<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______________ to ________________
Commission file number 0-24334
AMERILINK CORPORATION
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1409345
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1900 E. DUBLIN-GRANVILLE ROAD, COLUMBUS, OHIO 43229
----------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(614) 895-1313
-----------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
----- -----
4,531,174 shares of Common Stock were outstanding as of February 2, 1999
<PAGE>
AMERILINK CORPORATION
QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 27, 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets as of March 29, 1998,
and December 27, 1998 (Unaudited) 3
Consolidated Statements of Income (Unaudited) for the
Thirty-nine Weeks Ended December 28, 1997, and December 27, 1998 4
Consolidated Statements of Income (Unaudited) for the
Thirteen Weeks Ended December 28, 1997, and December 27, 1998 5
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) for the Thirty-nine Weeks Ended December 27, 1998 6
Consolidated Statements of Cash Flows (Unaudited) for the
Thirty-nine Weeks Ended December 28, 1997, and December 27, 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. 15
PART II - OTHER INFORMATION
ITEMS 1 THROUGH 5. 16
ITEM 6. 17
SIGNATURES. 18
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERILINK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, December 27,
1998 1998
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,723,230 $ 10,822,853
Accounts receivable - trade, net of allowance for doubtful accounts of
$234,000 in 1998 and $186,000 in 1999 13,884,731 11,875,678
Work-in-process 5,690,546 5,026,127
Materials and supply inventories 1,655,809 1,468,651
Other receivables 229,702 232,556
Deferred income taxes 458,584 458,584
Other 114,895 317,504
---------------- ----------------
Total current assets 30,757,497 30,201,953
Property and equipment - net 7,585,118 6,047,060
Deposits and other assets 185,291 112,552
---------------- ----------------
Total assets $ 38,527,906 $ 36,361,565
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,658,091 $ 1,716,721
Liability to subcontractors 1,886,173 1,488,951
Accrued compensation and related expenses 1,845,507 1,324,602
Accrued insurance 509,965 279,638
Other 307,579 269,952
---------------- ----------------
Total current liabilities 7,207,315 5,079,864
Shareholders' equity:
Preferred stock, without par: 1,000,000 shares authorized;
none issued or outstanding ---- ----
Common stock, without par: 10,000,000 shares authorized;
4,255,930 and 4,283,344 shares issued at March 29, 1998,
and December 27, 1998 24,017,256 24,183,868
Common stock held in treasury, at cost; 176,770 shares at ---- (1,310,158)
December 27, 1998
Retained earnings 7,303,335 8,407,991
---------------- ----------------
Total shareholders' equity 31,320,591 31,281,701
---------------- ----------------
Total liabilities and shareholders' equity $ 38,527,906 $ 36,361,565
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirty-nine Weeks Ended
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Revenues $ 66,103,957 $ 48,077,714
Cost of sales 40,672,955 29,302,980
---------------- ----------------
Gross profit 25,431,002 18,774,734
Selling, general and administrative expenses 18,819,377 17,355,944
---------------- ----------------
Income from operations 6,611,625 1,418,790
Interest income (expense) (288,122) 404,866
---------------- ----------------
Income before income taxes 6,323,503 1,823,656
Provision for income taxes 2,542,000 719,000
---------------- ----------------
Net income $ 3,781,503 $ 1,104,656
---------------- ----------------
---------------- ----------------
Earnings per share:
Basic $ 1.03 $ 0.26
---------------- ----------------
---------------- ----------------
Diluted $ 0.95 $ 0.25
---------------- ----------------
---------------- ----------------
Weighted average shares:
Basic 3,661,240 4,234,199
Diluted 3,970,443 4,340,677
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirteen Weeks Ended
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
Revenues $ 22,735,763 $ 15,669,062
Cost of sales 13,944,696 9,417,086
---------------- ----------------
Gross profit 8,791,067 6,251,976
Selling, general and administrative expenses 6,477,196 5,846,907
---------------- ----------------
Income from operations 2,313,871 405,069
Interest income 7,967 131,228
---------------- ----------------
Income before income taxes 2,321,838 536,297
Provision for income taxes 933,000 215,000
---------------- ----------------
Net income $ 1,388,838 $ 321,297
---------------- ----------------
---------------- ----------------
Earnings per share:
Basic $ 0.35 $ 0.08
---------------- ----------------
---------------- ----------------
Diluted $ 0.32 $ 0.08
---------------- ----------------
---------------- ----------------
Weighted average shares:
Basic 3,992,126 4,181,596
Diluted 4,396,509 4,220,328
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Common Stock Held in Treasury Retained
Shares Issued Amount Shares Amount Earnings Total
------------- ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 29, 1998 4,255,930 $ 24,017,256 $ 7,303,335 $ 31,320,591
Net income ---- ---- 1,104,656 1,104,656
Proceeds from exercise
of stock options 25,000 158,750 ---- 158,750
Repurchases of common
stock ---- ---- (176,770) $ (1,310,158) ---- (1,310,158)
Issuance of restricted
stock, net of deferred
compensation expense 2,414 ---- ---- ---- ---- ----
Amortization of deferred
compensation expense ---- 7,862 ---- ---- 7,862
--------- ------------ -------- ------------ ----------- ------------
Balance at December 27, 1998 4,283,344 $ 24,183,868 (176,770) $ (1,310,158) $ 8,407,991 $ 31,281,701
--------- ------------ -------- ------------ ----------- ------------
--------- ------------ -------- ------------ ----------- ------------
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirty-nine Weeks Ended
<TABLE>
<CAPTION>
December 28, December 27,
1997 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITES
Net income $ 3,781,503 $ 1,104,656
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 2,196,165 2,217,168
Net gain on disposal of fixed assets (15,887) (5,944)
Changes in operating assets and liabilities:
Accounts receivable and work-in-process (3,719,024) 2,673,473
Materials and supply inventories (124,382) 187,158
Other receivables 45,737 (2,854)
Other assets 28,863 (202,609)
Trade accounts payable 589,726 (941,370)
Liability to subcontractors 248,363 (397,222)
Accrued compensation and related expenses 663,492 (520,905)
Accrued insurance 69,249 (230,327)
Other liabilities (295,808) (37,628)
------------ -------------
Net cash provided by operating activities 3,467,997 3,843,596
INVESTING ACTIVITIES
Purchase of property and equipment (4,255,613) (1,577,299)
Proceeds from sale of property and equipment 285,760 911,994
Deposits and other assets (33,749) 72,740
------------ -------------
Net cash used in investing activities (4,003,602) (592,565)
FINANCING ACTIVITIES
Principal payments on long-term debt (25,794,190) ----
Proceeds from borrowings on long-term debt 16,725,000 ----
Proceeds from issuance of common stock 13,895,557 ----
Repurchases of common stock ---- (1,310,158)
Proceeds from exercise of stock options 617,325 158,750
Tax benefit from exercise of options 979,768 ----
------------ -------------
Net cash provided by (used in) financing activities 6,423,460 (1,151,408)
------------ --------------
Increase in cash and cash equivalents 5,887,855 2,099,623
Cash and cash equivalents at beginning of period 120,395 8,723,230
------------ -------------
Cash and cash equivalents at end of period $ 6,008,250 $ 10,822,853
------------ -------------
------------ -------------
Supplemental cash flow disclosures:
Interest paid $ 347,281 $ ----
Income taxes paid $ 1,891,724 $ 850,584
</TABLE>
See notes to consolidated financial statements
-7-
<PAGE>
AMERILINK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: AmeriLink Corporation (the "Company") designs,
constructs, installs and maintains fiber optic, coaxial and twisted-pair
copper cabling systems for the transmission of video, voice and data. The
Company's cabling services include the drops and cable feeds to, and wiring
of, residences, multiple dwelling units and commercial buildings and the
construction of aerial and underground distribution plant. The Company offers
these services on a national basis to providers of telecommunications
services, including: major cable television multiple system operators (MSOs);
traditional telephone service providers, including local exchange carriers
(LECs), long distance carriers and competitive local exchange carriers
(CLECs) (collectively, "Telcos"); direct broadcast satellite (DBS) providers;
system integrators and users of local area network (LAN) and wide-area
network (WAN) systems; and other businesses providing specific or bundled
telecommunications services. The Company's services are provided
predominantly through the use of independent contractors via its national
network of regional and satellite field offices. The Company's corporate
headquarters are located in Columbus, Ohio, and, as of December 27, 1998, the
Company had 21 regional field offices that service the following metropolitan
areas: Atlanta, Baltimore, Chicago, Cincinnati, Cleveland, Columbus, Dallas,
Detroit, Houston, Indianapolis, Los Angeles, Louisville, New York, Omaha,
Phoenix, Richmond, San Antonio, San Francisco, St. Louis, Seattle/Tacoma and
Tampa Bay.
INTERIM FINANCIAL STATEMENTS: These financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the March 29,
1998, audited financial statements of AmeriLink Corporation contained in its
Annual Report to Shareholders. The financial information included herein
reflects all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
for interim periods. The results of operations for the thirteen and thirty-nine
weeks ended December 27, 1998, are not necessarily indicative of the results to
be expected for the full year.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management believes those estimates and assumptions utilized
in preparing the financial statements are reasonable. Actual results could
differ from those estimates. Estimates used in the Company's consolidated
financial statements include, but are not limited to, revenue recognition of
work-in-process, the allowance for doubtful accounts, self-insured claims
liabilities, the valuation of deferred tax assets, depreciation and amortization
and the estimated lives of assets.
RECLASSIFICATIONS: Certain reclassifications have been made to the fiscal 1998
consolidated financial statements to conform to the fiscal 1999 presentation.
-8-
<PAGE>
AMERILINK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. COMMON STOCK AND EARNINGS PER SHARE ("EPS")
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS includes the dilution of common stock equivalents
consisting of shares subject to stock options. The following table sets forth
the calculation of basic and diluted EPS for the periods ended December 28,
1997, and December 27, 1998.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
December 28, December 27, December 28, December 27,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EPS:
Net income $ 1,388,838 $ 321,297 $ 3,781,503 $ 1,104,656
Weighted average common shares
outstanding 3,992,126 4,181,596 3,661,240 4,234,199
------------- ------------- ------------- -------------
Basic EPS $ 0.35 $ 0.08 $ 1.03 $ 0.26
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EPS:
Net income $ 1,388,838 $ 321,297 $ 3,781,503 $ 1,104,656
Weighted average common shares
outstanding 3,992,126 4,181,596 3,661,240 4,234,199
Dilutive stock options 404,383 38,732 309,203 106,478
------------- ------------- ------------- -------------
Total shares and dilutive
potential shares 4,396,509 4,220,328 3,970,443 4,340,677
------------- ------------- ------------- -------------
Diluted EPS $ 0.32 $ 0.08 $ 0.95 $ 0.25
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Some options were outstanding during the periods presented but were not included
in the computation of diluted EPS because the average market price of the
Company's common stock during the period was less than the exercise price of the
options and, therefore, were antidilutive.
3. SUBSEQUENT EVENT - PLAN OF MERGER
On February 2, 1999, the Company, through a wholly-owned subsidiary, MCC
Acquisition Corp. ("MAC"), acquired Midwest Computer Cable, Inc ("MCCI"), a
commercial cabling installation firm headquartered in Des Moines, Iowa. The
transaction was consummated pursuant to an Agreement and Plan of Merger, dated
February 2, 1999, (the "Merger Agreement") among the Company, MAC, MCCI, Larry
Kendall, Dayton Kendall and Linda Kendall. A copy of the Merger Agreement is
included herewith as Exhibit 2 and is incorporated herein by reference.
Pursuant to the Merger Agreement, MCCI was merged with and into MAC (the
"Merger"). As a result, the separate corporate existence of MCCI ceased and
the shareholders of MCCI received as consideration a combination of $4.4
million in cash and 500,000 shares of the Company's no par common stock. The
Merger has been accounted for as a purchase.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This Quarterly Report, including Management's Discussion and Analysis
of Financial Condition and Results of Operations, contains various
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995) which, in addition to assuming a continuation of
the degree and timing of customer utilization and rate of renewals of contracts
with the Company at historic levels, are subject to a number of known and
unknown risks. Certain statements, such as statements regarding the Company's
future growth and profitability, are forward-looking. These statements are based
on the Company's current expectations and are subject to a number of risks and
uncertainties that could cause actual results in the future to differ
significantly from results expressed or implied in any forward-looking
statements included in this Quarterly Report. These risks and uncertainties
include, but are not limited to, the Company's relationship with key customers,
implementation of the Company's growth strategy, seasonality, changing market
conditions and customer purchase authorizations, competitive and regulatory
risks associated with the telecommunications industry, new products and
technological changes and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission including, but not limited
to, the factors described under the caption "Variability in Quarterly Results
and Seasonality" below.
RESULTS OF OPERATIONS
Revenue is generated from cabling projects performed via work orders
issued under master contracts. Contract costs may vary depending upon the
contract volume, the level of productivity, competitive factors in the local
market and other items. Cost of sales includes subcontractor production costs,
materials not supplied by the customer, vehicle and machinery expenses and
business insurance related costs. Selling, general and administrative expenses
consist primarily of field employee wages and payroll costs.
COMPARISON OF THIRTY NINE WEEKS ENDED DECEMBER 28, 1997 AND DECEMBER 27, 1998
REVENUES
Total revenues for the first nine months of fiscal 1999 were
$48,077,714 compared to $66,103,957 for the first nine months of fiscal 1998, a
decrease of 27%.
Revenues derived from residential and commercial premises wiring
activities decreased 26% to $43.7 million in the first nine months of fiscal
1999, versus approximately $59.0 million in the prior year period. Premises
wiring revenues from telephone companies for video communication services
decreased to approximately $8.7 million (18% of total Company revenues) from
$21.8 million (33% of total Company revenues) in the first nine months of last
year. Revenues from telephone companies for video communication services have
declined sequentially in each of the last six fiscal quarters. This sequential
decline in revenues is due to a number of factors, including: (1) a decision by
SBC Communications, Inc., to halt construction of a cable project in California
in June 1997 which produced approximately $1.1 million of revenues in the
Company's fiscal 1998 first quarter, (2) an increase in competition from other
cabling service providers for available Telco work in certain market areas, (3)
an apparent reassessment by Telcos with regard to their video strategies by
pursuing less costly wireless cable systems (DBS and MMDS systems) in lieu of
their current and more costly hybrid fiber-coaxial hardwire systems and (4) a
slowdown in the buildout rate of video networks in their current franchise
areas. The amount of future capital allocated by these companies to their video
programs is largely contingent upon the financial success of these programs,
possible new technical developments and overall strategic decisions by the
companies regarding video services. In addition, consolidation within the
telecommunications industry may also delay or depress capital spending among
Telcos, as companies assess their new business plans and strategies and focus on
administrative and operational issues associated with their acquisitions or
alliances. Revenues from GTE Media Ventures for the
-10-
<PAGE>
first three quarters of fiscal 1999 were approximately $2.8 million, a
decrease of $9.1 million or 76% from the $11.9 million recorded in the prior
year period. GTE Media Ventures was the Company's largest customer in fiscal
1998 and comprised approximately 17% of total Company revenues.
Residential premises wiring revenues from cable television MSOs for the
first nine months of fiscal 1999 approximated $21.2 million versus $19.7 million
during the first nine months of fiscal 1998. MSO revenues generated from
contracts with Tele-Communications Inc. (TCI) for the first three quarters of
fiscal 1999 approximated $4.9 million, an increase of $2.9 million or 146% from
the $2.0 million recorded in the first nine months of last fiscal year.
GROSS PROFIT
Gross profit for the first nine months of fiscal 1999 was $18,774,734
or 39.1% of revenues, as compared to $25,431,002, or 38.5% of revenues, in the
first nine months of fiscal 1998.
The increase in gross margin is due primarily to a decrease in
subcontractor production costs, which decreased as a percent of labor cabling
revenues in the first nine months of fiscal 1999 compared to the corresponding
period last year. Contract and project subcontractor costs are dependent upon a
number of factors, including pricing for the Company's services, the level of
productivity, competitive factors in the local market and other items.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative cost structure is
maintained at levels necessary to adequately support both anticipated near term
revenues and projected longer term revenues. These anticipated revenue levels
and associated cost structures may vary among the Company's regional field
offices and geographic market areas. The Company is reluctant to significantly
reduce its cost structure during periods of reduced revenues and spending by its
customers and believes a certain expense level is necessary to adequately
support longer term revenue growth and quality customer service. Selling,
general and administrative expenses for the first nine months of fiscal 1999
were $17,355,944 (36.1% of revenues), as compared to $18,819,377 (28.5% of
revenues) in the prior year period, a decrease of $1,463,433, or 8%. This
decrease is primarily a result of a decrease in employee wage expense and
employee benefits. The increase in selling, general and administrative expenses
as a percentage of revenues is a result of a decline in revenues in the first
nine months of fiscal 1999, which decreased approximately 27% from the
comparable first nine months of fiscal 1998.
INTEREST INCOME AND EXPENSE
Interest income was $404,866 for the nine months ended December 27,
1998, as compared to net interest expense of $288,122 for the first nine months
of fiscal 1998. In October 1997 the Company used part of the proceeds received
from a public stock offering to pay in full its outstanding bank debt of
approximately $6.8 million. The balance of the proceeds are being invested in
short-term investment grade securities.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 39.4% for the first nine months of
fiscal 1999 versus 40.2% for the comparable period in fiscal 1998. This decrease
is primarily the result of a lower anticipated effective state tax rate in
fiscal 1999.
-11-
<PAGE>
COMPARISON OF THIRTEEN WEEKS ENDED DECEMBER 28, 1997 AND DECEMBER 27, 1998
REVENUES
Total revenues for the third quarter of fiscal 1999 were $15,669,062
compared to $22,735,763 for the third quarter of fiscal 1998, a decrease of 31%.
Revenues derived from residential and commercial premises wiring
activities decreased 32% to $14.2 million in the third quarter of fiscal 1999,
versus approximately $20.8 million in the prior year period. Premises wiring
revenues from telephone companies for video communication services decreased to
approximately $2.5 million (16% of total Company revenues) from $6.1 million
(27% of total Company revenues) in the third quarter of last year. GTE Media
Ventures revenues derived from classic hardwire cable system projects for the
most recent quarter were only $0.2 million, versus approximately $3.6 million in
the comparable third quarter of fiscal 1998 and $1.1 million in the previous
quarter ended September 27, 1998. The Company believes that Telco video revenues
as a group have now stabilized near fiscal 1999 third quarter levels.
Commercial premises wiring revenues for the third quarter of fiscal
1999 were approximately $3.3 million compared to $4.6 million for the third
quarter of fiscal 1998, a decrease of 28%. This reduction is due primarily to a
lower volume of regional and national network installation projects in the
current fiscal year as compared to fiscal 1998.
Fiscal 1998 third quarter premises wiring revenues also included
approximately $1.2 million in revenues from telephone companies for voice and
data services, including approximately $1.0 million derived from a large
contract in Phoenix, Arizona, with U.S. West. Work under this contract was
substantially complete as of June 28, 1998.
GROSS PROFIT
Gross profit for the third quarter of fiscal 1999 was $6,251,976 or
39.9% of revenues, as compared to $8,791,067, or 38.7% of revenues, in the third
quarter of fiscal 1998.
The increase in gross margin is due primarily to a decrease in
subcontractor production costs, which decreased as a percent of labor cabling
revenues in the first nine months of fiscal 1999 compared to the corresponding
period last year. Contract and project subcontractor costs are dependent upon a
number of factors, including pricing for the Company's services, the level of
productivity, competitive factors in the local market and other items.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of
fiscal 1999 were $5,846,907 (37.3% of revenues) compared to $6,477,196 (28.5% of
revenues) in the prior year period, a decrease of $630,289 or 10%. This decrease
is primarily a result a decrease in employee wage expense and employee benefits.
The increase in selling, general and administrative expenses as a percentage of
revenues is a result of a decline in revenues in the third quarter of fiscal
1999, which decreased approximately 31% from the comparable quarter in fiscal
1998.
INTEREST INCOME AND EXPENSE
Interest income was $131,228 for the three months ended December 27,
1998 as compared to $7,967 for the three months ended December 28, 1997. In
October 1997 the Company used part of the proceeds received from a public stock
offering to pay in full its outstanding bank debt of approximately $6.8 million.
The balance of the proceeds are being invested in short-term investment grade
securities.
-12-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Historically, the Company's principal sources of liquidity
have come from operating cash flow and credit arrangements. The Company's
primary requirements for working capital are to finance accounts receivable,
work-in-process and capital expenditures. Pursuant to a typical construction,
MDU or LAN cabling contract, work performed by the Company is generally not
billed to a customer until various stages in a project are reached or until the
entire project is complete. Because the Company pays its suppliers and
subcontractors on a current basis, to the extent that trade payables exceed
customer accounts paid at any given time, the Company would draw on its
revolving credit note to finance its work-in-process until project work is
billed to and paid by the customer.
In October 1997 the Company completed a public offering in which it
issued 600,000 new shares of common stock. Net proceeds from the offering were
$14,175,000 before deducting related expenses of $279,443. The Company paid in
full the outstanding balance of its revolving credit note of approximately $6.8
million and will use the balance of the proceeds for general corporate purposes
including working capital, expansion of sales and marketing activities, openings
of new field offices and possible acquisitions of businesses, services or
technology complimentary to the Company's business. Pending such uses, the
proceeds are being invested in short-term investment grade securities. As of
December 27, 1998 the Company had approximately $10.8 million in cash and cash
equivalents.
On September 4, 1998 the Company's Board of Directors authorized the
repurchase of up to 400,000 common shares of the Company's stock in the open
market or in privately negotiated transactions depending upon market
conditions and other factors. The Company intends to use current cash
reserves to finance the share repurchase program. Repurchased common shares
will be held in the Company's treasury and used for employee benefit plans,
potential acquisitions and other general corporate purposes. A total of
176,770 shares were repurchased as of December 27, 1998, at an aggregate
purchase price of approximately $1.3 million.
On February 2, 1999, the Company, through a wholly-owned subsidiary,
MCC Acquisition Corp., acquired Midwest Computer Cable, Inc., a commercial
cabling installation firm headquartered in Des Moines, Iowa. The
consideration delivered to the shareholders of MCCI in connection with the
Merger consisted of $4.4 million in cash and 500,000 shares of the Company's
no par common stock, of which 249,000 were shares previously held in treasury.
Combined accounts receivable and work-in-process at December 27, 1998
totaled $16.9 million compared to $19.6 million at March 29, 1998, a decrease of
approximately $2.7 million, or 13.7%. This decrease is due to the decline in
revenues in the first nine months of fiscal 1999. The Company anticipates that
it will continue to receive collections of its accounts receivable in the
ordinary course of business. There is no assurance, however, that the Company
will be able to collect all or substantially all of its accounts receivable
outstanding at any time, although the Company believes it has adequately
provided for potential losses through its allowance for doubtful accounts. The
Company's failure to collect substantially all of its accounts receivable and
work-in-process would have an adverse impact on its working capital and could
adversely affect its results of operations.
Capital requirements are dependent upon a number of factors including
the Company's revenues, level of operations and the type of contracts and work
that the Company performs. Due to the fact that the Company generally has no
extended commitments from its customers, it is difficult to forecast longer-term
revenues and associated capital expenditure and operating cash requirements.
Management believes current cash reserves, cash flow from operations, possible
credit from commercial banks and funds which may be obtained from the issuance
of common stock should provide sufficient capital to meet the reasonably
foreseeable business needs of the Company.
CURRENT CREDIT ARRANGEMENTS. Since March 26, 1998, the Company has
held a commitment from a commercial bank for a $10.0 million unsecured revolving
credit note. The Company has continued to negotiate with other commercial banks
to evaluate other credit agreements; therefore, terms of the $10.0 million
unsecured revolving credit note have not been finalized. The Company has never
drawn funds under this commitment. The current commitment for the revolving
credit note expires February 17, 1999. The Company anticipates that it will
finalize a new credit agreement with a commercial bank by the end of its current
fiscal year.
CASH FLOW FROM OPERATING ACTIVITIES. For the first nine months of
fiscal 1999, net cash provided by operating activities was approximately $3.8
million versus approximately $3.5 million for the corresponding period last
year. Cash provided in fiscal 1998 was primarily a result of approximately $6.0
million from net income and
-13-
<PAGE>
non-cash depreciation and amortization expense, reduced by an increase in
combined accounts receivable and work-in-process of approximately $3.7
million. Cash provided in fiscal 1999 is primarily a result of a decrease of
approximately $2.7 million in combined accounts receivable and
work-in-process. This decrease in accounts receivable and work-in-process is
due to a decline in revenues in the first nine months of fiscal 1999.
CASH FLOW FROM INVESTING ACTIVITIES. Net cash used in investing
activities for the first nine months of fiscal 1999 totaled $592,565 versus
approximately $4.0 million for the corresponding period last year. Investing
activities primarily relate to the purchase of property and equipment, which
totaled approximately $4.0 million (net of proceeds from the sale of property
and equipment) for the first nine months of fiscal 1998. The capital
expenditures in fiscal 1998 were a result primarily of new project start-ups and
more outside plant construction activity (approximately $7.1 million in revenues
in the first nine months of fiscal 1998 versus approximately $4.4 million in the
first nine months of fiscal 1999). Proceeds from the sale of property and
equipment for the first nine months of fiscal 1999 totaled approximately $0.9
million and were primarily the result of the Company selling vehicles that were
utilized on a large project with a Telco in Phoenix, Arizona. This contract was
terminated and was substantially complete as of June 28, 1998.
VARIABILITY IN QUARTERLY RESULTS AND SEASONALITY
The Company's quarterly revenues and associated operating results have
in the past, and may in the future, vary depending upon a number of factors. The
Company has no long-term contractual commitments to provide its services. The
contractual commitments which do exist generally can be terminated on 30 days'
notice. These contractual commitments do not involve a firm backlog of committed
work because the Company's contracts with MSOs, Telcos, DBS providers and other
telecommunications providers produce daily work orders only on a
project-by-project basis which must be funded by an approved purchase order. In
addition, network cabling services are generally nonrecurring in nature and are
contracted on a project-by-project basis. Therefore, the amount of work
performed at any given time and the general mix of customers for which work is
being performed can vary significantly. Consolidation within the
telecommunications industry may also delay or depress capital spending as
companies assess their new business plans and strategies and focus on
administrative and operational issues associated with their acquisitions or
alliances. The Company's operations historically have also been influenced by
the budget cycles of the Company's customers. Many of the Company's MSO
customers utilize a calendar year budget cycle, funded with quarterly purchase
authorizations, which in certain fiscal years has resulted in a lack of
availability of funds in the Company's third fiscal quarter and has delayed work
authorizations in the early part of the calendar year (the Company's fourth and
first fiscal quarters.) Telecommunications providers are also subject to actual
and potential local, state and Federal regulations that influence the
availability of work for which the Company may compete. Weather may affect
operating results due to the fact that construction cabling services are
performed outdoors. Weather can also impact the Company's premises wiring
cabling services due to the limited and lost production associated with poor
driving conditions and soft ground which may prevent underground premises
installations, the burying of cable drops and increased restoration costs.
Operating results may also be affected by the capital spending patterns of the
Company's customers and by the success of various technologies and business
strategies employed by them. For example, in fiscal 1998 the Company recorded
approximately $25.9 million in revenues (30.2% of total revenues for the year)
from Telcos that were building or expanding video systems. Revenues from Telcos
for video systems have declined sequentially in each of the last six quarters,
from approximately $8.3 million in the first quarter of fiscal 1998 to
approximately $2.5 million in the third quarter of fiscal 1999. The amount of
future capital allocated by these companies to their video programs is largely
contingent upon the financial success of these programs, possible new technical
developments and overall strategic decisions by the companies regarding video
services. Revenues from GTE Media Ventures from classic hardwire cable system
projects for the first three quarters of fiscal 1999 were approximately $2.8
million, a decrease of $9.1 million or 76% from the $11.9 million recorded in
the prior-year period. GTE Media Ventures was the Company's largest customer in
fiscal 1998 and comprised approximately 17% of total Company revenues. The
Company's operating profitability and capacity to increase revenues is also
largely dependent upon its ability to locate and attract qualified field
managers, project managers and technical production personnel. Other factors
that may affect the Company's operating results include the size and timing of
significant projects and the gain or loss of a significant contract or customer.
-14-
<PAGE>
INFLATION
Historically, inflation has not been a significant factor to the
Company as labor is the primary cost of operations and its contracts are
typically short-term in nature. On an ongoing basis, the Company attempts to
minimize any effects of inflation on its operating results by controlling
operating costs and, whenever possible, seeking to ensure that selling prices
reflect increases in costs due to inflation.
ENVIRONMENTAL MATTERS
The Company anticipates that its compliance with various laws and
regulations relating to the protection of the environment will not have a
material effect on its capital expenditures, future earnings or competitive
position.
YEAR 2000
The Year 2000 problem arises from the fact that due to early
limitations on memory and disk storage many computer programs indicate the year
by only two digits, rather than four. This limitation can cause programs that
perform arithmetic operations, comparisons or sorting of data fields to yield
incorrect results when working outside the year range of 1900-1999. This could
cause computer applications to fail or to create erroneous results unless
corrective measures are taken. Incomplete or untimely resolution of the Year
2000 issue could have a material adverse impact on the Company's business,
operations or financial condition in the future. The Company has been assessing
the impact that the Year 2000 issue will have on its computer systems, including
both hardware and software. In response to these assessments, which are ongoing,
the Company has developed and is implementing a plan to develop solutions to
those systems found to have date-related deficiencies. The Company is also
surveying its bank and critical suppliers to determine the status of their Year
2000 compliance programs. Based upon current available information, the Company
believes that Year 2000 compliance should be substantially completed by August
1999. Assuming that project plans can be implemented as planned, the Company
believes future costs related to becoming Year 2000 compliant, which will be
expensed as incurred, will not have a material adverse impact on the Company's
business, operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk through derivative financial
instruments and other financial instruments, such as investments in short-term
marketable securities and long-term debt, is not material.
-15-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On February 2, 1999, the Company, through a wholly-owned subsidiary,
MCC Acquisition Corp. ("MAC"), acquired Midwest Computer Cable, Inc.
("MCCI"), a commercial cabling installation firm headquartered in Des
Moines, Iowa. The transaction was consummated pursuant to an Agreement
and Plan of Merger, dated February 2, 1999 (the "Merger Agreement"),
among the Company, MAC, MCCI, and the principal shareholders of MCCI,
Larry Kendall, Dayton Kendall and Linda Kendall. A copy of the Merger
Agreement is included herewith as Exhibit 2 and is incorporated herein
by reference. Pursuant to the Merger Agreement, the Company and MAC
entered into a Short-Form Merger Agreement, dated the same date as the
Merger Agreement, with the remaining shareholders of MCCI. A copy of
the Short-Form Merger Agreement is included herewith as Exhibit 99(i)
and is incorporated herein by reference.
Pursuant to the Merger Agreement, MCCI was merged with and into MAC
(the "Merger"). As a result, the separate corporate existence of MCCI
ceased and the shareholders of MCCI received as consideration a
combination of cash and common shares (without par value) of the
Company ("Common Shares"). MAC changed its name to "Midwest Computer
Cable, Inc." and will continue to conduct business as a wholly-owned
subsidiary of the Company. The consideration delivered to the
shareholders of MCCI in connection with the Merger consisted of $4.4
million in cash and 500,000 Common Shares. The terms of the Merger
Agreement and the consideration delivered thereunder were established
by arms-length negotiations among the parties. The MCCI acquisition has
been accounted for as a purchase. The excess of the total cost over the
fair value of the net assets acquired will be amortized under the
straight-line method for twenty-five years.
Also pursuant to the Merger Agreement, MCCI entered into three-year
employment agreements with Larry Kendall, who shall continue to serve
as the President of MCCI, and certain management employees of MCCI. The
Company has guaranteed the payment and performance of all obligations
of MCCI under those employment agreements. Mr. Kendall's employment
agreement is included herewith as Exhibit 99(ii) and is incorporated
herein by reference.
The Company issued a press release on January 28, 1999, announcing
imminent plans to consummate the Merger, and issued another press
release on February 2, 1999 announcing the completion of the Merger.
The January 2, 1999 press release and the February 2, 1999, press
release are included herewith as Exhibit 99(iii) and Exhibit 99(iv),
respectively, and are incorporated herein by reference.
-16-
<PAGE>
MCCI provides network design, maintenance and installation services for
premises wiring cabling systems through six offices located in Iowa,
Kansas, Ohio and Texas. Upon completion of the Merger, the Company
acquired all the assets of MCCI, including leases, equipment and
inventory. The Company intends to continue to use the assets acquired
pursuant to the Merger as they were used prior to the Merger, subject
to such changes as the Company may deem appropriate in the future.
The foregoing description of the Merger is not intended to be complete
and is qualified in its entirety by reference to the Merger Agreement.
This information is provided in lieu of a Current Report on Form 8-K.
AmeriLink Corporation will subsequently file a Form 8-K, as permitted
under the Rules of the Exchange Act, which includes financial
statements of the business acquired and required proforma information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2 Agreement and Plan of Merger, dated February 2, 1999,
among Larry Kendall, Dayton Kendall, Linda Kendall,
Midwest Computer Cable, Inc., AmeriLink Corporation
and MCC Acquisition Corp., a wholly-owned subsidiary
of AmeriLink Corporation.
10 Employment Agreement of Larry Kendall, dated February
2, 1999.
11 Statement re: computation of per share earnings. All
information required by Exhibit 11 is presented
herewith on Page 9 under Note 2 to the Company's
consolidated financial statements.
27 Financial Data Schedule filed herewith as part of
this report on Form 10-Q.
99.1 Short-Form Merger Agreement.
99.2 Press Release dated January 28, 1999.
99.3 Press Release dated February 2, 1999.
</TABLE>
(b) No reports on Form 8-K have been filed during the quarter ended
December 27, 1998.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERILINK CORPORATION
(Registrant)
Date: February 2, 1999 By: /s/Larry R. Linhart
------------------------------
Larry R. Linhart
Chairman, President and Chief Executive Officer
Date: February 2, 1999 By: /s/James W. Brittan
------------------------------
James W. Brittan
Vice President of Finance
(Principal Financial and Accounting Officer)
-18-
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
Dated as of February 2, 1999
among
LARRY KENDALL, DAYTON KENDALL, LINDA KENDALL
and
MIDWEST COMPUTER CABLE, INC.
and
AMERILINK CORPORATION
and
MCC ACQUISITION CORP., a wholly-owned subsidiary of
AMERILINK CORPORATION.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE MERGER
2.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Merger Consideration. . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Articles of Incorporation and Bylaws. . . . . . . . . . . . . . . . . 5
2.6 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
ADDITIONAL CONSIDERATION
3.1 Employment Agreement and Options. . . . . . . . . . . . . . . . . . . 6
3.2 Right of First Offer to Purchase Quiktron . . . . . . . . . . . . . . 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
4.1 Company Corporate Existence and Power . . . . . . . . . . . . . . . . 8
4.2 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . 9
4.6 Properties; Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 No Undisclosed Material Liabilities . . . . . . . . . . . . . . . . . 11
4.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.12 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.13 Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.15 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . 17
4.16 Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . . . . . . 17
4.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 18
4.18 Employment and Labor Matters. . . . . . . . . . . . . . . . . . . . . 19
4.19 Banking Information . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.20 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.21 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.22 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.23 Customers, Product Vendors and Suppliers. . . . . . . . . . . . . . . 20
-i-
<PAGE>
4.24 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.25 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.26 Shareholders' Capacity. . . . . . . . . . . . . . . . . . . . . . . . 21
4.27 Shareholders' Governmental Authorization, Conflicts . . . . . . . . . 21
4.28 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.29 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.30 Title to Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.31 Entire Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.32 Certain Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.33 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.34 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . 22
4.35 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AMERILINK
5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . 22
5.2 Consents and Approvals; No Violation. . . . . . . . . . . . . . . . . 22
5.3 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 SEC Filings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 No Rights To Register Stock . . . . . . . . . . . . . . . . . . . . . 23
5.9 AmeriLink Common Stock. . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
COVENANTS OF SHAREHOLDERS
6.1 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VII
COVENANTS OF AMERILINK
7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
COVENANTS OF SHAREHOLDERS AND AMERILINK
8.1 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . 29
8.4 Agreement to Take Necessary and Desirable Actions . . . . . . . . . . 29
ARTICLE IX
TERMINATION OF AGREEMENT
ARTICLE X
THE CLOSING
-ii-
<PAGE>
10.1 Deliveries to AmeriLink . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Deliveries to Shareholders. . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XI
SURVIVAL AND REMEDY; INDEMNIFICATION
11.1 Survival; Remedy for Breach . . . . . . . . . . . . . . . . . . . . . 31
11.2 Indemnification by Shareholders . . . . . . . . . . . . . . . . . . . 31
11.3 Indemnification by AmeriLink. . . . . . . . . . . . . . . . . . . . . 32
11.4 Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE XII
MISCELLANEOUS
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . 34
12.4 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . 34
12.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.7 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.9 Limitation on Damages . . . . . . . . . . . . . . . . . . . . . . . . 35
Schedule 4.1 Company Corporate Existence and Power
Schedule 4.2 Non-Contravention
Schedule 4.3 Capitalization
Schedule 4.5 Absence of Certain Changes
Schedule 4.6 Properties; Assets
Schedule 4.7 No Undisclosed Material Liabilities.
Schedule 4.8 Litigation
Schedule 4.9 Business Activities
Schedule 4.10 Tax Matters
Schedule 4.11 Employee Benefits
Schedule 4.12 Material Contracts
Schedule 4.14 Insurance
Schedule 4.16 Patents, Trademarks, etc.
Schedule 4.17 Environmental Matters
Schedule 4.18 Labor Matters
Schedule 4.19 Banking Information
Schedule 4.20 Accounts Receivable
Schedule 4.22 Warranties
Schedule 4.23 Customers, Product Vendors and Suppliers
Schedule 4.24 Year 2000
Schedule 4.31 Entire Business
Schedule 4.32 Certain Interests
-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 2nd day of
February, 1999, is made by and among AmeriLink Corporation, an Ohio
corporation ("AmeriLink"); MCC Acquisition Corp., an Ohio corporation and
wholly owned subsidiary of AmeriLink ("MAC"); Midwest Computer Cable, Inc.,
an Iowa corporation (the "Company"); and each of Larry Kendall, Dayton
Kendall, and Linda Kendall (said individuals being hereinafter collectively
called the "Principal Shareholders" and, individually, a "Principal
Shareholder").
W I T N E S S E T H :
WHEREAS, the Principal Shareholders, together with Jeffrey Van Polen,
Richard Pearson and Michael Maddison (collectively, the "Shareholders"), are
the owners of all of the issued and outstanding shares of common stock of the
Company (the "Company Shares"); and
WHEREAS, the Company is engaged in the design and installation of
cabling systems for the transmission of video, voice and data for commercial
use; and
WHEREAS, AmeriLink, MAC, the Company and the Shareholders desire to
merge the Company with and into MAC upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of and in reliance upon the
covenants, conditions, representations and warranties herein contained, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Acquisition Agreement" has the meaning set forth in Section 3.2.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person. After the Closing, AmeriLink's Affiliates shall include
the Surviving Corporation.
"AmeriLink" has the meaning set forth in the recitals.
"AmeriLink Common Shares" means the common shares, without par value,
of AmeriLink Corporation.
"AICPA" has the meaning set forth in Section 4.4.
"Asserted Tax Liability" has the meaning set forth in Section 8.2
"Audited Financial Statements" has the meaning set forth in Section 4.4.
"Business" means the business of designing and installing cabling
systems for the transmission of video, voice and data for commercial use as
historically conducted by the Company.
"Cash Portion of the Merger Consideration" has the meaning set forth in
Section 2.2.
"Certificates of Merger" has the meaning set forth in Section 2.1.
"Claims" has the meaning set forth in Section 11.2(a).
<PAGE>
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 2.1.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Company" has the meaning set forth in the recitals.
"Company's Accountants" means (a) with respect to the Reviewed
Financial Statements Messrs. Mosebach, Griffith and Company, P.C.,
independent certified public accountants; and (b) with respect to the Audited
Statements and for all other purposes of this Agreement, Messrs. McGladrey &
Pullen, Des Moines, Iowa, independent certified public accountants for the
Company.
"Company's 1998 EBITDA" means the EBITDA of the Company for the twelve
month period ended December 31, 1998 adjusted as follows: (i) Larry
Kendall's compensation (together with any compensation to his parents) shall
be adjusted to $140,000 for the twelve-month period ended December 31, 1998;
(ii) the compensation of Gervaise Kendall, the wife of Larry Kendall, shall
be adjusted to $25,000 for the twelve-month period ended December 31, 1998;
(iii) all employee benefits (including 401(k) contributions), bonuses,
incentive compensation and other normal year-end adjustments which relate to
the determination of EBITDA during the twelve month period ended December 31,
1998 (whether or not paid hereafter) shall be fully accrued for such period;
and (iv) non-cash bonus compensation relating to the award of Company Shares
to Messrs. Van Polen, Pearson and Maddison and any payroll and Medicare taxes
payable with respect thereto shall be in each case added back to the extent
taken into account in the determination of net income.
"Company Financial Statements" has the meaning set forth in Section 4.4.
"Company Shares" has the meaning set forth in the recitals.
"Disposition" has the meaning set forth in Section 3.2.
"EBITDA" means, with respect to any Person for any period, (a) net income
(or net loss), excluding any unusual and extraordinary gains or losses, PLUS (b)
to the extent taken into account in the calculation of net income (or net loss)
for such period (i) interest expense, (ii) income tax expense, and (iii) the
amount of all depreciation and amortization expense, in each case determined in
accordance with GAAP.
"Effective Time" has the meaning set forth in Section 2.1.
"Employee Benefit Plan" means any (a) deferred compensation or
retirement bonus, stock option or similar plan or arrangement, (b) defined
contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (c) defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan, (d) Multiemployer Plan, or (e) Employee
Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2), but excludes a Multiemployer Plan.
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental Claims" has the meaning set forth in Section 4.17.
"Environmental Laws" has the meaning set forth in Section 4.17.
-2-
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with a Shareholder for purposes of Code Section 414 (including
without limitation the Company).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States of America, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or
in such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
date hereof or at any other time stated herein.
"Intellectual Property" means (a) trademarks, service marks, trade
dress, logos, trade names and corporate names, including all common law
rights, registrations and applications for registration thereof, and all
rights therein provided by multinational treaties or conventions, (b)
copyrights (registered or otherwise) and registrations and applications for
registration thereof, and all rights therein provided by multinational
treaties or conventions, (c) computer software, including, without
limitation, source code, operating systems and specifications, data, data
bases, files, documentation and other materials related thereto, data and
documentation, (d) trade secrets and confidential, technical or business
information (including manufacturing processes, and all ideas, formulas,
compositions, inventions and conceptions of inventions, whether patentable or
unpatentable and whether or not reduced to practice), (e) whether or not
confidential, technology (including know-how and show-how), manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (f) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (g) issued patents and patent applications, (h) all
rights to obtain and rights to apply for patents, and to register trademarks
and copyrights, (i) licenses or sublicenses in connection with any of the
foregoing, and (j) all rights to sue and recover and retain damages and costs
and attorneys' fees for past, present and future infringement or breach of
any of the Intellectual Property rights herein above set forth.
"Intellectual Property Rights" has the meaning set forth in Section 4.16.
"IRS" means the Internal Revenue Service.
"Last Reported Sale Price" means the last reported sale price of the
AmeriLink Common Stock as quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"MAC" has the meaning set forth in the Recitals.
"Material Adverse Effect" means any circumstance, change in, or effect
on the business of the Company (other than changes in market or general
economic conditions) that, individually or in the aggregate with any other
circumstances, changes in, or effects on the business of the Company (a) is,
or could be, materially adverse to the business, operations, assets or
liabilities, employee relationships, customer or supplier relationships,
results of operations or financial condition of the Company or (b) could
materially adversely affect the ability of the Company to operate or conduct
its business in the manner in which it is currently operated or conducted.
"Material Contracts" has the meaning set forth in Section 4.12.
"Materials of Environmental Concern" has the meaning set forth in Section
4.17.
-3-
<PAGE>
"Merger" has the meaning set forth in Section 2.1.
"Merger Consideration" has the meaning set forth in Section 2.2.
"Merger Laws" has the meaning set forth in Section 2.1.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Notice" has the meaning set forth in Section 3.2
"Notice Response" has the meaning set forth in Section 3.2
"Option Shares" has the meaning set forth in Section 3.1.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, a limited liability company, a
joint venture, an unincorporated organization or any other entity or
organization, including without limitation a governmental entity or political
subdivision or an agency or instrumentality thereof.
"Principal Shareholders" has the meaning set forth in the recitals.
"Quiktron" means Quiktron Incorporated, an Iowa corporation.
"Quiktron Stock" has the meaning set forth in Section 3.2.
"Response Period" has the meaning set forth in Section 3.2.
"Returns" has the meaning set forth in Section 4.10.
"Reviewed Financial Statements" has the meaning set forth in Section 4.4.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.6.
"Securities Act" means the Securities Act of 1933, as amended
"Shareholders" has the meaning set forth in the recitals.
"Stock Portion of the Merger Consideration" has the meaning set forth in
Section 2.2.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power, either alone or through or together with
any other Subsidiary, to elect a majority of the board of directors or other
Persons performing similar functions are directly or indirectly owned by the
Company.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax" or "Taxes" has the meaning set forth in Section 4.10.
"Tax Claim Notice" has the meaning set forth in Section 8.2.
-4-
<PAGE>
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the Merger Laws, on and as of the date hereof,
certificates of merger (the "CERTIFICATES OF MERGER") providing for the
merger of the Company with and into MAC (the "MERGER") have been duly
prepared and executed, and shall be filed by the parties with the Secretaries
of State of the States of Ohio and Iowa, in such form as is required by, and
executed in accordance with, the relevant provisions of the General
Corporation Law of the State of Ohio (Chapter 1701 of the Ohio Revised Code)
and the Iowa Business Corporation Act (Section 490.101 et seq.) (together,
the "MERGER LAWS") and the parties hereto have taken, and hereby agree to
take, any other actions required by law to make the Merger effective. As a
result of the Merger, the separate corporate existence of the Company shall
cease and MAC, with all its purposes, objects, rights, privileges, powers and
franchises, shall continue as the surviving corporation of the Merger (herein
sometimes, the "SURVIVING CORPORATION"). Immediately after the filing of the
Certificates of Merger, AmeriLink shall cause the Articles of Incorporation
of MAC to be amended to change its name to "Midwest Computer Cable, Inc."
The time the Merger becomes effective is referred to herein as the
"EFFECTIVE TIME" and the date on which the Effective Time occurs is referred
to as the "CLOSING DATE." Prior to the filing of the Certificates of Merger,
a closing has taken place at the offices of Squire, Sanders & Dempsey L.L.P.,
41 South High Street, Columbus, Ohio 43215, at 10:00 A.M., local time, on
February 2, 1999, at which the conditions set forth in Article X have been
satisfied or waived (the "CLOSING").
2.2 MERGER CONSIDERATION. In full consideration and exchange for
the Merger, AmeriLink and/or MAC, as appropriate, has delivered the Merger
Consideration (defined below) to the Shareholders and such Shareholders have
tendered their Company Shares to MAC at the Closing. The aggregate
consideration for the Merger (the "MERGER CONSIDERATION") is (a)(i) the sum
of $4,400,000 (the "CASH PORTION OF THE MERGER CONSIDERATION") and (b)
500,000 AmeriLink Common Shares (the "STOCK PORTION OF THE MERGER
CONSIDERATION").
2.3 CLOSING. All transactions consummated at the Closing are
deemed to have taken place simultaneously and are deemed to be effective as
of the opening of business of the Company on the Closing Date. At the Closing:
(a) AmeriLink and/or MAC, as appropriate, has delivered the
Merger Consideration to the Shareholders. The Merger Consideration is
allocated among each of the Shareholders in proportion to the number of
Company Shares held by each of them as of the Closing Date.
(b) Each Shareholder has delivered certificates for the Company
Shares registered in the name of that Shareholder, in each case endorsed
in blank or with executed blank stock powers attached. Each certificate
so delivered does not bear any legend restricting the transferability of
the Company Shares except as may be required under the United States
federal securities laws and all transfer, documentary, stamp or other
similar taxes or duties (including, without limitation, any real property
transfer taxes imposed by any taxing authority) payable on or in respect
of the transfer thereof shall have been paid by that Shareholder.
(c) Each Shareholder and AmeriLink and MAC has delivered or
caused to be delivered the agreements, opinions, certificates and other
documents required by Sections 10.1 and 10.2, respectively.
2.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the Merger Laws. As of the Effective Time, the Surviving
Corporation shall be a wholly owned subsidiary of AmeriLink.
2.5 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of MAC immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, except as provided in
-5-
<PAGE>
Section 2.6. The Code of Regulations of MAC immediately prior to the
Effective Time shall be the Code of Regulations of the Surviving Corporation.
2.6 NAME. As of the Effective Time, the name of the Surviving
Corporation shall be changed to Midwest Computer Cable, Inc.
2.7 DIRECTORS. The directors and officers of MAC immediately prior
to the Effective Time shall be the initial directors and officers of the
Surviving Corporation until their successors shall have been duly elected or
appointed and shall have qualified or until their earlier death, resignation
or removal in accordance with the Articles of Incorporation and Code of
Regulations of the Surviving Corporation.
2.8 CONVERSION. At the Effective Time, by virtue of the Merger and
without any action on the part of AmeriLink, MAC, the Company or the holder
of any of the following securities:
(a) Each Company Share shall be converted into the right to
receive an allocable share of the Merger Consideration as described in
Section 2.3(a).
(b) Each Company Share which is held in the treasury of the
Company shall be canceled and retired and cease to exist.
(c) Each issued and outstanding share of the capital stock of
MAC shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation.
2.9 TAX CONSEQUENCES. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
ARTICLE III
ADDITIONAL CONSIDERATION
3.1 EMPLOYMENT AGREEMENTS AND OPTION. Subject to the terms and
conditions set forth in this Agreement and in reliance upon the
representations, warranties, covenants and conditions herein contained, on
the Closing Date:
(a) MAC and each of Larry Kendall, Jeffrey Van Polen, Richard
Pearson and Michael Maddison have executed, and AmeriLink has guaranteed,
separate employment agreements dated as of the Closing Date (the
"EMPLOYMENT AGREEMENTS").
(b) AmeriLink has granted to the following individuals stock
options for that number of shares of AmeriLink Common Stock ("Option
Shares") set forth opposite each such individual's name:
<TABLE>
<CAPTION>
NAME NUMBER OF OPTION SHARES
---- -----------------------
<S> <C>
Larry Kendall 25,000
Jeffrey Van Polen 5,000
Richard Pearson 5,000
Michael Maddison 5,000
</TABLE>
The exercise price for all Option Shares subject to the stock options
granted hereunder is the Last Reported Sales Price prior to the date of
the grant. All such stock options have been granted pursuant to the
AmeriLink's 1994 Stock Incentive Plan, as amended, and shall expire ten
years from the date of the grant. The stock options will not be
"incentive stock options" pursuant to Section 422 of the Code. All such
-6-
<PAGE>
options will become exercisable as to 20% of the Option Shares upon
completion of first full year of employment and will become exercisable
as to an additional 20% of the Option Shares upon completion of each
additional full year of employment thereafter. Each of the foregoing
grants of stock options have been evidenced by a stock option award
agreement dated as of the Closing Date containing provisions customarily
set forth in similar agreements between the AmeriLink and employees of
its subsidiaries (the "STOCK OPTION AGREEMENTS").
3.2 RIGHT OF FIRST OFFER TO PURCHASE QUIKTRON. The Principal
Shareholders hereby represent and warrant to AmeriLink that they are and,
subject to the provisions below, shall continue to be, the sole owners of all
of the capital stock and equity securities of Quiktron, now or hereafter
issued or agreed to be issued (the "Quiktron Stock"), and agree as follows:
(a) If, during the 10 year period following the Closing Date,
the Principal Shareholders desire to enter into an arrangement with a
third party for the Disposition (as defined below) of either (i) any or
all of the Quiktron Stock or (ii) all or substantially all of the assets
of Quiktron, then the Principal Shareholders shall notify AmeriLink of
this fact in writing (the "NOTICE"), which Notice shall set forth the
price or other consideration for which the notifying party would agree to
a Disposition of the Quiktron Stock or the Quiktron assets, as the case
may be. As used herein, the term "DISPOSITION" means the sale, pledge,
encumbrance, or other transfer, or agreement to do any of the foregoing,
directly or indirectly, of the Quiktron Stock or the assets of Quiktron.
(b) If AmeriLink notifies the Principal Shareholders in writing
(the "NOTICE RESPONSE") within 30 days of the date on which a copy of the
Notice was received by AmeriLink (the "RESPONSE PERIOD") that AmeriLink
desires to acquire the Quiktron Stock or the Quiktron assets, as the case
may be, for the consideration set forth in the Notice, then, within 30
days after delivery of the Notice Response to the Principal Shareholders,
or such other notifying party, AmeriLink shall provide such notifying
party, with an agreement ("Acquisition Agreement") containing
substantially the same terms and conditions as set forth in the Notice,
including without limitation, consideration payable thereunder consistent
with the consideration provided for in the Notice, and such other terms
and conditions as are customary for the transaction identified in the
Notice. Such notifying party and AmeriLink shall negotiate in good faith
to execute the Acquisition Agreement within 30 days after such notifying
party's receipt of the Acquisition Agreement from AmeriLink.
(c) If a copy of the Notice is delivered to AmeriLink as
provided in Section 3.2(b) and either (i) AmeriLink fails to deliver a
Notice Response within the Response Period; or (ii) after delivery of a
Notice Response, AmeriLink fails to deliver or execute an Acquisition
Agreement within the time periods provided therefor in Section 3.2(b),
the notifying party may, for a period of 180 days thereafter, enter into
a contractual arrangement with any third party for the Disposition of
Quiktron Stock or Quiktron assets set forth in the Notice for
consideration equal to or greater than that set forth in the Notice, and
upon the other material terms and conditions set forth in the Notice. If
Principal Shareholders do not so enter into a contractual arrangement
with a third party within said 180-day period, then the Principal
Shareholders or such other notifying party must again comply with all of
the provisions of this Section 3.2 before entering into any contractual
arrangement with any third party for the Disposition of Quiktron Stock or
Quiktron assets, and the failure of the Principal Shareholders or such
other notifying party to do so will constitute a breach under this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
The Company and the Principal Shareholders, jointly and severally,
represent and warrant to AmeriLink and MAC that:
-7-
<PAGE>
4.1 COMPANY CORPORATE EXISTENCE AND POWER; NO SUBSIDIARIES. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of Iowa, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except in
those jurisdictions where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. SCHEDULE
4.1 lists each jurisdiction in which the Company is qualified to do business
as a foreign corporation. The Company has heretofore delivered to AmeriLink
true and complete copies of the Company's charter and bylaws and made
available for AmeriLink's inspection the Company's minute books, which minute
books contain a true and complete record of all meetings, and consents in
lieu of a meeting, of the Company's board of directors (and any committee
thereof) and of the Company's stockholders held or executed since the
Company's incorporation, and such records accurately reflect all transactions
referred to therein. The Company does not have any Subsidiaries or any
equity interests in any corporation, partnership, limited liability company,
joint venture arrangement or other business entity.
4.2 NON-CONTRAVENTION. Except as set forth on SCHEDULE 4.2, the
execution, delivery and performance by Shareholders of this Agreement and the
consummation of the Merger do not and will not contravene or constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company or to a loss of any
benefit to which the Company is entitled under any provision of applicable
law or regulation or of the charter, bylaws or operating agreement of the
Company or of any agreement, judgment, injunction, order, decree,
administrative interpretation, award or other instrument binding upon the
Company or result in the creation or imposition of any Lien on any asset of
the Company.
4.3 CAPITALIZATION. The authorized capital stock of the Company,
including, if applicable, each class thereof, and the number of shares
thereof issued and outstanding, whether or not fully paid for and
non-assessable, and, if applicable, any such shares authorized and reserved
for issuance for any particular purpose, is as set forth on SCHEDULE 4.3.
All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable, except
as set forth in this Section and on SCHEDULE 4.3, there are outstanding (a)
no shares of capital stock or other voting securities of the Company or
capital appreciation rights, stock options, warrants, stock appreciation
rights or other phantom equity interests based on the value of the Company's
capital stock or other voting securities, (b) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (c) no options or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of the Company; and (d) no obligations of the Company to
repurchase, redeem or otherwise acquire any of the foregoing.
4.4 FINANCIAL STATEMENTS. The Company has delivered to AmeriLink
(a) its reviewed balance sheets for the fiscal years ended June 30, 1996 and
June 30, 1997, together with the related statements of income, cash flows and
changes in stockholders' equity for the years ended on such dates, together,
in each case, with all related notes and schedules thereto, accompanied by
the review reports thereon of the Company's Accountants (collectively, the
"REVIEWED FINANCIAL STATEMENTS") and (b) the audited balance sheet of the
Company dated December 31, 1998, and the related audited statements of
income, cash flows and changes in stockholders' equity of the Company for the
twelve month period ended December 31, 1998, in each case, with all related
notes and schedules thereto, accompanied by the audit report thereon of the
Company's Accountants (collectively referred to herein as the "AUDITED
FINANCIAL STATEMENTS" and together with the Reviewed Financial Statements,
the "COMPANY FINANCIAL STATEMENTS"). The Reviewed Financial Statements were
reviewed by the Company Accountants in accordance with standards established
by the American Institute of Certified Public Accountants ("AICPA") and the
review report with respect thereto stated that the Company Accountants were
not aware of any material modifications that should have been made to the
respective accompanying financial statements and information further to be in
conformity with GAAP, other than lack of year-end adjustments and footnote
disclosures. The Audited Financial Statements, including any footnotes
thereto, have been prepared in accordance with GAAP consistently applied, and
in all material respects fairly present the financial position, results of
operations, cash flows and changes in stockholders' equity of the Company as
of December 31, 1998 and for the twelve-month period then ended. The assets
and liabilities and items of income and expense on the Audited Financial
Statements
-8-
<PAGE>
are bona fide and were not acquired, earned or incurred pursuant to any
contract or other arrangement which was entered into, amended or terminated
in anticipation of any of the transactions contemplated by this Agreement.
The books and records of the Company are in all material respects
complete and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition of
the Company as set forth in the aforementioned Company Financial Statements.
4.5 ABSENCE OF CERTAIN CHANGES. Except as set forth in the
SCHEDULE 4.5, since December 31, 1998, the Company has conducted its business
in the ordinary course and there has not been:
(a) any event or any change in the business or condition
(financial or otherwise) of the Company that has had or may have,
individually or in the aggregate, a Material Adverse Effect;
(b) any amendment or alteration in any material term of
articles of incorporation, by-laws or other charter documents of the
Company;
(c) any amendment or alteration in any material term of any
outstanding security, option, warrant or phantom equity interest of the
Company;
(d) any (i) incurrence, assumption or guarantee by the Company
of any debt for borrowed money other than in the ordinary course of
business, (ii) issuance or sale of any securities of the Company
convertible into or exchangeable for debt securities of the Company, or
(iii) issuance or sale of options or other rights to acquire from the
Company debt securities of the Company or any securities convertible into
or exchangeable for any such debt securities;
(e) any creation, assumption or incurrence by the Company of
any Lien on any material asset, other than in the ordinary course of
business;
(f) any assumption, guarantee, endorsement or other action by
the Company to become liable for the obligations of any Person except
endorsements of negotiable instruments and chattel paper subject to
recourse in the ordinary course of business;
(g) any making of any loan, advance or capital contribution to
or investment in any Person other than loans, advances or capital
contributions or investments made in the ordinary course of business, any
issue or sale of Company Shares, or redemption, repurchase or other
acquisition of shares of capital stock or other equity interests in or
other securities of the Company, or any dividend or other distribution
with respect thereto;
(h) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company
which, individually or in the aggregate, has had or may have,
individually or in the aggregate, a Material Adverse Effect;
(i) any transaction or commitment made, or any contract or
agreement entered into, by the Company relating to its assets or business
(including the acquisition or disposition of any substantial assets) or
any relinquishment by the Company of any contract or other right, in
either case, material to the Company, other than transactions and
commitments in the ordinary course of business or contemplated by this
Agreement;
(j) any grant of any severance or termination pay to any
officer, consultant or employee of the Company, any entering into of any
employment or consulting agreement with any officer, consultant or
employee of the Company or any increase in compensation or benefits
payable under any existing severance or termination pay policies or
employment agreements other than grants, agreements, merit increases or
cost-of-living increases in the ordinary course of business consistent
with past practice; or
-9-
<PAGE>
(k) any agreement or arrangement made by the Company to take
any action which if taken prior to the date hereof would have made any
representation or warranty in this section untrue or incorrect.
(l) any transaction or commitment made, or any contract or
agreement entered into, by the Company with any director, officer,
employee or shareholder (or with any relative, beneficiary, spouse or
affiliate thereof).
(m) any tax election made by the Company or any settlement or
compromise of any material federal, state, local or foreign income tax
liability of the Company.
(n) any payment, discharge or satisfaction of any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) of or against the Company, other than the
payment, discharge or satisfaction, in the ordinary course of business
and consistent with past practice, of liabilities reflected or reserved
against in the Company Financial Statements or subsequently incurred in
the ordinary course of business and consistent with past practice.
4.6 PROPERTIES; ASSETS.
(a) SCHEDULE 4.6 contains a list of:
(i) all personal property, machinery and equipment of the
Company as of December 31, 1998 with a value of over
$1,000;
(ii) all inventory of the Company as of December 31, 1998; and
(iii) all real property leased by the Company (together with a
street address of the leased premises). The Company owns
no real property or interests in real property except its
leasehold interests listed in SCHEDULE 4.6.
(b) The Company has, or prior to the Closing will have, good
title or valid and subsisting leasehold interests in, all properties and
assets listed in SCHEDULE 4.6. None of such properties or assets is
subject to any Liens except:
(i) Liens disclosed in SCHEDULE 4.6;
(ii) Liens for taxes not yet due or being contested in good
faith (and for which adequate reserves have been
established on the Interim Financial Statements); or
(iii) Liens which do not materially detract from the value of
such property or assets as now used or materially interfere
with any present or intended use of such property or
assets.
(c) There is no violation of any law regulation or ordinance
(including without limitation laws, regulations or ordinances relating to
zoning, environmental, city planning or similar matters) relating to the
properties and assets of the Company except for such violations as would
not in the aggregate have, individually or in the aggregate, a Material
Adverse Effect.
(d) There are no pending or, to the knowledge of any Principal
Shareholder after due inquiry threatened, condemnation proceedings,
lawsuits, or administrative actions relating to the property or other
matters affecting materially and adversely the current use, occupancy, or
value thereof.
(e) The buildings, machinery (including but not limited to
motor vehicles), equipment, and other tangible assets that the Company
owns and leases and which are used in its business as presently conducted
are free from patent (and to the knowledge of Principal Shareholders,
latent) material defects,
-10-
<PAGE>
have been consistently maintained in accordance with normal industry
practice , and are in good operating condition and repair (subject to
normal wear and tear) and, during the twelve-month period ended
December 31, 1998, the Company has not deferred any maintenance of the
foregoing items or the accrual of any expenses associated with such
maintenance.
(f) SCHEDULE 4.6 sets forth the address of the principal
executive office of the Company and the location of all property owned or
leased by the Company and the functions thereof, as well as the locations
of all inventory of the Company.
(g) All inventory of the Company identified on SCHEDULE 4.6 or
subsequently acquired was acquired, and has been maintained, in the
ordinary course of the Business, and consists substantially of a quality,
quantity and condition usable and saleable in the ordinary course of the
Business, without write-down or write-off, as would be required by GAAP.
None of the inventory in the possession of the Company is held on
consignment, and none of the inventory of the Company is consigned to
third parties. The Company is not under any liability or obligation with
respect to the return of inventory in the possession of any third
parties. In the 24 month period prior to the Closing Date, the Company
has not accumulated or maintained inventory in excess of that reasonably
necessary to meet current commitments to its customer demands and has
consistently replenished inventory on an as-needed basis, but not in
excess of amounts sufficient to meet reasonably foreseeable customer
demands.
4.7 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of
the Company of any kind whatsoever, whether accrued, contingent, absolute or
conditional, and whether or not the amount thereof is determinable, that are,
individually or in the aggregate, required to be disclosed in accordance with
GAAP, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than:
(a) liabilities disclosed or provided for in the Company
Financial Statements;
(b) liabilities listed in SCHEDULE 4.7; and
(c) liabilities incurred in the ordinary course of business
since December 31, 1998.
4.8 LITIGATION.
(a) Except as set forth in SCHEDULE 4.8(A), there is no
action, suit, investigation or proceeding pending against, or, to any
Principal Shareholder's knowledge after due inquiry, threatened
against or affecting, the Company or any of the Company's properties
before any court or arbitrator or any governmental body, agency or
official which, if determined or resolved adversely to the Company,
may have, individually or in the aggregate, a Material Adverse Effect
or which in any manner challenges or seeks to prevent, enjoin, alter
or materially delay the transfer of the Company Shares and there is no
unsatisfied judgment, order, stipulation, injunction, decree or award
to which the Company or any of its properties is subject.
(b) Except as set forth on SCHEDULE 4.8(B), the Company has not
received notice or information of any claim or allegation of personal
death or material personal injury, property or economic damage, any claim
for punitive or exemplary damages, any material claim for contribution or
indemnification, or any claim for injunctive relief in connection with
any product sold or distributed or any service provided by it.
(c) Except as set forth on Schedule 4.8(c), the Company has not
received notice or information of any warranty claim relating to the use
of any inventory or other materials purchased from Quiktron in connection
with any product sold or distributed or any service provided by the
Company.
4.9 BUSINESS ACTIVITIES.
-11-
<PAGE>
(a) Except as set forth in SCHEDULE 4.9, there is no
agreement, judgment, injunction, order, decree or other instrument
binding upon the Company which has or could reasonably be expected to
have the effect of prohibiting any business practice of the Company,
any acquisition of property by the Company or the conduct of business
by the Company either before or after the Closing Date.
(b) None of the Company's suppliers have canceled or otherwise
terminated its relationship with the Company, or made any written or oral
threat to cancel or terminate its relationship with the Company, for any
reason, including the consummation of the transactions contemplated
hereby.
(c) The Company is not bound by any commitments for the
performance of services or delivery of products in excess of its ability
to provide such services or deliver such products during the time
available to satisfy such commitments, and all outstanding commitments
for the performance of services or delivery of products were made on a
basis calculated to produce a profit under the circumstances prevailing
when such commitments were made.
(d) Except as set forth on SCHEDULE 4.9, now or at any time
since December 31, 1998, the Company has not received notice of, nor has
any Person asserted against it, any material product liability or
warranty claim relating to the products or services offered or sold by
the Company.
4.10 TAX MATTERS.
(a) Except as disclosed on SCHEDULE 4.10:
(i) the Company (and any predecessor of the Company)
has been a validly electing S corporation within
the meaning of sections 1361 and 1362 of the Code
at all times since July 1, 1998 and the Company
will be an S corporation up to and including the
Closing Date;
(ii) the Company has never been liable for any tax
under section 1371, 1374 or 1375 of the Code;
(iii) all Returns for any Tax period ending on or prior
to the Closing Date required to be filed by the
Company on or prior to the Closing Date have been
or will be filed when due in timely fashion and
are complete and accurate in all material
respects, except where the failure to file such
Returns or any incompleteness or inaccuracy
therein has not had, and could not have,
individually or in the aggregate, a Material
Adverse Effect;
(iv) all Taxes with respect to the Company or its
Business and any Subsidiary that are due (or
claimed to be due) on or before the Closing Date
by any Taxing jurisdiction have been paid in full
on a timely basis or an adequate reserve has been
set up for the amount of such Taxes and is
reflected in the Audited Financial Statements;
with respect to any transactions occurring on or
before the Closing Date, all Taxes required to be
collected from others or deducted or withheld from
any amounts paid to employees or others have been
duly collected or withheld, and timely paid over
to the appropriate Taxing jurisdiction; all sales
Tax exemption certificates for sales where Tax was
not charged have been properly completed and filed
with respect to all sales occurring on or before
the Closing Date; except in all cases for those
Taxes that are being contested in good faith (and
for which an adequate reserve has been set up on
the Audited Financial Statements);
-12-
<PAGE>
(v) no material deficiencies for Taxes relating to the
income, properties, operations, or businesses of
the Company have been claimed, proposed, or
assessed by any governmental authority prior to
the Closing; there is no pending or (to the
knowledge of any Principal Shareholder after due
inquiry or the Company and its counsel and tax
advisers) threatened action, suit, proceeding,
investigation, audit, or claim for or relating to
any liability in respect of such Taxes, and there
are no matters under discussion with any
governmental authorities with respect to Taxes
that could result in a material additional amount
of such Taxes; audits of federal, state, and local
Returns for such Taxes have been completed by the
relevant governmental authorities for each period
set forth in SCHEDULE 4.10; and, except as set
forth in SCHEDULE 4.10, the Company has not been
notified that (i) any governmental authority
intends to audit any Return for any other period,
or (ii) any governmental authority in a
jurisdiction where it does not file returns claims
or intend to claim that the Company is or may be
subject to Tax in or by that jurisdiction;
(vi) the Company has not waived any statute of
limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment
or deficiency;
(vii) Neither the Company nor any Subsidiary (A) has
been a party to any Tax allocation or sharing
agreement, (B) has been a member of an affiliated
group (other than an affiliated group of which the
Company is the parent) filing a consolidated
federal income tax Return, nor taken any other
action that could result in tax liability for
Taxes of an affiliated group under Treas. Reg.
Section 1.1502-6 (or any similar provision of
state, local, or foreign law), including as a
transferee or successor, by contract, or
otherwise, or (C) is currently the beneficiary of
any extensions of time within which to file any
Return;
(viii) The earliest taxable period of the Company (and
each Subsidiary) for which the statute of
limitations is still open is the fiscal year ended
June 30, 1995. Schedule 4.10 lists all federal,
state, local, and foreign income tax Returns filed
with respect to the Company and any Subsidiary for
all taxable periods for which the statute of
limitations is still open, and indicates those
income tax Returns that have been audited and
those that are currently the subject of an audit.
The Company and each Subsidiary has delivered to
AmeriLink correct and complete copies of all
state, federal, and foreign income tax Returns
with respect to all taxable periods for which the
statute of limitations is still open, and copies
of all examination reports and statements of
deficiencies that have been assessed against or
agreed to by the Company or any Subsidiary and
that may have any material effect on the tax
liability of the Company or any Subsidiary for any
present or future taxable period or for any past
taxable period for which the statute of
limitations is still open;
(ix) All material Tax elections that have been made by
the Company and each Subsidiary are shown on
Schedule 4.10. Neither the Company nor any
Subsidiary has any net operating losses or other
Tax attributes that are subject to limitation
under Code Sections 382, 383, or 384, or the
federal consolidated return regulations;
(x) Neither the Company nor any Subsidiary has been a
United States real property holding corporation
within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code
Section 897(c)(1)(A)(ii);
-13-
<PAGE>
(xi) Neither the Company nor any Subsidiary (A) has
agreed or consented at any time under
Section 341(f) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any
disposition of any assets, (B) has agreed, or is
required, to make any adjustment under
Section 481(a) of the Code by reason of a change
in accounting method or otherwise, (C) has made an
election, or is required, to treat any asset as
owned by another person pursuant to the provisions
of Section 168(f) of the Code or as Tax-exempt
bond financed property or Tax-exempt use property
within the meaning of section 168 of the Code,
(D) has made any of the foregoing elections or is
required to apply any of the foregoing rules under
any comparable state or local Tax provision, or
(E) owns any material assets that directly or
indirectly secure debt the interest on which is
Tax-exempt under section 103(a) of the Code;
(xii) The transaction contemplated herein, either by
itself or in conjunction with any other
transaction that either the Company or any
Subsidiary may have entered into or agreed to,
will not give rise to any federal income tax
liability under section 355(e) of the Code for
which the Company or any Subsidiary may in any way
be held liable;
(xiii) Neither the Company nor any Subsidiary is a party
to any "Gain Recognition Agreements" as such term
is used in the Treasury Regulations promulgated
under Section 367 of the Code;
(xiv) Neither the Company nor any Subsidiary has made or
become obligated to make, nor will either the
Company or any Subsidiary, as a result of any
event connected with any transaction contemplated
herein and/or any termination of employment
related to such transaction, make or become
obligated to make, any "excess parachute payment,"
as defined in Section 280G of the Code (without
regard to subsection (b)(4) thereof);
(xv) There are no liens for Taxes (other than for
current Taxes that are not yet due and payable or
are being contested in good faith) upon the assets
of either the Company nor any Subsidiary;
(xvi) There are no joint ventures, partnerships, limited
liability companies or other arrangements or
contracts to which either the Company or any
Subsidiary is a party that could be treated as a
partnership for federal income Tax purposes;
(xvii) Neither the Company nor any Subsidiary has or has
had a "permanent establishment" in any foreign
country, as such term is defined in any applicable
Tax treaty or convention between the United States
and such foreign country or has otherwise taken
steps that have exposed, or will expose, it to the
taxing jurisdiction of a foreign country;
(xviii) The aggregate unpaid Taxes of the Company and all
Subsidiaries (A) did not, as of the most recent
fiscal month end prior to the date hereof, exceed
the reserve for Tax liability (not including any
reserve for deferred Taxes established to reflect
timing differences between book and Tax income)
set forth on the face of the most recent balance
sheet of the Audited Financial Statements that
have been made available to AmeriLink and (B) will
not, as of the Closing Date, exceed such reserve;
and
(xix) The Company has taken no action (including but not
limited to any distribution or disposition prior
to the Closing of assets of the Company
constituting 10
-14-
<PAGE>
percent or more of the value of the Company's net
assets or 30 percent or more of the value of the
Company's gross assets prior to such distribution
or disposition) that would adversely affect the
status of the transaction contemplated by this
Agreement from constituting a "reorganization"
within the meaning of Section 368(a) of the Code.
(b) "TAX" or "TAXES" means any federal, state, local or foreign
income, gross receipts, gross income, profits, franchise, transfer,
sales, use, payroll, occupation, property (real or personal), excise,
alternative, minimum, estimated, environmental and similar taxes,
assessments, and governmental charges (including interest, penalties or
additions to such taxes). "RETURNS" means all returns, reports,
estimates, information returns and statements of any nature with respect
to Taxes, including any schedule or attachment thereto and any amendment
thereof.
(c) (i) The only material audit adjustments for the Company's
Taxable years ended June 30, 1995 and June 30, 1996 described on SCHEDULE
4.10 attached hereto related to failure of the Company to use the accrual
method of accounting for the reporting of income on such Returns, (ii)
all Taxes relating to such audit adjustments have been paid in full and
(iii) all income of the Company for all Taxable periods subsequent to the
audit years ended June 30, 1996 has been recorded and calculated on the
Company's Returns using the accrual method of accounting as required by
the Code.
4.11 EMPLOYEE BENEFITS.
(a) SCHEDULE 4.11 lists each Employee Benefit Plan that any
Shareholder, any ERISA Affiliate or the Company maintains,
participates in or contributes to for the benefit of employees or
former employees of the Company.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract or fund) at all times
has been maintained and administered in compliance
with its terms and has complied in form and in
operation in all respects with the applicable
requirements of all laws, regulations and rulings,
including but not limited to ERISA and the Code.
(ii) All contributions (including all employer
contributions and employee salary reduction
contributions) which are due have been timely paid
to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(iii) The Company has delivered or caused to be
delivered to AmeriLink true and complete copies of
the plan documents and summary plan descriptions,
the most recent determination letter received from
the IRS, the most recent five (5) Form 5500 Annual
Reports, all related trust agreements, insurance
contracts and other funding agreements which
implement each such Employee Benefit Plan, and all
information dated within the prior two years
regarding any plan funding waiver requests, IRS
letter rulings and requests therefor, requests for
technical advice, or other outstanding issue
involving such Employee Benefit Plan with the IRS,
the Department of Labor, or the PBGC.
(iv) No Reportable Event, "prohibited transaction" (as
such term is used in Section 406 of ERISA or
Section 4975 of the Code) or "accumulated funding
deficiency" (as such term is used in Section 412
or Section 4971 of the Code) has heretofore
occurred with respect to any Employee Benefit Plan
which is an Employee Pension Benefit Plan that
could give rise to liability to the Company.
(v) Except as disclosed on SCHEDULE 4.11, (i) none of
Shareholders, any ERISA Affiliate, or the Company
is providing or has an obligation to provide post-
-15-
<PAGE>
retirement medical or life benefits to any
employees or former employees of the Company,
exclusive of any obligations imposed by COBRA, and
(ii) there are no restrictions on the rights of
Shareholders, any ERISA Affiliate or the Company
to amend or terminate any post-retirement medical
or life benefits without incurring any liability
therefor and no communications have been made to
participants with respect to guaranteeing any such
benefits.
(vi) Except as disclosed on SCHEDULE 4.11 consummation
of the transactions contemplated by this Agreement
will not directly or indirectly result in an
increase in the amount of compensation or benefits
or accelerate the vesting or timing of payment of
any benefits or compensation payable to or in
respect of any current or former employee of the
Company under the terms of existing agreements
and/or arrangements of the Company.
(b) With respect to each Employee Benefit Plan that the Company
or any ERISA Affiliate maintains or has maintained during the prior six
(6) years or to which any of them contributes, or has been required to
contribute during the prior six (6) years:
(i) No action, claim, suit, proceeding, hearing,
governmental audit or investigation with respect
to any such Employee Benefit Plan or their assets
(other than routine claims for benefits) is
pending or threatened.
(ii) The Company has not incurred any liability, and no
event has occurred or is expected to occur which
could give rise to liability to the Company, to
the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any
withdrawal liability) with respect to any
Multiemployer Plan or any Employee Benefit Plan
which is an Employee Pension Benefit Plan.
4.12 MATERIAL CONTRACTS.
(a) SCHEDULE 4.12(a) lists each of the following contracts and
agreements of the Company (collectively, the "MATERIAL CONTRACTS"):
(i) each instrument or arrangement creating a Lien on
any real or personal property;
(ii) each indenture, trust agreement, credit agreement
or other instrument relating to any issue of
bonds, debentures, notes or other evidences of
indebtedness;
(iii) each lease or other agreement relating to real or
personal property or any interest therein that
either does not terminate or is not terminable
within six months from the date hereof;
(iv) each letter of credit, bank account or safe
deposit box arrangement;
(v) each contract or agreement between the Company and
any Affiliate; and
(vi) each contract or agreement that obligates the
Company to perform, provide or purchase goods,
supplies or services which have an individual
value of more than $10,000 or that is not
terminable upon thirty days or less written notice
without penalty or premium.
(b) Except as disclosed in SCHEDULE 4.12(b), each Material
Contract: (i) is valid and binding on the Company; and (ii) is in full
force and effect.
-16-
<PAGE>
(c) The Company is not in breach of, or default under, any
Material Contract. To the knowledge of the Company, no other party to
any Material Contract is in breach thereof or default thereunder.
(d) SCHEDULE 4.12(d) lists each contract and agreement between
the Company and Quiktron and, except as disclosed in Schedule 4.12(d)
each such contract is terminable by the Company, without penalty, within
thirty days after the Company delivers notice of termination to Quiktron.
4.13 LICENSES. No license, franchise, permit or other similar
authorization held by the Company will be terminated or impaired as a result of
the transactions contemplated by this Agreement, except such terminations or
impairments as would not have, individually or in the aggregate, a Material
Adverse Effect.
4.14 INSURANCE. SCHEDULE 4.14 lists, and the Company has furnished to
AmeriLink true and complete copies of, all insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company (including without limitation workers
compensation policies). There is no claim by the Company pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds are current and the Company is otherwise in
compliance in all material respects with the terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies and
bonds providing substantially similar insurance coverage) are in full force and
effect. The Principal Shareholders do not know of any threatened termination of
or premium increase with respect to any of such policies or bonds.
4.15 COMPLIANCE WITH LAWS. Except for tax laws and Environmental Laws
(which are addressed in Sections 4.10 and 4.17, respectively) and except for
violations which do not have and will not have, individually or in the
aggregate, a Material Adverse Effect, the Company is not in violation of any
applicable provisions of any laws, statutes, ordinances or regulations.
4.16 PATENTS, TRADEMARKS, ETC.
(a) SCHEDULE 4.16 lists all Intellectual Property which is
owned and is used or held for use by the Company (the "INTELLECTUAL
PROPERTY RIGHTS") and which is material to the Company or the Business
specifying as to each as applicable: (i) the nature of such Intellectual
Property Right; (ii) the owner of such Intellectual Property Right; (iii)
the jurisdictions by or in which such Intellectual Property Right has
been issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) material licenses, sublicenses and other
agreements as to which the Company or any of its Affiliates is a party
and pursuant to which any Person is authorized to use such Intellectual
Property Right including the identity of all parties thereto, a
description of the nature and subject matter thereof, the royalty
provided and the term thereof. Except as set forth in SCHEDULE 4.16, the
Company is the sole and exclusive owner of, with all right, title and
interest in and to, free and clear of any Lien, the Intellectual Property
Rights described therein and has sole and exclusive right (without being
contractually obligated to pay in the future compensation to any third
party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which
they are being used. The Intellectual Property Rights constitute all of
the Intellectual Property used by the Company in the conduct of the
Business and there are no other items of Intellectual Property that are
material to the Company or the Business.
(b) Except as set forth in SCHEDULE 4.16, the Company has no
writings for which a claim for copyright has been recorded or is pending.
(c) Except as set forth in SCHEDULE 4.16, the Company (i) has
not been sued or charged in writing with or been a defendant in any
claim, suit, action or proceeding relating to the Company not finally
terminated prior to the date hereof involving a claim of infringement of
any patents, trademarks, service marks or copyrights, (ii) has no
knowledge of any such charge or claim, or (iii) has no knowledge
-17-
<PAGE>
of any infringement since such date by any other person on any of the
Intellectual Property Rights. No Intellectual Property Right is
subject to any outstanding order, judgment, decree, stipulation or
agreement restricting the use thereof by the Company or restricting
the licensing thereof by the Company to any Person. The Company has
not entered into any agreement to indemnify any other person against
any charge of infringement of any patent, trademark, service mark or
copyright.
(d) The consummation of the transactions contemplated by this
Agreement will not contravene or constitute a default under, require the
consent of any person pursuant to or otherwise result in the termination
or impairment of (or permit any Person to terminate or otherwise impair)
any Intellectual Property Right.
4.17 ENVIRONMENTAL MATTERS.
(a) Except as set forth in SCHEDULE 4.17(a), to the Principal
Shareholders' knowledge, the Company has been since its incorporation in
compliance with all applicable federal, state and local laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without
limitation, laws, standards and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances hazardous substances, or
conditions, petroleum and petroleum products ("MATERIALS OF ENVIRONMENTAL
CONCERN"), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern (collectively, "ENVIRONMENTAL LAWS"),
which compliance includes, but is not limited to, the possession by the
Company of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof. Except as set forth in SCHEDULE 4.17(a), the Company
has not received any communication (written or oral), whether from a
governmental authority, citizens group, employee or otherwise, that
alleges that the Company is not in such full compliance, and, to any
Principal Shareholder's knowledge after due inquiry, there are no
circumstances that may prevent or interfere with such full compliance in
the future. All permits and other governmental authorizations currently
held by the Company pursuant to the Environmental Laws are identified in
SCHEDULE 4.17(a).
(b) Except as set forth in SCHEDULE 4.17(b), there is no claim,
action, cause of action, investigation or notice (written or oral) by any
person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from (a) the presence, or release into the environment by the Company, of
any Material of Environmental Concern at any location owned, leased or
operated by the Company or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law (collectively,
"ENVIRONMENTAL CLAIMS"), pending or threatened against the Company or, to
any Principal Shareholder's knowledge after due inquiry, against any
person or entity whose liability for any Environmental Claim the Company
has retained or assumed either contractually or by operation of law.
(c) Except as set forth in SCHEDULE 4.17(c), to the Principal
Shareholder's knowledge there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could form the basis of any
Environmental Claim against the Company or, to any Principal
Shareholder's knowledge after due inquiry, against any person or entity
whose liability for any Environmental Claim the Company has retained or
assumed either contractually or by operation of law.
(d) Without in any way limiting the generality of the
foregoing, (i) all on-site and off-site locations where the Company has
released, disposed or arranged for the disposal of Materials of
Environmental Concern are identified in SCHEDULE 4.17(d), (ii) all
underground storage tanks, and the capacity and contents of such tanks,
owned, leased or controlled by the Company are identified in SCHEDULE
4.17(d), (iii) except as set forth in SCHEDULE 4.17(d), the Company has
not installed asbestos
-18-
<PAGE>
containing materials in any building, premises or space leased or
occupied by the Company, and (iv) except as set forth in SCHEDULE
4.17(d), no polychlorinated biphenyls (PCB's) or PCB-containing items
are used or stored by the Company at any property leased or occupied
by the Company.
4.18 EMPLOYMENT AND LABOR MATTERS.
(a) SCHEDULE 4.18(a) sets forth the names, current annual rates
of salary, bonus, profit-sharing, incentive compensation, employee
benefits, accrued vacation time and sick pay, and other compensation of
all present officers, directors, employees, agents and independent
contractors of the Company. SCHEDULE 4.18(a) also sets forth all loans
and advances (other than routine travel advances to be repaid or formally
accounted for within thirty days and reflected on the books of the
Company) made by the Company since December 31, 1998.
(b) The Company is not a party to any collective bargaining
agreement and there is no election or proceeding pending to recognize a
union for any employees of the Company, in each case as of the date
hereof. There are no unfair labor practice or other administrative or
court proceedings pending, or to the knowledge of the Principal
Shareholders, threatened between the Company and its employees and there
has not occurred within the past two years any material work stoppage or
strike or any significant labor troubles at any facility of the Company.
(c) The Company has paid in full to all its employees or
adequately accrued for, in accordance with GAAP, all wages, salaries,
commissions, bonuses, benefits and other compensation due to or on behalf
of such employees and no present or former employee of the Company has a
pending claim against the Company (whether under federal or state law)
under any employment agreement, or otherwise, on account of or for (i)
overtime pay, other than overtime pay for the current payroll period,
(ii) wages or salary for any period other than the current payroll
period, (iii) vacation or time off (or pay in lieu thereof), other than
that earned in respect of the previous twelve months, or (iv) any
violation of any statute, ordinance or regulation relating to minimum
wages or maximum hours of work.
(d) Except as set forth in SCHEDULE 4.18(d), as of the date
hereof, no person has a pending claim against the Company arising out of
any material breach or violation of any law, statute, ordinance or
regulation relating to discrimination in employment or employment
practices or occupational safety and health standards (including without
limitation the Occupational Safety and Health Act, the Fair Labor
Standards Act, Title VII of the Civil Rights Act of 1964, or the Age
Discrimination in Employment Act of 1967).
4.19 BANKING INFORMATION. SCHEDULE 4.19 contains a list of all bank
accounts and credit facilities and authorized signatories on bank accounts and
credit facilities of the Company. No other persons other than as listed on the
SCHEDULE 4.19 are authorized to withdraw any funds on the bank account or to
draw down on such credit facilities.
4.20 ACCOUNTS RECEIVABLE. All of the accounts receivable of the Company
reflected on the Company Financial Statements and all of the accounts receivable
arising or existing since December 31, 1998 represent amounts receivable for
goods actually delivered or services actually provided (or, in the case of
non-trade accounts represent amounts receivable in respect of other bona fide
business transactions), have arisen in the ordinary course of business, are not
subject to any counterclaims or offsets and have been billed and are generally
due within thirty days after such billing. All such receivables are fully
collectible in the normal and ordinary course of business, except to the extent
of a reserve in an amount not in excess of the reserve for doubtful accounts
reflected on the Interim Financial Statements. SCHEDULE 4.20 sets forth (a) the
total amount of accounts receivable of the Company outstanding as of December
31, 1998 and (b) the agings of such receivables based on the following schedule:
0-30 days, 31-60 days, 61-90 days and over 90 days, from the date of the invoice
therefor. Since December 31, 1998, (a) there has been no significant increase
or reduction in the accounts receivable and other receivables of the Company nor
has there occurred any material change in the aging thereof and (b) there has
been
-19-
<PAGE>
no payment made to the Company in respect of any account receivable prior to
the date on which such receivable is due and payable.
4.21 ACCOUNTING MATTERS. The Company has recognized on its books of
account all revenues and income reflected in the Company Financial Statements as
and when earned during the respective periods covered thereby under the
percentage-of-completion method in accordance with ARB-45, "Long-Term
Construction-Type Contracts" and AICPA Statement of Position 81-1, "Accounting
for Performance of Construction -Type and Certain Production-Type Contracts"
and, since December 31,1998, has continued to so recognize on its books all such
revenues and income as and when earned in the same manner. The Company has
recorded in its books of account, and the Company Financial Statements reflect,
all losses expected to be realized on contracts in progress in the period in
which such losses have become evident or known in accordance with the provisions
of AICPA Statement of Position 81-1, and, since December 31,1998, has continued
so to record all such losses in the respective periods in which they have become
evident or known in the same manner.
4.22 WARRANTIES. Except as disclosed in SCHEDULE 4.22, the Company has
not given or made any express warranties to third parties with respect to any
goods sold or services performed by the Company. None of the Company or
Principal Shareholders have any knowledge of any state of facts or the
occurrence of any event forming the basis of, or that may form the basis of, any
present or potential claim against the Company for liability due to any express
or implied warranty.
4.23 CUSTOMERS, PRODUCT VENDORS AND SUPPLIERS.
(a) SCHEDULE 4.23(a) contains a listing of: (i) the twenty
largest customers (in dollar volume) of the Company; (ii) the twenty
largest product vendors (in dollar volume) of the Company; and (iii) the
twenty largest suppliers (in dollar volume) of the Company, in each case
for the calendar year 1997.
(b) SCHEDULE 4.23(b) contains a listing of: (i) the twenty
largest customers (in dollar volume) of the Company; (ii) the twenty
largest product vendors (in dollar volume) of the Company; and (iii) the
twenty largest suppliers (in dollar volume) of the Company, in each case
for the ten month period ended December 31, 1998. Except as described in
SCHEDULE 4.23(b), the Principal Shareholders are not aware of any
existing or anticipated changes in the policies or conditions, financial
or otherwise, of such customers, product vendors or suppliers that will
materially and adversely affect the business of the Company.
(c) Except as disclosed on SCHEDULE 4.23(c), neither any such
customer, product vendor or supplier of the Company listed in SCHEDULE
4.23(b) has reduced, canceled or otherwise terminated its relationship
with the Company, or made any written or oral threat to reduce, cancel or
terminate its relationship with the Company for any reason, including the
consummation of the transactions contemplated hereby. To the knowledge
of Principal Shareholders, neither any such customer, product vendor or
supplier listed in SCHEDULE 4.23(b) intends to cancel or otherwise
terminate its relationship with the Company or to materially decrease its
services or supplies to the Company or its usage of the services or
products of the Company, other than changes in such usage that occur in
the ordinary course of business.
4.24 YEAR 2000. Except as disclosed on SCHEDULE 4.24 hereto, all
computer hardware and software used by the Company in the conduct of its
business is capable of accurately processing, calculating, manipulating,
storing and exchanging date/time data from, into and between the twentieth
and twenty-first centuries, including, without limitation, the years 1999 and
2000 and any leap year calculations.
4.25 DISCLOSURE. The Principal Shareholders and the Company have
disclosed to AmeriLink any and all facts which could have, individually or in
the aggregate, a Material Adverse Effect.
-20-
<PAGE>
Each Principal Shareholder represents and warrants to MAC and AmeriLink,
solely as to such Principal Shareholder, as follows:
4.26 SHAREHOLDERS' CAPACITY. The execution, delivery and performance
by Principal Shareholder of this Agreement and the consummation by Principal
Shareholder of the transactions contemplated hereby are within any Principal
Shareholder's capacity and no approval or consent of any other person is
required in connection therewith.
4.27 SHAREHOLDERS' GOVERNMENTAL AUTHORIZATION, CONFLICTS.
(a) The execution, delivery and performance by Principal
Shareholder of this Agreement and the consummation of Merger require no
action by or in respect of, or filing with, any governmental body,
agency, official or authority except as has been accomplished or will be
accomplished prior to the Closing Date.
(b) No consent, approval, waiver or other action by any Person
under any material contract, agreement, indenture, lease, instrument or
other document to which the Company is a party or by which it is bound is
required or necessary for the execution, delivery and performance of this
Agreement by such Principal Shareholder or the consummation of the
transactions contemplated hereby.
4.28 NON-CONTRAVENTION. The execution, delivery and performance by
such Principal Shareholder of this Agreement and the consummation of the Merger
do not and will not contravene or constitute a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
Principal Shareholder or to a loss of any benefit to which Principal Shareholder
is entitled under any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree, administrative interpretation,
award or other instrument binding upon Principal Shareholder or result in the
creation or imposition of any Lien on any asset of Principal Shareholder.
4.29 BINDING EFFECT. This Agreement constitutes a valid and binding
agreement of such Principal Shareholder, enforceable in accordance with its
terms except as limited by bankruptcy, insolvency or other similar laws
affecting the rights of creditors generally and the application of equitable
principles.
4.30 TITLE TO SHARES. Principal Shareholder is the record and
beneficial owner of the Company Shares such Principal Shareholder has agreed to
deliver hereunder and upon delivery of the certificates for the Company Shares
by Principal Shareholder or a lost share certificate affidavit pursuant to this
Agreement, MAC will acquire good, valid and marketable title to the Company
Shares, free and clear of any Lien.
4.31 ENTIRE BUSINESS. Except as set forth in SCHEDULE 4.31, the
Company Shares constitute all of such Principal Shareholder's investment, direct
or indirect, in the Business.
4.32 CERTAIN INTERESTS. Except as set forth in SCHEDULE 4.32, neither
Principal Shareholder nor any of that Principal Shareholder's relatives or
Affiliates (other than the Company) (i) is a party to or has an interest in any
material contracts or other arrangements relating to the Business of the Company
to which the Company is a party or to which the Company or any assets used by
the Company may be subject or (ii) has any interest in any material property,
real or personal, tangible or intangible, including Intellectual Property Rights
used in or pertaining to the Company except, in each case, for the normal rights
of that Principal Shareholder as a holder of the Company Shares owned by that
Principal Shareholder. SCHEDULE 4.32 sets forth a list or description of each
material arrangement through which the Company acquires from, or provides to,
that Principal Shareholder's relatives or Affiliates any goods, properties or
services.
4.33 FINDERS' FEES. Neither the Company nor any Principal Shareholder
has employed any investment banker, broker, finder or other intermediary who
might be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
-21-
<PAGE>
4.34 ABSENCE OF CERTAIN CHANGES. Principal Shareholder has not issued
or sold any securities convertible or exchangeable for other securities of the
Company or issued or sold any options or other rights to acquire from Principal
Shareholder debt securities of the Company or securities convertible into or
exchangeable for any debt securities.
4.35 INVESTMENT INTENT. Principal Shareholder is acquiring the shares
of AmeriLink Common Stock it receives from AmeriLink hereunder for investment
and not with a view to a sale or distribution thereof within the meaning of the
Securities Act. Principal Shareholder has had an opportunity to ask questions
of the principal officers and representatives of AmeriLink and to obtain any
additional information necessary to permit an evaluation of the benefits and
risks associated with the investment made hereby. Principal Shareholder has had
sufficient experience in business, financial and investment matters to evaluate
the merits and risks involved in the investment made hereby and is able to bear
the economic risk of such investment for an indefinite period of time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AMERILINK AND MAC
AmeriLink and MAC each represents and warrants that:
5.1 CORPORATE EXISTENCE AND POWER. It is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Ohio, has
all requisite corporate power and authority to conduct its business and own its
properties as now conducted and owned, and is qualified to do business as a
foreign corporation in each jurisdiction where the failure to be so qualified
would, in the aggregate, have a material adverse effect on its business or
financial condition. It has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by its
board of directors and no other corporate proceedings are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by it and constitutes
a valid and binding agreement, enforceable against it in accordance with its
terms.
5.2 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by it nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in a breach of any
provision of its Certificate of Incorporation or Bylaws, (ii) require any
consent or approval of, or filing and expiration of a waiting period or a period
for disapproval by, any governmental authority (except for filing of an
additional listing notification with The Nasdaq Stock Market, Inc.),
(iii) result in a default (or an event that might, with the passage of time or
the giving of notice or both, constitute a default) or give rise to any right to
terminate, cancel or accelerate or to any loss of benefit under any of the
terms, conditions, or provisions of any lease, indenture, mortgage, loan or
credit agreement, or other agreement or instrument to which it is a party or by
which it or any of its assets may be bound, other than as previously disclosed
in writing to the Company, or (iv) violate any applicable law, rule or
regulation to which AmeriLink or any of its assets are bound.
5.3 LITIGATION. Except as disclosed in the SEC Documents (as defined
below), there are no actions, suits, causes of action, claims, litigation,
arbitration, administrative hearings or other form of proceedings or disputes
pending or threatened against it of a type or nature which would be required to
be disclosed by AmeriLink in any filing pursuant to Section 13 of the Exchange
Act or the rules and regulations promulgated thereunder, in any court, at law or
in equity, or before any arbitration board or any governmental department,
commission, board, bureau, agency, or instrumentality which in the aggregate
would have a material adverse effect on its business or financial condition; nor
has it been, nor is it, subject to any orders, awards, fines, judgments,
decrees, or injunctions the effect of which in the aggregate would have a
material adverse effect on its business or financial condition.
-22-
<PAGE>
5.4 CHARTER DOCUMENTS. It has heretofore delivered to the Company (i)
a copy of its articles of incorporation, as amended to date, certified by the
appropriate governmental authority, and (ii) a copy of its code of regulations,
as amended to date, as certified by its secretary or assistant secretary.
5.5 BROKERS. Except for JPS Capital Corporation, no broker, finder,
or investment banker is entitled to any brokerage, finder's, or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of or AmeriLink.
5.6 SEC FILINGS. AmeriLink has filed all required reports, forms
and other documents with the Securities and Exchange Commission (the "SEC
DOCUMENTS"). As of their respective dates (giving effect to any amendment
contained in a subsequently-filed SEC Document intended to supplement or replace
information given at any such date), the SEC Documents complied in all material
respects with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
applicable to such SEC Documents. The financial statements of AmeriLink
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Securities and Exchange Commission with respect thereto, have been prepared
(other than the pro forma financial statements included therein) in accordance
with GAAP (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
the financial position of AmeriLink and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). The pro forma combined financial statements
of the Company included in the SEC Documents, together with the related notes
thereto, present fairly the information contained therein, have been prepared in
accordance with the Securities and Exchange Commission's rules and guidelines
with respect to pro forma financial statements and have been properly presented
on the pro forma bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. Except as set forth in the SEC Documents filed and publicly available
prior to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business since the date of the most recent
pro forma combined balance sheet included in the SEC Documents filed and
publicly available prior to the date of this Agreement and liabilities and
obligations which would not, individually or in the aggregate, have a material
adverse effect on AmeriLink, neither AmeriLink nor any of its subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of AmeriLink and its consolidated subsidiaries or in the notes
thereto.
5.7 CAPITALIZATION. AmeriLink's capitalization as of February 1, 1999
consisted of (i) 10,000,000 authorized AmeriLink Common Shares, of which
4,031,174 such shares (exclusive of any such shares delivered pursuant to this
Agreement) are issued and outstanding, (ii) 500,000 authorized Class A Voting
Preferred Shares, none of which are issued and outstanding, (iii) 500,000
authorized Class B Nonvoting Preferred Shares, none of which are issued and
outstanding, and (iv) outstanding options and warrants to purchase an aggregate
of 773,403 AmeriLink Common Shares (exclusive of any such options granted
pursuant to the transactions contemplated by this Agreement). AmeriLink has no
other authorized classes of capital stock.
5.8 NO RIGHTS TO REGISTER STOCK. Except as described in the SEC
Documents, AmeriLink has no obligation to register any shares of AmeriLink
Common Stock under the Securities Act.
5.9 AMERILINK COMMON STOCK. The AmeriLink Common Stock to be issued
pursuant to this Agreement has been duly authorized by all necessary corporate
action and, when issued and delivered by AmeriLink pursuant to this Agreement,
will be validly issued, fully paid and non-assessable.
5.10 MATERIAL ADVERSE CHANGE. There has been no material adverse
change in the financial condition, properties, business or prospects of
AmeriLink since the date of AmeriLink's most recent Form 10-Q filed with the SEC
on November 11, 1998, except to the extent disclosed in AmeriLink's filings with
the SEC prior to the date hereof.
-23-
<PAGE>
ARTICLE VI
COVENANTS OF SHAREHOLDERS
Principal Shareholders covenant and agree that:
6.1 COMPETITION.
(a) Each Principal Shareholder agrees that, for a period of
three years beginning on the Closing Date, such Principal Shareholder
will not engage or participate in any capacity in any business other than
that of the AmeriLink or one of its Affiliates which is substantially
similar to any part of the business of the Company as of the Closing
Date; provided that this Section shall not prohibit any Principal
Shareholder from owning not more than 1% of the issued and outstanding
stock of any corporation whose shares are publicly traded on a recognized
national exchange or listed in the Nasdaq national market system. The
foregoing restriction shall extend to each state in the United States.
(b) Any breach of this Section 6.5 may cause irreparable injury
to the Company or AmeriLink for which a remedy at law may be inadequate.
Therefore, AmeriLink and the Company shall be entitled to temporary and
permanent injunctive or other equitable relief in any court of competent
jurisdiction without the necessity of proving actual damages, in addition
to any other remedy, including money damages, available therefor pursuant
to this Agreement, at law or in equity.
6.2 BOOKS AND RECORDS. For purposes of this Section 6.4, the word
"AmeriLink" shall include AmeriLink, its counsel, accountants, engineers,
appraisers, employees, lenders, lenders' counsel and other representatives.
After the Closing Date, each Principal Shareholder will give, or cause to be
given, to AmeriLink, during normal business hours, such reasonable access to the
personnel, properties, titles, contracts, books, records, files, documents and
affairs of the Company and that Principal Shareholder, and copies of titles,
contracts, books, records, files and documents as is necessary, in AmeriLink's
reasonable judgment, to allow AmeriLink to obtain information in connection with
the preparation of and any pending or post-closing claims, demands, appraisals,
investigations, audits, suits, actions or administrative or other proceedings by
or against AmeriLink or the Company. To satisfy legal obligations imposed on
AmeriLink, AmeriLink shall have the right to remove original documents from the
records of each Principal Shareholder relating to the Company, provided
AmeriLink furnishes that Principal Shareholder with complete and accurate copies
of such original documents. If original documents are not needed, AmeriLink
shall have the right to copy at its own expense any records and to reimburse
that Principal Shareholder for its costs in making any such copies for
AmeriLink. Any inspection and copying of records by AmeriLink will be in such
work areas as Principal Shareholder may designate.
6.3 CONFIDENTIALITY.
(a) Principal Shareholders will hold, and will cause the
Company's employees, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the Company, except to the extent that such
information can be shown to have been (i) previously known on a
non-confidential basis by the recipient, (ii) in the public domain
through no fault of any Shareholder or (iii) later lawfully acquired by
such recipient or from sources other than any of the Shareholders, the
Company or AmeriLink.
(b) Principal Shareholders will hold, and will cause the
Company's employees, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents
and information concerning AmeriLink and its subsidiaries, except to
the extent that such information can be shown to have been (i)
previously known on a non-confidential basis by the recipient, (ii) in
the public domain through no fault of any Shareholder or (iii) later
lawfully acquired by a Shareholder from sources other
-24-
<PAGE>
than any of Shareholders or AmeriLink. If this Agreement is
terminated, such confidence shall be maintained and Principal
Shareholders will, and will cause the Company's employees,
consultants, advisors, lenders and agents to, destroy or deliver to
AmeriLink, upon request, all documents and other materials, and all
copies thereof, obtained by Principal Shareholders or on behalf of
Principal Shareholders from AmeriLink in connection with this
Agreement that are subject to such confidence. If this Agreement is
terminated, such confidence shall be maintained and Principal
Shareholders will, and will cause officers, directors, employees,
consultants, advisors, lenders and agents of Principal Shareholders
and the Company to, destroy or deliver to AmeriLink, upon request, all
documents and other materials, and all copies thereof, obtained by any
Principal Shareholder or on such Principal Shareholder's behalf from
AmeriLink in connection with this Agreement that are subject to such
confidence.
ARTICLE VII
COVENANTS OF AMERILINK
AmeriLink covenants and agrees that:
7.1 CONFIDENTIALITY. AmeriLink will hold, and will cause its
officers, directors, employees, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the Company furnished to AmeriLink in connection with the
transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a nonconfidential
basis by AmeriLink, (ii) in the public domain through no fault of AmeriLink or
(iii) later lawfully acquired by AmeriLink from sources other than the Company
or Shareholders; PROVIDED that AmeriLink may disclose such information to its
officers, directors, agents, lenders and other investors in connection with the
transactions contemplated by this Agreement so long as such persons are informed
by AmeriLink of the confidential nature of such information and are directed by
AmeriLink to treat such information confidentially. AmeriLink's obligations to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as it would take to preserve the
confidentiality of its own similar information. If this Agreement is
terminated, such confidence shall be maintained and AmeriLink will, and will
cause its officers, directors, employees, consultants, advisors, lenders and
agents to, destroy or deliver to a Principal Shareholder, upon request, all
documents and other materials, and all copies thereof, obtained by AmeriLink or
on its behalf from that Principal Shareholder in connection with this Agreement
that are subject to such confidence. The provisions of this Section 7.1 shall
expire as of the Closing Date.
7.2 BOOKS AND RECORDS.
(a) For purposes of this Section 7.2(a), the word "Principal
Shareholder" shall include a Principal Shareholder, its counsel,
accountants, engineers, appraisers, employees and other representatives.
After the Closing Date, AmeriLink will give, or cause to be given, to
each Principal Shareholder, during normal business hours, such reasonable
access to the personnel, properties, titles, contracts, books, records,
files, documents and affairs of the Company and copies of titles,
contracts, books, records, files and documents as is necessary, in that
Principal Shareholder's reasonable judgment, to allow that Principal
Shareholder to obtain information in connection with any pending or
post-closing claims, demands, appraisals, investigations, other audits,
suits, actions or administrative or other proceedings by or against that
Principal Shareholder. After the Closing Date, AmeriLink will provide or
cause to be provided to that Principal Shareholder all financial
statements, exhibits and supporting schedules and access to books,
records and files as required, as in the past, for closings of that
Principal Shareholder's financial statements. To satisfy legal
obligations imposed on a Principal Shareholder, that Principal
-25-
<PAGE>
Shareholder shall have the right to remove original documents from the
records of AmeriLink relating to the Company, provided that Principal
Shareholder furnishes AmeriLink with complete and accurate copies of such
original documents. If original documents are not needed, that Principal
Shareholder shall have the right to copy at its own expense any records
and to reimburse AmeriLink for its costs in making any such copies for
that Principal Shareholder. Any inspection and copying of records by
that Principal Shareholder will be in such work areas as AmeriLink may
designate. The covenants of this Section 7.2(a) shall survive any sale
or other disposition by AmeriLink of the Company Shares and any
disposition of the assets of the Company.
(b) AmeriLink agrees that it shall preserve and keep the
records of the Company delivered to it hereunder for a period of seven
(7) years from the Closing Date.
ARTICLE VIII
COVENANTS OF SHAREHOLDERS AND AMERILINK
The parties hereto agree that:
8.1 BEST EFFORTS. Subject to the terms and conditions of this
Agreement each party will use its best efforts to take or cause to be taken all
action and to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement.
8.2 CERTAIN FILINGS; TAX MATTERS.
(a) The Principal Shareholders and AmeriLink shall cooperate
with one another (i) in connection with the preparation of any press
release or Exchange Act filing describing this Agreement or the
transactions contemplated thereby, (ii) in determining whether any other
action by or in respect of or filing with a governmental body, agency or
official, or authority or any actions, consents, approvals or waivers are
required to be obtained from parties to any material contracts in
connection with the consummation of the transactions contemplated by this
Agreement and (iii) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such actions,
consents, approvals or waivers.
(b) For tax purposes, the income of the Company shall be
apportioned to the period up to and including the Closing Date and the
period after the Closing Date as between Principal Shareholders and
AmeriLink by closing the books of the Company as of the end of the day
before the Closing Date. The Principal Shareholders shall make the
Election pursuant to Section 1362(e)(3) of the Code respecting the
closing of the Company's final tax year as of the Closing Date.
AmeriLink shall cooperate with Principal Shareholders and shall consent
to such Election.
(c) (i) The Principal Shareholders shall prepare and file
the following Returns with respect to the Company: (A) all income tax
Returns and franchise tax Returns for any taxable period ending on or
before the Closing Date (including, without limitation, with respect to
the Company's final Tax year as provided in subsection (b) above); and
(B) all Returns required to be filed (taking into account extensions)
prior to the Closing Date with respect to Taxes other than income Taxes
and franchise Taxes. AmeriLink shall have the right to review and
comment on all Tax Returns described in clause (A) and no such Returns
shall be filed without the prior written consent of AmeriLink, which
consent may be withheld or granted in its reasonable discretion. To the
extent permitted by applicable law, the Principal Shareholders shall
include any income, gain, loss, deduction or other tax items for such
periods on their Returns in a manner consistent with the Schedule K-1's
prepared by Principal Shareholders for such periods.
(ii) AmeriLink shall file, and shall cause the
Surviving Corporation to file, all Returns with respect to the
Surviving Corporation other than the Returns that Principal
Shareholders are required to file pursuant to subparagraph (i)
above of this Section 8.2(c).
-26-
<PAGE>
(iii) Neither AmeriLink nor Principal Shareholders shall
(nor shall AmeriLink cause or permit the Surviving Corporation to)
amend, refile or otherwise modify (or grant an extension of any
statute of limitations with respect to) any Return required to be
filed by the other party pursuant to this Section 8.2(c) without
the prior written consent of the other parties, which consent may
be withheld in the sole discretion of such other parties.
(iv) Principal Shareholders shall pay the Taxes as
shown on the Returns that Principal Shareholders are required to
file pursuant to this Section 8.2(c). AmeriLink shall be liable
for and shall pay all taxes due with respect to the Returns
AmeriLink is required to file pursuant to this Section 8.2(c)
except to the extent such Taxes exceed the amount reflected as an
accrual for such tax on the Company Financial Statements (such
excess being the responsibility of Sellers).
(v) AmeriLink and Principal Shareholders agree to
report all transactions not in the ordinary course of business
occurring on the Closing Date after the Closing on AmeriLink's
consolidated income tax Return to the extent permitted by Reg.
Section 1.1502-76(b)(1)(B).
(vi) AmeriLink and MAC shall not take any action on or
after the Closing Date that would adversely affect the status of
the transaction contemplated by this Agreement from constituting a
"reorganization" within the meaning of Section 368(a) of the Code
(d) COOPERATION ON TAX MATTERS.
(i) Principal Shareholders and AmeriLink shall
cooperate fully, and shall cause the Company and the
Subsidiaries to cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the
preparation and filing of Returns pursuant to this Article
VIII. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and
information which are reasonably relevant to such returns, and
making employees available on a mutually convenient basis to
provide additional information and explanation of any material
provided hereunder reasonably relevant to such returns.
Principal Shareholders shall, and AmeriLink shall cause the
Surviving Corporation to, (A) retain all books and records with
respect to tax matters pertinent to the Surviving Corporation
relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and,
to the extent notified by AmeriLink or Principal Shareholders,
any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with
any taxing authority; and (B) give the other parties reasonable
written notice prior to transferring, destroying or discarding
any such books and records and, if AmeriLink or the Principal
Shareholders so request, Principal Shareholders or the
Surviving Corporation, as the case may be, shall allow the
other party to take possession of such books and records.
(ii) Promptly after receipt by AmeriLink of a written
notice of any demand, claim or circumstance which, after the
lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action
proceeding or investigation with respect to which indemnity may
be sought hereunder with respect of any matter concerning
Taxes, but not including receipt of a request for information
("ASSERTED TAX LIABILITY"), AmeriLink shall give written notice
thereof to the Principal Shareholders (the "TAX CLAIM NOTICE").
(A) A Tax Claim Notice shall contain factual
information (to the extent reasonable and available to
AmeriLink) generally describing the Asserted Tax
Liability in question and shall include copies of any
notice or other document received from any taxing
authority in respect of such Asserted Tax Liability.
Failure by AmeriLink to give Principal Shareholders
prompt notice of an Asserted Tax Liability shall not
reduce or otherwise affect AmeriLink's right to seek
indemnification hereunder; provided, however, that if
-27-
<PAGE>
such failure to give prompt notice results in a material
detriment to any Principal Shareholder, then any amount
which AmeriLink may otherwise be entitled to as
indemnification hereunder from such Principal
Shareholder with respect to such Asserted Tax Liability
shall be reduced by the amount which is solely and
directly attributable to such failure to give prompt
notice to such Principal Shareholder.
(B) AmeriLink shall have the sole right to control
and make all decisions regarding the Surviving
Corporation's and each Subsidiary's interests in any Tax
audit or administrative or court proceeding relating to
Taxes, including selection of counsel and selection of a
forum for such contest, provided, however, that in the
event such audit or proceeding relates to Taxes for
which Principal Shareholders are responsible and/or have
agreed to indemnify AmeriLink, (1) AmeriLink and
Principal Shareholders shall cooperate in the conduct of
any audit or proceeding relating to such period, (2)
Principal Shareholders shall have the right to
participate in such audit or proceeding at Principal
Shareholders' expense, (3) AmeriLink shall not enter
into any agreement with the relevant taxing authority
pertaining to such Taxes without the written consent of
Principal Shareholders, which consent shall not
unreasonably be withheld, and (4) AmeriLink may, without
the written consent of Principal Shareholders, enter
into such an agreement provided that AmeriLink shall
have agreed in writing to (I) accept responsibility and
liability for the payment of such Taxes and any
consequential Taxes resulting from such Taxes and (II)
forego any indemnification under this Agreement with
respect to such Taxes and any consequential Taxes
resulting from such Taxes. In the event of any conflict
between the provisions of this Section 8.2 and Section
11.4 (relating to third party claims), the provisions of
this Section 8.2 shall control.
(iii) AmeriLink and Principal Shareholders further agree,
upon request, to use their best efforts to obtain any certificate
or other document from any governmental authority or other person
or entity as may be necessary to mitigate, reduce or eliminate any
tax that could be imposed (including without limitation with
respect to the transactions contemplated by this Agreement).
(iv) At AmeriLink's expense, AmeriLink shall, and shall cause
the Surviving Corporation and Subsidiaries to furnish Tax
information to Principal Shareholders for the period which
includes the Closing Date in accordance with the Company's past
custom and practice.
(v) Notwithstanding the foregoing, no Principal Shareholder
shall enter into a settlement agreement with respect to or
otherwise resolve any Asserted Tax Liability, or any Tax audit or
administrative or court proceedings relating to the Returns
required to be filed by such Principal Shareholder, in a manner
which for periods after the Closing Date would have a material
adverse effect on the tax position of the Surviving Corporation
and its Subsidiaries after the Closing Date, unless such
settlement or resolution would be reasonable in the case of a
person that owned the Company and the Subsidiaries both before and
after the Closing Date.
(vi) In the event that any governmental entity challenges the
position of the Principal Shareholders that the transactions
contemplated by this constitute a "reorganization" within the
meaning of Section 368(a) of the Code, each of AmeriLink, MAC and
the Company agree to cooperate with the Principal Shareholders at
the Principal Shareholder's expense in defending such challenge
and each of AmeriLink, MAC and the Company agree to the extent
permitted by law and consistent with the provisions of this
Agreement to take actions and maintain a position consistent with
the Principal Shareholders' defense of such challenge.
(e) REFUNDS AND TAX BENEFITS. Any federal, state, county or
local tax refunds that are received by AmeriLink or the Surviving
Corporation, and any amounts credited against tax to which AmeriLink or
the Surviving Corporation become entitled, that relate to tax periods or
portions thereof ending on or
-28-
<PAGE>
before the Closing Date shall be for the account of Principal
Shareholders, and AmeriLink shall pay over to Principal Shareholders
any such refund or the amount of such credit within fifteen (15) days
after receipt or entitlement thereto, subject to offset by the amount
of any Claims arising under Section 11.2 without regard to the
limitation set forth in Section 11.2(d).
(f) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration or other such taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Principal Shareholders when due, and each Principal Shareholder shall, at
its expense, file all necessary Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp,
registration and other taxes and fees, and, if required by applicable
law, AmeriLink shall, and shall cause its affiliates to, join in the
execution of any such Returns and other documentation
8.3 PUBLIC ANNOUNCEMENTS. Principal Shareholders may not issue any
press release or make any public statement with respect to this Agreement and
the transactions contemplated hereby without the prior consent of AmeriLink,
such consent not to be unreasonably withheld. AmeriLink is authorized, to
the extent required by applicable law or to facilitate the consummation of
the transactions contemplated by this Agreement, to issue any such press
release or make any such public disclosure after providing Principal
Shareholders with notice prior to issuing any such press release or making
any such public disclosure.
8.4 AGREEMENT TO TAKE NECESSARY AND DESIRABLE ACTIONS. Principal
Shareholders (prior to the Closing) and AmeriLink (after the Closing) agree, and
agree to cause the Company (prior to the Closing) or the Surviving Corporation
(after the Closing), to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as may be necessary
or desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
ARTICLE IX
[Reserved]
ARTICLE X
THE CLOSING
10.1 DELIVERIES TO AMERILINK. At the Closing, the Company and/or the
Principal Shareholders, as appropriate, has delivered to AmeriLink the following
items:
(a) COMPANY SHARES. Stock certificates representing all of the
Company Shares issued and outstanding as of the Closing Date, duly
endorsed in blank for transfer or accompanied by appropriate stock powers
duly executed in blank, with all taxes, direct or indirect, attributable
to the transfer of such Company Shares paid or provided for.
(b) REPRESENTATIONS AND WARRANTIES. A certificate signed by
the Principal Shareholders and dated as of the Closing Date stating that
each of the representations and warranties of the Principal Shareholders
contained herein and in any certificate or other writing delivered by
Principal Shareholders pursuant hereto or in connection herewith shall be
true on and as of the Closing Date with the same effect as though made on
and as of such date.
-29-
<PAGE>
(c) CHARTER DOCUMENTS. A copy of the Articles of Incorporation
of the Company (certified by the Secretary of State of the State of Iowa)
and by-laws of the Company (certified by the secretary of the Company)
and the corporate minute books, stock books and corporate seal (if any)
of the Company.
(d) SECRETARY'S CERTIFICATE. A certificate, dated the Closing
Date, of the secretary of the Company certifying (A) that complete and
accurate copies of the resolutions of the board of directors and
shareholders of the Company approving the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby are attached thereto, (B) that such resolutions are
in full force and effect and have not been amended or repealed and (C)
the names and titles of the officers of the Company who have executed the
documents, certificates and instruments delivered at the Closing and
their signatures.
(e) GOOD STANDING. A certificate of the Secretary of the State
of Iowa dated within 15 days before the Closing Date certifying that the
Company is a corporation in good standing under the laws of such state.
(f) OPINION OF PRINCIPAL SHAREHOLDERS' COUNSEL. An opinion of
Belin Lamson McCormick Zumbach Flynn dated the Closing Date.
(g) INVESTMENT LETTERS. Executed investment letters of each
Shareholder.
(h) RESIGNATIONS. Resignation letters, effective as of the
Closing Date, from each director and officer of the Company requested by
AmeriLink at least two days' prior to the Closing Date in form and
substance satisfactory to the AmeriLink.
(i) EMPLOYMENT AGREEMENTS. The counterparts of employment
agreements with MAC dated as of the date hereof executed by MAC and,
respectively, Larry Kendall, Jeffrey Van Polen, Richard Pearson and
Michael Maddison, and in each case bearing a guaranty executed by
AmeriLink.
(j) SHORT-FORM MERGER AGREEMENT. The counterparts of a
short-form merger agreement dated as of the date hereof among and
executed by each of MAC, AmeriLink, Larry Kendall, Jeffrey Van Polen,
Richard Pearson and Michael Maddison.
(k) SCHEDULED ITEMS. All items identified in the Schedules to
this Agreement.
10.2 DELIVERIES TO SHAREHOLDERS. At the Closing, AmeriLink and/or MAC,
as appropriate, has delivered to the Shareholders the following items:
(a) MERGER CONSIDERATION. The Cash Portion of the Merger
Consideration shall be payable by wire transfer in immediately
available funds to bank accounts in the United States of America
designated in writing by the Shareholders not less than three days
before the Closing Date. The Stock Portion of the Merger
Consideration shall be delivered in the form of stock certificates
evidencing ownership by the Shareholders of a total of 500,000 shares
of AmeriLink Common Stock.
(b) REPRESENTATIONS AND WARRANTIES. A certificate signed by an
authorized representative of AmeriLink stating that each of the
representations and warranties of AmeriLink contained in this Agreement
and in any certificate or other writing delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true on and
as of the Closing Date with the same effect as though made on and as of
such date.
(c) OPINION OF SPECIAL COUNSEL TO AMERILINK. An opinion of
Squire, Sanders & Dempsey L.L.P., counsel to AmeriLink.
-30-
<PAGE>
(d) EMPLOYMENT AGREEMENTS. The counterparts of employment
agreements with Larry Kendall, Jeffrey Van Polen, Richard Pearson and
Michael Maddison executed by an authorized representative of MAC.
(e) SHORT-FORM MERGER AGREEMENT. The counterparts of a
short-form merger agreement with Larry Kendall, Jeffrey Van Polen,
Richard Pearson and Michael Maddison executed by an authorized
representative of each of MAC and AmeriLink.
(f) STOCK OPTIONS. Stock option grants to Larry Kendall,
Jeffrey Van Polen, Richard Pearson and Michael Maddison as described
in Section 3.1.
(g) SEC DOCUMENTS. Copies of AmeriLink's Report on Form10-K
filed June 25, 1998, its Report on Form 10-Q filed August 10, 1998,
its Report on Form 10-Q filed November 10, 1998, and its Proxy
Statement to Shareholders dated July 7, 1998.
ARTICLE XI
SURVIVAL AND REMEDY; INDEMNIFICATION
11.1 SURVIVAL; REMEDY FOR BREACH. The representations and warranties
of the Principal Shareholders contained in Sections 4.1 through 4.35 of Article
IV or in any certificate or other writing delivered pursuant hereto or in
connection herewith shall survive the Closing (even if the AmeriLink knew or had
reason to know of any misrepresentation or breach of warranty at the time of the
Closing) and continue in full force and effect for a period of two years
thereafter. Notwithstanding the foregoing and without limiting any of the
provisions of the previous sentence, the representations and warranties of the
Principal Shareholders contained in Section 4.10, Section 4.17 shall survive
until the expiration of all statutes of limitation applicable to the subject
matter contained in those sections and the representations and warranties of the
Principal Shareholders contained in Sections 4.26 through 4.35 shall survive
without limitation. All covenants and other agreements included in this
Agreement shall survive the Closing except as indicated therein.
11.2 INDEMNIFICATION BY SHAREHOLDERS.
(a) The Principal Shareholders hereby indemnify each AmeriLink
Indemnitee (as hereinafter defined), jointly and severally, against and
agrees to hold each AmeriLink Indemnitee harmless from any and all
damage, loss, liability, penalty, assessment, settlement, judgment and
expense (including, without limitation, reasonable expenses of
investigation and attorneys' fees and expenses) (collectively, "CLAIMS")
incurred or suffered by any such AmeriLink Indemnitee arising out of (i)
the inaccuracy of any of the representations or breach of any of the
warranties made by the Company and the Principal Shareholders in Section
4.1 through 4.25 of Article IV, or in any certificate or other writing
delivered pursuant to this Agreement or in connection herewith, or the
breach of any covenant or agreement of any Principal Shareholder
hereunder (even if the AmeriLink Indemnitees or any of them knew or had
reason to know of any inaccuracy in any representation or breach of any
warranty at the time of the Closing) and (ii) the events, circumstances,
and conditions described in Schedule 4.8 and Schedule 4.17, respectively,
if and to the extent that such Claims exceed the amounts reserved for
such matters on the Company Financial Statements. The Principal
Shareholders' obligation to provide indemnification pursuant to clause
(i) of this Section 11.2(a) with respect to the representations and
warranties set forth in Sections 4.1 through 4.25 above shall expire on
the second anniversary of the Closing Date except to the extent that a
legal action is commenced with respect to any Claim thereunder on or
before such date, and except that the foregoing limitation shall not
apply to the Principal Shareholders' obligation to indemnify with respect
to Claims relating to the representations and warranties provided in
Sections 4.10 and 4.17, above, as to which such obligation to indemnify
shall continue without limitation.
-31-
<PAGE>
(b) The obligations of Principal Shareholders to indemnify each
AmeriLink Indemnitee shall extend to (i) all Taxes with respect to
transactions or periods ending on or prior to the Closing Date and (ii)
all Taxes with respect to periods ending after the Closing Date to the
extent attributable to the portion of any such period occurring on or
prior to the Closing Date, provided that such obligations shall be
limited to the extent the Taxes described in the foregoing clauses (i)
and (ii) are in excess of the accruals or reserves for Tax liabilities as
stated in the Audited Financial Statements. Such obligations shall be
without regard to whether there was a breach of any representation or
warranty under Section 4.10 with respect to such Tax or any disclosure
that may have been made on Schedule 4.10 or otherwise. For purposes of
applying this section to taxable periods that begin before and end after
the Closing Date, the portion of such Taxes that are attributable to the
period ending on or before the Closing Date (and for which Principal
Shareholders are responsible) shall (A) in the case of any Taxes other
than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire Taxable period multiplied by a
fraction the numerator of which is the number of days in the Taxable
period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period and (B) in the case of any
Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior
practice of the Company and any Subsidiary.
(c) Each Principal Shareholder hereby indemnifies and holds
harmless each AmeriLink Indemnitee, severally but not jointly, from and
against any Claims incurred by such AmeriLink Indemnitee in connection
with the inaccuracy of any of the representations made by that Principal
Shareholder in Sections 4.26 through 4.36 of Article IV.
(d) Principal Shareholders shall have no liability for Claims
with respect to matters described in Section 11.2(a) (other than matters
described in Section 11.2(b) and (c)) until the total of all Claims with
respect to such matters described in Sections 11.2 (a) (other than
matters described in Section 11.2(b) and (c)) exceeds an aggregate
threshold of $87,500 (at which point Principal Shareholders will jointly
and severally be obligated to indemnify each AmeriLink Indemnitee from
and against all such Claims relating back to the first dollar).
Principal Shareholders will be liable with respect to the matters
described in Sections 11.2(a) (other than matters described in Section
11.2(b) and (c)) only up to an amount equal to the aggregate of the
Merger Consideration.
(e) Notwithstanding the provisions of Section 11.2(d) and
without limiting the provisions thereof, in the event of any inaccuracy
in the representations and warranties contained in Article IV (whenever
discovered) which, if correctly reflected in the Audited Financial
Statements would cause the Company's 1998 EBITDA to be an amount less
than $1,750,000, then the Principal Shareholders will jointly and
severally be obligated to pay to AmeriLink (in addition to any amounts
required to be paid to AmeriLink pursuant to Section 11.2(a) through (d))
an amount equal to the product of (i) the sum of $1,750,000 minus the
corrected amount of the Company's 1998 EBITDA, multiplied by (ii) 5.144.
11.3 INDEMNIFICATION BY AMERILINK. AmeriLink hereby indemnifies each
Principal Shareholder against and agrees to hold each Principal Shareholder
harmless from any and all Claims incurred or suffered by any such Principal
Shareholder arising out of the inaccuracy of any of the representations or
warranties made by AmeriLink in Article V, or in any certificate or other
writing delivered pursuant hereto or in connection herewith, or the breach of
any covenant or agreement of AmeriLink hereunder (even if the Principal
Shareholders or any of them knew or had reason to know of any inaccuracy in any
representation or breach of any warranty at the time of the Closing).
AmeriLink's obligation to provide the indemnity pursuant to this Section 11.3
shall expire on the second anniversary of the Closing Date except to the extent
that a legal action is commenced with respect to any Claim hereunder on or
before such date.
-32-
<PAGE>
11.4 PROCEDURES.
(a) For purposes of this Article XI, the term "AMERILINK
INDEMNITEE" shall include AmeriLink and any of its Affiliates (including,
without limitation, MAC) and, effective at the Closing, the Surviving
Corporation. For purposes of this Section 11.4, the term "INDEMNIFYING
PARTY" shall mean AmeriLink or Principal Shareholders, as appropriate,
and "INDEMNIFIED PARTY" shall mean an AmeriLink Indemnitee or a Principal
Shareholder, as appropriate.
(b) Each Indemnified Party shall give prompt notice to the
Indemnifying Party of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be
sought hereunder and of any damage, loss, liability or expense which the
Indemnified Party deems to be within the ambit of this Section 11.4,
specifying with reasonable particularity the basis therefor and will give
the Indemnifying Party such information with respect thereto as the
Indemnifying Party may reasonably request. The Indemnifying Party may,
at its own expense, (i) participate in and, (ii) upon notice to the
Indemnified Party, assume the defense of any such suit, action or
proceeding; PROVIDED that (i) the Indemnifying Party's counsel is
reasonably satisfactory to the Indemnified Party, (ii) the Indemnifying
Party shall thereafter consult with the Indemnified Party upon the
Indemnified Party's reasonable request for such consultation from time to
time with respect to such suit, action or proceeding and (iii) the
Indemnifying Party shall not, without the Indemnified Party's consent,
agree to any settlement with respect to any Tax if the effect of such
settlement would be an increase in the liability of the Indemnified Party
with respect to any Tax for any period beginning after the Closing. If
the Indemnifying Party assumes such defense, the Indemnified Party shall
have the right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel
employed by the Indemnifying Party. The Indemnifying Party shall be
liable for the fees and expenses of counsel employed by the Indemnified
Party for any period during which the Indemnifying Party has not assumed
the defense thereof. Whether or not the Indemnifying Party chooses to
defend or prosecute any claim, all of the parties hereto shall cooperate
in the defense or prosecution thereof.
(c) No Indemnifying Party shall be liable under this Section
11.4 for any settlement, effected without its consent or resulting from a
proceeding in which such Indemnifying Party was not permitted an
opportunity to participate, of any claim, litigation or proceeding in
respect of which indemnity may be sought hereunder. No investigation by
any Indemnified Party at or prior to the Closing shall relieve any
Indemnifying Party of any liability under this Article XI.
(d) Any claim of any AmeriLink Indemnitee (other than
AmeriLink) under this Section 11.4 may be made and enforced by AmeriLink
on behalf of any such AmeriLink Indemnitee.
ARTICLE XII
MISCELLANEOUS
12.1 NOTICES. Any notices or other communications required or
permitted hereunder shall be sufficiently given if sent by telecopier or by
registered or certified airmail, postage prepaid, addressed as follows:
To AmeriLink:
AmeriLink Corporation
1900 E. Dublin-Granville Road
Suite 100A
Columbus, Ohio 43229
Attention: Larry Linhart
Telecopy: (614) 895-8942
-33-
<PAGE>
with copies to:
Richard W. Rubenstein, Esq.
Squire, Sanders & Dempsey L.L.P.
1300 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telecopy: (614) 365-2499
To Principal Shareholders:
Midwest Computer Cable, Inc.
1901 NW 92nd Ct.
Des Moines, Iowa 50325
Attention: Larry Kendall
Telecopy: (515) 223-9332
with copies to:
Steven E. Zumbach, Esq.
Belin Lamson McCormick Zumbach Flynn
666 Walnut Street
2000 Financial Center
Des Moines, Iowa 50309
Telecopy: (515) 244-7818
or such other addresses as shall be furnished by like notice by such party. Any
such notice or communication given by mail shall be deemed to have been given
four days after the date so mailed, and any such notice or communication given
by telecopy shall be deemed to have been given when transmitted.
12.2 EXPENSES. Except as otherwise provided herein, all legal and
other costs and expenses incurred in connection with this Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except that any such expenses incurred by or on behalf of the Company
in connection with legal fees and expenses and the approximately $22,000 of
accounting fees and expenses paid prior to the Closing Date shall be the
responsibility of the Principal Shareholders.
12.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assigns, PROVIDED, HOWEVER, that neither this Agreement nor any right hereunder
may be assigned by any party without the consent of the other parties hereto.
12.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the
Schedules and Exhibits hereto, and the other instruments and agreements referred
to herein embody the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements with respect thereto.
This Agreement may be amended but only in a writing signed by AmeriLink and
Principal Shareholders. Any provision hereof may be waived but only in a
writing signed by AmeriLink if such waiver is sought to be enforced against
AmeriLink and only in a writing signed by Principal Shareholders if such waiver
is sought to be enforced against Principal Shareholders.
12.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts as may be convenient or necessary, and it shall not be necessary
that the signatures of all parties hereto or thereto be contained on any one
counterpart hereof or thereof. Additionally, the parties hereto agree that for
purposes of facilitating the execution of this Agreement, (a) the signature
pages taken from the separate individually executed counterparts of this
Agreement may be combined to form multiple fully executed counterparts and (b) a
facsimile
-34-
<PAGE>
transmission shall be deemed to be an original signature for all purposes.
All executed counterparts of this Agreement shall be deemed to be originals,
but all such counterparts taken together or collectively, as the case may be,
shall constitute one and the same agreement.
12.6 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement or the application thereof to any person or circumstance should
be held by an administrative agency or court of competent jurisdiction to be
invalid, void, or unenforceable, then the remainder of this Agreement and the
application of such term, provision, covenant, or restriction to other persons
or circumstances shall not be affected thereby, but rather shall be enforced to
the greatest extent permitted by law. Further, it is the intent of the parties
that if any term, provision, covenant, or restriction of the Agreement should be
held to be invalid, void, or unenforceable as applied to any person or
circumstance, then such term, provision, covenant, or restriction shall be
modified to the extent necessary in order to render the same enforceable,
consistent with the expressed objectives of the parties hereto for entering into
this Agreement.
12.7 CAPTIONS. The captions herein are inserted for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
12.8 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio (without regard to
conflict of law principles). The parties to this Agreement hereby irrevocably
and unconditionally submit, for themselves and their property, to the exclusive
jurisdiction of any Iowa court sitting in the County of Polk or any Federal
court of the United States of America sitting in the Southern District of Iowa,
and any appellate court from any such court, in any suit, action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment arising out of or relating to this Agreement, and each of the
parties hereby irrevocably and unconditionally agrees that all claims in respect
of any such suit, action or proceeding or judgment shall be heard and determined
in such Iowa court or, to the extent permitted by law, by removal or otherwise,
in such Federal court, and if each of such Iowa court and such Federal court
refuses to accept jurisdiction with respect thereto, such suit, action or
proceeding may be brought in any other court with jurisdiction. The parties
agree that no party to this Agreement may move to (i) transfer any such suit,
action or proceeding from such Iowa court or Federal court to another
jurisdiction; (ii) consolidate any such suit, action or proceeding brought in
such Iowa court or Federal court with a suit, action or proceeding brought in
such Iowa court or Federal court with a suit, action or proceeding in another
jurisdiction; or (iii) dismiss any such suit, action or proceeding brought in
such Iowa court or Federal court for the purpose of bringing the same in another
jurisdiction. Each party agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in any other jurisdiction
by suit on the judgment or in any other manner provided by law.
Each party hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any Iowa court sitting in the County of
Polk or any Federal court sitting in the Southern District of Iowa. Each party
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such suit, action or proceeding
in any such court and further waives the right to object, with respect to such
suit, action or proceeding, that such court does not have jurisdiction over such
party.
Service of process relating to actions arising out of this Agreement may
be served upon any party anywhere in the world.
12.9 LIMITATION ON DAMAGES. The Principal Shareholders shall not be
liable for damages to AmeriLink and MAC in excess of the value of the Merger
Consideration. AmeriLink and MAC shall not be liable for damages to the
Principal Shareholders in excess of the value of the Merger Consideration.
[The Remainder of This Page Left Blank Intentionally]
-35-
<PAGE>
IN WITNESS WHEREOF, this Agreement (including the Schedules referenced
below and attached hereto and forming a part hereof) has been executed on behalf
of each of the parties hereto as of the day and year first above written.
/s/ Larry Kendall AMERILINK CORPORATION
- --------------------------------
LARRY KENDALL
/s/ Dayton Kendall By: /s/ Larry R, Linhart, President
- -------------------------------- -------------------------------
DAYTON KENDALL Larry R. Linhart, President
/s/ Linda Kendall
- --------------------------------
LINDA KENDALL MCC ACQUISITION CORP.
MIDWEST COMPUTER CABLE, INC By: /s/ Larry R. Linhart, President
-------------------------------
Larry R. Linhart, President
By: /s/ Larry Kendall, President
- --------------------------------
Larry Kendall, President
-36
<PAGE>
EXHIBIT 10
EXECUTIVE EMPLOYMENT AGREEMENT FOR LARRY KENDALL
This Executive Employment Agreement (this "Agreement") is entered into
effective as of February 2, 1999 by and between Midwest Computer Cable, Inc., an
Ohio corporation ("Midwest"), and Larry Kendall, an individual (the
"Executive"), who hereby agree as hereinafter provided.
Section 1. DEFINITIONS. As used herein, the following terms shall
have the meanings set forth below.
"AGREEMENT" shall have the meaning set forth in the introductory paragraph
hereof.
"AMERILINK" means AmeriLink Corporation.
"AMERILINK COMPANIES" means AmeriLink and all of its direct and indirect
subsidiaries, including the Company.
"BOARD" means the Board of Directors of the Company
"CAUSE" shall have the meaning set forth in Section 10(b).
"COMPANY" means Midwest or such other subsidiary or division of the
AmeriLink Companies as shall from time to time succeed to the operation of the
business historically conducted by Midwest.
"CHAIRMAN" means the Chairman of the Board, Larry R. Linhart, and any
successor of Mr. Linhart as Chairman
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
9(c).
"DISABILITY" means the total and permanent disability of the Executive,
which shall be deemed to have occurred (i) on the date of the certification to
the Company by a physician selected by the Company and approved by the Executive
(such approval not to be unreasonably withheld) that the Executive is so
mentally or physically disabled as to be incapable of engaging in, and
performing the material duties of, his employment position described in Section
3 and that such disability is likely to be permanent, or (ii) on the date as of
which the Executive has been unable to work for a period of time of 60
consecutive days or for a period of time of 90 days in any period of 180
consecutive days.
"EBIT" means, for any period, (a) net income (or net loss) of the Company
determined in accordance with GAAP, excluding any unusual and extraordinary
gains or losses, PLUS (b) to the extent taken into account in the calculation of
net income (or net loss) for such period, the sum of (i) interest expense PLUS
(ii) income tax expense, in each case determined in accordance with GAAP.
"EMPLOYMENT COMMENCEMENT DATE" means the date of this Agreement.
"EMPLOYMENT PERIOD" shall have the meaning set forth in Section 2.
"EMPLOYMENT TERMINATION DATE" means the date the Employment Period
terminates as provided in Section 10.
"EXECUTIVE" shall have the meaning set forth in the introductory paragraph
hereof, PROVIDED that in any instance in which the Executive has died or is
without legal capacity, such term shall include the Executive's personal
representative.
-1-
<PAGE>
"FISCAL YEAR" means the fiscal year of the AmeriLink Companies, consisting
of the 52 or 53 week annual accounting period ending on or about March 31 of
each calendar year.
"INITIAL TERM" shall have the meaning set forth in Section 2.
"RENEWAL TERM" shall have the meaning set forth in Section 2.
Section 2. EMPLOYMENT AND TERM. The Company hereby employs the
Executive, and the Executive hereby accepts such employment by the Company, for
the purposes and upon the terms and conditions contained in this Agreement. The
initial term of such employment shall be the period commencing on the Employment
Commencement Date and continuing through the last day of the Fiscal Year ending
on or about March 31, 2002, unless sooner terminated in accordance with this
Agreement (the "Initial Term" and such Initial Term, together with any Renewal
Term (as defined herein), being referred to herein as the "Employment Period").
Unless either party gives written notice of an intention not to renew on or
before the date which is ninety days before the then scheduled expiration date
of the Employment Period, the Employment Period shall be automatically extended
for an additional one-year term, unless sooner terminated in accordance with
this Agreement (each such additional one-year term being referred to herein as a
"Renewal Term").
Section 3. CAPACITIES AND DUTIES. The Executive shall be employed
throughout the Employment Period as the President and Chief Operating Officer of
the Company or in such other position of reasonably comparable or greater status
and responsibilities as may be determined by the Board with any division,
subsidiary or affiliate of the Company. The Executive shall perform the duties,
undertake the responsibilities and exercise the authority customarily performed,
undertaken and exercised by persons employed in a similar executive capacity.
The Executive shall report to the Chairman. In addition, the Executive shall
have such other duties and responsibilities as may be assigned to him by the
Board from time to time.
Section 4. PERFORMANCE COVENANTS. The Executive accepts the
employment described in Section 3 and agrees to devote his full working time,
efforts, loyalty and skill (except for absences due to illness and appropriate
vacations) to the business and affairs of the Company and the performance of the
aforesaid duties and responsibilities and shall use his best efforts to preserve
the goodwill of the Company and the AmeriLink Companies and advance the
reputation and standing thereof in the national business community.
Notwithstanding the foregoing sentence, and without limiting the Executive's
duties under this section, during the Employment Period the Executive shall be
permitted to spend not more than five hours per week engaged in the business of
Quiktron, Incorporated so long as such activities do not interfere with the
performance of the Executive's duties and responsibilities hereunder. The
Executive hereby represents and warrants to the Company that the Executive is
not bound by any confidentiality agreements, restrictive covenants or similar
agreements which would or may restrict him from entering into, or performing his
duties and responsibilities under, this Agreement, and the Executive agrees that
he shall not enter into or become bound by any such agreements with anyone other
than the AmeriLink Companies during the Employment Period.
Section 5. COMPENSATION. The Company shall pay to the Executive, for
his services hereunder, the compensation hereinafter provided in this Section 5.
Such compensation shall be paid to the Executive at the time and in the manner
as provided below.
(a) BASE SALARY. The Executive shall be paid a base salary at
the rate of $100,000 per year. This base salary will be subject to annual
review and may be increased from time to time by the Board considering
factors such as the Executive's responsibilities, compensation of
executives having similar rank and responsibilities within the AmeriLink
Companies and in other companies, the Executive's performance and other
factors deemed pertinent by the Board (hereinafter referred to as the "BASE
SALARY").
The Base Salary shall be paid in equal monthly, twice monthly or
two week installments as determined by the Company.
-2-
<PAGE>
(b) BONUSES. During the Employment Period, the Executive will
be entitled to receive incentive bonuses in accordance with the incentive
compensation program for the executives of the AmeriLink Companies, as the
same shall be amended and modified from time to time by the Board of
Directors of AmeriLink, and as shall be similar in its application to the
Executive as to other employees of the AmeriLink Companies of similar rank
and responsibility; PROVIDED, HOWEVER, that, during the Initial Term, the
minimum bonus for each Fiscal Year (prorated for any partial Fiscal Year)
to which Executive shall be entitled shall be not less than an amount equal
to $40,000 multiplied by a fraction, the numerator of which shall equal the
Company's EBIT for such Fiscal Year MINUS $500,000 (but not less than zero)
and the denominator of which shall equal the Company's EBIT for the 1998
calendar year MINUS $500,000.
(c) VACATION. Executive shall be entitled to 20 days of paid
vacation per year.
(d) AUTOMOBILE. Executive shall be entitled to retain the use
of the automobile presently used by him and owned by the Company or a
similar vehicle during the Employment Period.
Section 6. REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse the Executive for reasonable expenses paid or incurred by the
Executive on behalf of the Company and reasonably necessary for the rendering of
his services to the Company hereunder, subject to and in accordance with the
AmeriLink Companies' expense reimbursement policies applicable to its employees
generally, a copy of which has been delivered to the Executive prior to the
execution of this Agreement, as the same may be modified or restated from time
to time. Any such reimbursement shall be made in accordance with such policies
after the Executive has submitted to the Company vouchers or reports for such
expenditures in such reasonable detail and with such supporting receipts and
other evidence of expenditures as the Company may reasonably require for such
purposes.
Section 7. EMPLOYEE BENEFITS. During the Employment Period, and at
the expense of the Company, the Executive shall be entitled to such group
medical/hospitalization, pension, profit-sharing and 401(k) plans and other
group employee plans and benefits (if any) as are presently or may hereafter be
provided generally to employees of similar rank and responsibilities of the
AmeriLink Companies.
Section 8. STOCK INCENTIVE PLANS. The Executive shall be eligible to
receive grants of stock options pursuant to AmeriLink's 1994 Stock Incentive
Plan, as amended from time to time, in the discretion of the Stock Option
Committee of AmeriLink's Board of Directors and the Executive shall also be
eligible to participate in such other programs for the granting of interests in
or based upon the value of AmeriLink's equity securities as may be established
by AmeriLink from time to time.
Section 9. CERTAIN COMPANY PROTECTION PROVISIONS. The below
provisions apply for the protection of the Company.
(a) CONFIDENTIAL INFORMATION; IRREPARABLE HARM. Executive
recognizes and acknowledges that: (i) in connection with his employment by
the Company, Executive has learned and will continue to learn and have
access to trade secrets, proprietary data, and other confidential
information relating directly or indirectly to the AmeriLink Companies,
including without limitation financial information, price lists and
customer lists, proprietary computer software and related documentation,
information relating to the AmeriLink Companies' business operations,
services, products, processes, technical know-how, sales and promotional
practices, design concepts, inventions, improvements, and relationships
with suppliers, other employees, independent contractors, customers, or
other parties, and information which the AmeriLink Companies are obligated
to treat as confidential pursuant to any course of dealing or any agreement
to which it is a party (the "Confidential Information"); (ii) the
Confidential Information is a valuable and unique asset of the AmeriLink
Companies; (iii) the AmeriLink Companies would be irreparably harmed if
Executive were to disclose any of the Confidential Information or enter
into any business activity in competition with the AmeriLink Companies,
whether during the Employment Period
-3-
<PAGE>
or after the Employment Termination Date; and (iv) Executive may
contribute to the Confidential Information through inventions,
discoveries, improvements, or in some other manner.
(b) COVENANT NOT TO COMPETE. In consideration of the mutual
covenants contained herein and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Executive,
Executive further agrees as follows:
(i) Executive shall not, directly or indirectly, at any time,
whether during the Employment Period or after the
Employment Termination Date, disclose to any person or
entity (other than the AmeriLink Companies) or use or
permit or assist any person or entity (other than the
AmeriLink Companies) to use for any purpose, any
Confidential Information, except to the extent necessary as
a benefit to the AmeriLink Companies in the performance of
Executive's duties and with prior written authorization by
the Company.
(ii) During the Employment Period, and during the three year
period immediately following the Employment Termination
Date, the Executive shall not, directly or indirectly (on
his own behalf or as a representative, consultant, broker,
agent, employee, officer, director, principal, creditor,
shareholder, partner, or other owner of any person,
corporation or other organization):
(A) Participate or engage in, loan money or credit to,
invest in, or otherwise promote or assist any
business which competes or attempts to compete with
any business of the AmeriLink Companies anywhere
within 50 miles of the boundaries of any
municipality in which the AmeriLink Companies
maintain an office or are conducting any business on
the Employment Termination Date, or have maintained
an office or conducted business at any time during
the twelve (12) month period immediately preceding
the Employment Termination Date; provided that this
subsection shall not prohibit Executive from owning
not more than 1% of the issued and outstanding
capital stock of any corporation whose shares are
publicly traded on a recognized national exchange or
listed in the NASDAQ national market system;
(B) (1) Solicit, induce, or encourage, or attempt to
solicit, induce, or encourage, any director,
officer, employee, installer, independent
contractor, supplier, or customer of the AmeriLink
Companies to terminate its relationship with any of
the AmeriLink Companies or breach any of its
agreements with any of the AmeriLink Companies, or
(2) otherwise interfere or attempt to interfere in
any way with the AmeriLink Companies' contractual
relationships with any of their directors, officers,
employees, installers, independent contractors,
suppliers, or customers;
(C) Employ or retain the services of any person or
entity who, within the six-month period immediately
preceding such employment or retention, was a
director, officer, employee, installer, or
independent contractor of any of the AmeriLink
Companies; or
(D) Make any statement (whether oral or written) which
materially disparages or adversely affects the
AmeriLink Companies or any of their directors,
officers, employees, installers, independent
contractors, services, products, suppliers, or
customers.
(iii) Upon the Employment Termination Date, Executive shall
promptly return to the Company, any and all documents,
property, or other materials (including all copies
-4-
<PAGE>
thereof) which are in his possession or under his control
and which belong to the AmeriLink Companies or contain any
Confidential Information.
(iv) Executive shall promptly disclose to the Company any and
all inventions, discoveries, and improvements conceived or
made by him in whole or in part, during the Employment
Period, all of which shall be the property of the Company,
and Executive hereby assigns any and all of his interests
therein to the Company. Upon request of the Company,
Executive shall execute any and all applications,
assignments, or other instruments which the Company shall
deem necessary or appropriate to apply for and obtain
patents or copyrights under the laws of the United States
or any foreign country with respect to any such inventions,
discoveries, or improvements or otherwise to confirm,
evidence, or protect the Company's interests therein.
These obligations shall continue beyond the Employment
Termination Date with respect to inventions, discoveries,
and improvements conceived or made by Executive during the
period of such employment. All drawings, documentation,
and other materials conceived or made by Executive during
the Employment Period and related directly or indirectly to
the business, operations, or activities of the AmeriLink
Companies shall be considered "works made for hire" under
the copyright laws of the United States.
(v) Executive shall not permit Quiktron, Incorporated to
compete with the business of the Company as conducted now
or in the future, except that it shall not be a violation
of this covenant for Quiktron, Incorporated to continue to
engage in the business of manufacturing and selling cable,
cable assemblies and connectivity products.
(c) REMEDIES. It is expressly agreed by the Executive and the
Company that the provisions of this Section 9 are reasonable for purposes
of preserving for the business, goodwill and proprietary information of the
AmeriLink Companies. It is also agreed that if any provision is found by a
court having jurisdiction to be unreasonable because of scope, area or
time, then that provision shall be amended to correspond in scope, area and
time to that considered reasonable by a court and as amended shall be
enforced and the remaining provisions shall remain effective. In the event
of any breach of these provisions by the Executive, the parties recognize
and acknowledge that a remedy at law may be inadequate and the AmeriLink
Companies may suffer irreparable injury. Accordingly, the Executive
consents to injunctive and other appropriate equitable relief upon the
institution of proceedings therefor by the AmeriLink Companies in order to
protect the AmeriLink Companies' rights (without the necessity of posting
bond if such requirement may be legally waived). Such relief shall be in
addition to any other relief to which the AmeriLink Companies may be
entitled at law or in equity.
Section 10. TERMINATION. The Executive's employment by the Company and
the Employment Period shall terminate effective upon the first to occur of the
following:
(a) The last day of the Employment Period.
(b) A date specified by the Company by notice to the Executive
for Cause. For purposes of this Agreement, "Cause" means (i) a material
breach by the Executive of any of his covenants and agreements contained in
this Agreement if such breach is not cured by the Executive within 15 days
after being given notice of such breach by the Company (it being understood
and agreed that a material breach shall include without limitation any
breach of the provisions of Section 4 or Section 9 hereof), (ii) action by
the Executive constituting (A) willful failure to perform his duties
hereunder (other than a failure resulting from the Executive's incapacity
due to physical or mental illness), (B) felonious conduct or (C) willful
malfeasance which could reasonably be expected to materially impair the
business or reputation of the AmeriLink Companies or involves
misappropriation of the AmeriLink Companies' funds or other assets or (iii)
a determination by the Company in its reasonable discretion that the
Executive has continued to
-5-
<PAGE>
fail to perform his duties with the Company in any material respect
after a demand in writing for performance was given to the Executive by
the Company.
(c) The death of the Executive (in which case the date of termination
shall be the date of death).
(d) The occurrence of any Disability of the Executive, provided
the Company gives the Executive at least 30 days' notice of such
termination (in which case the date of termination shall be the date
specified in such notice or, in the absence thereof, such date as is 30
days after the Company gives such notice).
(e) The date of the Executive's voluntary resignation.
(f) A date mutually agreed to in writing by the Company and the
Executive.
(g) A date specified by the Company by notice to the Employee for any
reason (or for no reason) other than for Cause or for any of the
occurrences specified in Section 10(a) through (f) above.
Any notice of termination by either party under this Section 10 shall
clearly state that the terminating party elects to terminate the Employment
Period and upon which subsection of this Section 10 such party is relying as
the basis for such termination.
If the Employment Period is terminated under this Section 10, then, except
as specifically provided herein, this Agreement shall be terminated and of no
further force or effect; the Executive shall have no obligation or duty to be
employed by the Company in any capacity; and the Company shall have no
obligation to employ the Executive in any capacity.
Section 11. TERMINATION PAYMENTS. If the Executive's employment with
the Company is terminated for any reason, then the Company shall pay the
Executive his Base Salary under Section 5(a) through the Employment Termination
Date at his then effective salary rate. In addition, if the employment is
terminated by the Company based upon the provisions of Section 10(g), then (a)
the Company shall continue to pay to the Executive his Base Salary provided for
in Section 5(a) (at the rate then in effect) for a period following the
Employment Termination Date which is equal to the period remaining in the
Initial Term or, if the Employment Termination Date occurs during a Renewal
Term, for the period remaining in such Renewal Term, PROVIDED that the Base
Salary so payable shall be reduced for and to the extent of any compensation
which the Executive receives from other employment during such period, and (b)
the Company shall pay to the Executive the amount of any accrued and unpaid
incentive bonus compensation under Section 5(b) (measured solely on the results
of operations up to the Employment Termination Date). Payment of any amounts
pursuant to the above provisions shall be made at the same time as they would
have been made had the Employment Period continued in effect.
Section 12. INDEMNIFICATION. As an employee and officer of the
Company, the Executive shall be indemnified against all liabilities, damages,
fines, costs and expenses by the Company to the fullest extent to which
employees and officers of a corporation organized under the laws of the State of
Ohio may be indemnified.
Section 13. NOTICES. Any notice or other communication required or
desired to be given hereunder shall be in writing and shall be deemed
sufficiently given when personally delivered or when mailed by first class
certified mail, return receipt requested and postage prepaid, addressed to the
parties at their respective addresses set forth under their respective
signatures below or to such other persons or addresses as shall be given by
notice of any party.
Section 14. WAIVER; REMEDIES CUMULATIVE. No waiver of any right or
option hereunder by any party shall operate as a waiver of any other right or
option, or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement
-6-
<PAGE>
or covenant contained herein shall be valid unless it is in writing and
executed by the waiving party and such a waiver shall not be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies
by it or the law provided.
Section 15. GOVERNING LAW; SEVERABILITY. The various terms,
provisions, covenants and agreements of this Agreement, and the performance
thereof, shall be construed, interpreted and enforced under and with reference
to the laws of the State of Ohio. It is the intention of the Company and the
Executive to comply fully with all laws and matters of public policy relating to
employment agreements, and this Agreement shall be construed consistently with
such laws and public policy to the extent possible. If and to the extent any one
or more covenants, agreements, terms and provisions of this Agreement or any
portion or portions thereof shall be held invalid or unenforceable by a court of
competent jurisdiction, then such covenants, agreements, terms and provisions
(or portions thereof) shall be deemed separable from the remaining covenants,
agreements, terms and provisions of this Agreement and such holding shall in no
way affect the validity or enforceability of any of the other covenants,
agreements, terms and provisions of this Agreement.
Section 16. MISCELLANEOUS. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by both of the parties hereto. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such sections and
subsections and shall be ignored in construing this Agreement.
Section 17. INSIDER TRADING POLICY. Executive has reviewed,
understands and agrees to comply with the requirements set forth in AmeriLink's
insider trading policy, as now in effect in the form attached hereto as Exhibit
A and as amended hereafter from time to time.
IN WITNESS WHEREOF, the Company and the Executive have executed multiple
counterparts of this Agreement effective as of the Employment Commencement Date.
COMPANY: EXECUTIVE:
MIDWEST COMPUTER CABLE, INC.
By: /s/ Larry R. Linhart /s/ Larry Kendall
--------------------- ------------------
Its: Chairman Larry Kendall
-7-
<PAGE>
GUARANTEE
AmeriLink Corporation hereby guarantees the full and timely payment and
performance of all obligations of Midwest Computer Cable, Inc., a wholly-owned
subsidiary of AmeriLink Corporation, to the Executive under foregoing Agreement.
AMERILINK CORPORATION
By: /s/ Larry R. Linhart
---------------------------
Larry R. Linhart, President
-8-
<PAGE>
EXHIBIT A - INSIDER TRADING POLICY
MEMORANDUM
TO: All Employees of AmeriLink Corporation, and its Subsidiaries
(collectively "AmeriLink")
FROM: Larry R. Linhart, President & Chairman of the Board
DATE: September 29, 1994
RE: Securities Trading Policy For Trading in AmeriLink Common Shares
As you may know, there are federal laws usually referred to as "insider
trading" laws, which make it illegal to buy or sell shares of a company's stock
when you have material information about that company which has not been made
available to the general public at the time of any such purchase or sale.
During the last several years, indictment and trials of prominent persons have
drawn the attention of congress and, as a result, additional legislation has
been passed to safeguard further the public against "insider trading". This may
seem far removed from most of our lives; however, as employees, we may all, at
one time or another, become aware of material confidential information about
AmeriLink. Because we have this information, we would be considered insiders
and subject to the laws designed to prevent insider trading. This memorandum is
intended to make you aware of the probable consequences of violation of these
laws -- even if inadvertent. Also, our new corporate policy with respect to
insider trading is set forth below. It is the individual responsibility of each
person who receives this memorandum to comply with this policy.
Certain securities laws and regulations are applicable only to those who
clearly have access to important and confidential information on a regular
basis; for example, our officers and directors. However, not all laws relating
to trades in our securities apply only to officers and directors. Several new
laws have been enacted which have a broader scope. The Insider Trading
Sanctions Act of 1984 (ITSA) authorized the Securities and Exchange Commission
(SEC) to impose fines on those who engage in insider trading. More recently,
the Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA)
expanded the legislation in this area by targeting not only the individual who
trades in his or her company stock while in possession of material information
not generally known, but by making the company itself subject to fines if it
fails to take measures to prevent its employees from engaging in insider
trading. ITSFEA also exposes those who trade on insider information to lawsuits
by the trading public.
The criminal and civil sanctions of ITSFEA are substantial. Individuals
who trade on inside information or who provide (i.e., tip) information, to
others are subject to:
(i) a civil penalty of up to three times the profit gained or loss
avoided;
(ii) a criminal fine (no matter how small the profit) of up to $1
million; and
(iii) a jail term of up to ten years.
A company that fails to take appropriate steps to prevent illegal trading
in its securities is also subject to civil and criminal penalties.
Although it has always been AmeriLink's policy to prohibit employees from
using confidential information for their own benefit, now that we are a public
company the legislation on insider trading has prompted our Board of Directors
to adopt an additional policy dealing specifically with insider trading. Under
the
-9-
<PAGE>
expanded policy no employee is permitted to trade in SHARES OF AMERILINK
COMMON STOCK OR SECURITIES ISSUED BY ANY OF OUR CUSTOMERS OR SUPPLIERS if the
trade is motivated by the desire to gain a profit or avoid a loss based upon
knowledge of material non-public information. This information need not be
about AmeriLink; it can be information about a customer or supplier if the
information is material and confidential and is obtained in the course of
employment at our company. Information is "material" for purposes of this
policy if there is a substantial likelihood that a reasonable investor would
consider it important in arriving at a decision to buy, sell or continue to hold
securities (e.g., significant new products or discoveries; the gain or loss of a
substantial customer or supplier; an impending acquisition or sale).
Transactions that may be necessary or justifiable for independent reasons
(such as the need to raise money for an emergency expenditure) are not
exceptions. Even the appearance of an improper transaction must be avoided.
The restrictions contained in this policy apply to your family members as well
as to others living in your household. Employees are expected to be responsible
for the compliance of their immediate family and personal household.
Furthermore, employees must not (i) pass the confidential information on to
others or (ii) advise others to buy or sell, even though not actually passing on
the confidential information. An employee may be subject to the penalties
described above whether or not the employee derives any benefit from another's
actions.
Violation of this policy will be considered by management to be a serious
breach of conduct and may result in disciplinary action including possible
dismissal.
In order to ensure that employees adhere to this Policy, the following
procedures have been adopted by our Board of Directors:
1. No AmeriLink employee shall at any time trade in AmeriLink Shares
when possessed of material non-public information.
2. No AmeriLink employee shall purchase, sell or trade in options
(including puts or calls) to purchase or sell AmeriLink Shares,
engage in "short sales" of, or otherwise deal in derivative
securities which are based upon, AmeriLink Shares.
3. All AmeriLink employees other than Executive Officers who are (a)
based in the Columbus corporate office, or (b) based in any
regional or field office holding the position of "Manager" or
"Assistant Manager", shall submit to the Chairman or his designee
a written notification of their intent to buy or sell shares of
AmeriLink common stock. This notification shall be submitted
three business days prior to the trade and shall be made in the
form attached to this memorandum. The declaration will be relied
upon by our Company as accurate in all respects. Untruthful
statements, of course, will be grounds for disciplinary action.
4. Executive officers and directors of AmeriLink will require
approval of the Chairman or his delegate for any trading outside
the "window period" following the announcement of quarterly
earnings or at any time when possessed of material non-public
information. This is the period beginning the third business day
after such an announcement and ending on the twelfth business day
following such announcement. The Chairman or his delegate will
consult with legal counsel in the case of any questions on trading
restrictions.
5. Any employee who is uncertain as to the interpretation of the
policy set forth herein, either generally or in its application to
any specific situation, should contact my office.
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1998, AND THE STATEMENT OF INCOME
FOR THE THIRTY-NINE WEEKS ENDED DECEMBER 27, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> DEC-27-1998
<CASH> 10,823
<SECURITIES> 0
<RECEIVABLES> 12,062
<ALLOWANCES> 186
<INVENTORY> 1,469
<CURRENT-ASSETS> 30,202
<PP&E> 6,047<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 36,362
<CURRENT-LIABILITIES> 5,080
<BONDS> 0
0
0
<COMMON> 22,874
<OTHER-SE> 8,408
<TOTAL-LIABILITY-AND-EQUITY> 36,362
<SALES> 48,078
<TOTAL-REVENUES> 48,078
<CGS> 29,303
<TOTAL-COSTS> 46,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,824
<INCOME-TAX> 719
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION ON
THE CONSOLIDATED BALANCE SHEET
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
SHORT-FORM MERGER AGREEMENT
THIS SHORT-FORM MERGER AGREEMENT (this "Agreement"), dated as of the 2nd
day of February, 1999, is made by and among AmeriLink Corporation, an Ohio
corporation ("AmeriLink"), MCC Acquisition Corp., an Ohio corporation and wholly
owned subsidiary of AmeriLink ("MAC"), and each of Jeffrey Van Polen, Richard
Pearson and Michael Maddison (said individuals being hereinafter collectively
called the "Employee Shareholders" and, individually, an "Employee
Shareholder").
W I T N E S S E T H :
WHEREAS, the Employee Shareholders are the owners of common stock of
Midwest Computer Cable, Inc. (the "Company"); and
WHEREAS, Larry Kendall Dayton Kendall, and Linda Kendall (the
"Principal Shareholders"), the Company, AmeriLink and MAC have entered into
an Agreement and Plan of Merger (the "Principal Agreement") dated as of the
date hereof ; and
WHEREAS, AmeriLink, MAC, the Company, the Principal Shareholders and
the Employee Shareholders desire to merge the Company with and into MAC (the
"Merger") upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. DEFINITIONS. Capitalized terms not defined herein shall have the
meanings assigned to them in the Principal Agreement.
2. DELIVERY OF COMPANY SHARES. Each Employee Shareholder hereby
tenders his Company Shares to MAC in exchange for the Merger Consideration.
3. THE MERGER. Upon the terms and subject to the conditions of the
Principal Agreement and this Agreement, the Merger shall be completed in the
manner described in the Principal Agreement.
4. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE SHAREHOLDERS. Each
Employee Shareholder represents and warrants to MAC and AmeriLink, solely as to
such Employee Shareholder, as follows:
(a) SHAREHOLDERS' CAPACITY4.26 Shareholders' Capacity. The
execution, delivery and performance by Employee Shareholder of this
Agreement and the consummation by Employee Shareholder of the
transactions contemplated hereby are within Employee Shareholder's
capacity and no approval or consent of any other person is required in
connection therewith.
(b) SHAREHOLDERS' GOVERNMENTAL AUTHORIZATION, CONFLICTS4.27
Shareholders' Governmental Authorization, Conflicts.
(i) The execution, delivery and performance by Employee
Shareholder of this Agreement and the consummation of the Merger
require no action by or in respect of, or filing with, any
governmental body, agency, official or authority except as has
been accomplished or will be accomplished prior to the Closing
Date.
-1-
<PAGE>
(ii) No consent, approval, waiver or other action by any
Person under any material contract, agreement, indenture, lease,
instrument or other document to which the Company is a party or by
which it is bound is required or necessary for the execution,
delivery and performance of this Agreement by such Employee
Shareholder or the consummation of the transactions contemplated
hereby.
(c) NON-CONTRAVENTION4.28 Non-Contravention. The
execution, delivery and performance by such Employee Shareholder of this
Agreement and the consummation of the Merger do not and will not
contravene or constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of
Employee Shareholder or to a loss of any benefit to which Employee
Shareholder is entitled under any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree,
administrative interpretation, award or other instrument binding upon
Employee Shareholder or result in the creation or imposition of any Lien
on any asset of Employee Shareholder.
(d) BINDING EFFECT4.29 Binding Effect. This Agreement
constitutes a valid and binding agreement of such Employee Shareholder,
enforceable in accordance with its terms except as limited by bankruptcy,
insolvency or other similar laws affecting the rights of creditors
generally and the application of equitable principles.
(e) TITLE TO SHARES4.30 Title to Shares. Employee Shareholder
is the record and beneficial owner of the Company Shares such Employee
Shareholder has agreed to deliver hereunder and upon delivery of the
certificates for the Company Shares by Employee Shareholder or a lost
share certificate affidavit pursuant to this Agreement, MAC will acquire
good, valid and marketable title to the Company Shares, free and clear of
any Lien.
(f) ENTIRE BUSINESS4.31 Entire Business. The Company Shares
constitute all of such Employee Shareholder's investment, direct or
indirect, in the Company and its business as currently and historically
conducted.
(g) CERTAIN INTERESTS4.32 Certain Interests. Neither
Employee Shareholder nor any of his relatives or Affiliates (other than
the Company) (i) is a party to or has an interest in any material
contracts or other arrangements relating to the business of the Company
to which the Company is a party or to which the Company or any assets
used by the Company may be subject or (ii) has any interest in any
material property, real or personal, tangible or intangible, including
Intellectual Property Rights used in or pertaining to the Company except,
in each case, for the normal rights of that Employee Shareholder as a
holder of the Company Shares owned by that Employee Shareholder.
(h) FINDERS' FEES4.33 Finders' Fees. Employee Shareholder
has not employed any investment banker, broker, finder or other
intermediary who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement
(i) ABSENCE OF CERTAIN CHANGES4.34 Absence of Certain
Changes. Employee Shareholder has not issued or sold any securities
convertible or exchangeable for other securities of the Company or issued
or sold any options or other rights to acquire from Employee Shareholder
debt securities of the Company or securities convertible into or
exchangeable for any debt securities.
(j) INVESTMENT INTENT4.35 Investment Intent. Employee
Shareholder is acquiring the shares of AmeriLink Common Stock it receives
from AmeriLink hereunder for investment and not with a view to a sale or
distribution thereof within the meaning of the Securities Act. Employee
Shareholder has had an opportunity to ask questions of the principal
officers and representatives of AmeriLink and to obtain any additional
information necessary to permit an evaluation of the benefits and risks
associated with the investment made hereby. Employee Shareholder has had
sufficient experience in business, financial and investment matters to
evaluate the merits and risks involved in the investment made hereby and
is able to bear the economic risk of such investment for an indefinite
period of time.
-2-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF AMERILINK. AmeriLink represents
and warrants as follows:
(a) CORPORATE EXISTENCE AND POWER5.1 Corporate Existence and
Power. AmeriLink is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Ohio, has all requisite
corporate power and authority to conduct its business and own its
properties as now conducted and owned, and is qualified to do business as
a foreign corporation in each jurisdiction where the failure to be so
qualified would, in the aggregate, have a material adverse effect on the
business or financial condition of AmeriLink. AmeriLink has full
corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of AmeriLink, and no other corporate proceedings are necessary
to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by AmeriLink and constitutes a valid and binding agreement,
enforceable against it in accordance with its terms.
(b) CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement by AmeriLink nor the
consummation of the transactions contemplated hereby will (i) conflict
with or result in a breach of any provision of its Articles of
Incorporation or Code of Regulations, (ii) require any consent or
approval of, or filing and expiration of a waiting period or a period for
disapproval by, any governmental authority (except for filing of an
additional listing notification with The Nasdaq Stock Market, Inc.),
(iii) result in a default (or an event that might, with the passage of
time or the giving of notice or both, constitute a default) or give rise
to any right to terminate, cancel or accelerate or to any loss of benefit
under any of the terms, conditions, or provisions of any lease,
indenture, mortgage, loan or credit agreement, or other agreement or
instrument to which AmeriLink is a party or by which AmeriLink or any of
its assets may be bound, other than as previously disclosed in writing to
the Company, or (iv) violate any applicable law, rule or regulation to
which AmeriLink or any of its assets are bound.
(c) LITIGATION. Except as disclosed in the SEC Documents (as
defined below), there are no actions, suits, causes of action, claims,
litigation, arbitration, administrative hearings or other form of
proceedings or disputes pending or threatened against AmeriLink, in any
court, at law or in equity, or before any arbitration board or any
governmental department, commission, board, bureau, agency, or
instrumentality which in the aggregate would have a material adverse
effect on its business or financial condition; nor has AmeriLink been,
nor is it, subject to any orders, awards, fines, judgments, decrees, or
injunctions the effect of which in the aggregate would have a material
adverse effect on its business or financial condition.
(d) CHARTER DOCUMENTS. AmeriLink has heretofore delivered to
the Company (i) a copy of its Articles of Incorporation, as amended to
date, certified by the appropriate governmental authority, and (ii) a
copy of its Code of Regulations, as amended to date, as certified by its
Secretary or Assistant Secretary.
(e) BROKERS. Except for JPS Capital Corporation, no broker,
finder, or investment banker is entitled to any brokerage, finder's, or
other fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of or
AmeriLink.
(f) SEC FILINGS. AmeriLink has filed all required reports,
forms and other documents with the Securities and Exchange Commission
(the "SEC DOCUMENTS"). As of their respective dates (giving effect to
any amendment contained in a subsequently-filed SEC Document intended to
supplement or replace information given at any such date), the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder applicable to such SEC
Documents. The financial statements of AmeriLink included in the SEC
Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Securities and Exchange
-3-
<PAGE>
Commission with respect thereto, have been prepared (other than the
pro forma financial statements included therein) in accordance with
GAAP (except as may be indicated in the notes thereto or, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present the financial position of AmeriLink and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
audit adjustments). The pro forma combined financial statements of
the Company included in the SEC Documents, together with the related
notes thereto, present fairly the information contained therein, have
been prepared in accordance with the Securities and Exchange
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly presented on the pro forma bases
described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
Except as set forth in the SEC Documents filed and publicly available
prior to the date of this Agreement, and except for liabilities and
obligations incurred in the ordinary course of business since the date
of the most recent pro forma combined balance sheet included in the
SEC Documents filed and publicly available prior to the date of this
Agreement and liabilities and obligations which would not,
individually or in the aggregate, have a material adverse effect on
AmeriLink, neither AmeriLink nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of AmeriLink and its consolidated
subsidiaries or in the notes thereto.
(g) CAPITALIZATION. AmeriLink's capitalization as of February
1, 1999 consisted of (i) 10,000,000 authorized AmeriLink Common Shares,
of which 4,031,174 such shares (exclusive of any such shares delivered
pursuant to this Agreement) are issued and outstanding, (ii) 500,000
authorized Class A Voting Preferred Shares, none of which are issued and
outstanding, (iii) 500,000 authorized Class B Nonvoting Preferred Shares,
none of which are issued and outstanding, and (iv) outstanding options
and warrants to purchase an aggregate of 773,403 AmeriLink Common Shares
(exclusive of any such options granted pursuant to the transactions
contemplated by this Agreement). AmeriLink has no other authorized
classes of capital stock.
(h) NO RIGHTS TO REGISTER STOCK. Except as described in the
SEC Documents, AmeriLink has no obligation to register any shares of
AmeriLink Common Stock under the Securities Act.
(i) AMERILINK COMMON STOCK. The AmeriLink Common Stock to be
issued pursuant to this Agreement has been duly authorized by all
necessary corporate action and, when issued and delivered by AmeriLink
pursuant to this Agreement, will be validly issued, fully paid and
non-assessable.
(j) MATERIAL ADVERSE CHANGE. There has been no material
adverse change in the financial condition, properties, business or
prospects of AmeriLink since the date of AmeriLink's most recent Form
10-Q filed with the SEC on November 11, 1998, except to the extent
disclosed in AmeriLink's filings with the SEC prior to the date hereof.
6. SHAREHOLDER COVENANTS.
(a) COMPETITION6.5 Competition.
(i) Each Employee Shareholder agrees that, for a period
of three years beginning on the Closing Date, such Employee
Shareholder will not engage or participate in any capacity in any
business other than that of the AmeriLink or one of its Affiliates
which is substantially similar to any part of the business of the
Company as of the Closing Date; provided that this Section shall
not prohibit any Employee Shareholder from owning not more than 1%
of the issued and outstanding stock of any corporation whose
shares are publicly traded on a recognized national exchange or
listed in the Nasdaq national market system. The foregoing
restriction shall extend to each state in the United States.
-4-
<PAGE>
(ii) Any breach of this Section 5(a) may cause
irreparable injury to AmeriLink or its Subsidiaries for which a
remedy at law may be inadequate. Therefore, AmeriLink and its
Subsidiaries shall be entitled to temporary and permanent
injunctive or other equitable relief in any court of competent
jurisdiction without the necessity of proving actual damages, in
addition to any other remedy, including money damages, available
therefor pursuant to this Agreement, at law or in equity.
(b) CONFIDENTIALITY.
(i) Employee Shareholders will hold in confidence,
unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and
information concerning the Company, except to the extent that such
information can be shown to have been (i) previously known on a
non-confidential basis by the recipient, (ii) in the public domain
through no fault of any Shareholder or (iii) later lawfully
acquired by such recipient or from sources other than any of the
Shareholders, the Company or AmeriLink.
(ii) Employee Shareholders will hold in confidence,
unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential
documents and information concerning AmeriLink and its
Subsidiaries, except to the extent that such information can be
shown to have been (i) previously known on a non-confidential
basis by the recipient, (ii) in the public domain through no
fault of any Shareholder or (iii) later lawfully acquired by a
Shareholder from sources other than any of Shareholders or
AmeriLink. If this Agreement is terminated, such confidence
shall be maintained and Employee Shareholders will destroy or
deliver to AmeriLink, upon request, all documents and other
materials, and all copies thereof, obtained by Employee
Shareholders or on behalf of Employee Shareholders from
AmeriLink in connection with this Agreement or the Principal
Agreement that are subject to such confidence. If this
Agreement is terminated, such confidence shall be maintained
and Employee Shareholders will destroy or deliver to AmeriLink,
upon request, all documents and other materials, and all copies
thereof, obtained by any Employee Shareholder or on such
Employee Shareholder's behalf from AmeriLink in connection with
this Agreement that are subject to such confidence.
7. SURVIVAL; REMEDY FOR BREACH11.1 Survival; Remedy for Breach.
The representations and warranties contained in this Agreement shall survive the
Closing without limitation. All covenants and other agreements included in this
Agreement shall survive the Closing except as indicated therein.
8. INDEMNIFICATION 11.2 Indemnification by Shareholders.
(a) BY SHAREHOLDERS. The Employee Shareholders hereby indemnify
each AmeriLink Indemnitee (as hereinafter defined), jointly and
severally, against and agrees to hold each AmeriLink Indemnitee harmless
from any and all damage, loss, liability, penalty, assessment,
settlement, judgment and expense (including, without limitation,
reasonable expenses of investigation and attorneys' fees and expenses) in
connection with any action, suit or proceeding brought against any such
AmeriLink Indemnitee (collectively, "Claims") incurred or suffered by any
such AmeriLink Indemnitee arising out of the inaccuracy of any of the
representations or warranties or the breach of any covenant or agreement
of the Employee Shareholders hereunder.
(b) BY AMERILINK11.3 Indemnification by AmeriLink.
AmeriLink hereby indemnifies each Employee Shareholder against and agrees
to hold each Employee Shareholder harmless from any and all Claims
incurred or suffered by any such Employee Shareholder arising out of the
inaccuracy of any of the representations or warranties made by AmeriLink
in this Agreement or the breach of any covenant or agreement of AmeriLink
hereunder. AmeriLink's obligation to provide the indemnity pursuant to
this Section 8(b) shall expire on the second anniversary of the Closing
Date.
-5-
<PAGE>
(c) PROCEDURES11.4 Procedures.
(i) For purposes of this Section 8, the term "AmeriLink
Indemnitee" shall include AmeriLink and any of its Affiliates and,
effective at the Closing, the Surviving Corporation. For purposes
of this Section 8, the term "Indemnifying Party" shall mean
AmeriLink or Employee Shareholders, as appropriate, and
"Indemnified Party" shall mean a AmeriLink Indemnitee or an
Employee Shareholder, as appropriate.
(ii) Each Indemnified Party shall give prompt notice to
the Indemnifying Party of the assertion of any claim, or the
commencement of any suit, action or proceeding in respect of which
indemnity may be sought hereunder and of any damage, loss,
liability or expense which the Indemnified Party deems to be
within the ambit of this Section 8, specifying with reasonable
particularity the basis therefor and will give the Indemnifying
Party such information with respect thereto as the Indemnifying
Party may reasonably request. The Indemnifying Party may, at its
own expense, (i) participate in and, (ii) upon notice to the
Indemnified Party, assume the defense of any such suit, action or
proceeding; PROVIDED that (i) the Indemnifying Party's counsel is
reasonably satisfactory to the Indemnified Party, (ii) the
Indemnifying Party shall thereafter consult with the Indemnified
Party upon the Indemnified Party's reasonable request for such
consultation from time to time with respect to such suit, action
or proceeding and (iii) the Indemnifying Party shall not, without
the Indemnified Party's consent, agree to any settlement with
respect to any Tax if the effect of such settlement would be an
increase in the liability of the Indemnified Party with respect to
any Tax for any period beginning after the Closing. If the
Indemnifying Party assumes such defense, the Indemnified Party
shall have the right (but not the duty) to participate in the
defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Party. The
Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnified Party for any period during
which the Indemnifying Party has not assumed the defense thereof.
Whether or not the Indemnifying Party chooses to defend or
prosecute any claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof.
(iii) No Indemnifying Party shall be liable under this
Section 8 for any settlement, effected without its consent or
resulting from a proceeding in which such Indemnifying Party was
not permitted an opportunity to participate, of any claim,
litigation or proceeding in respect of which indemnity may be
sought hereunder. No investigation by any Indemnified Party at or
prior to the Closing shall relieve any Indemnifying Party of any
liability under this Section 8.
(iv) Any claim of any AmeriLink Indemnitee (other than
AmeriLink) under this Section 8 may be made and enforced by
AmeriLink on behalf of any such AmeriLink Indemnitee.
9. SUCCESSORS AND ASSIGNS12.3 Successors and Assigns. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns, PROVIDED, HOWEVER, that neither
this Agreement nor any right hereunder may be assigned by any party without the
consent of the other parties hereto.
10. ENTIRE AGREEMENT; AMENDMENT12.4 Entire Agreement; Amendment.
This Agreement, including any schedules hereto, and the other instruments and
agreements referred to herein embody the entire agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
with respect thereto. This Agreement may be amended but only in a writing
signed by AmeriLink and Employee Shareholders. Any provision hereof may be
waived but only in a writing signed by AmeriLink if such waiver is sought to be
enforced against AmeriLink and only in a writing signed by Employee Shareholders
if such waiver is sought to be enforced against Employee Shareholders.
11. COUNTERPARTS12.5 Counterparts. This Agreement may be executed
in any number of counterparts as may be convenient or necessary, and it shall
not be necessary that the signatures of all parties hereto or thereto
-6-
<PAGE>
be contained on any one counterpart hereof or thereof. Additionally, the
parties hereto agree that for purposes of facilitating the execution of this
Agreement, (a) the signature pages taken from the separate individually
executed counterparts of this Agreement may be combined to form multiple
fully executed counterparts and (b) a facsimile transmission shall be deemed
to be an original signature for all purposes. All executed counterparts of
this Agreement shall be deemed to be originals, but all such counterparts
taken together or collectively, as the case may be, shall constitute one and
the same agreement.
12. SEVERABILITY12.6 Severability. If any term, provision,
covenant or restriction of this Agreement or the application thereof to any
person or circumstance should be held by an administrative agency or court of
competent jurisdiction to be invalid, void, or unenforceable, then the remainder
of this Agreement and the application of such term, provision, covenant, or
restriction to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law. Further, it
is the intent of the parties that if any term, provision, covenant, or
restriction of the Agreement should be held to be invalid, void, or
unenforceable as applied to any person or circumstance, then such term,
provision, covenant, or restriction shall be modified to the extent necessary
in order to render the same enforceable, consistent with the expressed
objectives of the parties hereto for entering into this Agreement.
13. CAPTIONS12.7 Captions. The captions herein are inserted for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
14. GOVERNING LAW; VENUE12.8 Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of the State of Ohio
(without regard to conflict of law principles).
IN WITNESS WHEREOF, this Agreement has been executed on behalf of each of
the parties hereto as of the day and year first above written.
/s/ Jeffrey Van Polen AMERILINK CORPORATION
- ----------------------
Jeffrey Van Polen
/s/ Richard Pearson By: /s/ Larry R. Linhart
- ---------------------- ---------------------------
Richard Pearson Larry R. Linhart, President
/s/ Michael Maddison
- ----------------------
Michael Maddison MCC ACQUISITION CORP.
By: /s/ Larry R. Linhart
---------------------------
Larry R. Linhart, President
-7-
<PAGE>
EXHIBIT 99.2
FOR IMMEDIATE RELEASE FOR ADDITIONAL INFORMATION
JANUARY 28, 1999 CONTACT: LARRY R. LINHART
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
614/895-1313, EXT. 3021
AMERILINK CORPORATION SIGNS AGREEMENT TO ACQUIRE
MIDWEST COMPUTER CABLE
COLUMBUS, Ohio, January 28, 1999 -- AmeriLink Corporation (NASDAQ: ALNK)
announced today that it is close to reaching an agreement to merge Midwest
Computer Cable, Inc., a privately owned cabling installation firm
headquartered in Des Moines, Iowa, into a wholly-owned subsidiary of
AmeriLink Corporation. Midwest Computer Cable provides installation and
maintenance services for premise cabling systems through six offices located
in Iowa, Kansas, Ohio, and Texas. During 1998, Midwest Computer Cable
recorded annual revenues in excess of $11 million. Finalization of the
merger is expected to occur within 10 days. There can be no assurance that a
final agreement will be achieved until definitive agreements have been
executed.
Larry R. Linhart, President of AmeriLink Corporation, stated, "We are very
excited to announce our first acquisition. Midwest Computer Cable has an
outstanding reputation for high quality service and brings with it a young,
aggressive management team that is committed to working with us to build our
commercial cabling and installation business. The additional offices,
management, and technicians which we both gain from this merger will enable
us to serve our combined customers better and to accelerate our individual
growth plans."
Larry Kendall, President of Midwest Computer Cable, said, "I am extremely
excited about the potential this merger means for our customers and our
employees. Access to AmeriLink's nationwide system of field offices,
operations support, and financial resources will be a significant advantage
to us as we continue our aggressive growth."
AmeriLink Corporation designs, constructs, installs and maintains cabling
systems on a national basis for the transmission of video, voice and data.
The Company offers its services to providers of telecommunications services,
including cable television multiple system operators; traditional telephone
service providers (including local exchange carriers and long distance
carriers); competitive local exchange carriers; Direct Broadcast Satellite
providers; and users of Local Area Network systems. For additional
information on AmeriLink Corporation, you may access their website at
www.nacom-amerilink.com
###
-1-
<PAGE>
EXHIBIT 99.3
FOR IMMEDIATE RELEASE FOR ADDITIONAL INFORMATION
FEBRUARY 2, 1999 CONTACT: LARRY R. LINHART
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
614/895-1313, EXT. 3021
AMERILINK CORPORATION COMPLETES MERGER WITH MIDWEST COMPUTER CABLE, INC.
COLUMBUS, Ohio, February 2, 1999 -- AmeriLink Corporation (NASDAQ National
Market: "ALNK"), a leading provider of cabling services to the
telecommunications industry, today announced that it completed the merger of
Midwest Computer Cable, Inc. into a wholly-owned subsidiary. Midwest Computer
Cable, a privately owned cabling installation firm headquartered in Des
Moines, Iowa, provides installation and maintenance services for premise
cabling systems through six offices located in Iowa, Kansas, Ohio, and Texas.
During 1998, Midwest Computer recorded annual revenues in excess of $9
million.
AmeriLink Corporation designs, constructs, installs and maintains cabling
systems on a national basis for the transmission of video, voice and data.
The Company offers these services on a national basis to providers of
telecommunications services, including: major cable television multiple
system operators; traditional telephone service providers, including local
exchange carriers and long distance carriers; competitive local exchange
carriers; Direct Broadcast Satellite providers; system integrators and users
of local area network and wide-area network systems; and other businesses
providing specific or bundled telecommunications services. For additional
information on AmeriLink Corporation, you may access their website at
www.nacom-amerilink.com.
AmeriLink Corporation (NASDAQ/NNM: "ALNK")
www.nacom-amerilink.com
###
-1-
