<PAGE>
As filed with the Securities and Exchange Commission on September 15, 1997
Registration No. 333-33415
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
INTERMEDIA COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
_____________________
Delaware 59-29-13586
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3625 Queen Palm Drive
Tampa, Florida 33619
(813) 829-0011
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
_____________________
David C. Ruberg, Chairman of the Board,
President and Chief Executive Officer
Intermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
(813) 829-0011
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________
Copy to:
Ralph J. Sutcliffe, Esq.
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
_____________________
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend on interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================
Title of Securities Amount to be Price Aggregate Amount of
to be Registered Registered Per Share Price Registration Fee
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depositary Shares 6,900,000 $28.25(1) $ 194,925,000 $59,068.18
each representing a
one hundredth
interest in a share
of 7% Series D
Junior Convertible
Preferred Stock
(liquidation
preference $25.00
per share)
- ----------------------------------------------------------------------------------------------------
7% Series D 69,000 N.A. N.A. (2)
Junior Convertible
Preferred Stock,
liquidation
preference $2,500
per share, $1.00
par value per share
====================================================================================================
Common Stock, 4,434,448(3)(4) N.A. N.A. (2)
$.01 par value per
share issuable upon
conversion of the
Depositary Shares
and 7% Series D
Junior Convertible
Preferred Stock
- ----------------------------------------------------------------------------------------------------
Common Stock, (5) (5) $26,363,750.00(5) $ 7,989.01
$.01 par value per
issuable as
dividends on the
7% Series D Junior
Convertible
Preferred Stock
====================================================================================================
Common Stock, 31,380 $38.5625(1) $ 1,210,091.25 $ 366.70
$.01 par value per
share
====================================================================================================
Total: $67,413.73(6)
</TABLE>
(1) Average of the bid and asked prices on August 8, 1997, pursuant to Rule
457(c).
(2) Pursuant to Rule 457(i), a registration fee is not required in connection
with the registration of the Series D Preferred Stock or the Common Stock
issuable upon conversion of the Depositary Shares or shares of the Series D
Preferred Stock.
(3) An indeterminate number of additional shares of Common Stock are registered
hereunder which may be issued in the event that fractional shares of
Depositary Shares or Series D Preferred Stock are rounded up to the nearest
whole share in connection with the conversion of Depositary Shares or shares
of Series D Preferred Stock.
(4) Pursuant to Rule 416, an indeterminate number of additional shares of Common
Stock are registered hereunder which may be issued in the event that
applicable antidilution provisions with respect to conversion of the
Depositary Shares and Series D Preferred Stock become operative.
(5) Pursuant to Rule 457(o), an indeterminate number of shares of Common Stock
are registered hereunder which may be issued by the Company from time to
time in lieu of cash during the two year period commencing on the effective
date of this Registration Statement as dividends on the 7% Series D Junior
Convertible Preferred Stock.
(6) $60,000.00 was previously paid on August 12, 1997.
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE OR DATES AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 15, 1997
INTERMEDIA COMMUNICATIONS INC.
6,900,000 DEPOSITARY SHARES EACH REPRESENTING A ONE HUNDREDTH INTEREST IN A
SHARE OF 7% SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK, 69,000 SHARES OF 7%
SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK, 4,465,828 SHARES OF COMMON STOCK
AND COMMON STOCK ISSUABLE AS DIVIDENDS ON THE 7% SERIES D JUNIOR CONVERTIBLE
PREFERRED STOCK.
_______________
This Prospectus is being used in connection with the offering from
time to time by certain holders (the "Selling Securityholders") of (1)
depositary shares (the "Depositary Shares") each representing a one hundredth
interest in a share of 7% Series D Junior Convertible Preferred Stock ("Series D
Preferred Stock"), liquidation preference $2,500 per share (equivalent to $25.00
per Depositary Share; the "Liquidation Preference"), par value $1.00 per share
of Intermedia Communications Inc. (the "Company" or "Intermedia"), (2) the
shares of Series D Preferred Stock and the shares (the "Common Shares") of
common stock, $.01 par value per share, of the Company (the "Common Stock")
issuable upon conversion of the Series D Preferred Stock and/or the Depositary
Shares and (3) the Universal Shares (as defined herein) (the Depositary Shares,
Series D Preferred Stock, Common Shares and Universal Shares are collectively
referred to herein as the "Securities"). This Prospectus is also being used in
connection with the issuance by the Company from time to time during the two
year period commencing on the date of this Prospectus and in accordance with the
Certificate of Designation (as defined herein) of an indeterminate number of
shares of Common Stock issuable by the Company in lieu of cash as dividends on
the Series D Preferred Stock (the "Dividend Shares"). See "Description of
Preferred Stock--Dividends." The Depositary Shares were originally issued by the
Company in a private placement on July 9, 1997 (the "First Closing") and
purchased by Bear Stearns & Co., Inc. and Salomon Brothers Inc (the "Initial
Purchasers") pursuant to a purchase agreement (the "Purchase Agreement") dated
as of July 2, 1997 between the Company and the Initial Purchasers. Subsequently,
the Initial Purchasers exercised the over-allotment option in connection
therewith. The First Closing and the over-allotment exercise are collectively
referred to herein as the "July 9 Equity Offering". The Initial Purchasers, in
turn, resold the Depositary Shares in private sales pursuant to exemptions from
registration under the Securities Act of 1933, as amended.
(continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS
DISCUSSED UNDER THE CAPTION "RISK FACTORS" ON PAGE 3.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_____________________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1997.
<PAGE>
This prospectus is also being used in connection with the offering
from time to time by certain holders (the "W&B Holders") of 31,380 shares of
Common Stock (the "Universal Shares") which were acquired by the W&B Holders
from the Company on December 6, 1996 in connection with the acquisition by the
Company of W&B (formerly known as Universal Telecom, Inc. d/b/a Universal
Telecom Technologies ("Universal")) pursuant to an asset acquisition agreement,
dated December 6, 1996 among the Company, Universal, William M. Wunderlich and
Ray Bove (the "Asset Acquisition Agreement"). 27,554 of the Universal Shares are
currently subject to an escrow arrangement.
Holders of the Depositary Shares are entitled to all proportional
rights and preferences of the Series D Preferred Stock (including dividend,
voting, redemption and liquidation rights). Dividends on the Series D Preferred
Stock accrue at a rate per annum equal to 7% of the Liquidation Preference per
share of Series D Preferred Stock and are payable quarterly, in arrears, on July
15, October 15, January 15 and April 15 of each year, commencing on October 15,
1997. Dividends are payable in cash or at the option of the Company, in shares
of Common Stock, or a combination thereof. The Depositary Shares are
convertible, subject to prior redemption at any time after October 7, 1997, at
the option of the holder thereof into Common Stock at a conversion price of
$38.90 per share, subject to certain adjustments.
The Series D Preferred Stock and the Depositary Shares are redeemable,
in whole or in part, at the option of the Company at any time on or after July
19, 2000, at the redemption prices set forth herein, plus accumulated and unpaid
dividends and Preferred Stock Liquidated Damages (as defined herein), if any,
thereon to the redemption date. See "Description of Preferred Stock" and
"Description of Depositary Shares." Upon the occurrence of a Preferred Stock
Change of Control (as defined herein), the Company will be required to make an
offer to repurchase all outstanding shares of Series D Preferred Stock at a
price equal to 100% of the Liquidation Preference thereof, plus accumulated and
unpaid dividends and Preferred Stock Liquidated Damages, if any, thereon to the
repurchase date.
The Series D Preferred Stock ranks (i) senior to all Junior Securities
(as defined herein), including all Common Stock of the Company; (ii) on a parity
with any Parity Securities (as defined herein); and (iii) junior to each class
of Senior Securities (as defined herein), including the Company's outstanding 13
1/2% Series B Redeemable Exchangeable Preferred Stock due 2009 ("Series B
Preferred Stock"), and junior to all indebtedness and other obligations of the
Company and its subsidiaries. As of June 30, 1997, on a pro forma basis after
giving effect to the July 9 Equity Offering and the concurrent private placement
of $649 million principal amount at maturity of 11 1/4% Notes on July 9, 1997
(including the exercise of the over-allotment option in connection therewith)
(the "July 9 Debt Offering", and collectively with the July 9 Equity Offering,
the "July 9 Offerings") and the application of the proceeds therefrom, the
Series D Preferred Stock would have been junior in right of payment to
approximately $985.6 million of liquidation preference of Series B Preferred
Stock and total indebtedness and other obligations of the Company and its
subsidiaries. See "Description of Preferred Stock-Ranking."
The Securities may be sold from time to time to purchasers directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer the Securities through brokers, dealers or agents who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Securities for whom
they may act as agent. The Selling Securityholders and any such brokers, dealers
or agents who participate in the distribution of the Securities may be deemed to
be "underwriters", and any profits on the sale of the Securities by them and any
discounts, commissions or concessions received by any such brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Securityholders may be deemed to be
underwriters, the Selling Securityholders may be subject to certain statutory
liabilities of the Securities Act, including, but not limited to, Sections 11,
12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. See "Plan
of Distribution." The Selling Securityholders and any other person participating
in such distribution will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders and any other such person. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
ii
<PAGE>
The Company will not receive any proceeds from the sale of the
Securities or the issuance of the Dividend Shares offered hereby. The Company
has agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
On September 11, 1997, the closing price for the Common Stock as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System National Market ("Nasdaq National Market"), under the symbol
"ICIX", was $37.75 per share. The Company has not and does not intend to apply
for the listing of the Depositary Shares or the Series D Preferred Stock on any
securities exchange or for quotation through the Nasdaq National Market. The
Series D Preferred Stock and the Depositary Shares are eligible for trading in
the National Association of Securities Dealers' Private Offerings, Resales and
Trading Through Automative Linkages ("PORTAL") Market.
iii
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, its Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at its Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material can also be inspected at the Web site of the Commission
located at http://www.sec.gov. The Common Stock is listed on the Nasdaq National
Market under the symbol "ICIX". Reports, proxy and information statements, and
other information concerning the Company can also be inspected at the Nasdaq
National Market at 1735 17 Street, N.W., Washington, D.C. 20006-1506.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company
with the Commission and are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1996.
The Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 filed with the Commission on May 15, 1997.
The portions of the Proxy Statement for the Annual Meeting of
Stockholders of the Company held on May 22, 1997 that have been
incorporated by reference into the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
The Company's Current Report on Form 8-K filed with the Commission on
February 24, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
March 14, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
June 5, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
July 9, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
July 17, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission
on August 4, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
The description of the capital stock contained in the Company's
registration statements on Form 8-A under the Exchange Act, filed
April 7, 1992, April 28, 1992 and April 30, 1992 (File No. 0-20135).
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON
TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO INTERMEDIA COMMUNICATIONS, INC., 3625 QUEEN PALM
DRIVE, TAMPA, FLORIDA 33619 (TELEPHONE 813-829-0011), ATTENTION: INVESTOR
RELATIONS, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS.
2
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the business of the Company and this offering, in addition to other
information set forth elsewhere in this Prospectus, before purchasing the
Securities offered hereby.
Restrictions on the Company's Ability to Pay Dividends on the Series D
Preferred Stock. To date, the Company has not paid dividends on its shares of
capital stock. The ability of Intermedia to pay cash dividends on the Series D
Preferred Stock is substantially restricted under various covenants and
conditions contained in the Indenture (the "12 1/2% Notes Indenture") governing
the Company's 12 1/2% Senior Notes due 2006 (the "12 1/2% Notes"), the Indenture
(the "11 1/4% Notes Indenture", and together with the 12 1/2% Notes Indenture,
the "Existing Senior Notes Indentures") governing the Company's 11 1/4% Senior
Discount Notes due 2007 (the "11 1/4% Notes", and together with the 12 1/2%
Notes, the "Existing Senior Notes") and the Certificate of Designation (the
"Series B Certificate of Designation") setting forth the rights of the Series B
Preferred Stock. In addition to the limitations imposed on the payment of
dividends by the Existing Senior Notes Indentures and the Series B Certificate
of Designation, under Delaware law the Company is permitted to pay dividends on
its capital stock, including the Series D Preferred Stock, only out of its
surplus, or in the event that it has no surplus, out of its net profits for the
year in which a dividend is declared or for the immediately preceding fiscal
year. Surplus is defined as the excess of a company's total assets over the sum
of (i) its total liabilities and (ii) the par value of its outstanding capital
stock. At June 30, 1997, the Company had stockholders equity of $44.9 million
and surplus of $44.7 million. The Company historically has had net losses in
each of the last five years and expects to operate at a net loss for the next
several years. These net losses will reduce stockholders' equity and the surplus
of the Company. For the six months ended June 30, 1997, the Company had a net
loss attributable to common stockholders of $70.2 million ($128.5 million on a
pro forma basis after giving effect to the July 9 Offerings (and the application
of proceeds therefrom) and the DIGEX Acquisition (as defined herein)). In order
to pay dividends in cash, the Company must have surplus or net profits equal to
the full amount of the cash dividend at the time such dividend is declared. The
Company cannot predict what the value of its assets or the amount of its
liabilities will be in the future and, accordingly, there can be no assurance
that the Company will be able to pay cash dividends on the Series D Preferred
Stock.
In the event dividends are paid in shares of Common Stock, the number
of shares of Common Stock to be issued on each dividend payment date will be
determined by dividing the total dividend to be paid on each Depositary Share by
95% of the average of the high and low sales prices of the Common Stock as
reported by the Nasdaq National Market or any national securities exchange upon
which the Common Stock is then listed, for each of the ten consecutive trading
days immediately preceding the fifth business day preceding the record date for
such dividend. If such average is greater than 5.05% higher than the market
value for the Common Stock on the dividend payment date and the holder sells at
such lower price, the holder's actual dividend yield would be lower than the
stated dividend yield on the Series D Preferred Stock. In addition, the holder
is likely to incur commissions and other transaction costs in connection with
the sale of such Common Stock.
The Certificate of Designation provides that upon (a) the accumulation
of accrued and unpaid dividends on the outstanding Series D Preferred Stock in
an amount equal to six quarterly dividends (whether or not consecutive) and (b)
the failure of the Company to make a Preferred Stock Change of Control Offer or
to repurchase the Series D Preferred Stock tendered in a Preferred Stock Change
of Control, the sole remedy to the holders of the Series D Preferred Stock is
the voting rights arising from a Voting Rights Triggering Event (as defined
herein). See "Description of Preferred Stock-Voting Rights."
Limited Operations of Certain Services; History of Net Losses. The
Company's business commenced in 1987. Substantially all of the Company's
revenues are derived from local exchange services, enhanced data services, long
distance services, integration services and certain local network services. Many
of these services have only recently been initiated or their availability only
recently expanded in new market areas. The Company is expecting to substantially
increase the size of its operations in the near future. Prospective investors,
therefore, have limited historical
3
<PAGE>
financial information about the Company upon which to base an evaluation of the
Company's performance. Given the Company's limited operating history, there is
no assurance that it will be able to compete successfully in the
telecommunications business.
The development of the Company's business and the expansion of its
networks require significant capital, operational and administrative
expenditures, a substantial portion of which are incurred before the realization
of revenues. These capital expenditures will result in negative cash flow until
an adequate customer base is established. Although its revenues have increased
in each of the last three years, Intermedia has incurred significant increases
in expenses associated with the installation of local/long distance voice
switches and expansion of its fiber optic networks, services and customer base.
Intermedia reported net losses of approximately $3.1 million, $20.7 million,
$57.2 million for the years ended December 31, 1994, 1995 and 1996 and net
losses to holders of Common Stock of $70.3 million for the six months ended June
30, 1997, respectively. The Company anticipates recording a significant net loss
in 1997 that is expected to be substantially greater than the loss in 1996 and
expects net losses to continue for the next several years. In addition, the
Company expects to have negative EBITDA in 1997. There can be no assurance that
Intermedia will achieve or sustain profitability or positive EBITDA in the
future.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges, Including Dividends on the Series D Preferred Stock. The Company is
highly leveraged. At June 30, 1997, after giving pro forma effect to the July 9
Offerings and the application of the net proceeds of the July 9 Offerings
(including the retirement of the Company's 13 1/2% Notes due 2005 ("13 1/2%
Notes"), the "Retirement"), the Company would have had outstanding approximately
$662.1 million in aggregate principal amount of indebtedness and other
liabilities on a consolidated basis (including trade payables), approximately
$323.5 million of obligations with respect to dividend payments and the
mandatory redemption of the Series B Preferred Stock and $172.5 million of
obligations with respect to the Series D Preferred Stock. The degree to which
the Company is leveraged could have important consequences to holders of the
Series D Preferred Stock, including the following: (i) a substantial portion of
the Company's cash flow from operations will be dedicated to payment of the
principal and interest on its indebtedness, to payment of dividends on and the
redemption of the Series B Preferred Stock and the payment of dividends on the
Series D Preferred Stock, thereby reducing funds available for other purposes;
(ii) the Company's significant degree of leverage could increase its
vulnerability to changes in general economic conditions or increases in
prevailing interest rates; (iii) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes could be impaired; and (iv) the Company may
be more leveraged than certain of its competitors, which may be a competitive
disadvantage.
For the six months ended June 30, 1997, and on a pro forma basis after
giving effect to the July 9 Offerings, and the application of the proceeds
therefrom (including the Retirement), the Company's pro forma earnings would
have been inadequate to cover its pro forma combined fixed charges (including
the Series D Preferred Stock dividend requirements) by $130.0 million. The
Company anticipates that earnings will be insufficient to cover fixed charges
for the next several years. In order for the Company to meet its debt service
obligations, its dividend and redemption obligations with respect to the Series
B Preferred Stock and its dividend obligations with respect to the Series D
Preferred Stock if it elects to pay cash dividends, the Company will need to
substantially improve its operating results. There can be no assurance that the
Company's operating results will be of sufficient magnitude to enable the
Company to meet its debt service obligations, its dividend and redemption
obligations with respect to the Series B Preferred Stock and its dividend
obligations with respect to the Series D Preferred Stock if it elects to pay
cash dividends. In the absence of such operating results, the Company could face
substantial liquidity problems and might be required to raise additional
financing through the issuance of debt or equity securities; however, there can
be no assurance that Intermedia would be successful in raising such financing,
or the terms or timing thereof.
Class Action by DIGEX Stockholders. On June 5, 1997, the Company
announced that it had agreed to acquire 100% of the outstanding equity of DIGEX,
Incorporated ("DIGEX"; the "DIGEX Acquisition"). The acquisition was consummated
through a tender offer for all of the outstanding shares of DIGEX, which closed
on July 9, 1997, followed by a cash merger effective on July 11, 1997 (the
"Merger").
4
<PAGE>
On June 20, 1997, two purported class action complaints were filed in
the Court of Chancery of the State of Delaware in and for New Castle County
respectively by TAAM Associates, Inc. and David and Chaile Steinberg (the
"Complaints"), purported stockholders of DIGEX, on behalf of all non-affiliated
common stockholders of DIGEX, against Intermedia, DIGEX and the Directors of
DIGEX (the "DIGEX Directors"). The Complaints allege that the DIGEX Directors
violated their fiduciary duties to the public stockholders of DIGEX by agreeing
to vote in favor of the Merger and that Intermedia knowingly aided and abetted
such violation by offering to retain DIGEX management in their present positions
and consenting to stock option grants to certain executive officers of DIGEX.
The Complaints seek a preliminary and permanent injunction enjoining the Merger
and cash damages from the DIGEX Directors. No application was made for a
preliminary injunction prior to the consummation of the Merger.
These cases are in their very early stages and no assurance can be
given as to their ultimate outcome. Intermedia, after consultation with its
counsel, believes that there are meritorious factual and legal defenses to the
claims in the Complaints. Intermedia intends to defend vigorously the claims in
the Complaints.
Possible Default Under the 13 1/2% Notes Indenture. In connection with
the July 9 Debt Offering, the Company defeased a portion of the Company's
outstanding 13 1/2% Notes. Such defeasance will not become effective until the
91st day after the deposit with SunTrust Bank, Central Florida, National
Association, as trustee ("SunTrust") of the funds necessary to defease the
covenants in the indenture governing the 13 1/2% Notes (the "13 1/2% Notes
Indenture"). Until such time as the defeasance becomes effective, the issuance
by the Company of the 11 1/4 Notes constitutes an event which could be declared
an Event of Default under the 13 1/2% Notes Indenture 30 days after the receipt
of notice from SunTrust or the holders of 25% of the outstanding principal
amount of the 13 1/2% Notes. If such an Event of Default were declared and the
maturity of the 13 1/2% Notes were accelerated, this would constitute an Event
of Default under the 12 1/2% Notes Indenture and under the Series B Certificate
of Designation. If the 13 1/2% Notes were accelerated, a portion of the funds
deposited with SunTrust could be used to repay the 13 1/2% Notes. If the 12 1/2%
Notes were also accelerated the Company would have available funds to pay the 12
1/2% Notes, but such payment would significantly deplete the funds available for
the Company's capital expansion plan. An Event of Default would not lead to
acceleration of the Series B Preferred Stock. The Company's 13 1/2% Notes are
and will remain classified as current liabilities on the Company's balance sheet
until such time as the Retirement becomes effective.
Regulatory Approval of the July 9 Offerings. Ten of the states in
which the Company is certificated provide for prior approval of the issuance of
debt and equity securities by the Company. One additional state in which the
Company is certificated provides for prior approval of the issuance of preferred
stock which is convertible into common stock. The requirement for such approvals
may have been pre-empted by the National Securities Market Improvement Act of
1996, although there is no case law on this point. Because of time constraints,
the Company was not able to obtain such approval from any of the eleven states
prior to consummation of the July 9 Offerings. The Company has filed the
required applications or notifications in each of the states and approval has
been obtained in three of the states. In six of these states, the Company's
intrastate revenues for the first quarter of 1997 were less than $1,000 per
state and in only one state did such revenues exceed $4,000 for the first
quarter. After consultation with counsel, the Company believes the remaining
approvals will be granted and that obtaining such approvals subsequent to the
July 9 Offerings should not result in any material adverse consequences to the
Company, although there can be no assurance that such a consequence will not
result.
Significant Capital Requirements and Possible Need for Additional
Financing. Expansion of the Company's existing networks and services and the
development of new networks and services require significant capital
expenditures. Intermedia expects to fund its capital requirements through
existing resources including capital raised through the July 9 Offerings, credit
availability and internally generated funds. However, there can be no assurance
that the Company will not require additional financing. If the Company were to
acquire additional financing, it would seek to obtain such financing through the
sale of public or private debt and/or equity securities or through securing a
bank credit facility. There can be no assurance,
5
<PAGE>
as to the availability of the terms upon which such financing might be
available. Moreover, the 12-1/2% Notes, the 11-1/4% Notes, the Series B
Certificate of Designation and the Certificate of Designation impose certain
restrictions upon the Company's ability to incur additional indebtedness or
issue additional preferred stock. In addition, the Company's future capital
requirements will depend upon a number of factors, including marketing expenses,
staffing levels and customer growth, as well as other factors that are not
within the Company's control, such as competitive conditions, government
regulation and capital costs. Failure to generate sufficient funds may require
Intermedia to delay or abandon some of its future expansion or expenditures,
which would have a material adverse effect on its growth and its ability to
compete in the telecommunications industry.
Expansion Risk. The Company is experiencing a period of rapid
expansion which management expects will increase in the near future. This growth
has increased the operating complexity of the Company as well as the level of
responsibility for both existing and new management personnel. The Company's
ability to manage its expansion effectively will require it to continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The Company's inability to effectively manage its
expansion could have a material adverse effect on its business.
A portion of the Company's expansion may occur through acquisitions as
an alternative to direct investments in the assets required to implement the
expansion. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that the Company's
future acquisitions, if any, will be successful or will not impair the Company's
ability to service its outstanding obligations.
Maintenance of Peering Relationships. The Internet is comprised of
many Internet service providers ("ISPs") who operate their own networks and
interconnect with other ISPs at various peering points. The establishment and
maintenance of peering relationships with other ISPs is necessary in order to
exchange traffic with other ISPs without having to pay settlement charges.
Although the Company meets the industry's current standards for peering, there
is no assurance that other national ISPs will maintain peering relationships
with the Company. In addition, there may develop increasing requirements
associated with maintaining peering with the major national ISPs with which the
Company may have to comply. There can be no assurance that the Company will be
able to expand or adapt their network infrastructure to meet the industry's
evolving standards on a timely basis, at a commercially reasonable cost, or at
all.
Potential Liability of On-Line Service Providers. The law in the
United States relating to the liability of on-line service providers and ISPs
for information carried on, disseminated through or hosted on their systems is
currently unsettled. Several private lawsuits seeking to impose such liability
are currently pending. In one case brought against an ISP, Religious Technology
Center v. Netcom On-Line Communication Services, Inc., the United States
District Court for the Northern District of California ruled in a preliminary
phase that under certain circumstances ISPs could be held liable for copyright
infringement. The case has not reached final judgment. The Telecommunications
Act of 1996 (the "1996 Act") prohibits and imposes criminal penalties and civil
liability for using an interactive computer service to transmit certain types of
information and content, such as indecent or obscene communications. On June 26,
1997, the Supreme Court affirmed the decision of a panel of three federal judges
which granted a preliminary injunction barring enforcement of this portion of
the 1996 Act to the extent that enforcement is based upon allegations other than
obscenity or child pornography as an impermissible restriction on the First
Amendment's right of free speech. In addition, numerous states have adopted or
are currently considering similar types of legislation. The imposition upon ISPs
or Web hosting sites of potential liability for materials carried on or
disseminated through their systems could require the Company to implement
measures to reduce their exposure to such liability, which may require the
expenditure of substantial resources or the discontinuation of certain product
or service offerings. The Company believes that it is currently unsettled
whether the 1996 Act prohibits and imposes liability for any services provided
by the Company should the content or information transmitted be subject to the
statute. The increased attention focused upon liability issues as a result of
these lawsuits, legislation and legislative proposals could affect the growth of
Internet use. Any such liability or asserted liability could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Dependence upon Network Infrastructure; Risk of System Failure,
Security Risks. The Company's success in marketing its services to business and
government users requires that the Company provide superior reliability,
capacity and security via its network infrastructure. The Company's networks are
subject to physical damage, power loss,
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<PAGE>
capacity limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused, and
will continue to cause, interruptions in service or reduced capacity for the
Company's customers. Similarly, the Company's ISP business relies on the
availability of its network infrastructure for the provision of Internet
connectivity. Interruptions in service, capacity limitations or security
breaches could have a material adverse effect on the Company's business,
financial condition and results of operations.
Subordination of the Series D Preferred Stock. The Company's
obligations with respect to the Series D Preferred Stock are subordinate and
junior in right of payment to all present and future indebtedness of the Company
and its subsidiaries, including the Existing Senior Notes, to the Series B
Preferred Stock and to all subsequent series of preferred stock of the Company
which by its terms ranks senior to the Series D Preferred Stock. In addition to
the substantial dividend restrictions set forth in the Existing Senior Notes
Indentures, no cash dividend payments may be made with respect to the Series D
Preferred Stock if (i) the obligations with respect to the Existing Senior Notes
or Series B Preferred Stock are not paid when due or (ii) any other event of
default has occurred under the Existing Senior Notes Indentures or Series B
Certificate of Designation, and is continuing or would occur as a consequence of
such payment. As of June 30, 1997, on a pro forma basis after giving effect to
the July 9 Offerings and the application of the net proceeds therefrom, the
Series D Preferred Stock would have been junior in right of payment to $985.6
million of indebtedness and other liabilities and commitments and liquidation
preference of the Company and its subsidiaries. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Series D Preferred Stock only after all
Senior Securities and all indebtedness of the Company have been paid, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Series D Preferred Stock then outstanding. See "Description of Preferred Stock-
Ranking."
Effect of Substantial Additional Indebtedness on the Company's Ability
to Make Payments on the Series D Preferred Stock. The Existing Senior Notes
Indentures and the Series B Certificate of Designation limit, but do not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiaries, and the Company may incur substantial additional indebtedness
during the next few years to finance the construction of networks and purchase
of network electronics, including local/long distance voice and data switches.
All additional indebtedness of the Company will rank senior in right of payment
to any payment obligations with respect to the Series D Preferred Stock. The
debt service requirements of any additional indebtedness would make it more
difficult for the Company to pay cash dividends with respect to the Series D
Preferred Stock.
Risks of Implementation; Need to Obtain Permits and Rights of Way. The
Company is continuing to expand its existing networks. The Company has
identified other expansion opportunities in the eastern half of the United
States and is currently extending the reach of its networks to pursue such
opportunities. There can be no assurance that the Company will be able to expand
its existing networks or construct or acquire new networks as currently planned
on a timely basis. The expansion of the Company's existing networks and its
construction or acquisition of new networks will be dependent, among other
things, on its ability to acquire rights-of-way and any required permits on
satisfactory terms and conditions and on its ability to finance such expansion,
acquisition and construction. In addition, the Company may require pole
attachment agreements with utilities and incumbent local exchange carriers
("ILECs") to operate existing and future networks, and there can be no assurance
that such agreements will be obtained or obtainable on reasonable terms. These
factors and others could adversely affect the expansion of the Company's
customer base on its existing networks and commencement of operations on new
networks. If the Company is not able to expand, acquire or construct its
networks in accordance with its plans, the growth of its business would be
materially adversely affected.
Competition. In each of its markets, the Company faces significant
competition for the local network services, including local exchange services,
it offers from ILECs, which currently dominate their local telecommunications
markets. ILECs have long-standing relationships with their customers which
relationships may create competitive barriers. Furthermore, ILECs may have the
potential to subsidize competitive service from monopoly service revenues. In
addition, a continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. The Company also faces competition in most markets in which it
7
<PAGE>
operates from one or more integrated communications services providers ("ICPs")
and ILECs operating fiber optic networks. In addition, the Company faces
competition in its integration services business from equipment manufacturers,
the RBOCs and other ILECs, long distance carriers and systems integrators, and
in its enhanced data services business (including Internet) from local telephone
companies, long distance carriers, very small aperture terminal ("VSAT")
providers, other ISPs and others. In particular, the market for Internet
services is extremely competitive and there are limited barriers to entry. Many
of the Company's existing and potential competitors have financial, personnel
and other resources significantly greater than those of the Company.
The Company believes that various legislative initiatives, including
the recently enacted 1996 Act, have removed remaining legislative barriers to
local exchange competition. Nevertheless, in light of the passage of the 1996
Act, regulators are also likely to provide ILECs with increased pricing
flexibility as competition increases. If ILECs are permitted to lower their
rates substantially or engage in excessive volume or term discount pricing
practices for their customers, the net income or cash flow of ICPs and
competitive local exchange carriers ("CLECs"), including the Company, could be
materially adversely affected. In addition, while the Company currently competes
with AT&T, MCI and others in the interexchange services market, the recent
federal legislation permits the regional Bell operating companies ("RBOCs") to
provide interexchange services once certain criteria are met. Once the RBOCs
begin to provide such services, they will be in a position to offer single
source service similar to that being offered by Intermedia. In addition, AT&T
and MCI have entered and other interexchange carriers have announced their
intent to enter into the local exchange services market, which is facilitated by
the 1996 Act's resale and unbundled network element provisions. The Company
cannot predict the number of competitors that will emerge as a result of
existing or new federal and state regulatory or legislative actions. Competition
from the RBOCs with respect to interexchange services or from AT&T, MCI or
others with respect to local exchange services could have a material adverse
effect on the Company's business.
Regulation. The Company is subject to varying degrees of federal,
state and local regulation. The Company is not currently subject to price cap or
rate of return regulation, nor is it currently required to obtain FCC
authorization for the installation, acquisition or operation of its network
facilities. Further, the FCC issued an order holding that non-dominant carriers,
such as the Company, are required to withdraw interstate tariffs for domestic
long distance service. That order has been stayed by a federal appeals court and
it is not clear at this time whether the detariffing order will be implemented.
Until further action is taken by the court, the Company will continue to
maintain tariffs for these services. In June 1997, the FCC issued another order
stating that non-dominant carriers, such as the Company, could withdraw their
tariffs for interstate access services. While the Company has no immediate plans
to withdraw its tariff, this FCC order allows the Company to do so. The FCC also
requires the Company to file interstate tariffs on an ongoing basis for
international traffic. The Company is generally subject to certification and
tariff or price list filing requirements for intrastate services by state
regulators. Although passage of the 1996 Act should result in increased
opportunities for companies that are competing with the ILECs, no assurance can
be given that changes in current or future regulations adopted by the FCC or
state regulators or other legislative or judicial initiatives relating to the
telecommunications industry would not have a material adverse effect on the
Company. In addition, although the 1996 Act provides incentives to the ILECs
that are subsidiaries of RBOCs to enter the long distance service market by
requiring ILECs to negotiate interconnection agreements with local competitors,
there can be no assurance that these ILECs will negotiate quickly with
competitors such as the Company for the required interconnection of the
competitor's networks with those of the ILECs.
Potential Diminishing Rate of Growth. During the period from 1994 to
1996, the Company's revenues have grown at a compound annual growth rate of
169%. While the Company expects to continue to grow, as its size increases it is
likely that its rate of growth will diminish.
Risk of New Service Acceptance by Customers. The Company has recently
introduced a number of services, primarily local exchange services, that the
Company believes are important to its long-term growth. The success of these
services will be dependent upon, among other things, the willingness of
customers to accept the Company as the
8
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provider of such services. No assurance can be given that such acceptance
will occur; the lack of such acceptance could have a material adverse effect on
the Company.
Rapid Technological Changes. The telecommunications industry is
subject to rapid and significant changes in technology. While Intermedia
believes that, for the foreseeable future, these changes will neither materially
affect the continued use of its fiber optic networks nor materially hinder its
ability to acquire necessary technologies, the effect on the business of
Intermedia of technological changes such as changes relating to emerging
wireline and wireless transmission technologies, including software protocols,
cannot be predicted.
Dependence on Key Personnel. The Company's business is managed by a
small number of key management and operating personnel, the loss of certain of
whom could have a material adverse impact on the Company's business. The Company
believes that its future success will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel. None of
the Company's key executives, other than David C. Ruberg, President, Chief
Executive Officer and Chairman of the Board, is a party to a long-term
employment agreement with the Company.
Risk of Cancellation or Non-Renewal of Network Agreements, Licenses
and Permits. The Company has lease and/or purchase agreements for rights-of-way,
utility pole attachments, conduit and dark fiber for its fiber optic networks.
Although the Company does not believe that any of these agreements will be
cancelled in the near future, cancellation or non-renewal of certain of such
agreements could materially adversely affect the Company's business in the
affected metropolitan area. In addition, the Company has certain licenses and
permits from local government authorities. The 1996 Act requires that local
government authorities treat telecommunications carriers in a competitively
neutral, non-discriminatory manner, and that most utilities, including most
ILECs and electric companies, afford alternative carriers access to their poles,
conduits and rights-of-way at reasonable rates on non-discriminatory terms and
conditions. There can be no assurance that the Company will be able to maintain
its existing franchises, permits and rights or to obtain and maintain the other
franchises, permits and rights needed to implement its strategy on acceptable
terms.
Dependence on Business from Interexchange Carriers ("IXCs"). For the
year ended December 31, 1996, approximately 10% of the Company's consolidated
revenues were attributable to access services provided to IXCs. The loss of
access revenues from IXCs in general could have a material adverse effect on the
Company's business.
In addition, the Company's growth strategy assumes increased revenues
from IXCs from the deployment of local/long distance voice switches on its
networks and the provision of switched access origination and termination
services. There is no assurance that the IXCs will continue to increase their
utilization of the Company's services, or will not reduce or cease their
utilization of the Company's services, which could have a material adverse
effect on the Company.
Business Combinations; Change of Control. The Company has from time to
time held, and continues to hold, preliminary discussions with (i) potential
strategic investors who have expressed an interest in making an investment in or
acquiring the Company and (ii) potential joint venture partners looking toward
the formation of strategic alliances that would expand the reach of the
Company's networks or services without necessarily requiring an additional
investment in the Company. In addition to providing additional growth capital,
management believes that an alliance with an appropriate strategic investor
would provide operating synergy to, and enhance the competitive positions of,
both Intermedia and the investor within the rapidly consolidating
telecommunications industry. There can be no assurance that agreements for any
of the foregoing will be reached. An investment, business combination or
strategic alliance could constitute a change of control. The Existing Senior
Notes Indentures and the Series B Certificate of Designation provide that a
change of control would require the Company to repay the indebtedness and redeem
the Series B Preferred Stock outstanding under such instruments. A change of
control also requires the Company to offer to redeem the Series D Preferred
Stock. The terms of the Existing Senior Notes and the Series B Certificate of
Designation contain provisions that may prohibit the repurchase of the Series D
Preferred Stock. If a change of control
9
<PAGE>
does occur, there is no assurance that the Company would have sufficient funds
to make such repayments and redemption or could obtain any additional debt or
equity financing that could be necessary in order to repay the Existing Senior
Notes and to redeem the Series B Preferred Stock in order to redeem the Series D
Preferred Stock.
Absence of a Public Market for the Depositary Shares. The Depositary
Shares were issued by the Company in the July 9 Equity Offering. There is
currently no market for the Series D Preferred Stock and the Depositary Shares.
Although in connection with the private placement, the Initial Purchasers
informed the Company that they intend to make a market for the Depositary
Shares, they are not obligated to do so and any such market making activity may
be discontinued at any time without notice. The Company does not intend to apply
for listing of the Depositary Shares or the Series D Preferred Stock on any
securities exchange or on the Nasdaq National Market. Accordingly, there can be
no assurance as to the development or liquidity of any market for the Depositary
Shares. If a market for the Depositary Shares were to develop, the Depositary
Shares may trade at prices that may be higher or lower than their initial
offering price depending upon many factors, including prevailing interest rates,
the Company's operating results and the markets for similar securities.
Historically, the market for securities such as the Depositary Shares has been
subject to disruptions that have caused substantial volatility in the prices of
securities similar to the Depositary Shares. There can be no assurance that, if
a market for the Depositary Shares were to develop, such a market would not be
subject to similar disruptions. The Company does not expect a market for the
Series D Preferred Stock to develop.
Certain Tax Considerations. For a discussion of certain material
federal income tax considerations which are relevant to the purchase, ownership
and disposition of the Depositary Shares and the Series D Preferred Stock, see
"Certain Federal Income Tax Consequences."
Anti-Takeover Provisions. The Company's Certificate of Incorporation
and Bylaws, the provisions of the Delaware General Corporation Law (the "DCGL"),
the Existing Senior Notes Indentures, the Series B Certificate of Designation
and the Certificate of Designation (as defined herein) may make it difficult in
some respects to effect a change in control of the Company and replace incumbent
management. In addition, the Company's Board of Directors has adopted a
Stockholder's Rights Plan , pursuant to which rights to acquire a series of
preferred stock, exercisable upon the occurrence of certain events, were
distributed to its stockholders. The existence of these provisions may have a
negative impact on the price of the Common Stock, may discourage third party
bidders from making a bid for the Company, or may reduce any premiums paid to
stockholders for their Common Stock. In addition, the Board has the authority to
fix the rights and preferences of, and to issue shares of, the Company's
preferred stock, which may have the effect of delaying or preventing a change in
control of the Company without action by its stockholders.
Shares Eligible for Future Sale. Future sales of shares by existing
stockholders under Rule 144 of the Securities Act, or through the exercise of
outstanding registration rights or the issuance of shares of Common Stock upon
the exercise of options or warrants or conversion of convertible securities
could materially adversely affect the market price of shares of Common Stock and
could materially impair the Company's future ability to raise capital through an
offering of equity securities. Substantially all of the Company's outstanding
shares, other than those held by affiliates, are transferable without
restriction under the Securities Act. In addition to the shares registered
hereunder, the Company has filed registration statements covering the offering
of approximately 2,392,463 shares of Common Stock by selling security holders.
In addition, the Company has registered 4,785,000 shares of Common Stock for
issuance upon exercise of options granted to its employees under the Company's
existing stock option plans. At June 30, 1997, options to acquire 769,589 shares
of Common Stock were currently exercisable under the Company's existing stock
option plans. No predictions can be made as to the effect, if any, that market
sales of such shares or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
Forward Looking Statements. The statements contained in this
Prospectus that are not historical facts are "forward-looking statements" (as
such term is defined in the Private Securities Litigation Reform Act of 1995),
which can be identified by the use of forward-looking terminology such as
"estimates," "projects," "anticipates," "expects," "intends," "believes," or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. Management wishes
to caution the reader that these forward-looking
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statements are only estimates or predictions. No assurance can be given that
future results will be achieved; actual events or results may differ materially
as a result of risks facing the Company or actual results differing from the
assumptions underlying such statements.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Pro Forma(1) Pro Forma(2)
Year Ended Six Months Six Months
Year Ended December 31, December 31, Ended June 30, Ended June 30,
- ---------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1996 1997 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to - - - - - - - - -
combined fixed charges
and preferred stock
dividends(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) The pro forma operating information gives effect to the acquisitions by the
Company of EMI Communications, Inc., Universal Telecom Inc., Net Solve
Incorporated and DIGEX, which occurred effective June 30, 1996, December 1,
1996, December 1, 1996 and July 11, 1997, respectively, as if they occurred
on January 1, 1996. The pro forma operating information also gives effect
to the March 1997 sale of $300 million of preferred stock.
(2) The pro forma operating information gives effect to the DIGEX Acquisition
as if it occurred on January 1, 1997. The pro forma operating information
also gives effect to the March 1997 sale of $300 million of preferred
stock.
(3) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends: (i) earnings consist of loss before income
taxes, plus fixed charges excluding capitalized interest and preferred
stock dividends and (ii) fixed charges consist of interest expended and
capitalized, plus amortization of deferred financing costs, preferred stock
dividends, plus a portion of rent expense under operating leases deemed by
the Company to represent an interest factor plus dividends on the Series B
Preferred Stock. For the years ended December 31, 1992, 1993, 1994, 1995
and 1996 and the six months ended June 30, 1996 and 1997 the Company's
earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $622, $2,288, $3,324, $19,931, $59,978, $21,929 and
$71,832, respectively. For the year ended December 31, 1996 and the six
months ended June 30, 1997, the Company's pro forma earnings, after giving
effect to the acquisitions described in Notes (1) and (2) above and the
July 9 Equity Offering, were insufficient by $161,194 and $119,596,
respectively, to cover pro forma combined fixed charges and preferred stock
dividends. For the year ended December 31, 1996 and the six months ended
June 30, 1997 the Company's pro forma earnings, after giving effect to the
acquisitions described in Notes (1) and (2) above and the July 9 Offerings,
were insufficient by $184,437 and $130,084 to cover pro forma combined
fixed charges and preferred stock dividends. See "Risk Factors Substantial
Indebtedness; Insufficiency of Earnings to Cover Fixed Charges Including
Dividend, and the Series D Preferred Stock" for a father discussion of
factors which may have an impact on the Company's ratio of earnings to
combined fixed charges and preferred stock dividends.
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THE COMPANY
Intermedia is a rapidly growing ICP, offering a full suite of local,
long distance and enhanced data telecommunications services to business and
government end user customers, long distance carriers, ISPs, resellers and
wireless communications companies. Founded in 1987, the Company is currently the
third largest (based on annualized telecommunications services revenues) among
providers generally referred to as CLECs after MFS Communications Company, Inc.
and Teleport Communications Group Inc. As of June 30, 1997, the Company had
sales offices in 32 cities throughout the eastern half of the United States and
offered a full product package of telecommunications services in 16 metropolitan
statistical areas. In April 1996, Intermedia became one of the first ICPs in the
United States to provide integrated switched local and long distance service and
as of June 30, 1997 had six local/long distance voice switches in service and
six long distance voice switches in service, three of which the Company plans to
upgrade to local/long distance voice switches by the end of 1997. The Company
provides enhanced data services, including frame relay, asynchronous transfer
mode ("ATM") and Internet access services, primarily to business and government
customers (including over 100 ISPs), in approximately 2,700 cities nationwide,
utilizing 111 Company-owned data switches. Intermedia also serves as a
facilities-based interexchange carrier to approximately 14,700 customers
nationwide. Intermedia continues to increase its customer base and network
density in the eastern half of the United States and is pursuing attractive
opportunities to add additional services and expand into complementary
geographic markets.
Intermedia was incorporated in the State of Delaware on November 9,
1987, as the successor to a Florida corporation that was founded in 1986. The
Company's principal offices are located at 3625 Queen Palm Drive, Tampa, Florida
33619, and its telephone number is (813) 829-0011.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Securities by the Selling Securityholders or the issuance of the Dividend Shares
by the Company.
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DESCRIPTION OF CAPITAL STOCK
Intermedia's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred Stock,
par value $1.00 per share ("Preferred Stock"). As of July 31, 1997, there were
16,669,492 shares of Common Stock, 312,937.5 shares of Series B Preferred Stock
and 69,000 shares of Series D Preferred Stock issued and outstanding. On a
fully-diluted basis, at that date, the Company had outstanding 25,985,122 shares
of Common Stock after giving effect to (a) the exercise of the Public Warrants
(defined below), (b) the exercise of all outstanding options issued pursuant to
the Company's employee stock option plans and (c) conversions of the Depositary
Shares and the Series D Preferred Stock. As of July 31, 1997, the Company has
reserved (i) 4,785,600 shares of Common Stock for issuance pursuant to the
Company's employee stock option plans, (ii) 350,400 shares of Common Stock for
issuance upon exercise of the Public Warrants, (iii) 287,062.5 shares of Series
B Preferred Stock for issuance as dividends on the outstanding shares of Series
B Preferred Stock and (iv) 40,000 shares of Series C Preferred Stock for
issuance in connection with the Stockholder's Rights Plan, (v) 4,434,448 shares
of Common Stock for issuance on conversion of the Series D Preferred Stock and
(vi) 1,200,000 shares of Common Stock for issuance as dividends on the
outstanding shares of Series D Preferred Stock. All outstanding shares of Common
Stock, Series B Preferred Stock and Series D Preferred Stock are fully paid and
non-assessable.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Holders of
Common Stock do not have cumulative rights, so that holders of more than 50% of
the shares of Common Stock are able to elect all of Intermedia's directors
eligible for election in a given year. For a description of the classification
of the Board, see "-Delaware Law and Certain Provisions of Intermedia's
Certificate of Incorporation and Bylaws." Subject to the preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board out of funds legally available therefor. See "-Dividend
Restrictions." Upon any liquidation, dissolution or winding up, whether
voluntary or involuntary, of Intermedia, holders of Common Stock are entitled to
receive pro rata all assets available for distribution to stockholders after
payment or provision for payment of the debts and other liabilities of
Intermedia and the liquidation preferences of any then outstanding Preferred
Stock. There are no preemptive or other subscription rights, conversion rights,
or redemption or sinking fund provisions with respect to shares of Common Stock.
All outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon exercise of the Public Warrants and conversion of the
Depositary Shares or shares of Series D Preferred Stock will be, fully paid and
non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued at any time or from time to time in
one or more classes or series with such designations, powers, preferences,
rights, qualifications, limitations and restrictions (including dividend,
conversion and voting rights) as may be fixed by the Board, without any further
vote or action by the stockholders. July 31, 1997, the Company had outstanding
312,937.5 shares of Series B Preferred Stock (aggregate liquidation preference
of approximately $312.9 million). Dividends on the Series B Preferred Stock
accumulate at a rate of 13 1/2% of the aggregate liquidation preference thereof
and are payable quarterly, in arrears. Dividends are payable in cash or, at the
Company's option, by the issuance of additional Series B Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. The
Series B Preferred Stock is subject to mandatory redemption at a liquidation
preference of $1,000 per share, plus accumulated and unpaid dividends on March
31, 2009. The Series B Preferred Stock will be redeemable at the option of the
Company at any time after March 31, 2002 at rates commencing with 106.75%,
declining to 100% on March 31, 2007. The Series B Certificate of Designation
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to make certain restricted payments, incur
additional indebtedness and issue additional preferred stock, pay dividends or
make other distributions, repurchase equity interests, conduct certain lines of
business or enter into certain mergers and consolidations. In the event of a
change of control of the Company, holders of the Series B Preferred Stock have
the right to require the Company to purchase their shares of Series B Preferred
Stock at a price equal to 101% of the aggregate liquidation preference with
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respect thereto, plus accumulated and unpaid dividends, if any, to the date of
purchase. This description is intended as a summary and is qualified in its
entirety by reference to the Series B Certificate of Designation.
The Company may, at its option, exchange some or all of the Series B
Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures, due
2009 (the "Exchange Debentures"). The Exchange Debentures would mature on March
31, 2009. Interest on the Exchange Debentures would be payable semi-annually,
and could be paid in the form of additional Exchange Debentures at the Company's
option. Exchange Debentures would be redeemable by the Company at any time after
March 31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007. The Exchange Debentures contain covenants similar to those contained in
the Indenture.
See "Description of Preferred Stock" for a description of the terms of
Series D Preferred Stock.
DELAWARE LAW AND CERTAIN PROVISIONS OF INTERMEDIA'S CERTIFICATE OF INCORPORATION
AND BYLAWS
General. The Certificate of Incorporation and the Bylaws of Intermedia
contain certain provisions that could make more difficult the acquisition of
Intermedia by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Intermedia first to negotiate with Intermedia. Although such
provisions may have the effect of delaying, deferring or preventing a change in
control of Intermedia, the Company believes that the benefits of increased
protection of Intermedia's potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms. The description set forth below is intended as a summary only and is
qualified in its entirety by reference to the Certificate of Incorporation and
Bylaws of Intermedia.
Board of Directors. Intermedia's Certificate of Incorporation provides
that (i) the Board be divided into three classes of directors, with each class
having a number as nearly equal as possible and with the term of each class
expiring in a different year and (ii) the Board shall consist of not less than
three nor more than seven members, the exact number to be determined from time
to time by the Board. The Board has set the number of directors at four. Subject
to any rights of holders of Preferred Stock, a majority of the Board then in
office will have the sole authority to fill any vacancies on the Board.
Stockholders can remove members of the Board only for cause.
Stockholder Action and Special Meetings. Intermedia's Certificate of
Incorporation provides that (i) any action required or permitted to be taken by
Intermedia's stockholders must be effected at a duly called annual or special
meeting of Stockholders and may not be effected by any consent in writing and
(ii) the authorized number of directors may be changed only by resolution of the
Board. The Company's Bylaws provide that, subject to any rights of holders of
any series of Preferred Stock, special meetings of stockholders may be called
only by the Chairman of the Board or the President of Intermedia, by a majority
of the Board or by stockholders owning shares representing at least a majority
of the capital stock of Intermedia issued and outstanding and entitled to vote.
Stockholder's Rights Plan. Intermedia's Board of Directors has adopted
a Stockholder's Rights Plan, pursuant to which rights to acquire a newly created
series of Preferred Stock, exercisable upon the occurrence of certain events,
including the acquisition by a person or group of a specified percentage of the
Common Stock, were distributed to its stockholders.
Anti-Takeover Statute. Subject to certain exceptions, Section 203 of
the DGCL prohibits a publicly held Delaware corporation, such as Intermedia,
from engaging in any "business combination" with an "interested stockholder" for
a three-year period following the date on which such person became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approved either such business combination or the transaction that
resulted in such person becoming an interested stockholder, (ii) upon
consummation of the transaction
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that resulted in such person becoming an interested stockholder, such person
owned at least 85% of the voting stock of the corporation outstanding
immediately prior to such transaction (excluding certain shares) or (iii) on or
subsequent to such date, such business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66-2/3% of
the outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is essentially a person who, together with affiliates and
associates, owns (or within the past three years has owned) 15% or more of the
corporation's voting stock. It is anticipated that the provisions of Section 203
of the DGCL may encourage any person interested in acquiring Intermedia to
negotiate in advance with the Board since the stockholder approval requirement
would be avoided if a majority of Intermedia's directors then in office approved
either the business combination or the transaction that resulted in such person
becoming an interested stockholder.
DIVIDEND RESTRICTIONS
The terms of the Existing Senior Note Indentures restrict the
Company's ability to pay cash dividends on the Series B Preferred Stock. The
existing Senior Note Indentures and the Series B Certificate of Designation
restrict Intermedia's ability to pay cash dividends on the Common Stock and the
Series D Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, Series B
Preferred Stock and Series D Preferred Stock is Continental Stock Transfer &
Trust Company.
OUTSTANDING WARRANTS
160,000 warrants (the "Public Warrants"), each to purchase 2.19 shares
of Common Stock, at an exercise price of $10.86 per share (subject to anti-
dilution adjustments) were issued as part of a June 1995 private placement. The
Public Warrants are currently exercisable. Unless exercised, the Public Warrants
will expire on June 1, 2000.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of
Common Shares as will be issuable upon the conversion of all Depositary Shares
(or all shares of the Series D Preferred Stock). Such Common Shares, when
issued, will be duly and validly issued, fully paid and non-assessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
REGISTRATION RIGHTS.
In addition to the rights granted under the Preferred Stock
Registration Rights Agreement, dated July 9, 1997, among the Company and the
Initial Purchasers (the "Preferred Stock Registration Rights Agreement"), the
Company is a party to several agreements pursuant to which certain stockholders
have the right, among other matters, to require the Company to register their
shares of Common Stock under the Securities Act under certain circumstances.
These rights cover approximately 3,106,749 shares of Common Stock. Approximately
2,361,083 of such shares of Common Stock are covered by effective registration
statements and 31,380 of such shares are being registered as part of the
Registration Statement of which this prospectus forms a part. See "Description
of Preferred Stock - Registration Rights; Liquidated Damages" for a discussion
of registration rights pertaining to the Common Shares, Depositary Shares and
Series D Preferred Stock.
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<PAGE>
DESCRIPTION OF PREFERRED STOCK
GENERAL
The terms of the Series D Preferred Stock are set forth in the
Certificate of Designation of Voting Power, Designation Preferences and
Relative, Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions (the "Certificate of Designation"). The following
summary of the Series D Preferred Stock, the Certificate of Designation and the
Preferred Stock Registration Rights Agreement is not intended to be complete and
is subject to, and qualified in its entirety by reference to, the Company's
Certificate of Incorporation, the Certificate of Designation and the Preferred
Stock Registration Rights Agreement, including the definitions therein of
certain terms used below. Copies of the form of Certificate of Designation and
Preferred Stock Registration Rights Agreement are available from the Company,
upon request. As used in this Description of Preferred Stock, the term "Company"
refers to Intermedia Communications Inc., excluding its Subsidiaries.
Certain of the Company's operations are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Series
D Preferred Stock. Any right of the Company to receive assets of any of its
Subsidiaries is effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. As of June 30, 1997 on a pro forma basis after
giving effect to the July 9 Offerings and the application of the proceeds
therefrom, the aggregate amount of liquidation preference of Senior Securities
and indebtedness and other obligations of the Company and its Subsidiaries that
would effectively rank senior in right of payment to the obligations of the
Company under the Series D Preferred Stock would have been approximately $985.6
million. See "Risk Factors."
Pursuant to the Certificate of Designation, 69,000 shares (including
9,000 shares which the Initial Purchasers purchased to cover over-allotments) of
Series D Preferred Stock with the Liquidation Preference were authorized. All of
such shares are issued and outstanding and are fully paid and non-assessable.
The holders of the Series D Preferred Stock have no preemptive rights.
The transfer agent for the Series D Preferred Stock is Continental
Stock Transfer & Trust Co. unless and until a successor is selected by the
Company (the "Transfer Agent").
RANKING
The Series D Preferred Stock, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, ranks (i) senior to all classes of common stock of the Company and to
each other class of capital stock or series of preferred stock established after
July 2, 1997 by the Board of Directors, the terms of which do not expressly
provide that it ranks senior to or on a parity with the Series D Preferred Stock
as to dividend distributions and distributions upon the liquidation, winding-up
and dissolution of the Company (collectively referred to with the common stock
of the Company as "Junior Securities"); (ii) on a parity with any additional
shares of Series D Preferred Stock issued by the Company in the future and any
other class of capital stock or series of preferred stock issued by the Company
established after July 2, 1997 by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Series D Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Parity Securities"); and (iii) junior to the Series B Preferred Stock
($312.9 million aggregate liquidation preference outstanding at June 30, 1997)
and to each class of capital stock or series of preferred stock issued by the
Company established after July 2, 1997 by the Board of Directors the terms of
which expressly provide that such class or series will rank senior to the Series
D Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities").
No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of the Series D
Preferred Stock with respect to any dividend period unless all dividends for
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all preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Senior Securities.
DIVIDENDS
The holders of shares of the Series D Preferred Stock are entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative dividends from July
9, 1997 accruing at the rate per annum of 7% of the Liquidation Preference per
share, payable quarterly in arrears on each July 15, October 15, January 15 and
April 15, commencing on October 15, 1997 (each, a "Dividend Payment Date"). If
any such date is not a Business Day, such payment shall be made on the next
succeeding Business Day, to the holders of record as of the next preceding July
1, October 1, January 1 and April 1 (each, a "Record Date"). Dividends will be
payable (i) in cash, (ii) by delivery of shares of Common Stock to holders
(based upon 95% of the Average Stock Price (as defined below)) or (iii) through
any combination of the foregoing. The Company intends to pay dividends in shares
of Common Stock on each Dividend Payment Date to the extent that it is unable to
pay dividends in cash. If the dividends are paid in shares of Common Stock, the
number of shares of Common Stock to be issued on each Dividend Payment Date will
be determined by dividing the total dividend to be paid on each share of Series
D Preferred Stock by 95% of the average of the high and low sales prices of the
Common Stock as reported by the Nasdaq National Market or any national
securities exchange upon which the Common Stock is then listed, for each of the
ten consecutive trading days immediately preceding the fifth business day
preceding the Record Date (the "Average Stock Price"). The Transfer Agent is
authorized and directed in the Certificate of Designation to aggregate any
fractional shares of Common Stock that are issued as dividends, sell them at the
best available price and distribute the proceeds to the holders in proportion to
their respective interests therein. The Company will pay the expenses of the
Transfer Agent with respect to such sale, including brokerage commissions.
Dividends payable on the Series D Preferred Stock will be computed on the basis
of a 360-day year consisting of twelve 30-day months and will be deemed to
accrue on a daily basis.
Dividends on the Series D Preferred Stock will accrue whether or not
the Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Certificate of
Designation provides that the Company will take all actions required or
permitted under the DGCL to permit the payment of dividends on the Series D
Preferred Stock, including, without limitation, through the revaluation of its
assets in accordance with the DGCL, to make or keep funds legally available for
the payment of dividends.
No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any outstanding share of the Series D
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Series D Preferred Stock. Unless full cumulative dividends on all
outstanding shares of Series D Preferred Stock for all past dividend periods
shall have been declared and paid, or declared and a sufficient sum for the
payment thereof set apart: (i) no dividend (other than a dividend payable solely
in shares of any Junior Securities) shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any shares of Junior Securities;
(ii) no other distribution shall be declared or made upon, or any sum set apart
for the payment of any distribution upon, any shares of Junior Securities, other
than a distribution consisting solely of Junior Securities; (iii) no shares of
Junior Securities shall be purchased, redeemed or otherwise acquired or retired
for value (excluding an exchange for shares of other Junior Securities) by the
Company or any of its Subsidiaries; and (iv) no monies shall be paid into or set
apart or made available for a sinking or other like fund for the purchase,
redemption or other acquisition or retirement for value of any shares of Junior
Securities by the Company or any of its Subsidiaries. Holders of the Series D
Preferred Stock will not be entitled to any dividends, whether payable in cash,
property or stock, in excess of the full cumulative dividends as herein
described.
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The Existing Notes Indentures contain, and any future credit
agreements or other agreements relating to Indebtedness to which the Company
becomes a party may contain, restrictions on the ability of the Company to pay
dividends on the Series D Preferred Stock.
OPTIONAL REDEMPTION
The Series D Preferred Stock may not be redeemed at the option of the
Company prior to July 19, 2000. The Series D Preferred Stock may be redeemed for
cash, in whole or in part, at the option of the Company on or after July 19,
2000, at the redemption prices specified below (expressed as percentages of the
Liquidation Preference thereof), in each case, together with accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
any partial dividend period) and Preferred Stock Liquidated Damages, if any, to
the date of redemption, upon not less than 30 nor more than 60 days' prior
written notice, if redeemed during the 12-month period commencing on July 19 of
each of the years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000..................................... 104.00%
2001..................................... 103.00%
2002..................................... 102.00%
2003..................................... 101.00%
2004 and thereafter...................... 100.00%
</TABLE>
No optional redemption may be authorized or made unless, prior to
giving the applicable redemption notice, all accumulated and unpaid dividends
for periods ended prior to the date of such redemption notice shall have been
paid in cash or Common Stock. In the event of partial redemptions of Series D
Preferred Stock, the shares to be redeemed will be determined pro rata or by
lot, as determined by the Company.
CONVERSION RIGHTS
Each share of Series D Preferred Stock will be convertible at any time
after October 7, 1997, unless previously redeemed, at the option of the holder
thereof into Common Stock of the Company, at a conversion rate equal to the
Liquidation Preference divided by the conversion price then applicable, except
that the right to convert shares of Series D Preferred Stock called for
redemption will terminate at the close of business on the business day preceding
the redemption date and will be lost if not exercised prior to that time, unless
the Company defaults in making the payment due upon redemption.
The initial conversion price is $38.90 per share. The conversion price
will be subject to adjustment in certain events, including: (i) the payment of
dividends (and other distributions) in Common Stock on any class of capital
stock of the Company other than the payment of dividends in Common Stock on the
Series D Preferred Stock or any other regularly scheduled dividend on any other
preferred stock which does not trigger any anti-dilution provisions in any other
security; (ii) the issuance to all holders of Common Stock of rights, warrants
or options entitling them to subscribe for or purchase Common Stock at less than
the current market price (as calculated pursuant to the Certificate of
Designation); (iii) subdivisions, combinations and reclassifications of Common
Stock; (iv) distributions to all holders of Common Stock of evidences of
indebtedness of the Company, shares of any class of capital stock, cash or other
assets (including securities, but excluding those dividends, rights, warrants,
options and distributions referred to in clauses (i) through (iii) above and
dividends and distributions paid in cash out of the retained earnings of the
Company, unless the sum of all such cash dividends and distributions made and
the amount of cash and the fair market value of other consideration paid in
respect of any repurchases of Common Stock by the Company or any of its
Subsidiaries, in each case within the preceding 12 months in respect of which no
adjustment has been made, exceeds 20% of the product of the then current market
price of the Common Stock times the aggregate number of shares of Common Stock
outstanding on the record date for such dividend or distribution).
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No adjustment of the conversion price will be required to be made
until cumulative adjustments amount to 1% or more of the conversion price as
last adjusted. Notwithstanding the foregoing, no adjustment to the conversion
price shall reduce the conversion price below the then applicable par value per
share of the Common Stock. In addition to the foregoing adjustments, the Company
will be permitted to make such reductions in the conversion price as it
considers to be advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
holders of the Common Stock.
In the case of certain consolidations or mergers to which the Company
is a party or the transfer of substantially all of the assets of the Company,
each share of Series D Preferred Stock then outstanding would become convertible
only into the kind and amount of securities, cash and other property receivable
upon the consolidation, merger or transfer by a holder of the number of shares
of Common Stock into which such share of Series D Preferred Stock might have
been converted immediately prior to such consolidation, merger or transfer
(assuming such holder of Common Stock failed to exercise any rights of election
and received per share the kind and amount receivable per share by a plurality
of non-electing shares).
The holder of record of a share of Series D Preferred Stock at the
close of business on a record date with respect to the payment of dividends on
the Series D Preferred Stock will be entitled to receive such dividends with
respect to such share of Series D Preferred Stock on the corresponding Dividend
Payment Date, notwithstanding the conversion of such share after such Record
Date and prior to such Dividend Payment Date. A share of Series D Preferred
Stock surrendered for conversion during the period from the close of business on
any Record Date for the payment of dividends to the opening of business of the
corresponding Dividend Payment Date must be accompanied by a payment in cash,
Common Stock or a combination thereof, depending on the method of payment that
the Company has chosen to pay the dividend, in an amount equal to the dividend
payable on such Dividend Payment Date, unless such share of Series D Preferred
Stock has been called for redemption on a redemption date occurring during the
period from the close of business on any Record Date for the payment of
dividends to the close of business on the business day immediately following the
corresponding Dividend Payment Date. The dividend payment with respect to a
share of Series D Preferred Stock called for redemption on a date during the
period from the close of business on any Record Date for the payment of
dividends to the close of business on the business day immediately following the
corresponding Dividend Payment Date will be payable on such Dividend Payment
Date to the record holder of such share on such Record Date, notwithstanding the
conversion of such share after such Record Date and prior to such Dividend
Payment Date. No payment or adjustment will be made upon conversion of shares of
Series D Preferred Stock for accumulated and unpaid dividends or for dividends
with respect to the Common Stock issued upon such conversion.
CHANGE OF CONTROL
Upon the occurrence of a Preferred Stock Change of Control and subject
to restrictions on repurchase contained in the instruments governing Company's
outstanding indebtedness and the Series B Preferred Stock Certificate of
Designation, the Company will be required to make an offer (a "Preferred Stock
Change of Control Offer") to repurchase all or any part of each holder's Series
D Preferred Stock at an offer price in cash equal to 100% of the aggregate
Liquidation Preference thereof, plus accumulated and unpaid dividends and
Preferred Stock Liquidated Damages, if any, thereon to the date of repurchase.
Within 30 days following a Preferred Stock Change of Control, the Company will
mail a notice to each holder of Series D Preferred Stock describing the
transaction that constitutes the Preferred Stock Change of Control and offering
to repurchase the Series D Preferred Stock pursuant to the procedures required
by the Certificate of Designation and described in such notice; provided that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Preferred Stock Change of Control, the Company will either
repay all outstanding indebtedness or obtain the requisite consents, if any,
under all agreements governing outstanding indebtedness to permit the repurchase
of the Series D Preferred Stock required by this covenant. The Company will
comply with the requirements of the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Series D Preferred Stock as
a result of a Preferred Stock Change of Control.
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A "Preferred Stock Change of Control" will be deemed to have occurred
upon the occurrence of any of the following: (a) the sale, lease, transfer,
conveyance or other disposition (other than by way of merger or consolidation),
in one or a series of related transactions, of all or substantially all of the
assets of the Company and its Subsidiaries, taken as a whole, (b) the adoption
of a plan relating to the liquidation or dissolution of the Company, (c) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act), directly or indirectly through one or more intermediaries, of more than
50% of the voting power of the outstanding voting stock of the Company, unless
(i) the closing price per share of Common Stock for any five trading days within
the period of ten consecutive trading days ending immediately after the
announcement of such Preferred Stock Change of Control equals or exceeds 105% of
the conversion price of the Series D Preferred Stock in effect on each such
trading day or (ii) at least 90% of the consideration in the transaction or
transactions constituting a Preferred Stock Change of Control pursuant to clause
(c) consists of shares of Common Stock traded or to be traded immediately
following such Preferred Stock Change of Control on a national securities
exchange or the Nasdaq National Market and, as a result of such transaction or
transactions, the Series D Preferred Stock become convertible solely into such
Common Stock (and any rights attached thereto), or (d) the first day on which
more than a majority of the members of the Board of Directors of the Company are
not Preferred Stock Continuing Directors; provided, however, that a transaction
in which the Company becomes a subsidiary of another entity shall not constitute
a Preferred Stock Change of Control if (i) the stockholders of the Company
immediately prior to such transaction "beneficially own" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, at least a majority of the voting
power of the outstanding voting stock of the Company immediately following the
consummation of such transaction and (ii) immediately following the consummation
of such transaction, no "person" or "group" (as such terms are defined above),
other than such other entity (but including holders of equity interests of such
other entity), "beneficially owns" (as such term is defined above), directly or
indirectly through one or more intermediaries, more than 50% of the voting power
of the outstanding voting stock of the Company.
"Preferred Stock Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (a) was a
member of the Board of Directors on the date of original issuance of the Series
D Preferred Stock or (b) was nominated for election to the Board of Directors
with the approval of, or whose election was ratified by, at least two-thirds of
the Preferred Stock Continuing Directors who were members of the Board of
Directors at the time of such nomination or election.
Except as described above with respect to a Preferred Stock Change of
Control, the Certificate of Designation does not contain provisions that permit
the holders of the Series D Preferred Stock to require that the Company
repurchase or redeem the Series D Preferred Stock in the event of a takeover,
recapitalization or similar transaction. In addition, the Company could enter
into certain transactions, including acquisitions, refinancings or other
recapitalization, that could affect the Company's capital structure or the value
of the Series D Preferred Stock or the Common Stock, but that would not
constitute a Preferred Stock Change of Control.
The Existing Senior Notes or other indebtedness and the Series B
Preferred Stock could restrict the Company's ability to repurchase the Series D
Preferred Stock upon a Preferred Stock Change of Control. In the event a
Preferred Stock Change of Control occurs at a time when the Company is
prohibited from repurchasing the Series D Preferred Stock, the Company could
either (i) repay in full or refinance all such outstanding indebtedness or
Preferred Stock or (ii) obtain the requisite consents, if any, under all
agreements governing outstanding indebtedness or Preferred Stock to permit the
repurchase of Series D Preferred Stock required by this covenant. The Company
must first comply with the covenants in its outstanding indebtedness or take the
actions described in the preceding sentence before it will be required to
repurchase shares of Series D Preferred Stock in the event of a Preferred Stock
Change of Control; provided, that if the Company fails to repurchase shares of
Series D Preferred Stock, the sole remedy to holders of Series D Preferred Stock
will be the voting rights arising from a Voting Rights Triggering Event.
Moreover, the Company will not repurchase or redeem any Series D Preferred Stock
pursuant to this Preferred Stock Change of Control provision prior to the
Company's repurchase of the Series B Preferred Stock pursuant to the change of
control covenants in the Series B Preferred Stock. As a result of the foregoing,
a holder of the Series D Preferred Stock may
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not be able to compel the Company to purchase the Series D Preferred Stock
unless the Company is able at the time to refinance all such indebtedness and
the Series B Preferred Stock. See "Risk Factors-Business Combinations; Change of
Control."
The Company will not be required to make a Preferred Stock Change of
Control Offer to the holders of Series D Preferred Stock upon a Preferred Stock
Change of Control if a third party makes the Preferred Stock Change of Control
Offer described above in the manner, at the times and otherwise in compliance
with the requirements set forth in the Certificate of Designation applicable to
a Preferred Stock Change of Control Offer made by the Company and purchases all
shares of Series D Preferred Stock validly tendered and not withdrawn under such
Preferred Stock Change of Control Offer.
VOTING RIGHTS
Holders of record of shares of the Series D Preferred Stock have no
voting rights, except as required by law and as provided in the Certificate of
Designation. The Certificate of Designation provides that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding Series D
Preferred Stock in an amount equal to six quarterly dividends (whether or not
consecutive) or (b) the failure of the Company to make a Preferred Stock Change
of Control Offer or to repurchase all of the Series D Preferred Stock tendered
in a Preferred Stock Change of Control Offer (each of the events described in
clauses (a) and (b) being referred to herein as a "Voting Rights Triggering
Event"), then the holders of a majority of the outstanding shares of Series D
Preferred Stock will be entitled to elect such number of members to the Board of
Directors of the Company constituting at least 20% of the then existing Board of
Directors before such election (rounded to the nearest whole number), provided,
however, that such number shall be no less than one nor greater than two, and
the number of members of the Company's Board of Directors will be immediately
and automatically increased by one or two, as the case may be. Voting rights
arising as a result of a Voting Rights Triggering Event will continue until such
time as all dividends in arrears on the Series D Preferred Stock are paid in
full and all other Voting Rights Triggering Events have been cured or waived, at
which time the term of office of any such members of the Board of Directors so
elected shall terminate and such directors shall be deemed to have resigned.
In addition, the Certificate of Designation provides that the Company
will not authorize any class of Senior Securities or any obligation or security
convertible or exchangeable into or evidencing a right to purchase shares of any
class or series of Senior Securities, without the approval of holders of at
least a majority of the shares of Series D Preferred Stock then outstanding,
voting or consenting, as the case may be, as one class. The Certificate of
Designation also provides that the Company may not amend the Certificate of
Designation so as to affect adversely the specified rights, preferences,
privileges or voting rights of holders of shares of the Series D Preferred Stock
or authorize the issuance of any additional shares of Series D Preferred Stock,
without the approval of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock voting or consenting, as the case
may be, as one class; provided, however, that the Company may not amend the
Preferred Stock Change of Control provisions of the Certificate of Designation
(including the related definitions) without the approval of the holders of at
least 66 2/3% of the then outstanding shares of Series D Preferred Stock voting
or consenting, as the case may be, as one class. The Certificate of Designation
also provides that, except as set forth above with respect to Senior Securities,
(a) the creation, authorization or issuance of any shares of Junior Securities,
Parity Securities or Senior Securities or (b) the increase or decrease in the
amount of authorized capital stock of any class, including any preferred stock,
shall not require the consent of the holders of Series D Preferred Stock and
shall not be deemed to affect adversely the rights, preferences, privileges,
special rights or voting rights of holders of shares of Series D Preferred
Stock. The consent of the holders of Series D Preferred Stock will not be
required for the Company to authorize, create (by way of reclassification or
otherwise) or issue any Parity Securities or any obligation or security
convertible or exchangeable into or evidencing a right to purchase, shares of
any class or series of Parity Securities.
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MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the
then outstanding shares of Series D Preferred Stock, the Company may not
consolidate or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, any
person unless (a) the entity formed by such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (in any such case, the
"resulting entity") is a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia; (b) if
the Company is not the resulting entity, the Series D Preferred Stock is
converted into or exchanged for and becomes shares of such resulting entity,
having in respect of such resulting entity the same (or more favorable)
powers, preferences and relative, participating, optional or other special
rights thereof that the Series D Preferred Stock had immediately prior to
such transaction; and (c) immediately after giving effect to such
transaction, no Voting Rights Triggering Event has occurred and is
continuing. The resulting entity of such transaction shall thereafter be
deemed to be the "Company" for all purposes of the Certificate of
Designation.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of any class or series
of the Company's capital stock, each holder of shares of the Series D
Preferred Stock will be entitled to payment out of the assets of the Company
available for distribution of an amount equal to the Liquidation Preference
per share of Series D Preferred Stock held by such holder, plus accrued and
unpaid dividends and Preferred Stock Liquidated Damages, if any, to the date
fixed for liquidation, dissolution, winding-up or reduction or decrease in
capital stock, before any distribution is made on any Junior Securities,
including, without limitation, Common Stock. After payment in full of the
Liquidation Preference and all accrued dividends and Preferred Stock
Liquidated Damages, if any, to which holders of Series D Preferred Stock are
entitled, such holders will not be entitled to any further participation in
any distribution of assets of the Company. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, the
amounts payable with respect to the Series D Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Series D Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference and accumulated and unpaid dividends and Preferred Stock
Liquidated Damages, if any, to which each is entitled. However, neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the
Company with or into one or more persons will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding-up of the Company or
reduction or decrease in capital stock, unless such sale, conveyance,
exchange or transfer shall be in connection with a liquidation, dissolution
or winding-up of the business of the Company or reduction or decrease in
capital stock.
REPORTS
The Certificate of Designation provides that the Company will file
all annual and quarterly reports and the information, documents, and other
reports that the Company is required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act ("SEC Reports") with the Transfer
Agent within 15 days after it files them with the Commission. In the event
the Company is not required or shall cease to be required to file SEC
Reports, pursuant to the Exchange Act, the Company will nevertheless continue
to file such reports with the Commission (unless the Commission will not
accept such a filing). Whether or not required by the Exchange Act to file
SEC Reports with the Commission, so long as any Series D Preferred Stock are
outstanding, the Company will furnish copies of the SEC Reports to the
holders of Series D Preferred Stock at the time the Company is required to
make such information available to the Transfer Agent and to investors who
request it in writing. In addition, the Company has agreed that, for so long
as any shares of Series D Preferred Stock remain outstanding, it will furnish
to the holders and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
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REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Preferred Stock Registration Rights Agreement, the
Company agreed to file a shelf registration statement (the "Shelf
Registration Statement") covering resales of Preferred Stock Transfer
Restricted Securities (as defined below) by holders thereof (who satisfied
certain conditions relating to the provision of information to the
registrant) on or prior to September 7, 1997, and to use its reasonable best
efforts to cause such shelf registration statement to become effective on or
prior to 120 days after such date.
"Preferred Stock Transfer Restricted Securities" for this purpose,
means each Depositary Share, each share of Series D Preferred Stock and each
Common Share until (a) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (b) the date on which such security is
distributed to the public pursuant to Rule 144 under the Securities Act or
may be distributed to the public pursuant to Rule 144(k) under the Securities
Act.
The Registration Statement of which this Prospectus forms a part
constitutes the Shelf Registration statement. The Company is obligated to use
its best efforts to maintain the effectiveness of the Shelf Registration
Statement for a period ending on the earlier of July 9, 1999 and the date
when all Preferred Stock Transfer Restricted Securities covered by the Shelf
Registration Statement are sold. If the Shelf Registration Statement ceases
to be effective or usable for any period of ten consecutive days or for any
20 days in any 180-day period in connection with resales of Preferred Stock
Transfer Restricted Securities (provided, that the Company will have the
option of suspending the effectiveness of the Shelf Registration Statement,
without becoming obligated to pay Preferred Stock Liquidated Damages for
periods of up to a total of 60 days in any calendar year if the Board of
Directors of the Company determines that compliance with the disclosure
obligations necessary to maintain the effectiveness of the Shelf Registration
Statement at such time could reasonably be expected to have an adverse effect
on the Company or a pending corporate transaction) (a "Registration
Default"), then the Company will pay to each holder of Preferred Stock
Transfer Restricted Securities liquidated damages ("Preferred Stock
Liquidated Damages") at a rate of 0.25% per year of the Liquidation
Preference of the Series D Preferred Stock constituting Preferred Stock
Transfer Restricted Securities, which shall accrue from the date of the
Registration Default until such Registration Default is cured. All accrued
Preferred Stock Liquidated Damages will be paid in shares of Common Stock
valued at the Average Stock Price by the Company on each Dividend Payment
Date specified in the Certificate of Designation. Following the cure of all
Registration Defaults, the accrual of Preferred Stock Liquidated Damages will
cease.
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DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share represents a one-hundredth interest in a
share of Series D Preferred Stock deposited under the Deposit Agreement
("Deposit Agreement"), entered into among Intermedia, Continental Stock
Transfer & Trust Company, as depositary agent ("Continental"), and the
holders from time to time of Depositary Receipts issued thereunder. Subject
to the terms of the Deposit Agreement, each owner of a Depositary Share is
entitled proportionately to all of the rights and preferences of the shares
of Series D Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights) contained in the Company's Certificate of
Incorporation and the Certificate of Designation and summarized above under
"Description of Series D Preferred Stock." The Company does not expect that
there will be any public trading market for the Series D Preferred Stock
except as represented by the Depositary Shares.
The Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of Depositary Shares does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the Deposit
Agreement (which contains the form of Depositary Receipt), a copy of which is
available from the Company, upon request.
ISSUANCE OF DEPOSITARY RECEIPTS
The Series D Preferred Stock was deposited with Continental
immediately preceding the July 9 Offerings, and Continental in turn executed
and delivered the Depositary Receipts to the Company. The Company delivered
the Depositary Receipts to the Initial Purchasers.
WITHDRAWAL OF SERIES D PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust
office of Continental, the owner of the Depositary Shares evidenced thereby
is entitled to delivery at such office of the number of whole shares of
Series D Preferred Stock represented by such Depositary Shares. Owners of
Depositary Shares are entitled to receive only whole shares of Series D
Preferred Stock on the basis of one share of Series D Preferred Stock for
each one hundred Depositary Shares. In no event will fractional shares of
Series D Preferred Stock (or cash in lieu thereof) be distributed by
Continental. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of whole shares of Series D Preferred Stock to be
withdrawn, Continental will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
The Company has not applied and does not intend to apply for the
listing of the Depositary Shares or the Series D Preferred Stock on any
securities exchange or for quotation through the Nasdaq National Market.
CONVERSION AND CALL PROVISION
Conversion at the Option of Holder. As described under "Description
of Preferred Stock- Conversion Rights," the Series D Preferred Stock may be
converted, in whole or in part, into shares of Common Stock at the option of
the holders of Series D Preferred Stock at any time after October 7, 1997,
unless previously redeemed. The Depositary Shares held by any holder may, at
the option of such holders, be converted in whole or from time to time in
part (but only in lots of 100 Depositary Shares or integral multiples
thereof), into shares of Common Stock upon the same terms and conditions as
the Series D Preferred Stock, except that the number of shares of Common
Stock received upon conversion of each Depositary Share will be equal to the
number of shares of Common Stock received upon conversion of one share of
Series D Preferred Stock divided by one hundred. To effect such an optional
conversion, a holder of Depositary Shares must deliver Depositary Receipts
evidencing the Depositary Shares to be converted, together with a written
notice of conversion and a proper assignment of the Depositary Receipts to
the Company or in blank, to Continental or its agent. A Depositary Share
surrendered for conversion during the period from the close of business on
any Record Date for the payment of dividends to the opening of business of
the corresponding Dividend Payment Date must be accompanied by a payment in
cash, Common Stock or a combination thereof, depending on the method of
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payment that the Company has chosen to pay the dividend, in an amount equal
to the dividend payable on such Dividend Payment Date, unless such Depositary
Share has been called for redemption on a redemption date occurring during
the period from the close of business on any Record Date for the payment of
dividends to the close of business on the Business Day immediately following
the corresponding Dividend Payment Date. The dividend payment with respect to
a Depositary Share called for redemption on a date during the period from the
close of business on any Record Date for the payment of dividends to the
close of business on the Business Day immediately following the corresponding
Dividend Payment Date will be payable on such Dividend Payment Date to the
record holder of such share on such Record Date, notwithstanding the
conversion of such share after such Record Date and prior to such Dividend
Payment Date. Each optional conversion of Depositary Shares shall be deemed
to have been effected immediately before the close of business on the date on
which the foregoing requirements shall have been satisfied.
If only a portion of the Depositary Shares evidenced by a
Depositary Receipt is to be converted, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not converted. No fractional shares
of Common Stock will be issued upon conversion of Depositary Shares, and, if
such conversion would otherwise result in a fractional share of Common Stock
being issued, the number of shares of Common Stock to be issued upon such
conversion shall be rounded up to the nearest whole share.
After the date fixed for conversion or redemption, the Depositary
Shares so converted or called for redemption will no longer be deemed to be
outstanding and all rights of the holders of such Depositary Shares will
cease, except the holder of such Depositary Shares shall be entitled to
receive any money or other property to which the holders of such Depositary
Shares were entitled upon such conversion or redemption, upon surrender to
Continental of the Depositary Receipt or Receipts evidencing such Depositary
Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
Continental will distribute all dividends or other distributions in
respect of the Series D Preferred Stock to the record holders of Depositary
Receipts in proportion to the number of Depositary Shares owned by such
holders. See "Description of Preferred Stock - Dividends."
The amount distributed in any of the foregoing cases will be
reduced by any amount required to be withheld by the Company or Continental
on account of taxes.
RECORD DATE
Whenever (i) any dividend or other distribution shall become
payable, any distribution shall be made, or any rights, preferences or
privileges shall be offered with respect to the Series D Preferred Stock, or
(ii) Continental shall receive notice of any meeting at which holders of
Series D Preferred Stock are entitled to vote or of which holders of Series D
Preferred Stock are entitled to notice, or of any election on the part of the
Company to call for redemption any Series D Preferred Stock, Continental
shall in each such instance fix a record date (which shall be the same date
as the record date for the Series D Preferred Stock) for the determination of
the holders of Depositary Receipts (x) who shall be entitled to receive such
dividend, distribution, rights, preference or privileges or the net proceeds
of the sale thereof, (y) who shall be entitled to give instructions for the
exercise of voting rights at any such meeting or to receive notice of such
meeting, or (z) who shall be subject to such redemption, subject to the
provisions of the Deposit Agreement.
VOTING OF DEPOSITARY SHARES
Holders of record of Depositary Shares have no voting rights,
except as required by law and as provided in the Certificate of Designation
in respect of the Series D Preferred Stock, as described under "Description
of Preferred Stock - Voting Rights."
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AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipts and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and
Continental. However, any amendment that imposes any fees, taxes or other
charges payable by holders of Depositary Receipts (other than taxes and other
governmental charges, fees and other expenses payable by such holders as
stated under "Charges of Continental"), or that otherwise prejudices any
substantial existing right of holders of Depositary Receipts, will not take
effect as to outstanding Depositary Receipts until the expiration of 90 days
after notice of such amendment has been mailed to the record holders of
outstanding Depositary Receipts. Every holder of Depositary Receipts at the
time any such amendment becomes effective shall be deemed to consent and
agree to such amendment and to be bound by the Deposit Agreement, as so
amended. In no event may any amendment impair the right of any owner of
Depositary Shares, subject to the conditions specified in the Deposit
Amendment, upon surrender of the Depositary Receipts evidencing such
Depositary Shares, to receive Series D Preferred Stock or, upon conversion of
the Series D Preferred Stock represented by the Depositary Receipts, to
receive shares of Common Stock, and in each case any money or other property
represented thereby, except in order to comply with mandatory provisions of
applicable law.
Whenever so directed by the Company, Continental will terminate the
Deposit Agreement after mailing notice of such termination to the record
holders of all Depositary Receipts then outstanding at least 30 days before
the date fixed in such notice for such termination. Continental may likewise
terminate the Deposit Agreement if at any time 45 days shall have expired
after Continental shall have delivered to the Company a written notice of its
election to resign and a successor depositary shall not have been appointed
and accepted its appointment. If any Depositary Receipts remain outstanding
after the date of termination, Continental thereafter will discontinue the
transfer of Depositary Receipts, will suspend the distribution of dividends
to the holders thereof, and will not give any further notices (other than
notice of such termination) or perform any further acts under the Deposit
Agreement except as provided below and except that Continental will continue
(i) to collect dividends on the Series D Preferred Stock and any other
distributions with respect thereto and (ii) to deliver the Series D Preferred
Stock together with such dividends and distributions and the net proceeds of
any sales or rights, preferences, privileges or other property, without
liability for interest thereon, in exchange for Depositary Receipts
surrendered. At any time after the expiration of two years from the date of
termination, Continental may sell the Series D Preferred Stock then held by
it at public or private sale, at such place or places and upon such terms as
it deems proper and may thereafter hold the net proceeds of any such sale,
together with any money and other property then held by it, without liability
for interest thereon, for the pro rata benefit of the holders of Depositary
Receipts which have not been surrendered. The Company does not intend to
terminate the Deposit Agreement or to permit the resignation of Continental
without appointing a successor depositary.
CHARGES OF CONTINENTAL
The Company will pay all charges of Continental including the
distribution of information to the holders of Depositary Receipts with
respect to matters on which Series D Preferred Stock are entitled to vote,
withdrawals of the Series D Preferred Stock by the holders of Depositary
Receipts or redemption or conversion of the Depositary Receipts, except for
taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are provided in the Deposit Agreement to be at the
expense of the holders of Depositary Receipts or persons depositing Series D
Preferred Stock.
GENERAL
Continental will make available for inspection by holders of
Depositary Receipts at its corporate trust office all reports and
communications from the Company that are delivered to Continental and made
generally available to the holders of the Series D Preferred Stock.
Neither Continental nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its control from or in
performing its obligations under the Deposit Agreement.
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FORM AND DENOMINATION
Global Shares; Book-Entry Form. The Depositary Shares have been
issued in the form of one or more global certificates (the "Depositary Share
Global Certificate") which have been deposited with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (the "Global Certificate Holder"). Except as set forth below,
record ownership of the Depositary Share Global Certificate may be
transferred, in whole or in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
Owners of a beneficial interest in the Depositary Share Global
Certificate may hold their interest in the Depositary Share Global
Certificate directly through the Depositary if such holder is a Participant
in the Depositary or indirectly through organizations that are Participants
in the Depositary. Persons who are not Participants may beneficially own
interests in the Depositary Share Global Certificate held by the Depositary
only through Participants or certain banks, brokers, dealers, trust companies
and other parties that clear though or maintain a custodial relationship with
a Participant, either directly or indirectly. So long as Cede & Co., as the
nominee of the Depositary, is the registered owner of the Depositary Share
Global Certificate, Cede & Co. for all purposes will be considered the sole
holder of the Depositary Share Global Certificate. Owners of beneficial
interest in the Depositary Share Global Certificate will be entitled to have
certificates registered in their names and to receive physical delivery of
certificates in definitive form (the "Definitive Securities").
Payment of dividends on and any redemption price with respect to
the Depositary Share Global Certificate will be made to the Global
Certificate Holder, as registered owner of the Depositary Share Global
Certificate, by wire transfer of immediately available funds on each Dividend
Payment Date or redemption date, as applicable. Neither the Company nor the
Transfer Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Depositary Share Global Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company has been informed by the Depositary that, with respect
to any payment of dividends on, or the redemption price with respect to, the
Depositary Share Global Certificate, the Depositary's practice is to credit
Participants' accounts on the payment date therefor, with payments in amounts
proportionate to their respective beneficial interests in the Depositary
Shares represented by the Depositary Share Global Certificate as shown on the
records of the Depositary, unless the Depositary has reason to believe that
it will not receive payment on such payment date. Payments by Participants to
owners of beneficial interests in the Depositary Shares represented by the
Depositary Share Global Certificate held through such Participants will be
the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street name."
Transfers between Participants will be effected in the ordinary way
in accordance with the Depositary's rules and will be settled in immediately
available funds. The laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability
to transfer beneficial interests in the Depositary Share Global Certificate
to such persons may be limited. Because the Depositary can only act on behalf
of Participants, who in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having a beneficial interest in the
Depositary Shares represented by the Depositary Share Global Certificate to
pledge such interest to persons or entities that do not participate in the
Depositary system, or otherwise take actions in respect of such interest, may
be affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Transfer Agent will have responsibility
for the performance of the Depositary or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations. The Depositary has advised the Company that it
will take any action permitted to be taken by a holder of Depositary Shares
(including, without limitation, the presentation of Depositary Shares for
exchange) only at the direction of one or more Participants to whose account
with the Depositary interests in the Depositary Share Global Certificate are
credited, and only in respect of the Depositary Shares represented by the
Depositary Share Global Certificate as to which such Participant or
Participants has or have given such direction.
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The Depositary has also advised the Company that the Depositary is
a limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes to accounts of its Participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations such as
the Initial Purchasers. Certain of such Participants (or their
representatives), together with other entities, own the Depositary. Indirect
access to the Depositary system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
Although the Depositary has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Depositary Share Global
Certificate among Participants, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued
at any time. If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the Company
within 90 days, the Company will cause the Depositary Shares to be issued in
definitive form in exchange for the Depositary Share Global Certificate.
Certificated Depositary Shares. Investors in the Depositary Shares
may request that Definitive Securities be issued in exchange for Depositary
Shares represented by the Depositary Share Global Certificate. Furthermore,
Definitive Securities may be issued in exchange for Depositary Shares
represented by the Depositary Share Global Certificate if no successor
depositary is appointed by the Company as set forth above.
Unless determined otherwise by the Company in accordance with
applicable law, Definitive Securities issued upon transfer or exchange of
beneficial interests in Depositary Shares represented by the Depositary Share
Global Certificate will bear a legend setting forth transfer restrictions
under the Securities Act. Any request for the transfer of Definitive
Securities bearing the legend, or for removal of the legend from Definitive
Securities, must be accompanied by satisfactory evidence, in the form of an
opinion of counsel, that such transfer complies with the Securities Act or
that neither the legend nor the restrictions on transfer set forth therein
are required to ensure compliance with the provisions of the Securities Act,
as the case may be.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States
federal income tax considerations generally applicable to persons acquiring
the Depositary Shares, but does not purport to be a complete analysis of all
potential consequences. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, Internal Revenue
Service ("IRS") rulings and judicial decisions now in effect, all of which
are subject to change at any time by legislative, judicial or administrative
action. Any such changes may be applied retroactively in a manner that could
adversely affect a holder of the Depositary Shares and Common Stock.
The discussion assumes that the holders of the Depositary Shares
and Common Stock will hold them as "capital assets" within the meaning of
Section 1221 of the Code. The discussion is not binding on the IRS or the
courts. The Company has not sought and will not seek any rulings from the IRS
with respect to the positions of the Company discussed herein, and there can
be no assurance that the IRS will not take a different position concerning
the tax consequences of the purchase, ownership or disposition of the
Depositary Shares or Common Stock or that any such position would not be
sustained.
The tax treatment of a holder of the Depositary Shares and Common
Stock may vary depending on such holder's particular situation or status.
Certain holders (including S corporations, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, taxpayers subject to
alternative minimum tax and persons holding Depositary Shares or Common Stock
as part of a straddle, hedging or conversion transaction) may be subject to
special rules not discussed below. The following discussion is limited to the
United States federal income tax consequences relevant to a holder of the
Depositary Shares and Common Stock that is a citizen or resident of the
United States, or any state thereof, or a corporation or other entity created
or organized under the laws of the United States, or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income tax regardless of source or that is otherwise
subject to United States federal income tax on a net income basis in respect
of the Depositary Shares and Common Stock. The following discussion does not
consider all aspects of United States federal income tax that may be relevant
to the purchase, ownership and disposition of the Depositary Shares and
Common Stock by a holder in light of such holder's personal circumstances. In
addition, the discussion does not consider the effect of any applicable
foreign, state, local or other tax laws, or estate or gift tax
considerations. PERSONS CONSIDERING THE PURCHASE OF THE DEPOSITARY SHARES
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR
FOREIGN TAXING JURISDICTION.
INTRODUCTION
Holders of Depositary Shares will be treated for United States
federal income tax purposes as if they were owners of the Series D Preferred
Stock represented by such Depositary Shares. Accordingly, holders of
Depositary Shares will recognize the items of income, gain, loss and
deduction that they would recognize if they directly held the Series D
Preferred Stock. References in this "Certain Federal Income Tax Consequences"
section to holders of Series D Preferred Stock include holders of Depositary
Shares, and references to Depositary Shares include Series D Preferred Stock.
DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK
A distribution on the Depositary Shares, whether paid in cash or in
shares of Common Stock, or a cash distribution on Common Stock will be
taxable to the holder as ordinary dividend income to the extent that the
amount of the distribution (i.e., the amount of cash and/or the fair market
value of the Common Stock on the date of distribution) does not exceed the
Company's current or accumulated earnings and profits allocable to such
distribution (as determined for federal income tax purposes). To the extent
that the amount of the distribution exceeds the Company's current or
accumulated earnings and profits allocable to such distribution, the
distribution will be treated as a return of capital, thus reducing the
holder's adjusted tax basis in the Depositary Shares or Common Stock with
respect
29
<PAGE>
to which such distribution is made. The amount of any such excess
distribution that exceeds the holder's adjusted tax basis in the Depositary
Shares or Common Stock will be taxed as capital gain and will be long-term
capital gain if the holder's holding period for the Depositary Shares or
Common Stock exceeds one year. (A lower capital gains tax rate will apply if
a non-corporate holder's holding period exceeds 18 months.) A holder's
initial tax basis in Common Stock received as a distribution on the
Depositary Shares will equal the fair market value of the Common Stock on the
date of the distribution. The holding period for the Common Stock will
commence on the day following the distribution. There can be no assurance
that the Company will have sufficient earnings and profits to cause
distributions on the Series D Preferred Stock or Common Stock to be treated
as dividends for federal income tax purposes. For purposes of the remainder
of this discussion, the term "dividend" refers to a distribution paid out of
current or accumulated earnings and profits, unless the context indicates
otherwise. Preferred Stock Liquidated Damages should be taxed in the same
manner as dividend distributions, except that it is possible that Preferred
Stock Liquidated Damages might be treated as payment of a fee and hence as
ordinary income with respect to which no dividends-received deduction is
available.
Pursuant to certain amendments to Section 305(c) of the Code, the
IRS has the authority to promulgate regulations that may treat unpaid
cumulative dividends on preferred stock as being constructively paid to the
holder in certain circumstances, such as when there is no intention for
dividends to be paid currently at the time of issuance of the preferred
stock. The IRS has not yet proposed any such regulations.
Dividends received by corporate holders will generally be eligible
for the 70% dividends-received deduction under Section 243 of the Code. There
are, however, many exceptions and restrictions relating to the availability
of the dividends-received deduction, such as restrictions relating to (i) the
holding period of the stock on which the dividends are received, (ii) debt-
financed portfolio stock, (iii) dividends treated as "extraordinary
dividends" for purposes of Section 1059 of the Code, and (iv) taxpayers that
pay alternative minimum tax. Corporate holders should consult their own tax
advisors regarding the extent, if any, to which such exceptions and
restrictions may apply to their particular factual situations. In addition,
new legislation requires corporate holders to satisfy a separate forty-six
day holding period requirement with respect to each dividend in order to be
eligible for the dividends-received deduction with respect to such dividend.
(A two-year transitional rule applies to stock held on June 8, 1997.)
REDEMPTION PREMIUM
Under certain circumstances, Section 305(c) of the Code requires
that any excess of the redemption price of preferred stock over its issue
price be treated as constructively distributed on a periodic basis prior to
actual receipt. However, the Company believes that a holder of the Depositary
Shares should not be required to include any redemption premium in income
under Section 305(c).
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations issued under Section 305 of the Code treat
certain adjustments to conversion provisions of stock such as the Series D
Preferred Stock as constructive distributions of stock with respect to
preferred stock. Such constructive distributions of stock would be taxable to
holders of Depositary Shares as described above under the caption
"Distributions on Depositary Shares and Common Stock." In general, any
adjustment increasing the number of shares of Common Stock into which the
Depositary Shares can be converted could constitute a constructive
distribution of stock to holders of Depositary Shares unless made pursuant to
a bona fide, reasonable adjustment formula that has the effect of preventing
dilution of the interest of the holders of Depositary Shares. Any adjustment
in the conversion price to compensate the holders of Depositary Shares for
taxable distributions of cash or property on any of the outstanding Common
Stock of the Company may be treated as a constructive distribution of stock
to holders of Depositary Shares. The Company is unable to predict whether any
such adjustment will be made.
30
<PAGE>
CONVERSION OF SERIES D PREFERRED STOCK
No gain or loss will generally be recognized for United States
federal income tax purposes on conversion of the Series D Preferred Stock
solely into Common Stock. However, if the conversion takes place when there
is a dividend arrearage on the Series D Preferred Stock, a portion of the
Common Stock received may be treated as a taxable dividend to the extent of
such dividend arrearage. Except for any Common Stock treated as payment of a
dividend, the tax basis for the Common Stock received upon conversion
(including any fractional share deemed received) will be the tax basis of the
Series D Preferred Stock converted, and the holding period of the Common
Stock received upon conversion (including any fractional share deemed
received) will include the holding period of the Series D Preferred Stock
converted into such Common Stock. The receipt of cash in lieu of a fractional
share upon conversion of Series D Preferred Stock to Common Stock will
generally be treated as a sale of such fractional share of Common Stock in
which the holder will recognize taxable gain or loss equal to the difference
between the amount of cash received and the holder's tax basis in the
fractional share redeemed. Such gain or loss will be capital gain or loss and
will be long-term if the holder's holding period for the fractional share
exceeds one year. (A lower capital gains tax rate will apply if a non-
corporate holder's holding period exceeds 18 months.)
CONVERSION OF SERIES D PREFERRED STOCK AFTER DIVIDEND RECORD DATE
If a holder whose Series D Preferred Stock has not been called for
redemption surrenders such Series D Preferred Stock for conversion into
shares of Common Stock after a dividend record date for the Series D
Preferred Stock but before payment of the dividend, such holder will be
required to pay the Company an amount equal to such dividend upon conversion.
The holder will likely recognize the dividend payment as ordinary dividend
income when it is received and increase the basis of the Common Stock
received by the amount paid to the Company.
REDEMPTION, SALE OR EXCHANGE OF SERIES D PREFERRED STOCK AND SALE OR EXCHANGE
OF COMMON STOCK
A redemption of shares of Series D Preferred Stock for cash will be
a taxable event.
A redemption of shares of Series D Preferred Stock for cash will
generally be treated as a sale or exchange if the holder does not own,
actually or constructively within the meaning of Section 318 of the Code, any
stock of the Company other than the Series D Preferred Stock redeemed. If a
holder does own, actually or constructively, other stock of the Company, a
redemption of Series D Preferred Stock may be treated as a dividend to the
extent of the Company's allocable current or accumulated earnings and profits
(as determined for United States federal income tax purposes). Such dividend
treatment will not be applied if the redemption is "not essentially
equivalent to a dividend" with respect to the holder under Section 302(b)(1)
of the Code. A distribution to a holder will be "not essentially equivalent
to a dividend" if it results in a "meaningful reduction" in the holder's
stock interest in the Company. For this purpose, a redemption of Series D
Preferred Stock that results in a reduction in the proportionate interest in
the Company (taking into account any actual ownership of Common Stock and any
stock constructively owned) of a holder whose relative stock interest in the
Company is minimal and who exercises no control over corporate affairs should
be regarded as a meaningful reduction in the holder's stock interest in the
Company.
If a redemption of the Series D Preferred Stock for cash is treated
as a sale or exchange, the redemption will result in capital gain or loss
equal to the difference between the amount of cash received and the holder's
adjusted tax basis in the Series D Preferred Stock redeemed, except to the
extent that the redemption price includes dividends that have been declared
by the Board of Directors of the Company prior to the redemption. Similarly,
upon the sale or exchange of the Series D Preferred Stock or Common Stock
(other than in a redemption, on conversion or pursuant to a tax-free
exchange), the difference between the sum of the amount of cash and the fair
market value of other property received and the holder's adjusted basis in
the Series D Preferred Stock or Common Stock will be capital gain or loss.
This gain or loss will be long-term capital gain or loss if the holder's
holding period for the Series D Preferred Stock or Common Stock exceeds one
year. (A lower capital gains tax rate will apply if a non-corporate holder's
holding period exceeds 18 months.)
31
<PAGE>
If a redemption of Series D Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be the amount of cash received by the holder. The holder's adjusted tax
basis in the redeemed Series D Preferred Stock will be transferred to any
remaining stock holdings in the Company, subject to reduction or possible
gain recognition under Section 1059 of the Code with respect to the non-taxed
portion of such dividend. If the holder does not retain any actual stock
ownership in the Company (having a stock interest only constructively by
attribution), the holder may lose the benefit of the basis in the Series D
Preferred Stock.
BACKUP WITHHOLDING
A holder of Depositary Shares or Common Stock may be subject to
backup withholding at the rate of 31% with respect to dividends paid on, or
the proceeds of a redemption, sale or exchange of, the Depositary Shares or
Common Stock, unless such holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates its exemption or (b)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A holder of Depositary Shares
or Common Stock who does not provide the Company with the holder's correct
taxpayer identification number may be subject to penalties imposed by the
IRS. Any amount paid as backup withholding would be creditable against the
holder's federal income tax liability.
32
<PAGE>
THE SELLING SECURITYHOLDERS
The following table sets forth, as of September 15, 1997 certain
information regarding the Selling Securityholders' ownership of the Company's
Depositary Shares, Series D Preferred Stock and Common Stock. Unless otherwise
disclosed in the footnotes to the table, no Selling Securityholder has held any
position, office or had any other material relationship with the Company, its
predecessors or affiliates during the past three years. All of the Depositary
Shares and shares of Series D Preferred Stock are registered in the name of
"Cede & Co." on the books of the Company's Transfer Agent. To the knowledge of
the Company, except as disclosed in the table below, the Selling Securityholders
did not own, nor have any rights to acquire, any other Depositary Shares, shares
of Series D Preferred Stock or Common Stock as of the date of this Prospectus.
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kenny ...... 1,980 * 1,980 0
Securities
Corp. (5)
J. Michael.. 1,244 * 1,244 0
Short (5)
Brett B..... 344 * 344 0
Branden-
berg (5)
Scott M..... 258 * 258 0
Rich (5)
Ray Bove.... 13,501 * 13,501 0
(6)
William M.... 14,053 * 14,053 0
Wunderlich
(6)
W&B.......... 27,554 * 27,554 0
Liquidation
Corp. (6)
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Donaldson,.. 39,848 * 39,848 0 62,000 * 62,000 0 620 * 620 0
Lufkin &
Jenrette
Securities
Corp
Hudson ..... 14,783 * 14,783 0 23,000 * 23,000 0 230 * 230 0
River
Trust
Growth
Investors
Hudson ..... 18,896 * 18,896 0 29,400 * 29,400 0 294 * 294 0
River
Trust
Growth &
Income
Account
Equitable.... 44,090 * 44,090 0 68,600 * 68,600 0 686 * 686 0
Life
Assurance
Separate
Account
Convertible
Memphis, .... 18,382 * 18,382 0 28,600 * 28,600 0 286 * 286 0
Light, Gas
& Water
Retirement
Fund
Hotel ....... 6,042 * 6,042 0 9,400 * 9,400 0 94 * 94 0
Union and
Industry
of
Hawaii
David ....... 1,286 * 1,286 0 2,000 * 2,000 0 20 * 20 0
Lipscomb
University
General
Endowment
The Frist..... 4,756 * 4,756 0 7,400 * 7,400 0 74 * 74 0
Foundation
Equitable..... 3,150 * 3,150 0 4,900 * 4,900 0 49 * 49 0
Life
Assurance
Separate
Account
Balance
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hudson ....... 18,575 * 18,575 0 28,900 * 28,900 0 289 * 289 0
River
Trust
Balanced
Account
Bankers ...... 48,203 * 48,203 0 75,000 .0109 75,000 0 750 .0109 750 0
Trust For
Chrysler
Corp Emp
#1 Pension
Plan DTD
4/1/89 (7)
State ........ 26,544 * 26,544 0 41,300 * 41,300 0 413 * 413 0
Street
Bank
Custodian
For GE
Pension
Trust
Global Inv
Manager
SVC
Convert (7)
Franklin & ... 3,985 * 3,985 0 6,200 * 6,200 0 62 * 62 0
Marshall
College (7)
Chase ........ 81,945 * 81,945 0 127,500 .0185 127,500 0 1, 275 .0185 1,275 0
Manhattan
NA Trustee
For IBM
Corp
Retirement
Plan Trust
DTD
12/18/45 (7)
Millennium ... 38,562 * 38,562 0 60,000 * 60,000 0 600 * 600 0
Trading
Co., L.P.
KA ........... 15,425 * 15,425 0 24,000 * 24,000 0 240 * 240 0
Management
Limited
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oppen- ....... 25,708 * 25,708 0 40,000 * 40,000 0 400 * 400 0
heimer
Variable
Account
Funds for
the
account
of Oppen-
heimer
Growth &
Income
Fund
United ....... 1,729 * 1,729 0 2,690 * 2,690 0 26.9 * 26.9 0
National
Life
Insurance(8)
Lincoln ...... 63,583 * 63,583 0 98,930 .0143 98,930 0 989.3 .0143 989.3 0
National
Life
Insurance(8)
Weirton ...... 10,865 * 10,865 0 16,905 * 16,905 0 169.05 * 169.05 0
Trust (8)
Walker Art ... 4,162 * 4,162 0 6,475 * 6,475 0 64.75 * 64.75 0
Center (8)
High ......... 77,124 * 77,124 0 120,000 .0174 120,000 0 1,200 .0174 1,200 0
bridge
Capital
Corpora-
tion
KA Trading ... 23,138 * 23,138 0 36,000 * 36,000 0 360 * 360 0
L.P.
Design ....... 19,281 * 19,281 0 30,000 * 30,000 0 300 * 300 0
Professionals
Insurance
Company
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering
holder(1) this Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guaranty ..... 19,281 * 19,281 0 30,000 * 30,000 0 300 * 300 0
National
Insurance
Company
JMG .......... 154,570 * 154,570 0 240,500 .0349 240,500 0 2,405 .0349 2,405 0
Convertible
Investments
L.P.
Triton ....... 148,143 * 148,143 0 230,500 .0334 230,500 0 2,305 .0334 2,305 0
Capital
Holding
LTD
Deutsche ..... 80,338 * 80,338 0 125,000 .0181 125,000 0 1,250 .0181 1,250 0
Morgan
Grenfell
Inc.
Merrill ...... 44,989 * 44,989 0 70,000 .0101 70,000 0 700 .0101 700 0
Lynch
Pierce
Fenner &
Smith
Inc.
Susque- ...... 60,414 * 60,414 0 94,000 .0136 94,000 0 940 .0136 940 0
hanna
Capital
Group
Goods & ...... 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0
Co.
The .......... 57,843 * 57,843 0 90,000 .0130 90,000 0 900 .0130 900 0
Prudential
Series
Fund, Inc.
High Yield
Bond
Portfolio(9)
Colonial ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0
Penn
Insurance
Co.(10)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank of ...... 16,711 * 16,711 0 26,000 * 26,000 0 260 * 260 0
Tokyo-
Mitsubishi
Trust
Convertible
Bond Fund
Forest ....... 46,918 * 46,918 0 73,000 .0106 73,000 0 730 .0106 730 0
Fulcrum Fd
Ltd.
Forest ....... 62,664 * 62,664 0 97,500 .0141 97,500 0 975 .0141 975 0
Fulcrum
Fund LP
Highmark ..... 19,924 * 19,924 0 31,000 * 31,000 0 310 * 310 0
Convertible
Sec. Fund
J.P .......... 128,540 * 128,540 0 200,000 .0290 200,000 0 2,000 .0290 2,000 0
Morgan
& Co.
Incorpo-
rated (11)
High Yield ... 77,124 * 77,124 0 120,000 .0172 120,000 0 1,200 .0172 1,200 0
Portfolio (12)
IDS Bond ..... 102,832 * 102,832 0 160,000 .0232 160,000 0 1,600 .0232 1,600 0
Fund, Inc. (12)
Colonial ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0
Penn Life
Insurance
Co. (10)
MFS Series ... 65 * 65 0 100 * 100 0 1 * 1 0
Trust I-
MFS
Convertible
Securities
Fund
MFS Series ... 25,644 * 25,644 0 39,900 * 39,900 0 399 * 399 0
Trust V -
MFS Total
Return Fund
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Key SBSF ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0
Convertible
Securities
Fund (13)
Allstate ..... 86,765 * 86,765 0 135,000 .0196 135,000 0 1,350 .0196 1,350 0
Insurance
Company
LLT .......... 5,142 * 5,142 0 8,000 * 8,000 0 80 * 80 0
Limited (14)
McMahan ...... 12,854 * 12,854 0 20,000 * 20,000 0 200 * 200 0
Securities
Co. L.P.
BT ........... 67,484 * 67,484 0 105,000 .0152 105,000 0 1,050 .0152 1,050 0
Holdings
(New York) Inc.
Strong ....... 128,540 * 128,540 0 200,000 .0290 200,000 0 2,000 .0290 2,000 0
Total
Return
Fund, Inc.
General ...... 38,562 * 38,562 0 60,000 * 60,000 0 600 * 600 0
Motors
Retirement
Program
for
Salaried
Employees
High Yield
Account (15)
UBS .......... 120,185 * 120,185 0 187,000 .0271 187,000 0 1,870 .0271 1,870 0
Securities
LLC (16)
Eaton ........ 192,810 .0116 192,810 0 300,000 .0435 300,000 0 3,000 .0435 3,000 0
Vance
Total
Return
Portfolio
Bear ......... 64,270 * 64,270 0 100,000 .0145 100,000 0 1,000 .0145 1,000 0
Stearns
Securities
Corp. (17)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Common Stock Depositary Shares Series D Preferred Stock
------------------------------------- ----------------------------------------- ----------------------------------
Bene- Bene- Bene-
ficially ficially ficially
Owned Owned Owned
Name of After After Beneficially After
Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This
Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering
holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4)
- --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- --------
Number of Percent
shares of of
Number Percent Number of Percent of Series D Series D
of of Depositary Depositary Preferred Preferred
Shares Shares Shares Shares Stock Stock
------ ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Paces ........ 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0
Partners
Syndicate
Account
Robertson .... 32,135 * 32,135 0 50,000 * 50,000 0 500 * 500 0
Stephens
Growth &
Income Fund
Fidelity ..... 353,485 .0212 353,485 0 550,000 .0797 550,000 0 5,500 .0797 5,500 0
Financial
Trust:
Fidelity
Convertible
Securities
Fund (18)
Fidelity ..... 10,605 * 10,605 0 16,500 * 16,500 0 165 * 165 0
Contrafund
(11)(18)
Variable ..... 1,286 * 1,286 0 2,000 * 2,000 0 200 * 200 0
Insurance
Products
Fund II:
Contrafund
Portfolio (18)
DTI Fund, .... 12,854 * 12,854 0 20,000 * 20,000 0 200 * 200 0
Ltd.
Cole Roesler.. 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0
Trading Group,
L.P.
</TABLE>
* Less than one percent. Based on 16,669,492 shares of common stock
outstanding on July 31, 1997, 6,900,000 Depositary Shares outstanding on
September 15, 1997 and 69,000 shares of Series D Preferred Stock.
(1) The names of additional Selling Securityholders may be provided subsequent
hereto pursuant to Section 424(c) of the Securities Act of 1933, as
amended.
(2) Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of any securities if that person has the right to acquire beneficial
ownership within 60 days. Accordingly, more than one person may be deemed
to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and
investment power with respect to the securities beneficially owned.
(3) Assuming the conversion of all Depositary Shares and/or shares of Series D
Preferred Stock. The Depositary Shares and the Series D Preferred Stock
may not be converted into Common Stock until after October 7, 1997.
(4) Assuming the conversion of all Depositary Shares into shares of Series D
Preferred Stock on the basis of one share of Series D Preferred Stock for
each one hundred Depositary Shares.
(5) Selling Securityholder is a W&B Holder. These shares are not subject to an
escrow arrangement. J. Michael Short, Brett B. Brandenberg and Scott M.
Rich are all employees of Kenny Securities Corp.
(6) These shares are subject to an escrow arrangement and will not be
available for sale until such arrangement terminates. Ray Bove and William
M. Wunderlich are the sole shareholders of W&B Liquidation Corp. Since Ray
Bove and William M. Wunderlich control W&B Liquidation Corp. all three
have been listed as Selling Securityholders. However, only 27,554 shares
are actually being registered.
(7) Palisade Capital Management, L.L.C. is the registered investment adviser
to the Selling Securityholder and as such has shared voting and investment
power with respect to the Securities owned by the Selling Securityholder.
40
<PAGE>
(8) Lynch & Mayer, Inc. is the investment adviser to the Selling Security-
holder and as such has shared investment power with respect to the
Securities owned by the Selling Securityholder.
(9) The Prudential Insurance Company of America provides investment advisory
services to the Selling Securityholder and may be deemed to have shared
voting and investment power with respect to the Securities owned by the
Selling Securityholder.
(10) The Palladin Group L.P. by Palladin Capital Management LLC is the
investment adviser to the Selling Securityholder and as such has shared
voting and investment power with respect to the Securities owned by the
Selling Securityholder.
(11) The Selling Securityholder currently holds more than one percent of the
shares of Common Stock of the Company. These shares are not subject to
this registration statement.
(12) American Express Financial Corporation, a wholly-owned subsidiary of
American Express Company, provides investment advisory services to the
Selling Securityholder.
(13) Key Asset Management, Inc. is the agent of the Selling Securityholder as
as such has shared voting and investment power with respect to the
Securities owned by the Selling Securityholder.
(14) Forest Investment Management, L.P. is an investment adviser to the Selling
Securityholder and as such has shared investment power with respect to the
Securities owned by the Selling Securityholder.
(15) The Prudential Insurance Company of America provides investment management
services to the Selling Securityholder and may be deemed to have shared
voting and investment power with respect to the Securities owned by the
Selling Securityholder.
(16) The Selling Securityholder is a market maker with respect to the Common
Stock of the Company and at any time may hold a short or long position in
such Common Stock.
(17) Bear Stearns & Co., Inc. provides investment banking services to the
Company and was one of two initial purchasers in a private placement by
the Company of the Securities. The Securities held by Bear, Stearns & Co.
Inc. were acquired from time to time after the initial placement of the
Securities in its capacity as a broker dealer or market maker. Bear,
Stearns & Co. Inc. is a registered broker dealer and may be deemed to be
an underwriter within the meaning of the Securities Act of 1933, as
amended, with respect to any Securities sold by it hereunder.
Additionally, Bear Stearns & Co., Inc. has acted as lead manager in
connection with the initial offering of other securities of the Company.
(18) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp., provides investment advisory services to the Selling Shareholder.
41
<PAGE>
The Common Stock and Depositary Shares owned by the Selling
Securityholders and the Dividend Shares issuable by the Company represent all
of the securities covered by the Registration Statement. The Depositary
Shares were originally issued by the Company and purchased by the Initial
Purchasers in the July 9 Equity Offering. The Initial Purchasers, in turn,
resold the Depositary Shares in private sales pursuant to exemption from
registration under the Securities Act of 1933, as amended. W&B Holders
acquired the 31,380 shares of Common Stock constituting the Universal Shares
from the Company in connection with the acquisition by the Company of
Universal.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the
Securities or the issuance of the Dividend Shares offered hereby. The
Dividend Shares may be issued by the Company in lieu of cash from time to
time to holders of record of the Series D Preferred Stock, all in accordance
with the Certificate of Designation, during the two year period commencing on
the date of this Prospectus. See "Description of Preferred Stock--Dividends."
The Securities may be sold from time to time to purchasers directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer the Securities through brokers, dealers or agents who may
receive compensation in the form of discounts, concessions or commissions
from the Selling Securityholders and/or the purchasers of the Securities for
whom they may act as agent. The Selling Securityholders and any such brokers,
dealers or agents who participate in the distribution of the Securities may
be deemed to be "underwriters", and any profits on the sale of the Securities
by them and any discounts, commissions or concessions received by any such
brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling
Securityholders may be deemed to be underwriters, the Selling Securityholders
may be subject to certain statutory liabilities of the Securities Act,
including, but not limited to, Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
The Securities offered hereby may be sold by the Selling Securityholders
from time to time in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time
of sale or at negotiated prices. The Securities may be sold by one or more of
the following methods, without limitation: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the Securities as agent but
may position and resell a portion of the block as principal to facilitate the
transaction: (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (d) an exchange distribution in accordance with the rules of such
exchange; (e) face-to-face transactions between sellers and purchasers
without a broker-dealer; (f) through the writing of options; and (g) other.
At any time a particular offer of the Securities is made, a revised
Prospectus or Prospectus Supplement, if required, will be distributed which
will set forth the aggregate amount and type of Securities being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions and other items constituting
compensation from the Selling Securityholders and any discounts, commissions
or concessions allowed or reallowed or paid to dealers. Such Prospectus
Supplement and, if necessary, a post-effective amendment to the Registration
Statement of which this Prospectus is a part, will be filed with the
Commission to reflect the disclosure of additional information with respect
to the distribution of the Securities. In addition, the Securities covered by
this Prospectus may be sold in private transactions or under Rule 144 rather
than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by
the Selling Securityholders. There is no assurance that any Selling
Securityholder will sell any or all of the Securities offered by it hereunder
or that any such Selling Securityholder will not transfer, devise or gift
such Securities by other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders and any other such person.
All of the foregoing may
42
<PAGE>
affect the marketability of the Securities and the ability of any person or
entity to engage in market-making activities with respect to the Securities.
Pursuant to (1) the Preferred Stock Registration Rights Agreement
entered into in connection with the offer and sale of the Depositary Shares
by the Company and (2) section 7.6(c) of the Asset Acquisition Agreement in
connection with the acquisition of the Universal Shares, each of the Company
and the applicable Selling Securityholders will be indemnified by the other
against certain liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental to
the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
the Company by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the
Americas, New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of
Kronish, Lieb, Weiner & Hellman LLP, beneficially owns 6,745 shares of the
Common Stock.
EXPERTS
The consolidated financial statements and schedule of Intermedia
Communications Inc. appearing in Intermedia Communication Inc.'s Annual
Report (Form 10-K) for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements and schedule are incorporated herein
by reference in reliance upon such report given the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of DIGEX, Incorporated, appearing
in DIGEX, Incorporated's Annual Report (Form 10-KSB) for the year ended
December 31, 1996, have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following statement sets forth the expenses payable in connection
with this Registration Statement (estimated except for the registration fee),
all of which will be borne by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.... $ 67,413.73
Legal fees and expenses.......................... $ 12,000.00
Accountant's fees and expenses................... $ 10,000.00
Miscellaneous.................................... $ 10,586.27
-----------
Total............................................ $100,000.00
===========
</TABLE>
ITEM 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation provides that the Company
will to the fullest extent permitted by the DGCL indemnify all persons whom
it may indemnify pursuant thereto. The Company's By-laws contain a similar
provision requiring indemnification of the Company's directors and officers
to the fullest extent authorized by the DGCL. The DGCL permits a corporation
to indemnify its directors and officers (among others) against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any action, suit
or proceeding brought (or threatened to be brought) by third parties, if such
directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. In a derivative action, i.e.,
----
one by or in the right of the corporation, indemnification may be made for
expenses (including attorneys' fees) actually and reasonably incurred by
directors and officers in connection with the defense or settlement of such
action if they had acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged liable to the
Company unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses. The DGCL further provides that, to the extent
any director or officer has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in this paragraph, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. In addition, the
Company's Certificate of Incorporation contains a provision limiting the
personal liability of the Company's directors for monetary damages for
certain breaches of their fiduciary duty. The Company has indemnification
insurance under which directors and officers are insured against certain
liability that may occur in their capacity as such.
II-1
<PAGE>
ITEM 16. Exhibits and Financial Data Schedules.
(a) Exhibits
<TABLE>
<S> <C>
1.1* --Purchase Agreement, dated as of July 2, 1997, among the Company and
the Initial Purchasers.
2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among the
Company, Daylight Acquisition Corp. and DIGEX, Incorporated. Exhibit
99(c)(1) to the Company's Schedule 14D-1 filed with the Commission on
June 11, 1997 is incorporated herein by reference.
2.2** --Asset Acquisition Agreement, dated as of December 6, 1996, among
Universal Telecom, Inc. d/b/a Universal Telecom Technologies, the
Company, William M. Wunderlich and Ray Bove.
4.1 --Indenture, dated as of June 2, 1995, between the Company and
SunBank National Association, as trustee. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on June 20, 1995 (No. 33-93622) is
incorporated herein by reference.
4.1(a)--Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13 1/2% Series B Senior Notes due 2005,
between the Company and SunTrust Bank, Central Florida, National
Association, as trustee. Exhibit 4.1 to the Company's Current Report
on Form 8-K filed with the Commission on April 29, 1996 is
incorporated herein by reference.
4.2 --Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (Commission File No. 33-34738) filed with the
Commission on April 18, 1996 is incorporated herein by reference.
4.3 --Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Commission on July 17, 1997 is incorporated herein by reference.
4.4* --Preferred Stock Registration Rights Agreement, dated as of July 9,
1997, among the Company and the Initial Purchasers.
4.5 --Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations and Restrictions of 7% Series
D Junior Convertible Preferred Stock of the Company, filed with the
Secretary of State of the State of Delaware on July 8, 1997. Exhibit
4.2 to the Company's Current Report on Form 8-K filed with the
Commission on July 17, 1997 is incorporated herein by reference.
4.6 --Deposit Agreement, dated as of July 9, 1997, between the Company
and Continental Stock Transfer & Trust Company. Exhibit 4.3 to the
Company's Current Report on Form 8-K filed with the Commission on
July 17, 1997 is incorporated herein by reference.
5.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters is
contained in their opinion filed as Exhibit 5.1 to this Registration
Statement.
12.1* --Statement Re: Computation of Ratios.
12.2* --Statement Re: Computation of Ratios.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.1** --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in their
opinion filed as Exhibit 5.1 to this Registration Statement.
23.2* --Consent of Ernst & Young LLP.
23.3* --Consent of Ernst & Young LLP.
23.4** --Consent of Ernst & Young LLP.
23.5** --Consent of Ernst & Young LLP.
24.1* --Power of Attorney is set forth on the signature page of this
Registration Statement.
</TABLE>
-----------
*Filed with the Registration Statement on August 12, 1997.
**Filed herewith.
(b) Financial Data Schedules
Financial Data Schedules are not required to be filed since all financial
statements have been previously included in filings with the Commission.
II-3
<PAGE>
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
-------- -------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Tampa, State of
Florida, on this 15th day of September, 1997.
INTERMEDIA COMMUNICATIONS, INC.
By:__________________________________
Robert M. Manning,
Chief Financial Officer
and Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to its Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Principal Executive Officers:
* Chairman of the Board, September 15, 1997
_____________________________________ President and Chief
David C. Ruberg Executive Officer
Principal Financial and Accounting Officers:
Chief Financial Officer September 15, 1997
_____________________________________________ and Senior Vice President
Robert M. Manning
* Controller and Chief September 15, 1997
_____________________________________________ Accounting Officer
Jeanne M. Walters
Other Directors:
* Director September 15, 1997
_____________________________________________
John C. Baker
* Director September 15, 1997
_____________________________________________
George F. Knapp
* Director September 15, 1997
_____________________________________________
Philip A. Campbell
* By:
_____________________________________________
Robert M. Manning,
as attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Tampa, State of
Florida, on this 15th day of September, 1997.
INTERMEDIA COMMUNICATIONS OF
FLORIDA, INC.
By: /s/ Robert M. Manning
---------------------------------------
Robert M. Manning
Chief Financial Officer and
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to its Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Principal Executive Officers:
/s/ * Chairman of the Board, September 15, 1997
_____________________________________ President and Chief
David C. Ruberg Executive Officer
Principal Financial and Accounting Officers:
/s/ Robert M. Manning Chief Financial Officer September 15, 1997
_____________________________________________ and Senior Vice President
Robert M. Manning
/s/ * Controller and Chief September 15, 1997
_____________________________________________ Accounting Officer
Jeanne M. Walters
Other Directors:
/s/ * Director September 15, 1997
- ---------------------------------------------
John C. Baker
/s/ * Director September 15, 1997
_____________________________________________
George F. Knapp
/s/ * Director September 15, 1997
_____________________________________________
Philip A. Campbell
* By: _______________________________________
Robert M. Manning, as attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Page
------ ------- ----
<S> <C> <C>
1.1* --Purchase Agreement, dated as of July 2, 1997, among the Company and
the Initial Purchasers.
2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among the
Company, Daylight Acquisition Corp. and DIGEX, Incorporated. Exhibit
99(c)(1) to the Company's Schedule 14D-1 filed with the Commission on
June 11, 1997 is incorporated herein by reference.
2.2** --Asset Acquisition Agreement, dated as of December 6, 1996, among
Universal Telecom, Inc. d/b/a Universal Telecom Technologies, the
Company, William M. Wunderlich and Ray Bove.
4.1 --Indenture, dated as of June 2, 1995, between the Company and
SunBank National Association, as trustee. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on June 20, 1995 (No. 33-93622) is
incorporated herein by reference.
4.1(a)--Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13 1/2% Series B Senior Notes due 2005,
between the Company and SunTrust Bank, Central Florida, National
Association, as trustee. Exhibit 4.1 to the Company's Current Report
on Form 8-K filed with the Commission on April 29, 1996 is
incorporated herein by reference.
4.2 --Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (Commission File No. 33-34738) filed with the
Commission on April 18, 1996 is incorporated herein by reference.
4.3 --Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Commission on July 17, 1997 is incorporated herein by reference.
4.4* --Preferred Stock Registration Rights Agreement, dated as of July 9,
1997, among the Company and the Initial Purchasers.
4.5 --Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other Special
Rights and Qualifications, Limitations and Restrictions of 7% Series
D Junior Convertible Preferred Stock of the Company, filed with the
Secretary of State of the State of Delaware on July 8, 1997. Exhibit
4.2 to the Company's Current Report on Form 8-K filed with the
Commission on July 17, 1997 is incorporated herein by reference.
4.6 --Deposit Agreement, dated as of July 9, 1997, between the Company
and Continental Stock Transfer & Trust Company. Exhibit 4.3 to the
Company's Current Report on Form 8-K filed with the Commission on
July 17, 1997 is incorporated herein by reference.
5.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters is
contained in their opinion filed as Exhibit 5.1 to this Registration
Statement.
12.1* --Statement Re: Computation of Ratios.
12.2* --Statement Re: Computation of Ratios.
23.1** --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in their
opinion filed as Exhibit 5.1 to this Registration Statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Page
------ ------- ----
<S> <C> <C>
23.2* --Consent of Ernst & Young LLP.
23.3* --Consent of Ernst & Young LLP.
23.4** --Consent of Ernst & Young LLP.
23.5** --Consent of Ernst & Young LLP.
24.1* --Power of Attorney is set forth on the signature page of this
Registration Statement.
</TABLE>
-----------
*Filed with the Registration Statement on August 12, 1997.
**Filed herewith.
<PAGE>
EXHIBIT 2.2
[EXECUTION COPY]
ASSET ACQUISITION AGREEMENT
---------------------------
ASSET ACQUISITION AGREEMENT (this "Agreement") dated as of December 6,
---------
1996, among UNIVERSAL TELECOM, INC. d/b/a UNIVERSAL TELECOM TECHNOLOGIES, a
Missouri corporation having an office at 3660 South Geyer Road, Suite 100, St.
Louis, MO 63127 ("Seller"), INTERMEDIA COMMUNICATIONS INC., a Delaware
------
corporation having an office at 3625 Queen Palm Drive, Tampa, Florida 33619
("Buyer"), and William M. Wunderlich, an individual residing at 4462 Country
- -------
Sunrise, High Ridge, MO 63049, and Ray Bove, an individual residing at 2433
Suelynn Drive, High Ridge, MO 63049 (Mr. Wunderlich and Mr. Bove are
collectively referred to as the "Shareholders").
------------
RECITALS:
--------
Seller is engaged in the business of providing switchless long distance and
related telecommunications services (the "Business").
--------
Seller desires to sell to Buyer and Buyer desires to acquire from Seller,
all right, title and interest of Seller in and to all of the assets and
properties owned by Seller or used by Seller to conduct the Business, and in
connection therewith Buyer is willing to assume certain liabilities of Seller
relating thereto, all upon the terms and subject to conditions contained herein.
The Shareholders are entering into this Agreement to induce Buyer to enter
into this Agreement and to acquire the Business.
Seller, the Shareholders and Buyer intend that the transactions
contemplated hereby qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(c) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties hereto hereby agree as follows:
1. ACQUISITION
-----------
1.1. ACQUIRED ASSETS.
---------------
(a) In consideration of the payment by Buyer of the relevant portion of the
Acquisition Price (as defined in Section 3.1 below), Seller hereby sells,
assigns, transfers, conveys and
<PAGE>
delivers to Buyer, and Buyer hereby purchases, acquires and takes assignment and
delivery of, all the right, title and interest in and to all of the assets,
properties, goodwill and business of every kind and description and wherever
located, whether tangible or intangible, real, personal or mixed, directly or
indirectly owned by Seller or to which it is directly or indirectly entitled
and, in any case, belonging to or used or intended to be used in the Business,
other than the Excluded Assets (as defined below), including, without
limitation, the assets and properties of Seller listed on Schedule 1.1(a) (such
assets and properties being referred to herein as the "Acquired Assets").
---------------
(b) Except as set forth on Schedule 1.1(b), all of the Acquired Assets are
being sold, assigned, transferred, conveyed and delivered to Buyer free and
clear of all encumbrances, security interests, mortgages, pledges, restrictions,
charges, or liens of any kind, including, without limitation, tax liens
("Liens").
-----
1.2. EXCLUDED ASSETS. Notwithstanding the foregoing, Seller is not
---------------
selling, assigning, transferring, conveying or delivering, and Buyer is not
acquiring pursuant to this Agreement, and the term "Acquired Assets" does not
include, any of the following (the "Excluded Assets"):
---------------
(a) an amount of cash on hand equal to $60,000 (the "Closing Cash"), which
------------
is in account number 3152701302 at Magna Bank;
(b) any interest in and to the capital stock of Seller and all minute
books, stock records, income tax records and similar corporate documents of
Seller;
(c) the claim of Seller against IXC Long Distance Inc. ("IXC") relating to
the alleged failure by IXC to provide long distance services to Seller on a
timely basis as required by Seller's agreement with IXC; provided, that Seller
--------
covenants and agrees to immediately notify IXC of its intention to pursue such
claim;
(d) all certificates or other authorizations issued by the Federal
Communication Commission or other state public utilities commissions to Seller
in connection with the Business, including tariffs relating thereto; provided,
--------
that if a state public utilities commission shall advise Buyer that transfer of
Seller's certificate or other authorization shall be required in connection with
the transactions contemplated hereby, then such certificate or other
authorization shall automatically be deemed an Acquired Asset and not an
Excluded Asset and Seller shall promptly take all steps necessary to effect such
a transfer including, without limitation, filing and prosecuting applications
for assignment or transfer of such certificates or
2
<PAGE>
other authorizations as may be required by the Federal Communications Commission
and any state public utilities commission; and
(e) all rights of Seller under this Agreement and the Escrow Agreement (as
defined below).
2. LIMITED ASSUMPTION OF LIABILITIES
---------------------------------
2.1. ASSUMPTION OF LIABILITIES. Except as expressly provided herein,
-------------------------
Buyer does not assume or agree to pay, perform or discharge, any debts,
liabilities, obligations, claims, expenses, taxes, contracts, accounts payable,
or commitments of any kind, character or description, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or undetermined
(collectively, "Liabilities") of Seller. Subject to the terms, conditions,
-----------
representations and warranties contained herein, Buyer hereby assumes and agrees
to pay, perform and discharge when due the Liabilities of Seller set forth on
Schedule 2.1 hereto (the "Assumed Liabilities") and no other Liabilities of
-------------------
Seller.
2.2. EXCLUDED LIABILITIES. Except as set forth on Schedule 2.1, and
--------------------
regardless of whether any of the following may be disclosed to Buyer pursuant to
Section 4 hereof or otherwise, or whether Buyer has knowledge of same, Buyer
does not assume, and shall have no liability for any Liabilities arising out of
any act or omission occurring, or any state of facts existing, prior to the date
hereof (the "Excluded Liabilities") including, without limitation, any Liability
--------------------
of Seller relating to or arising from: (i) the breach of Seller's obligations
under the leases, contracts and agreements assigned to Buyer; (ii) any
infringement by Seller on the rights of others in connection with the Business;
(iii) taxes, including, without limitation, any social security taxes or any
other taxes relating to Seller's current or former employees, any employment or
withholding taxes upon employees collected by Seller, any income, capital gains,
sales, use or transfer tax arising from the operations of Seller through the
date hereof, including any thereof that may be due in connection with the
transactions contemplated hereby; (iv) any accrued but unpaid payroll,
severance, bonus, holiday and/or vacation obligations to employees of Seller; or
(v) any damages, fines, interest or penalties assessed by any federal, state,
county, city or municipal government or governmental agency or authority.
Seller retains, and shall pay, perform and discharge when due all Excluded
Liabilities.
3. ACQUISITION PRICE
-----------------
3.1. ACQUISITION PRICE; ALLOCATION OF ACQUISITION PRICE. (a) Subject to
--------------------------------------------------
the adjustments set forth in Section 3.2,
3
<PAGE>
the acquisition price for the Acquired Assets shall be $702,184 and the
acquisition price for the covenants contained in Section 7.2 shall be $200,000
(together, the "Acquisition Price"). The Acquisition Price is hereby being paid
-----------------
by delivery of 3,826 shares of common stock, par value $.01 per share ("Common
------
Stock"), of Buyer to Seller and 27,554 shares of Common Stock to Kronish, Lieb,
- ------
Weiner & Hellman LLP (the "Escrow Agent") to be held in escrow by the Escrow
------------
Agent in accordance with the terms and provisions of the Escrow Agreement (the
"Escrow Agreement") being executed on the date hereof among Buyer, Seller, the
----------------
Shareholders and the Escrow Agent. The shares of Common Stock being held in such
escrow are hereafter collectively referred to as the "Escrow Funds", of which
------------
19,130 shares of Common Stock are hereafter referred to as "Escrow Fund A" and
-------------
8,424 shares of Common Stock are hereafter referred to as "Escrow Fund B".
-------------
(b) The sum of the Acquisition Price and the Assumed Liabilities shall be
allocated among the Acquired Assets as of the date hereof in accordance with
Exhibit A. Any subsequent adjustments to the sum of the Acquisition Price and
Assumed Liabilities shall be reflected in the allocation hereunder in a manner
consistent with Treasury Regulation (S) 1.1060-1T(f). For all tax purposes,
Buyer and Seller agree to report the transactions contemplated in this Agreement
in a manner consistent with the terms of this Agreement, including the
allocation under Exhibit A, and that none of them will take any position
inconsistent therewith in any tax return, in any refund claim, in any
litigation, or otherwise.
3.2. ADJUSTMENTS TO THE ACQUISITION PRICE. The Acquisition Price shall be
------------------------------------
subject to the following adjustments:
(a) Adjustments relating to Accounts Payable. As promptly as practicable
----------------------------------------
after the date hereof, Buyer shall cause an audit of the accounts payable listed
as item 1. on Schedule 2.1 as being assumed by Buyer. Upon completion of such
audit, Buyer shall deliver to Seller a written statement (the "Payables
--------
Statement") setting forth the results of such audit. In the event the amount of
- ---------
the accounts payable as reflected in the Payables Statement shall exceed the
amount for the accounts payable specified as item 1. on Schedule 2.1, then (i)
such excess shall be deemed to be Assumed Liabilities for all purposes of this
Agreement, (ii) the Acquisition Price shall be adjusted downward in an amount
equal to such excess and (iii) Buyer shall deliver written notice to Seller and
the Escrow Agent specifying the amount of such downward adjustment of the
Acquisition Price and the Escrow Agent shall promptly and in accordance with the
terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount
of shares of Common Stock sufficient to cover such downward adjustment. In the
event the amount of the accounts payable as specified as item 1. on Schedule 2.1
shall exceed the amount of the accounts payable as reflected in the
4
<PAGE>
Payables Statement, then (i) the Acquisition Price shall be adjusted upward in
an amount equal to such excess and (ii) Buyer shall promptly deliver to the
Escrow Agent for deposit into the Escrow Funds an amount of shares of Common
Stock sufficient to cover such upward adjustment.
(b) Adjustments for Uncollected Accounts Receivable. As promptly as
-----------------------------------------------
practicable after the 90th day following the date hereof, Buyer shall deliver to
Seller a written statement setting forth the amounts of all or any portion of
the accounts receivable included in the Acquired Assets which shall not have
been collected by Buyer within 90 days after the date hereof. In the event the
amount of such uncollected accounts receivable shall exceed $119,687, then Buyer
shall deliver written notice to Seller and the Escrow Agent specifying the
amount of such excess and the Escrow Agent shall promptly and in accordance with
the terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an
amount of shares of Common Stock sufficient to cover such excess. With respect
to collection of accounts receivable, remittances to Buyer made by any account
debtor shall, unless otherwise specified by the account debtor on account of a
dispute with Seller with respect to a specific invoice, be credited to the
invoices bearing the earliest dates. If shares of Common Stock are delivered to
Buyer from the Escrow Funds pursuant to this Section 3.2(b), Buyer shall re-
assign to Seller all accounts receivable not collected by Buyer within 90 days
after the date hereof. Thereafter, Seller shall promptly remit to Buyer funds
in the amount, if any, by which Seller's collection s of such re-assigned
accounts receivable exceeds the value of the shares of Common Stock delivered to
Buyer from the Escrow Funds pursuant to this Section 3.2(b).
(c) Adjustments for Loss of Customers. The parties agree that the
---------------------------------
customers listed on Exhibit B were billed an aggregate of $524,209 for the month
of October 1996 (the "October Billings"). As promptly as practicable after
----------------
January 31, 1997, Buyer shall deliver to Seller a written statement setting
forth the aggregate amount billed to the customers listed on Exhibit B for the
month of January 1997 (the "January Billings"). In the event the January
----------------
Billings shall be less than 90% of October Billings, then Buyer shall deliver
written notice to Seller and the Escrow Agent specifying the amount of such
deficiency and the Escrow Agent shall promptly and in accordance with the terms
of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount of
shares of Common Stock equal to the product of the amount of such deficiency
multiplied by 4.3. Notwithstanding the above, no payment of such deficiency
shall be made by the Escrow Agent if (i) Buyer shall have increased in the
aggregate the rates charged to the customers listed on Exhibit B by more than
10% from the aggregate of the rates charged to such customers as of the date
hereof or (ii) more than half of the customers listed
5
<PAGE>
on Exhibit B shall have experienced extraordinary service outages during the
months of December 1996 or January 1997.
(d) Adjustments for November Cost of Sales. As promptly as practicable
--------------------------------------
after the date hereof, Buyer shall cause an audit of the November Cost of Sales
which are specified as in item 10. on Schedule 2.1. Upon completion of such
audit, Buyer shall deliver to Seller a written statement (the "Cost of Sales
-------------
Statement") setting forth the results of such audit. In the event that 50% of
- ---------
the amount of the November Cost of Sales which shall not have been paid prior to
November 29, 1996 as reflected in the Cost of Sales Statement shall exceed
$200,000, then (i) the Acquisition Price shall be adjusted downward in an amount
equal to such excess and (ii) Buyer shall deliver written notice to Seller and
the Escrow Agent specifying the amount of such downward adjustment of the
Acquisition Price and the Escrow Agent shall promptly and in accordance with the
terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount
of shares of Common Stock sufficient to cover such downward adjustment. In the
event that $200,000 shall exceed 50% of the amount of the November Cost of Sales
which shall not have been paid prior to November 29, 1996 as reflected in the
Cost of Sales Statement, then (i) the Acquisition Price shall be adjusted upward
in an amount equal to such excess and (ii) Buyer shall promptly deliver to the
Escrow Agent for deposit into the Escrow Funds an amount of shares of Common
Stock sufficient to cover such upward adjustment.
(e) Payments from Seller and the Shareholders. In the event that shares
-----------------------------------------
of Common Stock held in the Escrow Funds shall be insufficient to cover any
amounts required to be delivered to Buyer pursuant to this Section 3.2, the
Escrow Agent shall deliver to Buyer all shares of Common Stock then remaining in
the Escrow Funds and Seller and the Shareholders shall pay (on the date of the
delivery of the shares of Common Stock by the Escrow Agent), either in cash by
wire transfer of immediately available funds or by delivery of shares of Common
Stock or both, an amount equal to such deficiency.
3.3. VALUE OF SHARES COMMON STOCK. For all purposes of this Agreement and
----------------------------
the Escrow Agreement, whenever shares of Common Stock shall be required to be
delivered to satisfy a payment or indemnity obligation of any party hereto, the
shares of Common Stock shall be deemed to be valued at $28.75 per share,
notwithstanding the actual market or other value of the shares of Common Stock
at the time of the delivery of such shares. In the event of any stock split,
reverse stock split, stock combination or reclassification of the shares of
Common Stock or any merger, consolidation or combination of Buyer with any other
entity or entities, the deemed value specified above for the shares of Common
Stock shall be proportionally adjusted so that the deemed value of the shares of
Common Stock after such event shall be the
6
<PAGE>
same as the deemed value of the shares of Common Stock prior to such event. All
such adjustments shall be made successively.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.
-------------------------------------------------------------
Seller and the Shareholders, jointly and severally, hereby represent and
warrant to Buyer as follows:
4.1. ORGANIZATION OF SELLER. Seller is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of Missouri.
Seller has all requisite power and authority to own and hold the Acquired
Assets, to conduct the Business as currently conducted by Seller and is duly
licensed, permitted or qualified to do business in each jurisdiction in which
the operation of the Business makes such licensing or qualification necessary,
except as would not have a material adverse effect on the Business, the Acquired
Assets or Seller. The jurisdictions in which Seller is so licensed or qualified
are set forth on Schedule 4.1.
4.2. AUTHORITY. Seller has all requisite power and authority to execute
---------
and deliver this Agreement and the Escrow Agreement, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Seller has obtained all necessary approvals for
the execution and delivery of this Agreement and the Escrow Agreement, the
performance of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby. Each of this Agreement and the
Escrow Agreement has been duly executed and delivered by Seller and (assuming
due authorization, execution and delivery by the other parties hereto and
thereto) constitutes Seller's legal, valid and binding obligation, enforceable
against Seller in accordance with its terms. Each Shareholder has full legal
capacity to execute, deliver and perform his obligations under this Agreement
and the Escrow Agreement. Each of this Agreement and the Escrow Agreement has
been duly executed and delivered by each Shareholder and (assuming due
authorization, execution and delivery by the other parties hereto and thereto)
constitutes each Shareholder's legal, valid and binding obligation, enforceable
against him in accordance with its terms.
4.3. NON-CONTRAVENTION. Except as set forth on Schedule 4.2, none of the
-----------------
execution and delivery of this Agreement and the Escrow Agreement by Seller and
Shareholders, the performance of their obligations hereunder and thereunder or
the consummation of the transactions contemplated hereby and thereby will
conflict with Seller's Certificate of Incorporation or By-laws or will, with or
without notice, the passage of time or both, constitute a breach or violation
of, be in conflict
7
<PAGE>
with, constitute or create a default under, or result in the creation or
imposition of any Liens under (a) any contract, indenture, agreement,
instrument, mortgage, lease or commitment to which Seller or any Shareholder is
a party or by which any of them is or any of their properties are bound, or to
which any of them is subject or (b) any law or statute or any judgment, decree,
order, regulation or rule of any court or governmental or regulatory authority
relating to Seller, any Shareholder or the Business.
4.4. SOLVENCY. The consummation by Seller of the transactions
--------
contemplated hereby will render Seller solvent and fully able to pay its debts
as they become due.
4.5. FINANCIAL STATEMENTS.
--------------------
(a) Seller has delivered to Buyer (i) balance sheets for Seller as of
December 31 in each of the years 1993 through 1995, and statements of income and
cash flow for each of the fiscal years then ended and (ii) a balance sheet for
Seller as of October 31, 1996 (the "October Balance Sheet") and statements of
---------------------
income and cash flow for the period ended October 31, 1996 (collectively, the
"Financial Statements"). The Financial Statements are true, complete and
- ---------------------
accurate and fairly present the assets, liabilities, financial condition and
results of operations of the Business as of the respective dates thereof and for
the periods therein referred to.
(b) There are no Liabilities of Seller other than Liabilities (i)
reflected or reserved against on the October Balance Sheet or (ii) disclosed in
Schedule 4.5.
4.6. GOVERNMENTAL CONSENTS. Except for qualifications and filings
---------------------
required by Buyer to provided services to customers of Seller, there are no
consents, approvals or authorizations of, or registrations, qualifications or
filings with, governmental or regulatory agencies or authorities necessary in
connection with the execution and delivery of this Agreement by Seller and the
Shareholders, the performance of their obligations hereunder or the consummation
of the transactions contemplated hereby.
4.7. COMPLIANCE WITH LAWS. Seller and the Shareholders have conducted
--------------------
and continue to conduct the Business in accordance with all laws and statutes
and rules, regulations, judgments, orders or decrees of any court or
governmental or regulatory authority applicable to Seller or the Shareholders or
any of Seller's properties or assets, including, without limitation, the
Acquired Assets, and none of Seller or the Shareholders is in violation of any
such laws, statutes, rules, regulations, judgments, orders or decrees.
8
<PAGE>
4.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Seller and the Shareholders have
----------------------------------
conducted and continue to conduct the Business in accordance with all federal,
state, county, city, municipal or other laws, statutes, rules, regulations,
orders, consent decrees, permits or licenses, relating to the prevention,
remediation, reduction or control of pollution or to the protection of the
environment, natural resources and/or human health and safety.
4.9. PERMITS. Schedule 4.9 sets forth a true, complete and correct list
-------
of all permits, licenses, franchises, orders, certificates and approvals
(collectively, the "Permits") of any federal, state or local regulatory or
-------
administrative agency or court relating to Seller, the Acquired Assets or the
Business. The Permits constitute all permits, licenses, franchises, orders,
certificates and approvals required for the lawful operation of the Business and
the Acquired Assets. Seller is in full compliance with the terms of all the
Permits.
4.10. LITIGATION, ETC. Except as set forth on Schedule 4.10, there are no
----------------
judicial or administrative actions, suits, proceedings or investigations pending
or threatened, relating to or affecting Seller, the Acquired Assets, or the
Business, or which question the validity of this Agreement or challenge any of
the transactions contemplated hereby or the use of the Acquired Assets or the
conduct of the Business after the date hereof by Buyer. Except as set forth on
Schedule 4.10, to the best knowledge of Seller and the Shareholders, there are
no facts or circumstances that may give rise to any of the foregoing.
4.11. EMPLOYEES. (a) Set forth on Schedule 4.11 is a true and complete
---------
list of all of the employees of Seller engaged in the Business and their
respective current compensation rates and accrued vacation as of the date
hereof. None of the employees of Seller is covered by any collective bargaining
agreement, no collective bargaining agreement is currently being negotiated and
no attempt is currently being made or has been made during the past three (3)
years to organize any employees of Seller to form or enter into a labor union or
similar organization. Seller's relationship with its employees is good and there
is, and during the past five (5) years there has been, no labor strike, dispute,
slowdown, work stoppage or other labor difficulty pending, threatened against or
involving Seller.
(b) Schedule 4.11 sets forth a true and complete list of all employee
benefit plans and all material bonus, stock option, stock purchase, incentive,
deferred compensation, retiree medical or life insurance, supplemental
retirement, severance or other employee benefit plans, programs or arrangements,
and all material employment or compensation agreements, in each case for the
benefit of, or relating to, current employees and former
9
<PAGE>
employees of Seller (collectively, the "Plans"). Seller has made available to
-----
Buyer, with respect to each Plan, a copy of the plan document, summary plan
description and the most recent annual report and Internal Revenue Service
determination letter. To the best knowledge of Seller and the Shareholders,
except as disclosed in Schedule 4.11, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which Seller has or may have any obligation or which are
maintained or sponsored for the benefit of any current or former employee of
Seller.
4.12. OWNERSHIP AND TRANSFER OF ACQUIRED ASSETS. Seller has good and
-----------------------------------------
marketable title to, or in the case of leased or subleased Acquired Assets,
valid and subsisting leasehold interests in, all of the Acquired Assets, free
and clear of all Liens (other than permitted Liens set forth on Schedule
1.1(b)). Seller has the unrestricted right to sell, transfer, assign, convey and
deliver to Buyer all right, title and interest in and to the Acquired Assets
without penalty or other adverse consequences.
4.13. ASSETS USED IN THE BUSINESS. The Acquired Assets are the only
---------------------------
assets used by Seller to conduct the Business. Seller has caused the Acquired
Assets to be maintained in accordance with good business practice and all the
Acquired Assets are in good operating condition and repair (ordinary wear and
tear excepted) and are suitable for the purposes for which they are used and
intended.
4.14. STATUS OF AGREEMENTS. All material contracts, leases, subleases,
--------------------
licenses, sublicenses, agreements and commitments for the performance by Seller
of the Business are disclosed on Schedule 4.14 (the "Material Contracts"). The
-----------------
Material Contracts are valid, legally binding and enforceable in accordance with
their terms and are in full force and effect, and, except as disclosed on
Schedule 4.14, there are no existing defaults (or events that, with notice or
lapse of time or both, would constitute a default) with respect to any such
Material Contract. Seller has delivered to Buyer true and complete copies of all
Material Contracts.
4.15. EQUIPMENT. Set forth on Schedule 4.15 is a true and complete list
---------
of all field and office equipment utilized by Seller to conduct the Business and
the net book value (calculated in accordance with generally accepted accounting
principles) and the balance owed with respect to such equipment as of the date
hereof. Schedule 4.15 also sets forth all leases of equipment binding upon
Seller or any of the equipment and all the equipment covered thereby.
4.16. VEHICLES. Set forth on Schedule 4.16 is a true and complete list
--------
of all vehicles utilized by Seller to conduct
10
<PAGE>
the Business and the net book value (calculated in accordance with generally
accepted accounting principles) and the balance owed with respect to each such
vehicle as of the date hereof. Schedule 4.16 also sets forth all leases of
vehicles binding upon Seller and all the vehicles covered thereby.
4.17. OFFICES. Set forth on Schedule 4.17 is a true and complete list of
-------
all offices utilized by Seller, as of the date hereof, to conduct the Business
and the monthly lease payment and remaining lease term with respect to each such
office.
4.18. INTELLECTUAL PROPERTY. Seller owns or possesses adequate licenses
---------------------
or other valid rights to use all Intellectual Property (as defined in Schedule
1.1(a)) used or held for use in connection with Business and included in the
Acquired Assets. Seller is unaware of any assertion or claim challenging the
validity of any Intellectual Property. The rights of Seller in or to such
Intellectual Property do not conflict with or infringe on the rights of any
other person or entity, and Seller has not received any claim or written notice
from any person or entity to such effect. The consummation of the transactions
contemplated by this Agreement will not result in the termination or impairment
of any of the Intellectual Property. After the consummation of the transactions
contemplated hereby, Buyer shall own or possess adequate licenses or other valid
rights to use all Intellectual Property to the same extent, and in the same
manner, as Seller.
4.19. ACCOUNTS; LOCKBOXES, ETC. Schedule 4.19 sets forth a true and
-------------------------
complete list of (i) the names of each bank, savings and loan association,
securities or commodities broker or other financial institution in which Seller
has an account and the names of all persons authorized to draw thereon or have
access thereto, (ii) the location of all lockboxes and safe deposit boxes of
Seller and the names of all persons authorized to draw thereon or have access
thereto and (iii) the names of all persons, if any, holding powers of attorney
from Seller relating to the Business or Seller.
4.20. BROKERS, FINDERS, ETC. Other than for Kenny Securities Corp.
---------------------
("Kenny"), all negotiations relating to this Agreement and the transactions
-----
contemplated hereby have been carried on without the participation of any person
or entity acting on behalf of Seller in such manner as to give rise to any valid
claim against Buyer for any brokerage or finder's fee, commission or similar
compensation. Seller and the Shareholders are solely responsible for the fees
and expenses of Kenny.
4.21. NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made
-----------------------------
in this Agreement by Seller and/or the Shareholders is false or misleading as to
any material
11
<PAGE>
fact, or omits to state a material fact required to make any of the statements
made herein not misleading in any material respect.
4.22. INVESTMENT PURPOSES, ETC. (a) Seller and each of the Shareholders
-------------------------
(i) understand that the shares of Common Stock to be issued to Seller pursuant
to this Agreement have not been registered for sale under any federal or state
securities laws and that such shares of Common Stock are being offered and sold
to Seller pursuant to an exemption from registration provided under Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"), (ii) agree
--------------
that Seller is acquiring such shares of Common Stock for its own account for
investment purposes and without a view to any distribution thereof (except to
the Shareholders in the event of a dissolution of Seller and except to Kenny to
satisfy the obligations of Seller and the Shareholders to pay the fees and
expenses of Kenny in connection with the transactions contemplated hereby),
(iii) acknowledge that the representations and warranties set forth in this
Section 4.22 are given with the intention that Buyer rely on them for purposes
of claiming such exemption, and (iv) understand that they must bear the economic
risk of the investment in such shares of Common Stock for an indefinite period
of time as such shares of Common Stock cannot be sold unless subsequently
registered under such laws or unless an exemption from registration is
available.
(b) Seller and each of the Shareholders agree that the shares of Common
Stock issued to Seller pursuant to this Agreement will not be sold or otherwise
transferred for value unless (i) a registration statement with respect thereto
has become effective under the Securities Act or (ii) there is presented to
Buyer an opinion of counsel reasonably satisfactory to Buyer that such
registration is not required, and consent that any transfer agent of Buyer may
be instructed not to transfer any such shares of Common Stock unless it receives
satisfactory evidence of compliance with the foregoing provisions, and that
there may be endorsed upon any certificate evidencing such shares of Common
Stock an appropriate legend calling attention to the foregoing restrictions on
transferability of such shares of Common Stock.
(c) Seller and each of the Shareholders (i) are aware of Buyer's
business and affairs and financial condition and have acquired sufficient
information about Buyer to reach an informed and knowledgeable decision to
acquire the shares of Common Stock issued to Seller pursuant to this Agreement,
(ii) have reviewed Buyer's latest annual report on form 10-K and all filings
subsequent thereto made by Buyer with the Securities and Exchange Commission
pursuant to the federal securities laws, (iii) have discussed Buyer and its
plans, operations and financial condition with Buyer's officers, (iv) have
received all such information as
12
<PAGE>
they have deemed necessary and appropriate to enable them to evaluate the
financial risk inherent in making an investment in the shares of Common Stock,
(v) have received satisfactory and complete information concerning the business
and financial condition of Buyer in response to all inquiries in respect
thereof, (vi) have sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of their
investment in the shares of Common Stock, and (vii) are capable of bearing the
economic risks of such investment, including a complete loss of their investment
in the shares of Common Stock.
4.23. UNIFIED NOTE. Seller is the obligor under a promissory note dated
------------
February 12, 1996 (the "Unified Note") in the principal amount of $75,000
------------
payable to Unified Telecommunications LLC ("Unified"). Seller has deposited
-------
with Southwestern Bell funds in the amount of $62,030 (the "Unified Deposit").
---------------
If the Unified Deposit is not refunded to Buyer on or before January 1, 1997,
Buyer's obligations under the Unified Note (specified as item 9. on Schedule
2.1) shall not exceed $12,970.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants to Seller as follows:
5.1. ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite power and authority under its charter and governance
documents and under applicable laws to execute and deliver this Agreement and
the Escrow Agreement, to carry out its obligations hereunder and thereunder, and
to consummate the transactions contemplated hereby and thereby.
5.2. AUTHORITY. Buyer has obtained all necessary approvals for the
---------
execution and delivery of this Agreement and the Escrow Agreement, the
performance of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby. Each of this Agreement and
the Escrow Agreement has been duly executed and delivered by Buyer and (assuming
due authorization, execution and delivery by the other parties hereto and
thereto) constitutes Buyer's legal, valid and binding obligation, enforceable
against Buyer in accordance with its terms.
5.3. NON-CONTRAVENTION. None of the execution and delivery of this
-----------------
Agreement and the Escrow Agreement by Buyer, the performance of its obligations
hereunder and thereunder, or the consummation by Buyer of the transactions
contemplated hereby and thereby will constitute a violation of, or be in
conflict with, Buyer's Certificate of Incorporation and By-laws or will, with or
13
<PAGE>
without notice, the passage of time or both, constitute a breach or violation
of, be in conflict with, create a default under or result in the creation or
imposition of any Liens upon any property of Buyer pursuant to (a) any contract,
indenture, agreement, instrument, mortgage, lease or commitment to which Buyer
is a party or by which any of its properties are bound, or to which Buyer is
subject or (b) any law or statute or any judgment, decree, order, regulation or
rule of any court or governmental or regulatory authority relating to Buyer.
5.4. GOVERNMENTAL CONSENTS. There are no consents, approvals or
---------------------
authorizations of, or registrations, qualifications or filings with,
governmental or regulatory agencies or authorities necessary in connection with
the execution and delivery of this Agreement by Buyer, the performance of its
obligations hereunder or the consummation by Buyer of the transactions
contemplated hereby.
5.5. LITIGATION, ETC. There are no actions, suits, proceedings or
----------------
investigations pending or threatened against Buyer which question the validity
of this Agreement or challenge any of the transactions contemplated hereby.
5.6. SHARES OF COMMON STOCK. The shares of Common Stock issued to Seller
-----------------------
hereby are duly authorized, validly issued, fully paid and non-assessable.
5.7. BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
----------------------
and the transactions contemplated hereby have been carried on without
the participation of any person or entity acting on behalf of Buyer in such
manner as to give rise to any valid claim against Seller for any brokerage or
finder's fee, commission or similar compensation.
6. INDEMNIFICATION
---------------
6.1. INDEMNIFICATION. (a) Seller and the Shareholders, jointly and
---------------
severally, agree to defend, indemnify and hold harmless Buyer, any subsidiary or
affiliate thereof and its officers, directors, shareholders and controlling
persons, employees, agents, successors and assigns (the "Indemnified Buyer
-----------------
Group") from and against any and all Liabilities, losses, damages, claims,
costs, expenses, judgments, interest and penalties (including, without
limitation, attorneys', accountants' and outside advisors' fees and
disbursements incurred by the Indemnified Buyer Group in any action or
proceeding between Seller and/or the Shareholders and the Indemnified Buyer
Group or between the Indemnified Buyer Group and any third party or otherwise)
(collectively, "Losses") incurred as a result of, arising out of or resulting
------
from:
14
<PAGE>
(i) the breach of any representation, warranty, covenant or agreement
made by Seller and/or the Shareholders contained in this Agreement or any
related document; or
(ii) except for the Assumed Liabilities, any claim or cause of action
of any third party (including, without limitation, any federal of state
government entity), whether commenced before or after the date of this
Agreement, to the extent arising out of any action, inaction, event, condition,
Liability or obligation of Seller or the Shareholders occurring or existing
prior to the date hereof (regardless of whether or not referred to on a Schedule
to this Agreement or otherwise disclosed or known to Buyer as of the date
hereof); or
(iii) except for the Assumed Liabilities, any fines or penalties assessed
by any federal, state, county, city or municipal government or any governmental
agency or authority to the extent arising out of any action, inaction, event,
condition, Liability or obligation of Seller or the Shareholders occurring or
existing prior to the date hereof (regardless of whether or not referred to on a
Schedule to this Agreement or otherwise disclosed or known to Buyer as of the
date hereof); or
(iv) failure to pay, perform or discharge any obligation, Liability,
agreement or commitment not assumed by Buyer pursuant to this Agreement,
including, without limitation, the Excluded Liabilities; or
(v) the amount by which the federal, state and local telecommunications
taxes and penalties listed in Schedule 2.1 exceed the amounts specified in
Schedule 2.1; or
(vi) the failure of Buyer to collect all or any portion of the Unified
Deposit.
Notwithstanding the above, the maximum amount of indemnifiable Losses which may
be recovered from Seller and the Shareholders arising out of or resulting from
the causes enumerated in this Section 6.1(a) shall be an amount equal to
$3,500,000. In addition, Seller and the Shareholders shall not have any
Liability to pay Losses pursuant to this Section 6.1(a) to the extent the
aggregate of the Losses sustained by the Indemnified Buyer Group does not exceed
$5,000; provided, however, that the indemnity obligation shall include the
-------- -------
amount of all Losses and not merely the excess over $5,000.
(b) Buyer agrees to defend, indemnify and hold harmless Seller and the
Shareholders, any subsidiary or affiliate thereof and any of their officers,
directors, controlling persons, employees, agents, successors and assigns (the
"Indemnified Seller Group") from and against any and all Liabilities, losses,
------------------------
damages, claims, costs, expenses, judgments, interest and
15
<PAGE>
penalties (including, without limitation, attorneys', accountants' and outside
advisors' fees and disbursements incurred by the Indemnified Seller Group in any
action or proceeding between Buyer and the Indemnified Seller Group or between
the Indemnified Seller Group and any third party or otherwise) incurred as a
result of, arising out of or resulting from:
(i) the breach of any representation, warranty, covenant or agreement
made by Buyer contained in this Agreement or any related document; or
(ii) the failure on the part of Buyer to pay, perform and discharge
when due the Assumed Liabilities.
6.2. RELEASE FROM ESCROW. (a) In the event that (i) Seller shall not
-------------------
have objected to the amount claimed by the Indemnified Buyer Group for
indemnification with respect to any Loss in accordance with the procedures set
forth in the Escrow Agreement or (ii) Seller shall have delivered notice of its
disagreement as to the amount of any indemnification requested by the
Indemnified Buyer Group and either (A) Seller and Buyer shall have, subsequent
to the giving of such notice, mutually agreed that Seller is obligated to
indemnify the Indemnified Buyer Group for a specified amount and shall have so
jointly notified the Escrow Agent or (B) a final nonappealable judgment shall
have been rendered by the court having jurisdiction over the matters relating to
such claim by the Indemnified Buyer Group for indemnification from Seller and
the Escrow Agent shall have received, in the case of clause (A) above, written
instructions from Seller and Buyer or, in the case of clause (B) above, a copy
of the final nonappealable judgment of the court, the Escrow Agent shall deliver
to the Indemnified Buyer Group from the Escrow Funds any amount determined to be
owed to the Indemnified Buyer Group under Section 6.1 in accordance with the
Escrow Agreement.
(b) Upon delivery of evidence satisfactory to Buyer in Buyer's sole
discretion that all Assumed Liabilities relating to federal and State of
Missouri telecommunications taxes and penalties shall have been satisfied in
full, Seller shall be entitled to have released from Escrow Fund A 50% of such
number of shares of Common Stock held in Escrow Fund A that, when considered
with the shares of Common Stock held in Escrow Fund B, shall not be required to
be set aside or reserved to pay unsatisfied Indemnification Items (as such term
is defined in the Escrow Agreement).
6.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------------------
warranties made by Buyer, Seller and the Shareholders shall survive the signing
and consummation of the transaction contemplated by this Agreement for a period
of three
16
<PAGE>
years, except for any such representations and warranties relating to tax
matters, which shall survive to the applicable statute of limitations. All
representations and warranties made by or on behalf of Seller and each of the
Shareholders in this Agreement shall be deemed to have been relied upon by Buyer
(notwithstanding any investigation by Buyer).
6.4. NOTICE OF CLAIMS. Buyer shall give prompt written notice to Seller
----------------
and the Shareholders of any claim against Buyer which might give rise to
a claim by Buyer against Seller or the Shareholders under the indemnification
provisions contained herein, stating the nature and basis of the claim and the
actual or estimated amount thereof, provided, however, that failure to give such
-------- -------
notice will not effect the obligation of Seller and the Shareholders to provide
indemnification in accordance with the terms of Section 6.1 unless, and only to
the extent that, Seller and the Shareholders are actually prejudiced thereby.
In the event that any action, suit or proceeding is brought against any member
of the Indemnified Buyer Group with respect to which Seller or the Shareholders
may have liability under the indemnification provisions contained herein, Seller
and the Shareholders shall, upon written acknowledgement by Seller or the
Shareholders that such action, suit or proceeding is an indemnifiable Loss
pursuant to Section 6.1, have the right, at the cost and expense of Seller and
the Shareholders, to defend such action in the name and on behalf of the
indemnified party (using counsel satisfactory to Buyer), and, in connection with
any such action, Buyer, Seller and the Shareholders agree to render to each
other such assistance as may reasonably be required in order to ensure proper
and adequate defense of such action, provided, however, that an indemnified
-------- -------
party shall have the right to retain its own counsel, with fees and expenses
paid by Seller and the Shareholders, if representation of such indemnified party
by counsel retained by Seller and the Shareholders would be inappropriate
because of actual or potential differing interests between such indemnified
party, Seller and the Shareholders. If Seller and the Shareholders shall fail
to defend such action, suit or proceeding, then Buyer shall have the right to
defend such action without prejudice to its rights to indemnification under
Section 6.1 and, in connection therewith, Buyer, Seller and the Shareholders
agree to render to each other such assistance as may reasonably be required in
order to ensure proper and adequate defense of such action. Neither Buyer nor
Seller and/or the Shareholders shall make any settlement of any claim which
might give rise to liability of Seller or the Shareholders under the
indemnification provisions contained herein without the written consent of each
party, which consent shall not be unreasonably withheld, delayed or conditioned.
6.5. TELECOMMUNICATIONS TAXES AND PENALTIES. Buyer shall permit Seller
--------------------------------------
and the Shareholders to participate, at their
17
<PAGE>
own cost and expense, in any audit or administrative or judicial proceeding
(including settlement negotiations) involving the settlement or determination
and payment of the federal, state and local telecommunications taxes and
penalties included in the Assumed Liabilities; provided, however, that any final
-------- -------
decision as to payment or settlement of such taxes and penalties shall be made
by Buyer without prejudice to Buyer's rights to indemnification under Section
6.1(a).
7. ADDITIONAL AGREEMENTS
---------------------
7.1. CONFIDENTIALITY. Seller and the Shareholders, jointly and severally,
---------------
agree to, and Seller shall cause its agents, representatives, affiliates,
officers and directors to:
(a) treat and hold as confidential all confidential information relating
to the Business, including, without limitation, any information relating to
trade secrets, customer and supplier lists, pricing and marketing plans and
details of customer contracts; and
(b) promptly furnish to Buyer any and all copies (in whatever form or
medium) of such confidential information in its possession.
7.2. NON-COMPETE. (a) Seller and William M. Wunderlich, jointly and
-----------
severally, agree that for a period of two years from the date hereof, Mr.
Wunderlich and Seller and its officers, directors and agents shall not, directly
or indirectly, (A) be or become interested in or associated with or represent or
otherwise render assistance or services to or manage, operate, control or engage
in (as an officer, director, stockholder, partner, consultant, owner, employee,
agent, creditor or otherwise) any business, person or entity that is then, or
which then proposes to become, a competitor of Buyer in the Business anywhere in
the State of Missouri and the State of Illinois and which shall derive gross
revenues from its business activities either in the State of Missouri or in the
State of Illinois equal to 12% or more or such competitor's total gross
revenues; provided, that the foregoing shall not restrict the ownership, solely
--------
as an investment, of securities of any business, person or entity if such
ownership is (i) not as a controlling person of such business, person or entity,
(ii) not as a member of a group that controls such business, person or entity
and (iii) not as a direct or indirect beneficial owner of 1% or more of any
class of securities of such business, person or entity, (B) induce or seek to
influence any employee of (or consultant to) Buyer to leave its employ (or
terminate such consultancy) or to become financially interested in a similar
business, (C) aid a competitor or supplier of Buyer in any attempt to hire a
person who shall have been employed by, or who was a consultant to, Buyer within
the one-year period preceding the date of any such
18
<PAGE>
aid, or (D) induce or attempt to influence any person who was a customer of or
supplier to Buyer during such period to transact business with a competitor of
Buyer or not to do business with Buyer. Nothing contained herein shall preclude
the Shareholders from entering into employment arrangements with Buyer.
(b) Buyer and Ray Bove agree that they shall negotiate promptly and in
good faith an appropriate non-compete agreement as part of an employment package
to be negotiated with Mr. Bove after the date hereof. If Buyer and Mr. Bove
shall fail to reach such a non-compete agreement within 60 days after the date
hereof, then Mr. Bove agrees that the provisions of Section 7.1(a) shall apply
to Mr. Bove mutatis mutandis, and shall be effective as of the date hereof.
------- --------
7.3. EMPLOYEES. Buyer shall offer employment to all of Seller's
---------
employees.
7.4. SUBCONTRACTS. Seller hereby agrees to use its best efforts to obtain
------------
any consents necessary to assign or otherwise transfer the Material Contracts to
Buyer. In the event that any consent required with respect to any such Material
Contract cannot be obtained, upon the request of Buyer, Seller hereby agrees to
subcontract all of its obligations to perform under such contract to Buyer. The
cost of performing each such subcontract shall be borne by Buyer and Seller will
deliver to Buyer all revenues earned under each such Material Contract.
7.5. RECORDS. (a) For income tax purposes, Seller shall allow Buyer
-------
access for six years from the date hereof to existing records of the Business
that are in Seller's possession and Seller shall use its best efforts to
maintain such records for six years unless specifically authorized by Buyer to
the contrary.
(b) For income tax purposes, Buyer shall allow Seller access for six
years from the date hereof to the records of the Business existing as of the
date hereof that are in Buyer's possession and Buyer shall use its best efforts
to maintain such records in the St. Louis metropolitan area for such six year
period.
7.6. REGISTRATION RIGHTS. (a) If at any time following the date hereof
-------------------
Buyer proposes to register any of shares of Common Stock under the Securities
Act (other than in connection with a merger or acquisition registered on Form S-
4 (or a similar special-purpose form) or with an employee benefit plan or
similar plan registered on Form S-8 (or a similar special purpose form) or any
dividend reinvestment plan), it will give written notice by registered mail, at
least 30 days prior to the filing of each such registration statement, to Seller
and to the Shareholders of its intention to do so. If Seller, the
19
<PAGE>
Shareholders and/or Kenny shall provide written notice (each a "Registration
------------
Notice") within 10 days after receipt of any such notice of its or their desire
- ------
to include any shares of Common Stock which were issued by ICI hereby and are
then held by any of them (the shares of Common Stock specified in such
Registration Notice or Notices being referred to as "Registrable Securities") in
----------------------
such proposed registration statement, Buyer shall afford each of Seller, the
Shareholders and/or Kenny the opportunity to have the number of Registrable
Securities specified in each such Registration Notice registered under such
registration statement. Buyer shall not be obligated to include the Registrable
Securities specified in a Registration Notice delivered to Buyer in more than
one registration statement (it being agreed that (i) Seller and Kenny may
deliver only one Registration Notice each to Buyer and (ii) the Shareholders may
not deliver any Registration Notices to Buyer unless Seller shall have been
dissolved and the shares of Common Stock owned by Seller distributed to the
Shareholders, in which case the Shareholders may deliver only one Registration
Notice each), provided, that the obligation of Buyer to register the Registrable
--------
Securities specified in the Registration Notices shall be satisfied only at such
time as a registration statement or registration statements, as the case may be,
covering the number of Registrable Securities specified in the Registration
Notices shall be declared effective by the Securities and Exchange Commission.
(b) Buyer shall pay all Registration Expenses (as defined below) incurred
in connection with the registration statement(s) filed pursuant to this Section
7.6. "Registration Expenses" shall mean all expenses incurred by Buyer in
---------------------
complying with its registration obligations including, without limitation, all
registration, qualifications and filing fees, "blue sky" fees and expenses,
printing expenses, fees and disbursements of counsel and independent public
accountants for Buyer, fees of the National Association of Securities Dealers,
Inc., transfer taxes, escrow fees, fees of transfer agents and registrars and
costs of insurance.
(c) Buyer shall indemnify and hold harmless Seller, the Shareholders and
Kenny and their respective officers, directors, employees and agents against
any losses, claims, damages or liabilities or actions in respect thereof, joint
or several, to any of them may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or actions (i)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which the
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, (ii) arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
20
<PAGE>
the statements therein not misleading or (iii) arise out of or are based upon
any violation by Buyer of any rule or regulation promulgated under the
Securities Act or the Securities Exchange Act of 1934, as amended and applicable
to Buyer, and will reimburse them for any legal or other expenses incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Buyer will not be liable in any
-------- -------
such case if and to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information furnished to Buyer by or on behalf of Seller, the
Shareholders or Kenny in writing expressly for use in such registration
statement or prospectus ("Shareholder Information") and Seller, the Shareholders
-----------------------
and Kenny shall indemnify and hold Buyer, its officers, directors, stockholders,
employees, agents, attorneys and representatives harmless from and against any
and all losses, claims, damages, liabilities or actions which any of them may
incur that are based upon the inclusion of such Shareholder Information in such
registration statement or prospectus.
(d) Notwithstanding the above, if the managing underwriter or
underwriters of an offering described in Section 7.6(a) shall advise Buyer that
the inclusion of the Registrable Securities would adversely effect the proposed
offering, the amount of Registrable Securities to be included in such offering
shall be reduced by the amount recommended by such managing underwriter or
underwriters; provided, that such reduction in amount shall be pro rata with the
--------
reduction in amount of shares of Common Stock of any other stockholder of Buyer
to be included in such offering.
7.7. CHANGE OF NAME. Seller shall, and the Shareholders shall cause
--------------
Seller to, immediately amend Seller's Certificate of Incorporation to change
Seller's corporate name to "W&B Liquidation Corp." In addition, Seller shall
immediately either terminate or where appropriate cause a change in the name to
"W&B Liquidation Corp." with respect to all certificates or other filings with
governmental or regulatory authorities (including related tariffs) relating to
Seller doing business under the names or engaging in business as "UTT" and/or
"Universal Telecom Technologies".
7.8. UNIFIED DEPOSIT. Buyer understands that it shall be able to cause
---------------
the Unified Deposit to be paid to it and acknowledges that if the Unified
Deposit is paid to Buyer on or before January 1, 1997, the full $75,000
principal amount of the Unified Note will become due and payable, but if the
Unified Deposit is paid to Buyer after January 1, 1997, only $12,970 will become
due and payable under the Unified Note. Buyer agrees,
21
<PAGE>
therefore, that Buyer will not seek to collect the Unified Deposit prior to
January 1, 1997.
7.9. LETTER OF CREDIT. As promptly as practicable after the date hereof,
----------------
Buyer shall replace the current letter of credit in favor of Sunmark, Inc. under
the office lease with Sunmark, Inc. with a new letter of credit of Buyer in
favor of Sunmark, Inc.
8. GENERAL
-------
8.1. EXPENSES. All expenses of the preparation, execution and
--------
consummation of this Agreement and of the transactions contemplated hereby
including, without limitation, attorneys', accountants' and outside advisors'
fees and disbursements, shall be borne by the party incurring such expenses,
except Seller shall not use any of the Closing Cash to pay the fees and expenses
of Kenny. The Closing Cash shall be used to pay the fees and expenses as listed
on Exhibit C.
8.2. ENTIRE AGREEMENT. This Agreement contains the entire understanding
----------------
of the parties and supersedes all prior agreements and understandings relating
to the subject matter hereof, including, without limitation, the letter of
intent dated November 18, 1996 among the parties hereto, and shall not be
amended or terminated except by a written instrument hereafter signed by all of
the parties hereto. The Schedules and Exhibits to this Agreement are to be
considered a part of this Agreement for all purposes.
8.3. ASSIGNMENT. None of the parties hereto may assign its rights or
----------
delegate its obligations under this Agreement without the written consent of the
other parties hereto, except that Seller may assign its rights hereunder to the
Shareholders upon dissolution of Seller and Buyer may assign this Agreement in
the event of a sale of all or substantially all of the assets of Buyer. This
Agreement and all of the provisions hereof shall be binding upon and inure only
to the benefit of the parties hereto and their respective heirs, executors,
personal representatives and successors.
8.4. FURTHER ACTION. Each of the parties hereto shall use all reasonable
--------------
efforts to do, or cause to be done, all things necessary, proper or
advisable under applicable law to carry out the provisions of this Agreement and
shall execute and deliver such documents and other papers as may be required to
carry out the provisions of this Agreement and, if a state public utilities
commission shall advise Buyer that transfer of Seller's certificate or other
authorization shall be required in connection with the transactions contemplated
hereby, then Seller and Buyer shall promptly take all steps necessary to effect
such a transfer (including, without limitation, filing and prosecuting
22
<PAGE>
applications for assignment or transfer of such certificates or other
authorizations as may be required by the Federal Communications Commission and
any state public utilities commission) or seek such other approval as may be
necessary to carry out these transactions; provided, that Buyer shall use
--------
reasonable efforts to permit Seller to retain its certificates and tariffs if it
is feasible to do so at no cost or expense to Buyer; provided, further, that
-------- -------
Seller shall not directly or indirectly sell or otherwise transfer any of such
certificates, tariffs or other authorizations for a period of 90 days after the
date hereof including, without limitation, by way of a sale or other transfer of
the shares of capital stock of Seller. In addition, Seller shall be entitled to
review all documents to be filed with federal and state authorities in
connection with any transfer to Buyer or to any third party prior to filing
thereof.
8.5. NOTICES. All notices, demands, requests and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given and
shall be effective upon receipt, if delivered by hand, or sent by certified or
registered United States mail, postage prepaid and return receipt requested or
by prepaid overnight express service. Notices shall be sent to the parties at
their respective addresses as set forth on the first page of this Agreement or
to such other address as shall be specified by like notice.
8.6. SPECIFIC PERFORMANCE. The parties agree that due to the unique
--------------------
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to which it may be
entitled) to an appropriate decree of specific performance, or an injunction
restraining any violation of this Agreement or other equitable remedies to
enforce this Agreement (without establishing the likelihood of irreparable
injury or posting bond or other security), and the breaching party waives in any
action or proceeding brought to enforce this Agreement the defense that there
exists an adequate remedy at law.
8.7. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL
-------------
BE GOVERNED BY THE INTERNAL LAWS (AND NOT THE PRINCIPLES OF CONFLICT OF LAWS) OF
THE STATE OF NEW YORK.
8.8. SEVERABILITY. If any one or more of the provisions contained in this
------------
Agreement or any document executed in connection herewith shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions contained herein shall
not (to the full extent permitted by law) in any way be affected or impaired.
23
<PAGE>
8.9. ATTORNEY'S FEES. In any action, proceeding or counterclaim arising
---------------
out of or in any way connected with this Agreement, the prevailing parties shall
be entitled to recover reasonable attorneys' fees and disbursements incurred in
connection therewith.
8.10. HEADINGS. All headings in this Agreement are intended solely for
--------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
8.11. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
8.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
--------------------
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
IN WITNESS WHEREOF, and intending to be legally bound thereby, Buyer
and Seller have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers and each of the Shareholders has executed
and delivered this Agreement as of the date first set forth above.
UNIVERSAL TELECOM, INC.
By: /s/ William M. Wunderlich
-----------------------------
Name: William M. Wunderlich
Title: Chairman & CEO
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
-----------------------------
Name: Robert M. Manning
Title: SVP & CFO
/s/ William M. Wunderlich
--------------------------------
William M. Wunderlich
/s/ Ray Bove
--------------------------------
Ray Bove
24
<PAGE>
Exhibit A
Allocation of Acquisition Price
-------------------------------
The sum of the Acquisition Price and the Assumed Liabilities shall be allocated
to the Acquired Assets based upon fair market value. The excess of the sum of
the Acquisition Price and the Assumed Liabilities over the fair market value of
the Acquired Assets shall be allocated to intangible assets.
<PAGE>
Exhibit B
List of Customers
-----------------
<PAGE>
Exhibit C
Use of Closing Cash
-------------------
<PAGE>
EXHIBIT 5.1
September , 1997
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Ladies and Gentlemen:
We have acted as counsel to Intermedia Communications Inc., a Delaware
corporation (the "Company"), in connection with its registration Statement on
Form S-3 (Registration No. 333-33415) (the "Registration Statement"), filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
relating to (i) the offering from time to time by certain holders (the "Selling
Securityholders") of (1) 6,900,000 depositary shares (the "Depositary Shares")
each representing a one hundredth interest in a share of 7% Series D Junior
Convertible Preferred Stock ("Series D Preferred Stock"), liquidation preference
$2,500 per share, par value $1.00 per share of the Company, (2) 69,000 shares of
Series D Preferred Stock, (3) 4,434,448 shares (the "Common Shares") of common
stock, $.01 par value per share, of the Company (the "Common Stock") issuable
upon conversion of the Series D Preferred Stock and/or the Depositary Shares and
(4) 31,380 shares of Common Stock to be offered by certain Selling Stockholders
(the "Universal Shares"), and (ii) the issuance from time to time by the Company
of shares of Common Stock in lieu of cash as dividends on the Series D Preferred
Stock (the "Dividend Shares"). The Depositary Shares were originally issued by
the Company in a private placement on July 9, 1997, and were subsequently resold
by the initial purchasers thereof in private sales pursuant to exemptions from
registration under the Securities Act of 1933, as amended.
We have reviewed the Registration Statement, all amendments thereto, and
such other documents and instruments as we have deemed appropriate. In such
review, we have assumed the genuineness of all signatures, the authenticity of
all documents submitted as originals and the conformity to the original
documents of all documents submitted to us as copies.
On the basis of such review, and having regard to such legal
consideration as we have deemed relevant, it is our opinion that:
<PAGE>
Intermedia Communications Inc.
September , 1997
Page 2
1. The Depositary Shares and Universal Shares to be offered by the
Selling Securityholders, and duly authorized and duly and validly issued, fully
paid and nonassessable.
2. Upon conversion of (a) the Depositary Shares into shares of Series D
Preferred Stock and/or Common Shares and (b) shares of Series D Preferred Stock
into Common Shares, the shares of Series D Preferred Stock and the Common Shares
to be offered by the Selling Securityholders, shall be duly authorized and duly
and validly issued, fully paid and nonassessable.
3. Upon the issuance of the Dividend Shares in accordance with the
Certificate of Designation governing the Series D Preferred Stock, the Dividend
Shares will be duly authorized and duly and validly issued, fully paid and
nonassessable.
4. The statements under the caption "Certain Federal Income Tax
Considerations" in the preliminary prospectus relating to the Depositary Shares
included in the Registration Statement, insofar as such statements constitute
summaries of federal income tax law, fairly summarize the matters referred to
therein.
We are members of the Bar of the State of New York and do not purport to
be experts or give any opinion except as to matters involving the laws of such
State, the general corporation laws of the State of Delaware and the federal
laws of the United States.
We hereby consent to the use of our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement and to the use
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Kronish, Lieb, Weiner & Hellman LLP
<PAGE>
Exhibit 23.4
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to Registration Statement (Form S-3, No. 33-33415) and related
prospectus of Intermedia Communications Inc. for the registration of 6,900,000
Depositary Shares (each representing a one-hundredth interest in a share of 7%
Series D Junior Convertible Preferred Stock), 69,000 shares of 7% Series D
Junior Convertible Preferred Stock, 4,465,828 shares of Common Stock, and Common
Stock issuable as dividends on the 7% Series D Junior Convertible Preferred
Stock, and to the incorporation by reference therein of our report dated
February 10, 1997, except for Note 13, as to which the date is March 7, 1997,
with respect to the consolidated financial statements and schedule of Intermedia
Communications Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Tampa, Florida
September 10, 1997
<PAGE>
Exhibit 23.5
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 1 to Registration Statement (Form S-3, No. 33-33415) and related
prospectus of Intermedia Communications Inc. for the registration of 6,900,000
Depositary Shares (each representing a one-hundredth interest in a share of 7%
Series D Junior Convertible Preferred Stock), 69,000 shares of 7% Series D
Junior Convertible Preferred Stock, 4,465,828 shares of Common Stock, and Common
Stock issuable as dividends on the 7% Series D Junior Convertible Preferred
Stock, and to the incorporation by reference therein of our report dated
February 24, 1997, with respect to the financial statements of DIGEX,
Incorporated included in its Annual Report (Form 10-KSB) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Baltimore, Maryland
September 10, 1997
