaid expenses...................... (58,817) (11,326)
Increase in prepaid income taxes.................. -- 28,209
Increase in other assets.......................... (5,717) (4,143)
Increase in accounts payable...................... 5,375 1,886
Increase in accrued expenses...................... 3,267,364 (226,840)
Decrease in customer deposits..................... (69,735) 35,895
Decrease in accrued income taxes.................. (223,093) 448,877
----------- -----------
Net cash provided by operating activities......... 3,165,801 4,059,959
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (2,917,848) (2,705,201)
Proceeds from sale of property and equipment.............. 134,124 32,890
----------- -----------
Net cash used by investing activities............. (2,783,724) (2,672,311)
----------- -----------
Cash flows from financing activities:
Payments on and proceeds from line of credit, net......... -- (1,225,000)
Loan proceeds -- long term................................ 2,223,266 4,860,170
Payments on long-term debt................................ (1,251,960) (4,111,675)
Payments to stockholder, net.............................. (190,000) (190,000)
----------- -----------
Net cash provided by (used for) financing
activities...................................... 781,306 (696,505)
----------- -----------
Net increase in cash........................................ 1,163,383 691,143
Cash, beginning of year..................................... 917,337 226,194
----------- -----------
Cash, end of year........................................... $ 2,080,720 $ 917,337
=========== ===========
Schedule of noncash investing and financing transactions:
Cost of property, plant and equipment purchased........... $ 2,944,135 $ 2,807,580
Net book value of trade-ins............................... (26,287) (102,739)
----------- -----------
Cash paid for property, plant and equipment....... $ 2,917,848 $ 2,705,201
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 636,850 $ 583,524
Income taxes........................................... 1,627,615 251,334
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-72
<PAGE> 172
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, 1998 and 1997.
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, 1998 and 1997, other assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deposits.................................................... $11,715 $13,615
Construction in progress.................................... 7,617 --
------- -------
$19,332 $13,615
======= =======
</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 $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 at 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.
F-73
<PAGE> 173
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 has been segregated to fund the
insurance company draws in connection with the health plan benefit discussed in
Note 1.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Work-in-process............................................. $865,046 $369,512
Materials................................................... 8,241 22,374
-------- --------
$873,287 $391,886
======== ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Trucks, automobiles, equipment and tools.................... $15,217,306 $13,311,204
Office furniture and equipment.............................. 216,662 156,592
Buildings and improvements.................................. 1,661,519 1,489,684
Land........................................................ 350,000 350,000
----------- -----------
17,445,487 15,307,480
Less accumulated depreciation............................... 9,961,842 8,448,790
----------- -----------
$ 7,483,645 $ 6,858,690
=========== ===========
</TABLE>
Depreciation expense was $2,200,018 for year ended December 31, 1998.
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.
F-74
<PAGE> 174
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 and 1997, no amount had been drawn against the
line-of-credit.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note payable, stockholder, payable in quarterly installments
of $47,500 plus interest at 9% Matures December 31,
2005...................................................... $1,330,000 $1,520,000
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............................................... 805,415 842,383
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................ 933,333 1,353,333
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.................... 700,000 1,000,000
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 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
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.... 60,446 75,438
---------- ----------
6,725,883 5,944,577
Less current portion........................................ 2,543,486 2,115,385
---------- ----------
$4,182,397 $3,829,194
========== ==========
</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.
F-75
<PAGE> 175
SCHATZ UNDERGROUND CABLE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company has a note payable with the stockholder as explained in Note 5.
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
$47,241 in matching contributions for the year ended December 31, 1998.
Under the plan, the Company can make discretionary contributions to the
plan. For the year ended December 31, 1998, no discretionary contributions were
made.
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 $26,221,856 for the year
ended December 31, 1998, representing 83.7% of total sales for the year.
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
$2,070,597 at December 31, 1998, which was insured for up to $100,000 by the
U.S. Federal Deposit Insurance Corporation.
F-76
<PAGE> 176
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
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 23, 1999
F-77
<PAGE> 177
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-78
<PAGE> 178
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-79
<PAGE> 179
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-80
<PAGE> 180
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-81
<PAGE> 181
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-82
<PAGE> 182
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>
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 1988, the Company elected to not
pursue the collection of the receivable due to costs associated with doing so.
F-83
<PAGE> 183
CATV SUBSCRIBER SERVICES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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-84
<PAGE> 184
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 $389,000 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-85
<PAGE> 185
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 EVENT
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-86
<PAGE> 186
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-87
<PAGE> 187
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of
TEXEL Corporation
In our opinion, the accompanying balance sheet and the related statement 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") at May 24, 1999, and the results of its operations and its cash flows
for the period from January 1, 1999 through May 24, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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
Washington, D.C.
June 11, 1999
F-88
<PAGE> 188
TEXEL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 24,
------------------------ -----------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $1,395,669 $ 3,144,841 $ 798,383
Accounts receivable...................................... 4,725,915 7,172,628 9,303,721
Costs in excess of billings on uncompleted contracts..... 177,080 644,353 616,624
Prepaid expenses......................................... 52,570 -- 5,168
---------- ----------- -----------
Total current assets............................. 6,351,234 10,961,822 10,723,896
Property and equipment, net................................ 195,395 920,046 1,039,447
---------- ----------- -----------
Total assets..................................... $6,546,629 $11,881,868 $11,763,343
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 757,528 $ 2,028,443 $ 1,357,170
Accrued expenses......................................... 414,636 618,298 550,118
Billings in excess of costs on uncompleted contracts..... 40,351 73,153 240,819
---------- ----------- -----------
Total current liabilities........................ 1,212,515 2,719,894 2,148,107
Deferred rent.............................................. -- 198,065 329,284
---------- ----------- -----------
Total liabilities................................ 1,212,515 2,917,959 2,477,391
---------- ----------- -----------
Shareholders' equity:
Common stock, par value $1.00, authorized 1,000 shares;
issued and outstanding 200 shares..................... 200 200 200
Retained earnings........................................ 5,333,914 8,963,709 9,285,752
---------- ----------- -----------
Total shareholders' equity....................... 5,334,114 8,963,909 9,285,952
---------- ----------- -----------
Total liabilities and shareholders' equity....... $6,546,629 $11,881,868 $11,763,343
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-89
<PAGE> 189
TEXEL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 1, 1999
DECEMBER 31, THROUGH
------------------------- MAY 24,
1997 1998 1999
----------- ----------- ---------------
<S> <C> <C> <C>
Contract and service revenue........................... $21,832,078 $29,648,953 $11,669,426
Cost of sales.......................................... 14,989,003 20,633,959 7,029,802
----------- ----------- -----------
Gross profit................................. 6,843,075 9,014,994 4,639,624
Selling, general and administrative expenses........... 1,265,074 1,862,802 745,253
----------- ----------- -----------
Income from operations....................... 5,578,001 7,152,192 3,894,371
Other (income) expense
Interest income...................................... (102,617) (127,621) 44,172
Other expense........................................ 101,730 88,145 (3,627)
----------- ----------- -----------
Net Income............................................. $ 5,578,888 $ 7,191,668 $ 3,934,916
=========== =========== ===========
Pro Forma Tax Provision (Unaudited):
Income before income taxes........................... $ 5,578,888 $ 7,191,668 $ 3,934,916
Pro forma provision for income taxes................. 2,120,000 2,732,800 1,495,250
----------- ----------- -----------
Total........................................ $ 3,458,888 $ 4,458,868 $ 2,439,666
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-90
<PAGE> 190
TEXEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 1, 1999
DECEMBER 31, THROUGH
------------------------- MAY 24,
1997 1998 1999
----------- ----------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 5,578,888 $ 7,191,668 $ 3,934,916
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 83,767 101,434 51,185
Changes in:
Accounts receivable............................. (735,921) (2,446,713) (2,549)
Prepaid expenses................................ (52,570) 52,570 (2,131,093)
Billings in excess of costs..................... 40,351 32,802 (5,168)
Accounts payable................................ 193,091 1,270,915 167,666
Accrued expenses................................ 30,805 203,662 (671,273)
Costs in excess of billings..................... (97,607) (467,273) (68,180)
Deferred rent................................... -- 198,065 27,729
----------- ----------- -----------
Net cash provided by operating activities.... 5,040,804 6,137,130 131,219
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (89,460) (826,085) 1,434,452
----------- ----------- -----------
Net cash used in investing activities........ (89,460) (826,085) (174,162)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to stockholder......................... (4,751,016) (3,561,873) 6,125
----------- ----------- -----------
Net cash used in financing activities........ (4,751,016) (3,561,873) (168,037)
----------- ----------- -----------
Increase in cash and cash equivalents.................. 200,328 1,749,172 (3,612,873)
Cash and cash equivalents, beginning of year........... 1,195,341 1,395,669 (3,612,873)
----------- ----------- -----------
Cash and cash equivalents, end of year................. $ 1,395,669 $ 3,144,841 $(2,346,458)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-91
<PAGE> 191
TEXEL CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND THE PERIOD ENDED MAY 24, 1999
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997......................... 200 $200 $ 4,506,042 $ 4,506,042
Net income....................................... -- -- 5,578,888 5,578,888
Distributions to shareholder..................... -- -- (4,751,016) (4,751,016)
--- ---- ----------- -----------
Balance at January 1, 1998......................... 200 200 5,333,914 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....................... 200 200 8,963,709 8,963,909
Net income....................................... -- -- 3,934,916 3,934,916
Distributions to shareholder..................... -- -- (3,612,873) (3,612,873)
--- ---- ----------- -----------
Balance at May 24, 1999............................ 200 $200 $ 9,285,752 $ 9,285,952
=== ==== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-92
<PAGE> 192
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.
Effective May 25, 1999 all of the Company's outstanding shares were sold to
Orius Corporation. See subsequent event Note 11.
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.
Included in accounts receivable are unbilled amounts which represent
revenue billable for completed contracts. Such amounts were billed within 60
days of year end.
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.
F-93
<PAGE> 193
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
</TABLE>
Leasehold improvements are amortized over the shorter of the life of the
lease or the life of the asset. Such periods generally approximate seven years.
Depreciation expense in 1997, 1998 and 1999 was $83,767, $101,434 and
$51,185 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, $11,246,000 and $4,159,000 in 1997, 1998 and
1999, respectively. These amounts represent sales to 2 customers in each year.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1997 and
1998 and May 24, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Contract billings................................... $4,261,637 $4,924,667 $ 54,984
Unbilled accounts receivable........................ 360,083 1,845,201 334,366
Retainage........................................... 44,012 345,424 19,628
Rebates and other................................... 60,183 57,336 26,549
---------- ---------- --------
Total..................................... $4,725,915 $7,172,628 $930,372
========== ========== ========
</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
and May 24, 1999 are expected to be collected within twelve months of year end.
F-94
<PAGE> 194
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consisted of the following at
December 31, 1997 and 1998 and May 24, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements............................. $ 3,413 $ 687,427 $ 687,427
Automobiles........................................ 345,061 424,502 551,242
Machinery and equipment............................ 292,938 338,392 316,630
Computer software.................................. 83,891 83,891 83,891
Furniture and fixtures............................. 50,598 67,774 87,300
--------- ---------- ----------
775,901 1,601,986 1,726,490
Less accumulated depreciation...................... (580,506) (681,940) (687,043)
--------- ---------- ----------
Property and equipment, net.............. $ 195,395 $ 920,046 $1,039,447
========= ========== ==========
</TABLE>
6. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts.................. $ 387,343 $ 2,673,895 $ 2,298,410
Billings on uncompleted contracts........................ (250,614) (2,102,695) (1,922,605)
--------- ----------- -----------
$ 136,729 $ 571,200 $ 375,805
========= =========== ===========
Costs in excess of billings on uncompleted contracts..... 177,080 644,353 616,624
Billings in excess of costs on uncompleted contracts..... (40,351) (73,153) (240,819)
--------- ----------- -----------
$ 136,729 $ 571,200 $ 375,805
========= =========== ===========
</TABLE>
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................................................. $ 231,076 $21,456 $ 252,530
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........ $2,409,792 $80,935 $2,492,187
========== ======= ==========
</TABLE>
F-95
<PAGE> 195
TEXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses were comprised of the following at December 31, 1997 and
1998 and May 24, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Salaries, wages and benefits............................ $196,244 $273,352 $38,570
Profit sharing.......................................... 115,304 177,399 --
Vacation accrual........................................ 49,448 59,012 7,149
Other................................................... 53,640 108,535 9,292
-------- -------- -------
Total......................................... $414,636 $618,298 $55,011
======== ======== =======
</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, 1998 and
1999 approximately $125,000, $177,000 and 0, 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 and $5,000 and
$15,000, respectively in 1999.
11. SUBSEQUENT EVENT
On May 25, 1999, the Company's sole shareholder sold all of the Company's
outstanding stock to Orius Corp. for cash and Orius common stock totaling
approximately $39 million.
F-96
<PAGE> 196
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Hattech, Inc.
We have audited the accompanying balance sheets of Hattech, Inc. as of
December 31, 1999, 1998 and 1997, and the related statements of income and
retained earnings and of cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hattech, Inc. as of December
31, 1999, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ OFFUTT CHILDERS & PUTMAN, P.C.
---------------------------------------------------------
Vienna, Virginia
August 16, 2000
F-97
<PAGE> 197
HATTECH, INC.
BALANCE SHEETS
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ (14,858) $ 3,668
Accounts receivable -- billed, net of allowance........... 3,447,129 5,952,939
Accounts receivable -- unbilled........................... 1,396,401 94,046
Notes receivable.......................................... 11,500 11,583
Notes receivable -- Stockholders.......................... -- 1,012,396
Inventory................................................. 1,520,521 1,031,206
Other current assets...................................... 136,535 12,431
---------- ----------
TOTAL CURRENT ASSETS................................... 6,497,228 8,118,269
INVESTMENT.................................................. -- 40,433
PROPERTY AND EQUIPMENT, net................................. 968,345 517,617
DEPOSITS.................................................... 12,995 11,564
---------- ----------
TOTAL ASSETS........................................... $7,478,568 $8,687,883
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................. $3,165,173 $1,098,364
Notes payable -- stockholders............................. 523,566 244,575
Capital lease obligations, current........................ 65,733 118,741
Accounts payable and accrued expenses..................... 566,899 1,588,486
Accrued salaries and related liabilities.................. 826,870 778,729
Accrued profit sharing contribution....................... 150,477 118,719
Deferred revenue.......................................... -- 785,714
---------- ----------
TOTAL CURRENT LIABILITIES.............................. 5,298,718 4,733,328
LONG TERM LIABILITIES
Capital lease obligations, noncurrent..................... 24,807 62,514
Deferred rent............................................. 41,326 27,649
---------- ----------
TOTAL LIABILITIES................................. 5,364,851 4,823,491
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 9,000 shares authorized, 304
shares issued and outstanding.......................... 3 3
Paid in capital........................................... 1,012,394 1,012,394
Retained earnings......................................... 1,101,320 2,851,995
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............................. 2,113,717 3,864,392
COMMITMENTS
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $7,478,568 $8,687,883
========== ==========
</TABLE>
(See notes to financial statements)
F-98
<PAGE> 198
HATTECH, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
QUARTERS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUE..................................................... $7,056,928 $6,931,505
---------- ----------
DIRECT EXPENSES
Labor..................................................... 1,603,921 1,453,067
Subcontractors............................................ 426,200 879,000
Materials................................................. 790,441 741,073
Meals, travel and lodging................................. 1,292,218 802,982
Other..................................................... 457,482 398,206
---------- ----------
TOTAL DIRECT EXPENSES.................................. 4,570,262 4,274,328
---------- ----------
GROSS PROFIT................................................ 2,486,666 2,657,177
---------- ----------
INDIRECT EXPENSES
Other indirect expenses................................... 2,387,997 1,755,417
Depreciation.............................................. 112,318 38,500
---------- ----------
TOTAL INDIRECT EXPENSES................................ 2,500,315 1,793,917
---------- ----------
Operating Income (Loss)..................................... (13,649) 863,260
---------- ----------
OTHER (INCOME) EXPENSES
Interest income........................................... -- --
Gain/loss on investment................................... -- --
Interest expense.......................................... 104,180 25,320
---------- ----------
TOTAL OTHER (INCOME) EXPENSES.......................... 104,180 25,320
---------- ----------
NET INCOME (LOSS)........................................... (117,829) 837,940
RETAINED EARNINGS, beginning of quarter..................... 1,219,149 2,014,055
STOCKHOLDER DISTRIBUTIONS................................... -- --
---------- ----------
RETAINED EARNINGS, end of quarter........................... $1,101,320 $2,851,995
========== ==========
</TABLE>
(See notes to financial statements)
F-99
<PAGE> 199
HATTECH, INC.
STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (117,829) $ 837,940
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 112,318 38,500
Changes in assets and liabilities:
Accounts receivable.................................. 1,585,567 (739,956)
Other current assets................................. (112,932) 36,757
Inventory............................................ 114,247 (408,677)
Deposits............................................. -- --
Accounts payable and accrued expenses................ (737,733) 457,407
Accrued salaries and related liabilities............. (479,322) 537,946
Accrued profit sharing contribution.................. 477 37,500
Deferred revenue..................................... (142,857) (214,286)
Deferred rent........................................ 3,417 3,417
----------- ---------
Net cash provided by operating activities......... 225,353 586,548
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable.............................. 4,000 (1,583)
Capital expenditures...................................... (56,169) (53,461)
----------- ---------
Net cash used in investing activities............. (52,169) (55,044)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in note payable -- line of credit................ (1,230,226) (501,223)
Principal payments under capital lease obligations........ (38,961) (27,359)
----------- ---------
Net cash used in financing activities............. (1,269,187) (528,582)
----------- ---------
NET INCREASE (DECREASE) IN CASH............................. (1,096,003) 2,922
CASH, beginning of quarter.................................. 1,081,145 746
----------- ---------
CASH, end of quarter........................................ $ (14,858) $ 3,668
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for interest................. $ 114,670 $ 43,920
=========== =========
</TABLE>
(See notes to financial statements)
F-100
<PAGE> 200
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company, without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. Accordingly, these unaudited financial statements and
related notes should be read in conjunction with the financial statements and
notes thereto included in this prospectus. Reported interim results of
operations are based in part on estimates, and are not necessarily indicative of
those expected for the year.
2. NOTES RECEIVABLE -- STOCKHOLDERS
The Company issued 154 shares of common stock in March 1999 in exchange for
notes receivable. The notes receivable were collected on December 30, 1999.
3. SUBSEQUENT EVENT
In May, 2000, the Company became a wholly owned subsidiary of Orius Corp.
F-101
<PAGE> 201
HATTECH, INC.
BALANCE SHEETS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 1,081,145 $ 746 $124,623
Accounts receivable -- billed, net of allowance........ 4,093,097 2,576,913 174,827
Accounts receivable -- unbilled........................ 2,336,000 2,730,116 112,280
Notes receivable....................................... 15,500 10,000 --
Inventory.............................................. 1,634,768 622,529 --
Other current assets................................... 23,603 49,188 --
----------- ---------- --------
Total current assets........................... 9,184,113 5,989,492 411,730
Investment............................................... -- 40,433 40,433
Property and equipment, net.............................. 1,024,494 502,656 --
Deposits................................................. 12,995 11,564 400
----------- ---------- --------
Total assets................................... $10,221,602 $6,544,145 $452,563
=========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.......................................... $ 4,395,399 $1,599,587 $147,904
Notes payable -- stockholders.......................... 523,566 244,575 --
Capital lease obligations, current..................... 92,957 114,957 --
Accounts payable and accrued expenses.................. 1,304,632 1,131,079 52,519
Accrued salaries and related liabilities............... 1,306,192 240,783 54,818
Accrued profit sharing contribution.................... 150,000 81,219 --
Deferred revenue....................................... 142,857 1,000,000 --
----------- ---------- --------
Total current liabilities...................... 7,915,603 4,412,200 255,241
Long term liabilities:
Capital lease obligations, noncurrent.................. 36,544 93,657 --
Deferred rent.......................................... 37,909 24,232 --
----------- ---------- --------
Total liabilities.............................. 7,990,056 4,530,089 255,241
----------- ---------- --------
Stockholders' equity:
Common stock, $.01 par value, 9,000 shares authorized,
304 and 150 shares issued and outstanding........... 3 1 1
Paid in capital........................................ 1,012,394 -- --
Retained earnings...................................... 1,219,149 2,014,055 197,321
----------- ---------- --------
Total stockholders' equity..................... 2,231,546 2,014,056 197,322
Commitments
----------- ---------- --------
Total liabilities and stockholders' equity..... $10,221,602 $6,544,145 $452,563
=========== ========== ========
</TABLE>
(See notes to financial statements)
F-102
<PAGE> 202
HATTECH, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Revenue................................................ $31,847,052 $20,279,804 $ 713,785
----------- ----------- ---------
Direct expenses
Labor................................................ 6,830,519 2,629,488 261,516
Subcontractors....................................... 3,349,390 6,710,977 24,277
Materials............................................ 3,710,892 2,351,472 --
Meals, travel and lodging............................ 5,065,561 1,514,481 152,664
Other................................................ 1,069,644 524,007 --
----------- ----------- ---------
Total direct expenses........................ 20,026,006 13,730,425 438,457
----------- ----------- ---------
Gross profit........................................... 11,821,046 6,549,379 275,328
----------- ----------- ---------
Indirect expenses
Other indirect expenses.............................. 10,622,163 4,482,074 164,415
Depreciation......................................... 274,868 111,475 12,318
----------- ----------- ---------
Total indirect expenses...................... 10,897,031 4,593,549 176,733
----------- ----------- ---------
Operating income....................................... 924,015 1,955,830 98,595
----------- ----------- ---------
Other (income) expenses
Interest income...................................... (50,093) -- --
Gain/loss on investment.............................. (9,567) -- 31,618
Interest expense..................................... 235,846 107,096 5,001
----------- ----------- ---------
Total other (income) expenses................ 176,186 107,096 36,619
----------- ----------- ---------
Net income............................................. 747,829 1,848,734 61,976
Retained earnings, beginning of year................... 2,014,055 197,321 235,345
Stockholder distributions.............................. (1,542,735) (32,000) (100,000)
----------- ----------- ---------
Retained earnings, end of year......................... $ 1,219,149 $ 2,014,055 $ 197,321
=========== =========== =========
</TABLE>
(See notes to financial statements)
F-103
<PAGE> 203
HATTECH, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 747,829 $ 1,848,734 $ 61,976
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization..................... 274,868 111,475 12,318
Bad debt expense.................................. 11,079 --
(Gain) loss on investment......................... (9,567) -- 31,618
Inventory reserve................................. 20,000 --
Changes in assets and liabilities:
Accounts receivable............................. (1,133,147) (5,019,922) (287,107)
Other current assets............................ 25,585 (49,188) --
Inventory....................................... (1,032,239) (622,529) --
Deposits........................................ (1,431) (11,164) (400)
Accounts payable and accrued expenses........... 173,553 1,078,560 42,997
Accrued salaries and related liabilities........ 1,065,409 185,965 54,818
Accrued profit sharing contribution............. 68,781 81,219 --
Deferred revenue................................ (857,143) 1,000,000 --
Deferred rent................................... 13,677 24,232
----------- ----------- ---------
Net cash used in operating activities........ (632,746) (1,372,618) (83,780)
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from investment............................. 50,000 -- 130,000
Increase in notes receivable......................... (5,500) (10,000) --
Capital expenditures................................. (750,649) (334,708) (12,318)
----------- ----------- ---------
Net cash (used in) provided by investing
activities................................. (706,149) (344,708) 117,682
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock...................... 1,012,396 -- --
Increase in note payable -- line-of-credit........... 2,795,812 1,496,338 153,249
Principal payments of long term debt................. -- (44,655) (5,345)
Principal payments under capital lease obligations... (125,170) (70,809) --
Increase in notes payable -- stockholders............ 278,991 244,575 --
Stockholder distributions............................ (1,542,735) (32,000) (100,000)
----------- ----------- ---------
Net cash provided by financing activities.... 2,419,294 1,593,449 47,904
----------- ----------- ---------
Net increase (decrease) in cash........................ 1,080,399 (123,877) 81,806
Cash, beginning of year................................ 746 124,623 42,817
----------- ----------- ---------
Cash, end of year...................................... $ 1,081,145 $ 746 $ 124,623
=========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............... $ 215,855 $ 88,496 $ 5,001
=========== =========== =========
</TABLE>
(See notes to financial statements)
F-104
<PAGE> 204
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1 -- ORGANIZATION AND BUSINESS
Hattech, Inc. (the Company) was incorporated in the Commonwealth of
Virginia on January 23, 1995. The Company provides engineering and installation
of telecommunications equipment services to customers throughout the United
States.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
For purposes of the statement of cash flows, cash consists of demand
deposits held in banks.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company believes it is not exposed to
any significant credit risk for amounts in excess of the insured limits.
ACCOUNTS RECEIVABLE
The Company maintains its books and records on the accrual basis of
accounting. Accounts receivable are reported at their gross value, less an
allowance for doubtful accounts as deemed necessary. The allowance for doubtful
accounts was $5,149 at December 31, 1999. There was no allowance for doubtful
accounts at December 31, 1998 and 1997. Unbilled accounts receivable consist
primarily of sales to customers which cannot be billed until the project is
substantially complete.
REVENUE RECOGNITION
Revenue on time and material contracts is recognized on the basis of
billable rates times hours delivered plus materials expense incurred. Revenue on
fixed-price contracts is recognized on the basis of percentage-of-completion
using a method which approximates costs incurred in relation to the estimated
costs. Losses on contracts are provided for in the period in which they are
first determined.
Because of inherent uncertainties in estimating costs, it is at least
reasonably possible that the estimates used will change within the near term.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. The Company's inventory is
comprised primarily of materials and cable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment under
capital leases are stated at the lower of the present value of minimum lease
payments at the beginning of the lease term or fair value of the property at the
inception of the lease.
Depreciation on property and equipment is calculated using the
straight-line and accelerated methods over the estimated useful lives of the
assets, generally 3 to 10 years. Property and equipment held under capital
leases which contain a bargain purchase option or transfer of ownership are
depreciated in the same manner described above. Leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
F-105
<PAGE> 205
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING 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.
INCOME TAXES
The Company elected to be taxed as an "S" Corporation effective January 1,
1996 under the Internal Revenue Code. Consequently, in lieu of corporate income
taxes, the stockholders are taxed on their proportionate share of the Company's
taxable income.
NOTE 3 -- INVESTMENT
The Company had a 42% interest as a general partner in a joint venture that
designed and installed telecommunication equipment for customers overseas. The
joint venture is reflected on the accompanying balance sheets at December 31,
1998 and 1997 using the equity method of accounting.
The Company and its partner in the joint venture were in litigation over
the value of the Company's interest in the joint venture. The litigation was
settled during 1999. As part of the settlement, the Company received $50,000 and
the joint venture was dissolved.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- -------
<S> <C> <C> <C>
Equipment................................................... $ 605,179 $247,756 $ 7,735
Computer equipment and software............................. 473,689 271,153 10,486
Furniture and fixtures...................................... 180,760 50,703 --
Building improvements....................................... 122,725 62,740 --
Vehicles.................................................... 46,057 -- --
---------- -------- -------
1,428,410 632,352 18,221
Less accumulated depreciation..................... 403,916 129,696 18,221
---------- -------- -------
$1,024,494 $502,656 $ --
========== ======== =======
</TABLE>
NOTE 5 -- NOTE PAYABLE
The Company has a line-of-credit with a bank which provides for borrowings
up to $7,500,000 ($5,000,000 at December 31, 1998 and $500,000 at December 31,
1997). Borrowings are limited to eligible accounts receivable and eligible
inventory, as defined in the Loan and Security Agreements. The current
line-of-credit matures on September 30, 2000. Borrowings bear interest at .5%
(1% at December 31, 1998 and 1.375% at December 31, 1997) above the prime rate
as published in the Wall Street Journal and are secured by all of the Company's
assets, assignment of life insurance policies on the stockholders, and deeds of
trust on the stockholders' residences. Borrowings are also guaranteed by the
Company's stockholders and their spouses. At December 31, 1999, 1998 and 1997,
$4,395,399, $1,599,587 and $103,249, respectively, were outstanding.
In addition, the Company had a $50,000 term loan as of December 31, 1997
with the same bank. The loan agreement was dated July 14, 1997 with the loan
maturing on July 14, 2000. The loan was to be
F-106
<PAGE> 206
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
repaid in 35 principal payments of $1,380 and one final principal and interest
payment of $1,713.99. Monthly payments of accrued interest were also due at a
rate of 1.375% over the prime rate (initial rate of 9.875%). The loan was
secured by all of the Company's assets, assignment of life insurance policies on
the stockholders and deeds of trust on the stockholders' residences. The term
loan was included in the $5,000,000 line-of-credit agreement executed in 1998.
NOTE 6 -- NOTES PAYABLE -- STOCKHOLDERS
The stockholders' loaned the Company funds during 1999 and 1998. The loans
are evidenced by notes that are unsecured and bear interest at 6% per annum. The
notes are subordinate to the line-of-credit described in Note 5.
The aggregate amount of notes payable to stockholders at December 31, 1999
and 1998 was $523,566 and $244,575, respectively.
Interest expense incurred during 1999 and payable to the stockholders' at
December 31, 1999 was $14,675. There was no interest expense incurred to the
stockholders during 1998.
NOTE 7 -- COMMON STOCK
There were no transactions affecting common stock in 1998. The following is
a summary of transactions affecting common stock during the year ended December
31, 1999:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN
SHARES AMOUNT CAPITAL
------ ------ ----------
<S> <C> <C> <C>
Balance, January 1, 1999.................................... 150 $1 $ --
Issuance of stock........................................... 154 2 1,012,394
--- -- ----------
Balance, December 31, 1999.................................. 304 $3 $1,012,394
=== == ==========
</TABLE>
The Company issued 154 shares of common stock in 1999 in exchange for notes
receivable. The notes receivable were collected on December 30, 1999
The Company issued 68 shares of common stock at par value ($.68) to the
current stockholders during 1997.
NOTE 8 -- LEASES AND COMMITMENTS
The Company is obligated under various capital leases for a vehicle,
computers and equipment that expire throughout the next four years. At December
31, 1999 and 1998, the gross amount of capital leases included in the Company's
property and equipment was as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Equipment................................................... $223,700 $223,700
Computer equipment and software............................. 55,723 55,723
Vehicle..................................................... 46,057 --
-------- --------
325,480 279,423
Less accumulated amortization............................. 146,476 51,419
-------- --------
$179,004 $228,004
======== ========
</TABLE>
F-107
<PAGE> 207
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has noncancellable operating leases for office and
warehouse facilities that expire over the next three years. Some of the
operating leases include scheduled rent escalations and also require the Company
to pay its proportionate share of building expenses as additional rent. The
aggregate cash payments for leases with rent escalations are being expensed
ratably over the related lease term resulting in deferred rent.
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments as of December 31, 1999
are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ -------- ----------
<S> <C> <C>
2000........................................................ $100,495 $ 597,463
2001........................................................ 20,335 473,799
2002........................................................ 10,739 470,544
2003........................................................ 8,055 --
-------- ----------
139,624 $1,541,806
==========
Less interest at rates ranging from 6.21% to 15.31%......... 10,123
--------
Present value of net minimum capital lease payments......... 129,501
Less current portion........................................ 92,957
--------
Obligations under capital leases, noncurrent................ $ 36,544
========
</TABLE>
The Company's rental expense for operating leases in 1999 and 1998,
including additional rent of $109,472 and $107,974, was $768,194 and $645,370,
respectively. Amortization of assets recorded under capital leases during 1999
and 1998 was $95,057 and $51,419, respectively, and is included in depreciation
expense.
The Company has the right to terminate its primary lease for office and
facilities space under certain conditions.
NOTE 9 -- CONCENTRATIONS
The Company was the primary provider of field engineering and installation
services for one of its customers. The Company also provided warehouse and
staging facility services for the customer. The services were provided pursuant
to a Services Agreement that commenced February 1, 1998 and terminated February
1, 2000.
Revenue generated from this customer comprised approximately 70%, 97% and
100% of total revenue for the years ended December 31, 1999, 1998 and 1997,
respectively. Approximately 58%, 90% and 100% of billed and unbilled accounts
receivable at December 31, 1999, 1998 and 1997, respectively, are due from this
customer.
Two other customers had balances that approximated 15% and 11% of total
accounts receivable at December 31, 1999.
The Company obtains the majority of its inventory from two suppliers.
Although no formal purchase agreement exists, the Company believes the
relationships will continue.
The Company has an agreement effective July 1, 1997 with a union that
covers approximately 39% of the Company's labor force in 1999. The agreement
terminates on June 30, 2002.
F-108
<PAGE> 208
HATTECH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- PROFIT SHARING
The Company amended its 401(k) Profit Sharing Plan (the Plan) in 1999 and
1998 to eliminate minimum age and length of service requirements. The Plan
allows eligible employees to defer a portion of their annual compensation,
subject to the limits in Section 401(k) of the Internal Revenue Code. The
Company, at its discretion, may make profit sharing contributions to the Plan.
Such contributions vest ratably over a five year period. The Company made profit
sharing contributions of $150,000 and $81,219 in 1999 and 1998, respectively.
NOTE 11 -- EMPLOYEE STOCK BASED COMPENSATION
The Company adopted an Employee Stock Based Compensation Agreement in
December 1999. The agreement entitles participants to receive compensation in
the form of "stock based compensation units," as defined in the agreement. The
board of directors, at its discretion, grants "stock based compensation units."
The agreement provides for ratable vesting over a five-year period.
The value of each "stock based compensation unit" is determined at the end
of each fiscal year through the year ending December 31, 2003, at which time the
final value of the "stock based compensation units" will be determined. The
value of each "stock based compensation unit" is determined by a formula defined
in the agreement.
In the event that there is a change in control transaction, as defined in
the agreement, prior to December 31, 2003, participants will be entitled to
receive their vested portion of the "stock based compensation units" within 60
days of the change in control. Participants that remain with the Company after a
change in control will continue to receive compensation equal to the amount they
would have received, on each vesting date, had there not been a change in
control.
The value of the "stock based compensation units" at December 31, 1999 was
$46,999 and is included in the accompanying financial statements as an expense
and a liability.
NOTE 12 -- 1998 FINANCIAL STATEMENTS RESTATED
Certain errors, resulting in the overstatement of reported net income in
the Company's previously issued 1998 unaudited financial statements, have been
corrected as a result of the audits for the years ended December 31, 1998 and
1997. The changes to retained earnings at December 31, 1997 and to the 1998
statement of income and retained earnings are summarized as follows:
<TABLE>
<CAPTION>
RETAINED
EARNINGS NET INCOME
-------- ----------
<S> <C> <C>
As previously reported...................................... $139,850 $1,906,205
Overstatement of revenues................................. 112,280 (112,280)
Overstatement of salaries................................. (54,809) 54,809
-------- ----------
As restated................................................. $197,321 $1,848,734
======== ==========
</TABLE>
NOTE 13 -- NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $46,057 and $279,423 were incurred in 1999 and
1998, respectively, when the Company entered into leases for a vehicle and
computer and office equipment.
F-109
<PAGE> 209
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
two 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-110
<PAGE> 210
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Orius Corp.:
In our opinion, the accompanying balance sheet and the related statements
of income, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Copenhagen Utilities &
Construction, Inc. (the "Company") at February 26, 1999, and the results of its
operations and its cash flows for the period January 1, 1999 through February
26, 1999, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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
September 11, 2000
F-111
<PAGE> 211
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998 AND FEBRUARY 26, 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 1,100,760 $ 1,638,845 $ 432,586
Short-term investments................................ 750,000 750,000 750,000
Accounts receivable, net.............................. 5,522,908 3,980,602 3,320,332
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. 2,438,416 2,217,739 1,990,349
Deferred income taxes................................. 16,000 21,000 21,000
Prepaid expenses and other current assets............. 76,300 105,938 91,560
Income taxes receivable............................... 94,103 94,103
----------- ----------- -----------
Total current assets.......................... 9,904,384 8,808,227 6,699,930
Vehicles, equipment and leasehold improvements, net..... 2,098,858 1,835,429 1,781,108
----------- ----------- -----------
Total assets.................................. $12,003,242 $10,643,656 $ 8,481,038
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 2,519,770 $ 1,300,495 $ 1,271,245
Accrued liabilities................................... 2,548,086 3,185,607 650,663
Long-term debt, current portion....................... 61,023 129,364 129,364
Billings in excess of costs and estimated earnings on
uncompleted contracts.............................. 780,404 250,437 278,032
----------- ----------- -----------
Total current liabilities..................... 5,909,283 4,865,903 2,329,304
Long-term debt.......................................... 835,277 28,032 2,423
----------- ----------- -----------
Total liabilities............................. 6,744,560 4,893,935 2,331,727
----------- ----------- -----------
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 50
Nonvoting; 90,000 shares authorized, 59,904 shares
issued and outstanding in 1997 and 1998, par
value $.02....................................... 1,198 1,198 1,198
Additional paid-in capital......................... 651,319 651,319
Retained earnings.................................. 5,257,434 5,097,154 5,496,744
----------- ----------- -----------
Total stockholders' equity.................... 5,258,682 5,749,721 6,149,311
----------- ----------- -----------
Total liabilities and stockholders' equity.... $12,003,242 $10,643,656 $ 8,481,038
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-112
<PAGE> 212
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 26, 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ----------
<S> <C> <C> <C>
Contract revenue......................................... $48,377,526 $35,191,894 $3,877,516
Contract costs........................................... 39,166,200 27,092,236 2,639,110
----------- ----------- ----------
Gross profit........................................ 9,211,326 8,099,658 1,238,406
General and administrative expenses...................... 6,888,750 8,541,112 634,467
----------- ----------- ----------
Income (loss) from operations....................... 2,322,576 (441,454) 603,939
----------- ----------- ----------
Other (income) expense:
Interest income........................................ (207,866) (238,701) (19,033)
Interest expense....................................... 43,126 68,882 8,795
(Gain) loss on disposal of assets...................... (3,238) (35,355) --
----------- ----------- ----------
(167,978) (205,174) (10,238)
----------- ----------- ----------
Income (loss) before income tax provision........... 2,490,554 (236,280) 614,177
Income tax provision (benefit)........................... 900,000 (76,000) 214,587
----------- ----------- ----------
Net income (loss)................................... 1,590,554 (160,280) 399,590
Retained earnings, beginning of year..................... 3,816,880 5,257,434 5,097,154
Dividends paid........................................... (150,000) -- --
----------- ----------- ----------
Retained earnings, end of period......................... $ 5,257,434 $ 5,097,154 $5,496,744
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-113
<PAGE> 213
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 26, 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 1,590,554 $ (160,280) $ 399,590
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 635,084 839,632 160,000
Gain on disposal of assets......................... (3,238) (35,355) --
Net changes in operating assets and liabilities:
Accounts receivables............................. 645,554) 1,542,306 660,280
Prepaid expenses and other current assets........ (21,264) (29,638) 14,378
Costs and estimated earnings in excess of
billings on uncompleted contracts............. (549,642) 220,677 227,390
Deferred income tax.............................. 11,000 (5,000) --
Billings in excess of costs and estimated
earnings on uncompleted contracts............. 180,963 (529,967) 27,595
Accounts payable................................. 2,550 (1,219,275) 29,250
Accrued liabilities.............................. 1,164,688 1,072,971 (2,534,944)
Income taxes payable (receivable)................ (259,754) (529,553) --
----------- ----------- -----------
Total adjustments............................. 514,833 1,326,798 (1,474,551)
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. 2,105,387 1,166,518 (1,074,961)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets...................... 23,300 38,500 --
Purchase of vehicles, equipment and leasehold
improvements....................................... (449,190) (464,648) (105,679)
Purchase of short-term investments.................... (750,000) -- --
----------- ----------- -----------
Net cash used in investing activities......... (1,758,190) (426,148) (105,679)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid........................................ (150,000) -- --
Contributions from shareholders....................... -- 109,085 --
Payments on long-term debt............................ (720,223) (311,370) (25,609)
----------- ----------- -----------
Net cash used in financing activities......... (870,223) (202,285) (25,609)
----------- ----------- -----------
Net increase (decrease) in cash............... 59,274 538,085 (1,206,259)
Cash at beginning of year............................... 1,041,486 1,100,760 1,638,845
----------- ----------- -----------
Cash at end of year..................................... $ 1,100,760 $ 1,638,845 $ 432,586
=========== =========== ===========
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................ $ 405,277 $ 114,700 --
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................ $ 1,148,754 $ 458,553 --
=========== =========== ===========
Cash paid for interest................................ $ 72,336 $ 51,290 --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
F-114
<PAGE> 214
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 and
February 26, 1999.
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.
Profits and losses from service and minor installation contracts are
recognized in the period the work is completed.
F-115
<PAGE> 215
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $16,521,016, $15,219,596 and
$1,648,875 for fiscal years 1997 and 1998 and the period January 1, 1999 through
February 26, 1999, which comprises approximately 34.2%, 43.5% and 42.5%,
respectively.
2. SHORT-TERM INVESTMENTS:
Short-term investments at December 31, 1997 and 1998 and February 26, 1999
consist of municipal bonds with an approximately 5.60% effective annual yield.
The market value of these investments approximated cost.
F-116
<PAGE> 216
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following at December 31, 1997 and 1998
and February 26, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Construction contracts............................. $4,134,239 $3,533,164 $3,021,724
Retainage on construction contracts................ 1,398,669 457,438 308,608
---------- ---------- ----------
5,532,908 3,990,602 3,330,332
Less allowance for uncollectible accounts.......... 10,000 10,000 10,000
---------- ---------- ----------
$5,522,908 $3,980,602 $3,320,332
========== ========== ==========
</TABLE>
Retainage billed but not due until contract completion is $1,398,669,
$457,438 and $308,608 at December 31, 1997 and 1998 and February 26, 1999,
respectively. 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 for the years
ended December 31, 1997 and 1998 and the period January 1, 1999 to February 26,
1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------- -------------------------- --------------------------
ESTIMATED ESTIMATED ESTIMATED
TOTAL CONTRACT TOTAL CONTRACT TOTAL CONTRACT
CONTRACT TO DATE CONTRACT TO DATE CONTRACT TO DATE
----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Contract costs....... $43,967,855 $30,758,952 $45,321,883 $ 42,768,316 $25,697,740 $ 16,293,513
Gross profit......... 6,403,291 3,318,369 9,450,258 9,111,308 4,266,046 3,146,683
----------- ----------- ----------- ------------ ----------- ------------
Contract revenue... $50,371,146 34,077,321 $54,772,141 51,879,624 $29,963,786 19,440,196
=========== =========== ===========
Less billings........ (32,419,309) (49,912,322) (17,727,879)
----------- ------------ ------------
Net
underbillings.... $ 1,658,012 $ 1,967,302 $ 1,712,317
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $2,438,416 $2,217,739 $1,990,349
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... (780,404) (250,437) (278,032)
---------- ---------- ----------
$1,658,012 $1,967,302 $1,712,317
========== ========== ==========
</TABLE>
F-117
<PAGE> 217
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. VEHICLES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Vehicles, equipment and leasehold improvements at December 31, 1997 and
1998 and February 26, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Construction vehicles and equipment.............. $5,633,278 $5,995,829 $6,101,508
Office furniture and equipment................... 338,780 500,407 500,407
Leasehold improvements........................... 126,786 126,786 126,786
---------- ---------- ----------
6,098,844 6,623,022 6,728,701
Less accumulated depreciation.................... 3,999,986 4,787,593 4,947,593
---------- ---------- ----------
$2,098,858 $1,835,429 $1,781,108
========== ========== ==========
</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 or February 26, 1999.
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 February 26, 1999.
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.
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 or February 26, 1999.
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997 and 1998 and
February 26, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <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 $131,787
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 -- --
-------- -------- --------
896,300 157,396 131,787
Less amount due within one year............................. 61,023 129,364 129,364
-------- -------- --------
$835,277 $ 28,032 $ 2,423
======== ======== ========
</TABLE>
F-118
<PAGE> 218
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, 1997 and 1998 and the period January 1, 1999 to February 26, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------------ ----------------------------------- ------------
CURRENTLY DEFERRED CURRENTLY DEFERRED CURRENTLY
PAYABLE PROVISION PAYABLE PROVISION PAYABLE
(RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE) (BENEFIT) TOTAL (RECEIVABLE)
------------ ---------- -------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Federal....................... $790,000 $ 8,000 $798,000 $(71,000) $ 2,000 $(69,000) $190,982
State......................... 99,000 3,000 102,000 (7,000) (7,000) 23,605
-------- ------- -------- -------- ------- -------- --------
$889,000 $11,000 $900,000 $(71,000) $(5,000) $(76,000) $214,587
======== ======= ======== ======== ======= ======== ========
Effective tax rate............ 36.1% (32.2)%
======== ========
<CAPTION>
1999
--------------------
DEFERRED
PROVISION
BENEFIT TOTAL
--------- --------
<S> <C> <C>
Federal....................... $-- $190,982
State......................... -- 23,605
-- --------
$-- $214,587
== ========
Effective tax rate............ 34.9%
========
</TABLE>
The income tax provision (benefit) result in effective rates which differ
from the statutory rate primarily due to the effect of state income taxes.
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 and February 26, 1999:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ ------------------------
AMOUNT OF DEFERRED AMOUNT OF DEFERRED AMOUNT OF DEFERRED
TEMPORARY INCOME TAX TEMPORARY INCOME TAX TEMPORARY INCOME TAX
SOURCES OF TEMPORARY DIFFERENCES DIFFERENCES EFFECT DIFFERENCES EFFECT DIFFERENCES EFFECT
-------------------------------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accrued insurance reserves...... $35,000 $12,000 $25,000 $10,000 $ 25,000 $10,000
Allowance for uncollectible
accounts receivable........... 10,000 4,000 10,000 4,000 10,000 4,000
State tax net operating losses
net of federal provision...... 165,000 7,000 165,000 7,000
------- ------- -------
Deferred income tax benefit..... $16,000 $21,000 $21,000
======= ======= =======
</TABLE>
Recoverable income taxes totaling $94,103 reported in the accompanying
December 31, 1998 and February 26, 1999 balance sheets result from federal and
state estimated tax payments which exceeded the Company's current income tax
obligations.
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, $1,719,100, $1,085,000 and $180,300 for 1997 and 1998 and for the
period January 1, 1999 through February 26, 1999, respectively. Rent expense
paid to a related party was $168,000 for each of the years ended 1997 and 1998
and $28,650 for the period January 1, 1999 to February 26, 1999.
F-119
<PAGE> 219
COPENHAGEN UTILITIES & CONSTRUCTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $683,000, $604,000 and $34,000
for 1997 and 1998 and the period January 1, 1999 through February 26, 1999,
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,
$64,000, $54,000, and $7,000 for the years ended December 31, 1997 and 1998 and
the period January 1, 1999 through February 26, 1999, 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 $4,035,000 and $5,218,500
during fiscal years 1997 and 1998, respectively. No bonuses were paid or accrued
for the period January 1, 1999 through February 26, 1999.
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 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-120
<PAGE> 220
(ORIUS LOGO)
<PAGE> 221
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by
Orius Corp., of the issuance and distribution of the securities being registered
hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $66,000
NASD filing fee............................................. 25,500
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses (including attorneys' fees and
expenses)................................................. *
Printing expenses........................................... *
Accounting fees and expenses................................ *
Transfer agent's fees and expenses.......................... *
Legal fees and expenses..................................... *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
---------------
* To be provided by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
General Corporation Law
We are incorporated under the laws of the State of Florida. Section
607.0850 of the Florida Business Corporation Act provides for indemnification of
a corporation's directors and officers for liabilities and expenses that they
may incur in such capacities. In general, directors and officers are indemnified
with respect to actions taken in good faith in a manner reasonably believed to
be in, or not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful.
The indemnification authorized under Florida law is not exclusive and is in
addition to any other rights granted to officers and directors under a
corporation's Articles of Incorporation or Bylaws or any agreement between
officers and directors and a corporation. Our Bylaws provide for the
indemnification of directors, former directors and officers to the maximum
extent permitted by Florida law. Our Bylaws also provide that we may purchase
and maintain insurance on behalf of a director or officer against liability
asserted against the director or officer in such capacity. Prior to the
consummation of this offering, we expect to enter into agreements that provide
for indemnification for our officers and directors in addition to the
indemnification provided for in our restated certificate of incorporation and
bylaws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
Registrant sold the following securities that were not registered under the
Securities Act. No underwriting discounts or commissions were paid in connection
with any of these sales.
The Registrant acquired Irwin Utilities of Texas in January 2000, Fenix
Communications, Inc. and Midwest Splicing & Activation, Inc. in April 2000 and
Hattech, Inc. in May 2000. As partial consideration for the purchase of these
companies, the Registrant issued the former owners shares of its common stock,
series C preferred stock and junior subordinated notes in the amounts set forth
below. These issuances
II-1
<PAGE> 222
were exempt from registration under Section 4(2) of the Securities Act as
transactions not involving a public offering.
<TABLE>
<CAPTION>
COMMON SERIES C JUNIOR SUBORDINATED
ACQUISITION STOCK PREFERRED NOTES
----------- ---------- --------- -------------------
<S> <C> <C> <C>
Irwin................................................. 269,052.30 2,128.76 $1,471,244.00
Fenix................................................. 114,347.21 904.72 625,278.70
Midwest Splicing...................................... 16,313.09 932.21 735,622.00
Hattech............................................... 33,685.08 2,086.85 1,669,861.94
</TABLE>
In January 2000, the Registrant sold Mr. Mercurio, the Registrant's
president and chief executive officer, 188,810 shares of its common stock for
$252,633, which was paid for by Mr. Mercurio through the issuance of a
promissory note, in a transaction exempt from registration under Section 4(2) of
the Securities Act as a transaction not involving a public offering.
In December 1999, the Registrant and LISN Holdings, Inc. entered into a
series of transactions that resulted in LISN becoming a wholly owned subsidiary
of the Registrant. In connection with the LISN acquisition, LISN's former
shareholders exchanged an aggregate amount of $62,642,399.34 of LISN's junior
subordinated notes, 90,879.51 shares of LISN's preferred stock and 90,275.69
shares of LISN's common stock for an aggregate of 11,455,629.8 shares of the
Registrant's class B common stock, 90,637.70 shares of the Registrant's series C
preferred stock and $62,642,399.34 in aggregate principal amount of the
Registrant's junior subordinated notes. These issuances were exempt from
registration under Rule 506 of Regulation D and under Section 4(2) of the
Securities Act. LISN's former shareholders also exchanged options to purchase
2,906 shares of LISN common stock for options to purchase an aggregate of
1,071,029 shares of the Registrant's class B common stock and 7,238 shares of
the Registrant's series C preferred stock. The issuance of these options was
made in reliance on Rule 701 under the Securities Act.
Also in connection with the LISN acquisition, the Registrant's shareholders
exchanged an aggregate of 13,856,473.34 shares of the Registrant's common stock
for an aggregate of 47,957.03 shares of the Registrant's series C preferred
stock, $33,144,527.87 in aggregate principal amount of the Registrant's junior
subordinated notes and $103,401,483.17 in cash. These issuances were exempt from
registration under Section 3(a)(9) of the Securities Act.
On May 24, 1999, as partial consideration for the acquisition of Texel
Corporation, the Registrant issued 1,030,335.03 shares of its common stock to
Texel's former shareholder. This issuance was exempt from registration under
Section 4(2) of the Securities Act as a transaction not involving a public
offering.
On February 26, 1999, an indirect subsidiary of the Registrant was merged
with and into North American Tel-Com Group, Inc. As a result of the merger,
North American Tel-Com became an indirect subsidiary of the Registrant. In the
merger, each issued and outstanding share of North American Tel-Com common stock
was converted into one-tenth of one share of the Registrant's common stock and
each issued and outstanding share of North American Tel-Com 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 North American Tel-Com common stock
were converted into 10,897,151 shares of the Registrant's common stock and
100,000 shares of North American Tel-Com series A preferred stock were converted
into 10,000 shares of the Registrant's series A preferred stock. These issuance
were exempt from registration under Section 4(2) of the Securities Act as a
transaction not involving a public offering.
In connection with the merger with North American Tel-Com, the Registrant
issued to HIG Cable West, Inc. 7,596.38 shares of the Registrant's series B
preferred stock for $7,596,380 in cash, or $1,000 per share, and issued
1,029,079 shares of its common stock to 18 of the employees of North American
Tel-Com for an aggregate sum of $2.4 million or $2.34 per share of common stock.
These issuance were exempt from registration under Section 4(2) of the
Securities Act as transactions not involving a public offering. The proceeds of
these offerings were used to complete additional acquisitions in February 1999,
as described below. The Registrant believes that the Section 4(2) exemption was
available based on the financial and other information provided to (or made
available to) the purchasers and the representations
II-2
<PAGE> 223
made by the purchasers in their subscription agreements as to their knowledge
and experience in financial and business matters, their ability to evaluate the
risks and merits of the prospective investment, the suitability of the
investment for them and their ability to bear the risks of the investment. All
purchasers represented that they purchased the shares for investment purposes
only and received share certificates that were legended to restrict
transferability except in compliance with the Securities Act.
Also on February 26, 1999, the Registrant consummated the acquisitions of
Network Cabling Services, Inc., Copenhagen Utilities & Construction, Inc. and
DAS-CO of Idaho, Inc. In connection with the acquisition of all of Network
Cabling's outstanding capital stock, the Registrant issued 300,000 shares of its
common stock to six former shareholders of Network Cabling. In connection with
the acquisition of all of Copenhagen Utilities' outstanding capital stock, the
Registrant issued 1,147,100.85 shares of its common stock to two former
Copenhagen Utilities shareholders as partial consideration for the purchase. In
connection with the acquisition of all of DAS-CO's outstanding capital stock,
the Registrant issued 37,003.27 shares of its common stock to a key employee of
DAS-CO. These issuances exempt were from registration under Section 4(2) of the
Securities Act as transactions not involving a public offering.
In connection with the February 1999 acquisitions, the Registrant entered
into a new credit facility and issued warrants to acquire 371,853.11 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 loan syndicate members included PNC Bank,
N.A., Merrill Lynch Capital Corporation, Magnetite Asset Investors LLC, Heller
Financial Inc. and Antares Capital Corp. These issuances were exempt from
registration under Section 4(2) of the Securities Act as transactions not
involving a public offering.
Between February of 1999 and December of 1999, the Registrant issued
options to purchase an aggregate of 652,012.15 shares of its common stock to its
employees, which were cashed-out in connection with the LISN acquisition. On
December 15, 1999, the Registrant issued options to purchase an aggregate of
35,000 shares of its common stock. These grants were exempt from registration
under Rule 701 under the Securities Act.
Between March 2000 and June 2000, the Registrant issued options to purchase
an aggregate of 970,944 shares of its common stock to its employees in reliance
on Rule 701 under the Securities Act.
Between March of 2000 and September 1, 2000, the Registrant issued 185,394
shares of its common stock and 1,253 shares of its series C preferred stock to
its employees upon the exercise of outstanding options in reliance on Rule 701
under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.**
2.1 -- Agreement and Plan of Reorganization, dated November 8,
1999, by and among Orius Corp., Orius Merger Sub., Inc.
and LISN Holdings, Inc.+
2.2 -- Amendment Number One to Agreement and Plan of
Reorganization, dated January 13, 2000, by and among
Orius Corp., Orius Merger Sub, Inc. and LISN Holdings,
Inc.+
3.1 -- Third Restated Articles of Incorporation of Orius Corp.**
3.2 -- Bylaws of Orius Corp.**
4.1 -- Indenture, dated February 9, 2000, by and among NATG
Holdings, LLC and Orius Capital Corp. (the "Issuers"),
the Guarantors named therein (the "Guarantors") and
United States Trust Company of New York, as trustee (the
"Trustee").+
</TABLE>
II-3
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2 -- Supplemental Indenture, dated April 14, 2000, by and
among the Issuers, Fenix Communications, Inc., Fenix
Limited Partnership, the other Guarantors and the
Trustee.+
4.3 -- Second Supplemental Indenture, dated July 11, 2000, by
and among the Issuers, Fenix Holdings, Inc., Fenix
Telecom Services Limited Partnership, Network
Comprehensive Telecom, L.P., Network Cabling Holdings,
Inc., Fenix Telecommunications Services, Inc., Irwin
Telecom Services, Inc., Midwest Splicing & Activation,
Inc., Hattech, Inc., the other Guarantors and the
Trustee.+
5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the
validity of the securities offered hereby.**
10.1 -- Amended and Restated Credit Agreement, dated July 5,
2000, among Orius Corp., NATG Holdings, LLC, Bankers
Trust Company, as Agent, and various lending
institutions, with Deutsche Bank Securities, as Lead
Arranger and Book Manager, Bank of America, N.A., as
Syndication Agent, and First Union National Bank, as
Documentation Agent.+
10.2 -- Orius Corp. Investor Rights Agreement, dated November 8,
1999, by and among Orius Corp., Willis Stein & Partners
II, L.P., Willis Stein & Partners Dutch, L.P., LISN
Holdings, Inc. and each of the other shareholders listed
on the signature pages thereto.+
10.3 -- 1999 Orius Management Equity Compensation Plan.+
10.4 -- 2000 Long-Term Equity Incentive Plan.**
10.5 -- Form of Incentive Stock Option Agreement.**
10.6 -- 2000 Employee Stock Purchase Plan.**
10.7 -- Employment Agreement, dated December 14, 1999, by and
between Orius Corp. and Joseph P. Powers.+
10.8 -- Employment Agreement, dated December 14, 1999, by and
between Orius Corp. and Robert Agres.+
10.9 -- Senior Management Agreement, dated November 8, 1999, by
and between Orius Corp. and William J. Mercurio.+
10.10 -- Employment Agreement, dated May 28, 1999, by and between
Donald J. Vanke and LISN, Inc.+
10.11 -- Employment Agreement, dated June 30, 1998, by and between
William G. Mullen and U.S. Cable, Inc., as amended
pursuant to a Letter Agreement, dated September 24,
1999.+
10.12 -- Consulting Agreement, dated May 30, 2000, between Orius
Corp. and Jack E. Reich.+
10.13 -- Promissory Note, dated January 16, 2000, issued to
William J. Mercurio to Orius Corp.+
21.1 -- Subsidiaries of Orius Corp.**
23.1 -- Consent of PricewaterhouseCoopers LLP.*
23.2 -- Consent of Milhouse, Martz & Neal L.L.P.*
23.3 -- Consent of Williams, Young, LLC.*
23.4 -- Consent of Offutt Childers & Putman, P.C.*
23.5 -- Consent of Akerman, Senterfitt & Eidson (included in
Exhibits 5.1).*
</TABLE>
II-4
<PAGE> 225
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
24.1 -- Power of Attorney.*
</TABLE>
---------------
* Filed herewith.
** To be filed by amendment.
+ This exhibit is incorporated by reference to Orius Corp.'s Registration
Statement on Form S-4, File No. 333-36952, originally filed with the SEC on
May 12, 2000. Orius Corp. agrees to furnish supplementally to the Commission
a copy of any omitted schedule or exhibit to such agreement upon request by
the Commission.
(b) Financial Statement Schedules.
The following financial statement schedules are included in this
Registration Statement:
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore has been
omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933 (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrants
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants 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 registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Orius Corp. has
duly caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of West Palm Beach,
State of Florida, on September 18, 2000.
Orius Corp.
By: /s/ WILLIAM J. MERCURIO
----------------------------------
William J. Mercurio
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 and Power of Attorney have been signed by the
following persons in the capacities on September 18, 2000.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<C> <S>
/s/ WILLIAM J. MERCURIO President and Chief Executive Officer,
--------------------------------------------- Director (Principal Executive Officer)
William J. Mercurio
* Chief Financial Officer (Principal Financial
--------------------------------------------- and Accounting Officer)
Robert E. Agres
* Director
---------------------------------------------
Donald J. Vanke
* Director
---------------------------------------------
Gregory M. Barr
* Director
---------------------------------------------
Robert C. Froetscher
* Director
---------------------------------------------
Jack E. Reich
* Director
---------------------------------------------
Avy H. Stein
By: /s/ WILLIAM J. MERCURIO
---------------------------------------------
William J. Mercurio
Attorney in Fact
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement on Form S-1 pursuant to the Power of Attorney
executed by the above-named officers and directors of the Registrant and
previously filed with the Commission.
II-6
<PAGE> 227
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.**
2.1 -- Agreement and Plan of Reorganization, dated November 8,
1999, by and among Orius Corp., Orius Merger Sub., Inc.
and LISN Holdings, Inc.+
2.2 -- Amendment Number One to Agreement and Plan of
Reorganization, dated January 13, 2000, by and among
Orius Corp., Orius Merger Sub, Inc. and LISN Holdings,
Inc.+
3.1 -- Restated Articles of Incorporation of Orius Corp.**
3.2 -- Bylaws of Orius Corp.**
4.1 -- Indenture, dated February 9, 2000, by and among NATG
Holdings, LLC and Orius Capital Corp. (the "Issuers"),
the Guarantors named therein (the "Guarantors") and
United States Trust Company of New York, as trustee (the
"Trustee").+
4.2 -- Supplemental Indenture, dated April 14, 2000, by and
among the Issuers, Fenix Communications, Inc., Fenix
Limited Partnership, the other Guarantors and the
Trustee.+
4.3 -- Second Supplemental Indenture, dated July 11, 2000, by
and among the Issuers, Fenix Holdings, Inc., Fenix
Telecom Services Limited Partnership, Network
Comprehensive Telecom, L.P., Network Cabling Holdings,
Inc., Fenix Telecommunications Services, Inc., Irwin
Telecom Services, Inc., Midwest Splicing & Activation,
Inc., Hattech, Inc., the other Guarantors and the
Trustee.+
5.1 -- Opinion of Akerman, Senterfitt & Eidson regarding the
validity of the securities offered hereby.**
10.1 -- Amended and Restated Credit Agreement, dated July 5,
2000, among Orius Corp., NATG Holdings, LLC, Bankers
Trust Company, as Agent, and various lending
institutions, with Deutsche Bank Securities, as Lead
Arranger and Book Manager, Bank of America, N.A., as
Syndication Agent, and First Union National Bank, as
Documentation Agent.+
10.2 -- Orius Corp. Investor Rights Agreement, dated November 8,
1999, by and among Orius Corp., Willis Stein & Partners
II, L.P., Willis Stein & Partners Dutch, L.P., LISN
Holdings, Inc. and each of the other shareholders listed
on the signature pages thereto.+
10.3 -- 1999 Orius Management Equity Compensation Plan.+
10.4 -- 2000 Long-Term Equity Incentive Plan.**
10.5 -- Form of Incentive Stock Option Agreement.**
10.6 -- 2000 Employee Stock Purchase Plan.**
10.7 -- Employment Agreement, dated December 14, 1999, by and
between Orius Corp. and Joseph P. Powers.+
10.8 -- Employment Agreement, dated December 14, 1999, by and
between Orius Corp. and Robert Agres.+
10.9 -- Senior Management Agreement, dated November 8, 1999, by
and between Orius Corp. and William J. Mercurio.+
10.10 -- Employment Agreement, dated May 28, 1999, by and between
Donald J. Vanke and LISN, Inc.+
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 -- Employment Agreement, dated June 30, 1998, by and between
William G. Mullen and U.S. Cable, Inc., as amended
pursuant to a Letter Agreement, dated September 24,
1999.+
10.12 -- Consulting Agreement, dated May 30, 2000, between Orius
Corp. and Jack E. Reich.+
10.13 -- Promissory Note, dated January 16, 2000, issued to
William J. Mercurio to Orius Corp.+
21.1 -- Subsidiaries of Orius Corp.**
23.1 -- Consent of PricewaterhouseCoopers LLP.*
23.2 -- Consent of Milhouse, Martz & Neal L.L.P.*
23.3 -- Consent of Williams, Young, LLC.*
23.4 -- Consent of Offutt Childers & Putman, P.C.*
23.5 -- Consent of Akerman, Senterfitt & Eidson (included in
Exhibits 5.1).*
24.1 -- Power of Attorney.*
</TABLE>
---------------
* Filed herewith.
** To be filed by amendment.
+ This exhibit is incorporated by reference to Orius Corp.'s Registration
Statement on Form S-4, File No. 333-36952, originally filed with the SEC on
May 12, 2000. Orius Corp. agrees to furnish supplementally to the Commission
a copy of any omitted schedule or exhibit to such agreement upon request by
the Commission.
