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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Year Ended Commission File Number:
DECEMBER 31, 1996 0-20135
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INTERMEDIA COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-291-3586
(STATE OR OTHER JURISDICTION OF (EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
3625 QUEEN PALM DRIVE
TAMPA, FLORIDA 33619
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 829-0011
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par
value $.01 per share. Rights
to purchase units of Series C
Preferred Stock.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment in this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates/1/ of the
registrant on March 6, 1997: $178,469,223.
As of March 6, 1997, there were 16,307,577 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
DOCUMENT PART OF 10-K INTO WHICH INCORPORATED
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<S> <C>
Proxy Statement relating to registrant's Part III
Annual Meeting of Stockholders to be held on
May 22, 1997
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/1/As used herein, "voting stock held by non-affiliates" means shares of
Common Stock held by persons other than executive officers, directors and
persons holding in excess of 5% of the registrant's Common Stock. The
determination of market value of the Common Stock is based on the last
reported sale price as reported by the Nasdaq National Market on the date
indicated. The determination of the "affiliate" status for purposes of this
report on Form 10-K shall not be deemed a determination as to whether an
individual is an "affiliate" of the registrant for any other purposes.
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INTERMEDIA COMMUNICATIONS INC.
INDEX
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PAGE
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PART I
Item 1 Description of Business....................................... 3
Item 2 Description of Properties..................................... 26
Item 3 Legal Proceedings............................................. 27
Item 4 Submission of Matters to a Vote of Security Holders........... 27
PART II
Market Price for Registrant's Common Equity and Related
Item 5 Stockholder Matters........................................... 27
Item 6 Selected Financial and Other Operating Data................... 28
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 31
Item 8 Financial Statements and Supplementary Data................... 37
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 38
PART III
Item 10 Directors and Executive Officers of the Registrant............ 38
Item 11 Executive Compensation........................................ 38
Security Ownership of Certain Beneficial Owners and
Item 12 Management.................................................... 38
Item 13 Certain Relationships and Related Transactions................ 38
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14 K............................................................. 38
Glossary...................................................... 42
</TABLE>
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References in this report to the "Company" or "ICI" means Intermedia
Communications Inc. together with its subsidiaries, except where the context
otherwise requires. Certain terms used herein are defined in the Glossary
which begins on page 35. This report contains certain "forward-looking
statements" concerning the Company's operations, economic performance and
financial condition, which are subject to inherent uncertainties and risks.
Actual results could differ materially from those anticipated in this report.
When used in this report, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe" and similar expressions are intended to identify
forward-looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
ICI is a rapidly growing integrated communications services provider
("ICP"), offering a full suite of local, long distance and enhanced data
telecommunications services to business and government end user customers,
long distance carriers, Internet Service Providers ("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 competitive local exchange carriers
("CLECs") after MFS Communications Company, Inc. and Teleport Communications
Group Inc. The Company has sales offices in 23 cities throughout the eastern
half of the United States and offers a full product package of
telecommunications services in 15 metropolitan statistical areas. In April
1996, ICI became one of the first ICPs in the United States to provide
integrated switched local and long distance service and now has five
local/long distance voice switches in service. 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 2,200 cities nationwide, utilizing
89 Company-owned data switches. ICI also serves as a facilities-based
interexchange carrier to approximately 12,000 customers nationwide. ICI
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. The
total United States annual market for the Company's local, long distance and
enhanced data services is estimated to be approximately $165 billion, of which
approximately $25 billion is estimated to be addressable by the Company.
The Company's annualized revenue based on the fourth quarter of 1996 (giving
pro forma effect to two recent acquisitions) was $173.7 million. The Company's
revenues have grown from $14.3 million in 1994 to $103.4 million in 1996,
representing a compound annual growth rate of 169%. During the same period,
the Company has increased its sales force from approximately 45 to
approximately 175, increased the number of sales offices from four to 21 and
grown its customer base from 8,148 to 14,133. In 1996, the Company achieved a
significant milestone by introducing local exchange services in its product
portfolio and positioned itself as a provider of integrated telecommunications
services to its customers by (i) obtaining CLEC certification in 13 states and
the District of Columbia (with 22 applications pending), (ii) completing
interconnection co-carrier agreements with six incumbent local exchange
carriers ("ILECs"), (iii) deploying four local/long distance voice switches
and (iv) deploying 37 data switches bringing its total data switches to 89.
Management believes that a well trained team of direct sales and engineering
support professionals, offering customers a full suite of telecommunications
services, is critical to achieving its goal of capturing meaningful market
share in the newly competitive local telecommunications market. By initiating
local switched services in markets where its sales and engineering support
team is already in place, ICI reached a significant milestone toward attaining
this goal. Management believes that being one of the few ICPs offering
integrated local, long distance and enhanced data services to its customers
provides the Company with a competitive advantage in pursuing the estimated
$99 billion national market for local exchange services. The Company's
strategy is to systematically secure a growing portion of a customer's
telecommunications business and through the provision of additional integrated
services, increase the customer's reliance on, and sense of partnership with,
the Company.
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The Company believes that a significant portion of business and government
customers prefer a single source telecommunications provider that delivers a
full range of efficient and cost effective solutions to their
telecommunications needs. These customers require maximum reliability, high
quality, broad geographic coverage, end-to-end service, solutions-oriented
customer service and the timely introduction of new and innovative services.
The Company is well positioned to satisfy such customer requirements due to
(i) its specialized sales and service approach employing engineering and sales
professionals who design and implement cost-effective telecommunications
solutions, (ii) the ongoing development and integration of new
telecommunications services, (iii) its local/long distance voice switch and
transmission network deployment program, (iv) the implementation of 89
enhanced data switches and over 200 network to network interfaces ("NNIs") for
frame relay data transmission throughout the continental United States and (v)
its interconnection co-carrier agreements with six ILECs.
The Company is certified as a CLEC in 13 states and the District of
Columbia, allowing the Company to provide local exchange services in those
markets, and has CLEC certification applications pending in 22 states. In
addition, ICI is certified as a long distance carrier in 41 states and the
District of Columbia. The Company has nine digital, fiber optic networks in
service and one under development. As of December 31, 1996, this
infrastructure was comprised of 24,122 fiber miles and 655 route miles and was
connected to 487 buildings. As of December 31, 1996, ICI had invested $241.5
million (or 67% of its total invested capital) in gross plant, property and
equipment, principally telecommunications equipment. ICI expects to continue
to grow its networks and has identified expansion opportunities in other
selected markets. Management believes that this expansion will enable the
Company to (i) increase the size of its addressable market and reach a
significant number of new potential customers, (ii) achieve economies of scale
in network operations and sales and marketing and (iii) more effectively
service customers that have a presence in multiple metropolitan areas. The
Company has also undertaken a major expansion of its intercity network,
principally to satisfy the growing demand for interexchange services,
including enhanced data services such as frame relay networking services. As a
result, frame relay nodes have grown from approximately 2,300 nodes, serving
customer locations in 600 cities as of December 31, 1995, to approximately
9,500 nodes, serving customer locations in 2,200 cities as of December 31,
1996.
Enhanced data services, such as those provided on the Company's frame relay
network, are specialized services for customers that need to transport large
amounts of data among multiple locations. According to industry sources, the
frame relay services market is projected to grow from $753 million in 1995 to
$2.7 billion in 1999; however, there can be no assurance that such market
growth will be realized or that the assumptions underlying such projections
are reliable. While the Company has concentrated its frame relay sales in the
eastern half of the United States, ICI is currently the fifth largest national
provider of frame relay networking services (based on number of nodes) after
AT&T, Inc. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint
Corporation ("Sprint") and WorldCom, Inc. ("WorldCom"). In order to satisfy
its customers' desire for end-to-end frame relay services from a single
provider, the Company has deployed its network and made arrangements with
other frame relay service providers to offer national and international
service.
ICI founded the UniSPAN(C) consortium in 1994 with three other carriers to
enable the Company to provide end-to-end frame relay services throughout the
United States and Canada. Because of the high volume of telecommunications
traffic between ICI's target markets and certain Latin American markets, the
Company has entered into international frame relay operating agreements with
ImpSat of Columbia S.A., TresCom International, Telecom Holdings Panama and
Americatel Corporation for the provision of frame relay services to and from
Columbia, Puerto Rico, Panama, Chile & Costa Rica. ICI plans to pursue similar
arrangements to enter other Latin American markets. The Company has pioneered
the interconnection of its frame relay network with those of the ILECs,
allowing pervasive, cost-efficient termination for its customers. Over 200
such NNIs have been implemented with BellSouth Telecommunications Inc.
("BellSouth"), Sprint, GTE Corporation ("GTE"), NYNEX, Bell Atlantic Inc.
("Bell Atlantic") and Southern New England Telecommunications Corp ("SNET").
4
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The Company believes that it can effectively utilize its competitive
advantages as a provider of enhanced data services to communications intensive
customers in order to acquire and retain these customers as local exchange and
long distance customers throughout its markets. As ICI continues the
deployment of local/long distance voice switches, it will make more efficient
use of its intercity network. Combining long distance voice traffic between
such switches with the intercity data traffic increases the overall amount of
voice and data traffic that remains completely on the Company's network. The
Company is developing additional applications and deploying technologies that
will provide even greater efficiencies in the use of its intercity network.
The Company has developed and intends to introduce a voice product over its
enhanced data network which will provide a competitive service offering to
customers seeking a lower cost alternative to voice services currently
provided over traditional circuit switched telecommunications networks. The
Company believes that packet switched data networks, such as the Company's,
will displace a significant portion of the estimated $130 billion
telecommunications market which is currently provided over traditional circuit
switched networks. The Company believes this proposed new service offering
will accelerate its penetration of the traditional voice services market.
The Company has developed operating strategies, important components of
which are described below, to increase market share and operating margins.
CUSTOMER STRATEGY
Provide Single-Source Telecommunications Services. The Company's service
portfolio includes: local exchange, enhanced data (i.e., frame relay and ATM,
Internet and Intranet), interexchange long distance, integration and private
line services. Management believes that its ability to deliver all of these
services provides significant advantages for both the customer and for the
Company. Not only does this capability address customers' complex requirements
associated with integration of diverse networks and technologies at various
locations, but it also reduces customers' administrative burdens associated
with service charges, billing, network monitoring, implementation,
coordination and maintenance. ICI also believes that by offering expanded,
single-source services through existing networks and customer connections, it
can leverage the significant capacity inherent in its digital networks.
Focus on Business and Government Customers. The Company's portfolio of
service offerings, customer service approach, highly reliable networks, broad
geographic coverage and integration capabilities are well-suited to serve the
demands of telecommunications-intensive business and government customers. The
Company's existing business customer base represents a broad range of
industries, including firms in the retail, financial services, Internet,
healthcare, merchandising, manufacturing and other industry segments. ICI has
a dedicated sales and engineering support group focused exclusively on
providing service to government agencies. The Company has long-term contracts
with the States of Florida and New York pursuant to which the Company provides
various telecommunications services, including frame relay and other data
services (as well as certain voice services under the New York contract).
Develop Interexchange Carrier and Value-Added Reseller Relationships. As a
result of recent changes in state and federal regulation which have provided
ILECs with mandates that foster local exchange competition, ICI has
accelerated its entry into the local exchange services market. As
interexchange carriers ("IXCs") enter the local exchange business, the Company
believes that they will seek to gain access to the local exchange services
market by either developing local network capacity or by purchasing such
capacity from alternative service providers. The Company believes that these
developments are likely to make ICI a candidate for joint ventures and
preferred vendor arrangements with IXCs, ILECs and other telecommunications
related companies. Such arrangements would benefit the Company by enabling ICI
to more rapidly recover its capital investment in switches and other network
infrastructure by increasing the traffic through its networks. These IXC
relationships typically began with the Company providing special access
services on behalf of these IXCs and have recently evolved to include local
access transport and local exchange services. These arrangements should enable
ICI to achieve greater market share and reach new market segments more rapidly
than it could otherwise. The Company
5
<PAGE>
has also begun soliciting these IXCs, out of region ILECs, cable companies and
other value added resellers to resell the Company's local exchange and other
services. ICI has recently established a preferred vendor relationship with
Cable & Wireless, Inc., which includes the resale of ICI's local exchange
service by Cable & Wireless, Inc.
Maintain and Develop Long-Term Relationships. By providing customized
telecommunications solutions to its customers, the Company develops a sense of
partnership with its customers. This, together with the provision of an
integrated package of services (local, long distance and enhanced data
services) fosters the development of long-term customer relationships. As an
example, the group of ICI's top 42 customers as of December 31, 1994
(representing approximately 68% of ICI's billings for the month of December
1994) had increased their aggregate billings in excess of 100% for the month
of December 31, 1996. At December 31, 1996, 37 of these 42 customers were
still customers of ICI and, in the aggregate, represented approximately 17% of
ICI's monthly billings for December 1996.
Provide Cost-Effective Service Offerings. The Company believes that the
introduction of its services at competitive market rates has stimulated demand
from small to medium-sized customers, thereby broadening the market for ICI's
services. Each of the Company's individually packaged services is
competitively priced, and when integrated into a comprehensive
telecommunications package, typically provides significant savings to such
customers over a combination of ILEC and IXC service offerings.
Expand Solutions-Oriented Sales Effort. The Company has rapidly expanded,
and intends to continue to expand, its direct sales and support team
consisting of engineering and sales professionals. The sales and support teams
have complete product knowledge and technical, integration and program or
project management skills. This team approach promotes a close working
relationship between the Company and the customers' telecommunications,
information services and user constituencies. The Company believes such
relationships improve its ability to sell more of its services and maintain
longer relationships with its customers. During 1996, ICI increased the number
of its sales offices by nine and substantially increased its engineering
support personnel and sales representatives. The Company believes that the
continued deployment of its skilled end user engineering support and sales
team will allow ICI to establish service in new markets and maintain a
competitive position in existing markets. By focusing first on establishing
customer relationships in both new and existing markets, the Company believes
it can efficiently deploy capital in response to actual customer demand.
NETWORK STRATEGY
Control Franchise Points of the Networks. Connections to customers and
building entries represent an important component of ICI's network strategy.
These connections provide the Company with the platform to sell a variety of
services to existing and additional potential customers within a building,
analogous to those provided by traditional shared tenant services providers.
ICI believes that the deployment of switching technology and advanced network
electronics enables the Company to better configure its networks to provide
cost-effective and customized solutions to its customers.
Extend Coverage to Provide End-to-End Service. The Company believes that an
important aspect of satisfying its customers is its ability to provide and
support services from end to end. This requires network interconnection with
other carriers and operational support systems and tools to "manage" the
customer's total service. The Company has entered into interconnection co-
carrier agreements with BellSouth, Sprint, GTE, NYNEX, SBC Communications,
Inc. ("SBC") and Bell Atlantic. This will allow the Company to access a large
number of business and government telephones in its service territory. The
Company anticipates entering into similar arrangements with ILECs in other
markets. The Company has also interconnected its frame relay network to
various ILECs, thereby substantially expanding the reach of its networks. ICI
now provides originating and terminating transport services in 45 states and
maintains points of presence ("POPs") for interexchange and enhanced data
services in most major cities in the United States. The Company has deployed,
and continues to integrate, network monitoring and control tools to insure
high levels of service quality and reliability.
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Utilize ILEC Resale and Unbundled Network Elements. Recent regulatory
changes have enabled the Company to resell ILEC services and to utilize
unbundled ILEC network elements at discounted rates. The Company intends to
use resold services and unbundled network elements to provide rapid market
entry and develop its customer base in advance of capital deployment. Once
thresholds of customer density have been achieved, the Company intends to
systematically replace these resold and unbundled elements with its own
facilities, where economical.
Deploy Capital Cost Effectively on a Demand Driven Basis. In addition to the
use of ILEC resale and unbundling, the Company has the ability to lease
network capacity from other carriers at competitive rates. This has led the
Company to lease network capacity in various areas prior to, or as an economic
alternative to, building additional capacity. As a result of its most favored
nation pricing from Advanced Radio Telecom Corp. ("ART") in the Northeast, the
Company from time to time leases 38 GHz wireless services as one such economic
alternative. Utilizing leased facilities enables the Company to (i) meet
customers' needs more rapidly, (ii) improve the utilization of ICI's existing
networks, (iii) add revenue producing customers before building networks,
thereby reducing the risks associated with speculative network construction
and (iv) subsequently focus its capital expenditures in geographic areas where
network construction or acquisition will provide a competitive advantage. The
Company focuses its capital deployment on the segments of its networks that
the Company believes will provide it with the highest revenue and cash flow
potential and the greatest long-term competitive advantage. For the 12 months
ended September 30, 1996, the Company recorded $.54 in revenue for each
average dollar of plant, property and equipment invested.
GROWTH STRATEGY
Accelerate Internal Growth. By focusing on business and government customers
and maintaining high-quality and cost-effective services, the Company has
generated a compound annual internal revenue growth rate of 63% for the two
year period ended December 31, 1996. The Company believes that its customer
and network strategies will continue to enable ICI to expand its services and
markets, increase its revenue base and effectively compete in a dynamic
marketplace. In order to achieve such growth, it is essential to continue to
add to the Company's highly skilled, broadly deployed end user sales and
engineering support team.
Accelerate Provision of Local Exchange Services. The Telecommunications Act
of 1996 (the "1996 Act") significantly improved the opportunity for
competition in the local exchange market by mandating that ILECs enter into
arrangements with competitors such as the Company for central office
collocation and unbundling of local services. The Company believes that
implementation of such pro-competitive policies creates favorable
opportunities to more aggressively pursue the provision of local exchange
services. The Company has a total of five local/long distance voice switches
in operation and is currently marketing, to existing and new customers, local
dial tone, switched access termination and origination services, centrex and
desktop products bundled with the Company's other service offerings. The
Company expects to offer such services in all of its fiber optic-based markets
by mid 1997, with the exception of Huntsville, Alabama.
Selectively Acquire Existing Networks and Services. Over the past few years,
a portion of the Company's growth has been accomplished through acquisitions
and joint ventures or selling relationships. The Company continues to examine
various acquisition and joint venture proposals to accelerate its rate of
growth. In addition to the usual financial considerations, ICI assesses each
opportunity to determine if either: (i) current network traffic into and out
of the geographic areas served by the potential joint venture or acquisition
candidate warrants developing a presence in those geographic areas or (ii)
such candidate offers services consistent with the Company's strategy. While
management does not believe that acquisitions are necessary to achieve the
Company's strategic goals, strategic alliances with or acquisitions of
appropriate companies may accelerate achievement of certain goals by creating
operating synergies and providing for a more rapid expansion of the Company's
networks and services. The Company is currently evaluating various acquisition
opportunities. No assurance can be given that any potential acquisition will
be consummated.
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1996 ACQUISITIONS
During 1996, the Company completed three corporate acquisitions. In June
1996, the Company acquired the telecommunications division of EMI
Communications Corp. ("EMI"), a company serving customers primarily in the
Northeast with aggregate telecommunications revenues of approximately $53.7
million for the year ended December 31, 1996, of which $27.8 million was
included in the Company's revenue for 1996. ICI purchased EMI's
telecommunications division in exchange for 937,500 newly issued shares of
ICI's common stock, par value $.01 per share (the "Common Stock"), issued to
Newhouse Broadcasting Corporation, the parent corporation of EMI ("Newhouse").
The number of shares of Common Stock payable to Newhouse was based upon a
purchase price of $15,000,000 divided by the average trading price per share
of the Common Stock during the twenty-one day period ending on February 14,
1996 (which was equal to $16.00). As of June 28, 1996, the closing date of the
acquisition, the EMI Shares were valued at approximately $16.9 million. With
this acquisition, the Company substantially expanded its frame relay presence
into the Northeast and acquired both additional customers (including a major
contract with the State of New York) and a number of highly skilled personnel.
In December 1996, the Company acquired Universal Telecom Inc. ("UTT"), a
provider of interexchange services to approximately 1,000 business customers
in the St. Louis area with annualized monthly telecommunications revenues of
approximately $5.4 million. The purchase price was $2.9 million, including
assumed liabilities and shares of Common Stock. The UTT acquisition was
strategically significant because of the near completion of construction of
ICI's St. Louis metropolitan area fiber optic network.
In December 1996, the Company also acquired the network transport business
of NetSolve Incorporated ("NetSolve") for approximately $12.8 million in cash.
With this acquisition the Company gained 600 multi-site business customers and
network facilities (transport and switching) which extended the Company's
intercity network into Texas and provided facilities into incremental markets
in the eastern half of the United States. NetSolve's network transport
business generated approximately $16.0 million of annualized monthly
telecommunications revenues for December 1996.
ICI 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.
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SERVICES PROVIDED AND MARKETS
Local Exchange Services. Telephone services that connect a customer's
telephone or PBX to the public network. These local services also provide the
customer with access to long distance services, operator and directory
assistance services, 911 service, and enhanced local features, which are
described by example below.
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SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
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PBX Trunk Connects a customer PBX to the 24 trunks for both incoming and
public network, shared by outgoing calls -- allow a call to
multiple users connected to the be directed to a specific user
PBX, for making or receiving connected to the PBX (known as
local (and long distance) calls. direct inward dial, or DID
service).
Business Access Line Connects a business customer's A small sales office utilizes 5
telephone to the public network, business lines, each with a
for making and completing local unique telephone number,
(and long distance) calls. connected to five telephones in
the office.
ISDN A specialized digital switching A small office utilizes a single
technology that allows voice and ISDN line to simultaneously
data to share a digital channel. transport data at 64 kbps and
talk to another location with a
similar service.
Voice Mail A service offered by ICI's A business customer uses ICI's
switch, providing full, voicemail service to avoid the
personalized answering service cost and upkeep on an answering
for a business customer. machine in their office.
</TABLE>
Enhanced Data Services. Switching and transport of digitized data (or voice)
over a seamless network, designed to provide highly reliable, flexible service
and support of many data transmission protocols. ICI's enhanced data services
are provided over its network of frame relay and ATM data switches, located
throughout its service territory. Examples of these services are listed below:
<TABLE>
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SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
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Frame Relay Network Connection of data communications A firm has several data networks
devices at numerous locations (one for point of sale, one for
over ICI's enhanced data network. finance and accounting, one for
LAN to LAN connection) that all
consist of a large "host" site
and numerous remote sites,
currently connected by a large
number of dedicated private
lines. It is converted to ICI's
frame relay network, with a
single connection to each
location, and the multiple
networks operating over this
single connection.
A small, multi-location firm has
LANs at each location, but has
not been able to provide company-
wide email and file access,
without using dial up
connections. The establishment of
a frame relay network allows an
affordable means to interconnect
all offices, for full time access
to company-wide email and shared
files.
</TABLE>
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Internet and Intranet Services. ICI offers access to the Internet and
provides additional services that utilize the Internet via its frame relay
network. Examples of these services are listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
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Dedicated Internet Connection to the Internet via An existing ICI frame relay
Access ICI's frame relay network. customer utilizes an existing
physical connection to access
other computers on the Internet,
using a "web browser."
Hosted Internet Service ICI provides a World Wide Web A business wishes to have a world
presence for a customer, wide web presence, but lacks the
establishing and maintaining expertise, computing platform,
the customer's web page on and technical resources to
ICI's platform. design, implement, and maintain
their web presence. ICI provides
the turnkey service.
Intranet Service Private equivalent of the ICI provides a large corporation
Internet. with "private" equivalents of the
Internet, allowing secure, closed
user access to the company's
private web sites, file transfer
capabilities, etc.
</TABLE>
Long Distance Services. The origination and termination of telephone calls
between users in different cities or exchanges. The Company provides these
services on a usage basis, utilizing its local/long distance switches its
intercity network and services provided by other carriers. Examples are listed
below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
Outbound Long Distance Completion of long distance An ICI customer of local exchange
calls originated by ICI services makes a "1+" call,
customers. domestic or international, which
is processed and delivered to its
destination by the ICI network as
part of an integrated local/long
distance service package.
Inbound Long Distance "800" or "888" number service. An ICI customer receives "toll
free" calls, handled over ICI-
provided dedicated lines to the
customer, or over the customer's
ICI local exchange service lines.
Calling Card Nationwide long distance An ICI customer dials a
calling without cash. nationwide 800 number, and
completes a long distance call
using the ICI calling card;
billing is aggregated with the
customer's other services.
</TABLE>
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Private Line Services. Dedicated channels connecting discreet end points.
These non-switched services can be provided to two locations within the same
city, or between locations in different cities (interexchange private lines).
Examples are listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
Special Access An intra-city private line that An IXC customer of ICI orders a
connects a customer to an IXC special access circuit to one of
for the purpose of delivering its customers in an ICI city.
long distance calls to the
IXC--does not carry local
traffic.
Interexchange Private An inter-city private line, for An ICI customer needs a 1.544
Line voice or data, of a fixed Mbps connection between two
bandwidth, connecting to two computers in Miami and Boston.
locations of the same customer. The full 1.544 Mbps is used
constantly.
IXC End Office Transport Connecting an IXC to the End An IXC customer of ICI needs
Office of an ILEC or CLEC. circuits to the end office of a
LEC, to allow the IXC's customers
to obtain "1+" long distance
dialing from that IXC.
</TABLE>
Integration Services. Provision and custom configuration of network devices,
normally located at the customer's location, which may include any special
engineering, installation, or service function provided by ICI. Examples are
listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
- ------------------ ----------- -------------------
<S> <C> <C>
CPE Integration Provision, configuration, ICI designs a router-based data
installation, and monitoring of network for a customer, procures,
specialized telecom equipment. configures, installs and
maintains both hardware and
software for the customer,
packaged into a single service
invoice.
Campus LAN Construction of a private fiber ICI designs, constructs and
network. optionally monitors a private
fiber "loop" built on a campus of
buildings.
Design Service Provision of engineering ICI provides hardware and
services in support of a software engineering services to
customer application. support a customer's Internet
"web" site.
</TABLE>
11
<PAGE>
The following table sets forth the Company's estimates, based upon an
analysis of industry sources including industry projections, and FCC data, of
the market size nationally of the services described above. Only a limited
amount of direct information is currently available and therefore a
significant portion of the information set forth below is based upon estimates
and assumptions made by the Company. The Company believes that its estimates
are based upon reliable information and that its assumptions are reasonable.
There can be no assurance, however, that the estimates will not vary from the
actual market data and that these variances will not be substantial.
<TABLE>
<CAPTION>
UNITED STATES COMPETITIVE
TELECOMMUNICATIONS MARKET
OPPORTUNITY
1996 COMPANY ESTIMATES
(DOLLARS IN MILLIONS)
-------------------------
<S> <C>
Local Network Services
Special Access and Private Line Services............ $ 7,800
Switched Access Services............................ 19,700
Local Exchange Services(1).......................... 47,200
Other(2)............................................ 23,800
--------
Total Local Network Services...................... 98,500
--------
Enhanced Data Services................................ 1,300
Interexchange Services................................ 65,200
--------
Total Additional Services......................... 66,500
--------
Total Market Size............................... $165,000
========
</TABLE>
- --------
(1) The Company is currently permitted to offer these services in Florida,
Alabama, Washington, D.C., Georgia, Illinois, Iowa, Kentucky, Maryland,
Mississippi, New York, North Carolina, South Carolina, Tennessee and
Massachusetts and has applied for certification to offer these services in
22 additional states.
(2) Other includes revenue from pay phones, billing services and intraLATA
calling services.
The market sizes set forth in the above table are not intended to provide an
indication of the Company's total addressable market or the revenue potential
for the Company's services. ICI has obtained all certifications necessary to
permit the Company to provide local exchange service in 13 states and the
District of Columbia and is in the process of obtaining the necessary
certifications in 22 other states where the Company operates or plans to
operate. In addition, the Company's ability to offer services in its territory
is limited by the size and coverage of the Company's networks and competitive
factors. The Company derives its addressable market estimates by multiplying
the total national market size estimated above by the percentage of the
population (as derived from U.S. Census Bureau information) residing in the
Company's market areas. This estimate assumes that per capita
telecommunications services usage is the same in various regions of the United
States. The Company estimates that its 1997 addressable market, computed under
this methodology, is approximately $34 billion.
ICI's services generally fall into three categories: (i) local network
services, which include local exchange services, special and switched access
services and local private line services, (ii) enhanced data services, which
include frame relay based data transport, ATM and Internet and Intranet
services and (iii) interexchange (long distance) services.
The Company's local network services consist of local private line services,
which the Company has been offering since 1987, and local exchange service,
which the Company began offering in 1996. The Company provides customers local
private line services either by building network facilities or leasing
extended network facilities to the customer's premises. In the markets where
the Company has digital, fiber optic networks, the addition of local exchange
services allows the Company to increase its revenue generating product mix
without
12
<PAGE>
having to acquire additional transport facilities and allows a more integrated
service to be offered to the customer. The initial circuit used to reach the
customer establishes a platform that can be utilized to offer additional
services. Due to the significant bandwidth inherent in fiber optic cable, a
single connection can support a large number of service types and a large
number of customers.
The Company has built its base of local network service customers by
offering highly reliable, high quality services that compete primarily with
the ILECs. In 1996, local network services accounted for approximately 13% (or
approximately $13.5 million) of the Company's total revenues. The Company
believes that the market for these services will grow through the introduction
of local exchange services, expansion of networks within existing markets,
addition of new markets, and increased penetration of existing customers
through provision of new incremental services.
Enhanced data services consist of interexchange data networks utilizing
frame relay technology and application services, such as Internet, which
utilize the frame relay network. Enhanced data services enable customers to
economically and securely transmit large volumes of data typically sent in
large bursts from one site to another. Previously, customers had to utilize
low speed dedicated private lines or dial up circuits for interconnecting
remote LANs and other customer locations. These methods had numerous
disadvantages including (i) low transmission speeds, (ii) systems that
required the utilization of complementary protocols and line speeds which
significantly increased the cost of implementing networks, (iii) limited
security, placing customers' entire networks at risk to tampering from outside
sources and (iv) high costs due to the necessity to pay for a full time
dedicated line despite infrequent use. Enhanced data services are utilized for
LAN interconnection, remote site, point of sale and branch office
communications solutions.
The typical ICI customer for enhanced data services has multiple business
locations and requires communication for one or more data applications among
these locations. The customer may also have a number of locations served by
ICI's fiber optic networks; however, provision of enhanced data services is
not dependent on the provision of local network services at any specific
location. All of the customers' locations, whether domestic or international,
are monitored by the Company and can be served through the Company's own
operations or through the use of partner networks (e.g., UniSPAN(C)).
As a consequence of a significantly increased volume of traffic and number
of Internet customers connected to ICI's network, many of these customers
connect to other users or Internet hosts without ever leaving ICI's network.
Over 100 ISPs utilize ICI's network for access to their customers and other
Internet sites.
In 1996, the Company's enhanced data services accounted for approximately
31% of the Company's total revenue. The market for enhanced data services,
according to industry sources, is expected to grow from $1.3 billion in 1996
to $2.7 billion in 1999. There can be no assurance, however, that such market
growth will be realized or that the assumptions underlying such projections
are reliable.
Long distance services have been offered by the Company since December 1994.
Long distance services include inbound (800) service, outbound service and
calling card telephone service. The Company currently provides interLATA long
distance services in 41 states, interstate long distance services nationwide
and international termination worldwide.
The Company's integration services are applicable to all three categories of
service described above and are made available to end user and carrier
customers. A team of sales professionals and engineers develop specialized
solutions for a customer's specific telecommunications needs. Some of these
integration services include the sale, configuration and installation of third
party equipment to handle certain telecommunications and monitoring functions
and the development of private networks. The Company believes that such
services increase the level of linkage between the Company's and the
customer's operations thereby increasing the customer's reliance on the
Company.
13
<PAGE>
The Company plans to continue to expand its domestic geographic reach by
acquiring and integrating high quality, value added companies. In addition,
the Company, through the pursuit of strategic alliances, plans to expand its
ability to originate and terminate voice and data traffic in certain Latin
American markets beyond those recently established in Panama, Columbia, Puerto
Rico, Chile and Costa Rica. ICI believes these markets are important to its
business because, not only is there a significant community of interest
between many of these countries and certain key cities in ICI's service
territory as a result of the large Spanish speaking populations in these
cities, but there are also a number of businesses that have operations in both
Latin America and in the Company's southeastern markets.
SALES, MARKETING AND SERVICE DELIVERY
ICI's marketing activities are primarily directed to business and government
customers with a presence in the Company's service territory. The Company's
customers include large corporations, financial services companies, government
departments and agencies, and academic, scientific and other major
institutions as well as small and medium sized businesses and IXCs.
The Company's sales and marketing approach is to build long-term business
relationships with its customers, with the intent of becoming the single
source provider of all of their telecommunications services. In an effort to
leverage its recent success in obtaining government contracts, the Company has
created a sales group whose focus is the marketing of ICI's telecommunications
services to government departments and agencies. The Company has also
established a sales group that focuses exclusively on obtaining building entry
agreements with owners of multiple office building complexes. The ICI sales
force includes specialized professionals who focus on sales to retail,
wholesale and alternate channel (agents and value added resellers) consumers
of the Company's telecommunications services. The Company's sales staff works
to gain a better understanding of the customer's operations in order to
develop innovative, application-specific solutions to each customer's needs.
Sales personnel locate potential business customers by several methods,
including customer referral, market research, cold calling and other
networking alliances, including customer demand information from certain IXCs.
Enhanced data services, like all other ICI services, are sold through the
Company's existing sales force, supported by sales engineers, and often in
cooperation with agents and value added resellers (independent providers of
communications hardware to customers) and other business associates. This
approach enables the Company to (i) emphasize the applications solutions
aspects of enhanced data services and (ii) utilize the expertise and resources
of other vendors. The Company intends to continue expanding its sales and
engineering support staff and other technical specialists in order to meet the
growing demand for enhanced data services. Since these services are also sold
to extended network customers of the Company, this sales effort offers the
Company a means of expanding its network. See "--Network."
New customer relationships are typically established by providing services
from one of the three major categories (local, enhanced and long distance),
then following up with additional services from the other two categories. For
instance, during 1996, the Company established approximately 2,800 new
customer relationships through the sale of long distance services.
The Company's service delivery staff is primarily responsible for
coordinating service and installation activities. Service delivery activities
include surveying the site to assess ambient conditions and power, and space
requirements, as well as coordinating installation dates and equipment
delivery and testing. ICI's customer service and technical staff plans,
engineers, monitors and maintains the integrity, quality and availability of
the Company's networks. ICI's customer service and technical staff are
available to customers 24 hours every day.
To support all of its network based services, the Company has implemented an
automated ordering, provisioning and billing system similar to that used by
the ILECs. This automated system makes it easy for the Company's IXC customers
to track their orders with ICI, and similarly allows ICI to track its orders
with the ILECs. ICI has also implemented an integrated network management
system which enhances the Company's ability to monitor, test, track trouble
and dispatch repair resources. This system monitors the performance of ICI's
networks and services 24 hours every day.
14
<PAGE>
NETWORK
The Company has deployed its network infrastructure selecting the most
economical alternative of constructing or leasing facilities or a combination
thereof. The Company generally chooses to own facilities where (i) there is no
fiber optic network alternative and the Company can be the incumbent network
provider, (ii) ownership creates strategic value for the Company, (iii) large
concentrations of telecommunications traffic are accessible, or have been
secured, to justify network construction and (iv) network construction can
create significant barriers to entry for subsequent competitors who may wish
to enter the Company's markets.
In addition to the "build" vs. "lease" decision for network deployment, the
Company also considers potential network acquisitions from time to time. The
Company believes that acquisitions will generally provide it with (i)
immediate access to incremental customers, (ii) reduction of network
construction and implementation risks, (iii) elimination of an incumbent
competitor, (iv) immediate access to additional qualified management, sales
and technical personnel and (v) a network platform for the provision of
incremental value added services. The Company has demonstrated such strategy
with its acquisition of FiberNet, EMI and NetSolve.
In those markets where ICI chooses to deploy broadband fiber networks, the
Company's strategy is to first develop the "carrier ring" portion of its
network, a high capacity network designed to be accessible to all the major
long distance carriers and key ILEC central offices in the area. This portion
of the network allows the Company to provide access to these long distance
carriers, provide connectivity to the ILEC network for interconnection and use
of unbundled ILEC network elements, and over time, to connect business and
government customers to such long distance carriers. Second, the Company
designs a larger "backbone ring" extending from the carrier ring, with a view
toward making the network accessible to the largest concentration of
telecommunications-intensive business and government customers in the area.
Hubs are strategically located on the backbone rings to allow for the
collection and distribution of telecommunications traffic onto and off the
backbone ring. Third, the Company concentrates its sales and marketing efforts
on adding business and government customers located on or very near its
backbone network and hub locations. Once ICI determines that there is
sufficient customer demand in a particular area, it extends "distribution
rings" from the backbone ring to reach specific business customers in that
area. The Company's emphasis is on the building and expansion of these city-
based networks to reach end user customers in buildings or office parks with
substantial telecommunications opportunity. The establishment of a "franchise
point" at a customer's location is a key strategic design element of these
networks.
ICI's city-based networks are comprised of fiber optic cables, integrated
switching facilities, advanced electronics, data switching equipment (e.g.
frame relay and ATM), transmission equipment and associated wiring and
equipment. By virtue of its state-of-the-art equipment and ring-like
architecture, the Company's networks offer electronic redundancy and diverse
access routing. Through automatic protection switching, if any electrical
component or fiber optic strand fails, the signal is instantaneously switched
to a "hot standby" component or fiber. Since network outages and transmission
errors can be very disruptive and costly to long distance carriers and other
customers, consistent reliability is critical to customers.
The Company currently has fiber optic networks in service in the Orlando,
Tampa, Miami, St. Petersburg, Jacksonville, and West Palm Beach, Florida,
Cincinnati, Ohio, Raleigh-Durham, North Carolina, and Huntsville, Alabama
metropolitan areas and one under development in St. Louis, Missouri. ICI
continues to expand these networks and has identified similar network
expansion opportunities in other selected markets.
As a result of its acquisition of EMI in 1996, ICI also utilizes certain
wireless technologies as a part of its provision of services. ICI owns a long-
haul microwave transmission system comprising approximately 5,000 route miles
in the Northeast, which is principally used for transporting digital
interexchange trunking and analog video signals. Additionally, as a part of a
1995 Asset Purchase Agreement between EMI and ART, ICI has access to 38 GHz
licenses in most metropolitan areas in the Northeast at the lowest rate
charged by ART for such services. The Company uses this technology from time
to time to connect its customers to its network, allowing rapid initiation of
service.
15
<PAGE>
In addition, the Company has undertaken a significant network expansion to
satisfy the demands of the Company's market driven growth in interexchange
data and voice offerings. The Company has deployed resources, primarily
switching equipment, to develop an extensive network to provide these
services. Excess capacity on this primarily leased network can be used to
provide incremental telecommunications services such as interexchange long
distance services.
The Company has recently undertaken the deployment of ATM networking
technology in its intercity network, allowing the network capacity to be
efficiently shared between multiple platforms. Often, the Company offers
interexchange services in geographic markets where it has not deployed its own
fiber optic network by leasing facilities from a variety of entities,
including ILECs, utilities, IXCs, local governments, cable companies and
various transit/highway authorities. In many cases, such capacity is obtained
through the capital lease or purchase of "dark fiber." The combination of the
Company's city-based networks and its intercity capacity comprise the seamless
network platform which the Company utilizes to offer its broad array of
telecommunications services to its customers. The Company also has agreements
with certain third parties and the carriers in the UniSPAN(C) consortium to
deliver enhanced data services nationwide or internationally through a
seamless data network.
The Company's telecommunications equipment vendors actively participate in
planning and developing electronic equipment for use in ICI's networks. The
Company does not believe it is dependent on any single vendor for equipment.
Because the Company uses existing telecommunications technology rather than
developing it, ICI's research and development expenditures are not material.
COMPETITION
The Company faces intense competition in each of its three service
categories--local services, enhanced services and long distance services.
The Company believes that various legislative initiatives, including the
recently enacted 1996 Act and certain state initiatives, will result in the
removal of the remaining regulatory barriers to local exchange competition.
While the Company currently competes with AT&T, MCI and others in the
interexchange services market, the 1996 Act also permits the RBOCs to provide
interexchange services upon meeting certain requirements described in the 1996
Act. When the RBOCs begin to provide such services, they will be in a position
to offer single source service similar to that being offered by ICI. In
addition, Sprint and GTE offer, and various ILECs and IXCs, including
BellSouth, have announced their intent to offer, integrated telecommunication
services in areas currently served by ICI. AT&T and MCI have begun to enter
the local exchange services market. The Company cannot predict the number of
competitors that will emerge as a result of existing and any new federal and
state regulatory or legislative actions. Competition from integrated
telecommunications services provided by the RBOCs, AT&T, MCI, Sprint, WorldCom
and others could have a material adverse effect on the Company's business.
Competition in each of the service categories provided by the Company, as
well as for systems integration which is common to all market segments, is
discussed below.
Local Services. In each of its geographic markets, the Company faces
significant competition for the local services it offers from RBOCs and other
ILECs, which currently dominate their local telecommunications markets. These
companies all have long-standing relationships with their customers and have
financial, personnel and technical resources substantially greater than those
of ICI.
The Company also faces competition in most markets in which it operates from
one or more CLECs or ICPs operating fiber optic networks. Other local service
providers have operations or are initiating operations within one or more of
the Company's service areas. ICI expects WorldCom, MCI, Teleport
Communications Group, Inc. ("Teleport"), and certain cable television
providers, many of which are substantially larger and have substantially
greater financial resources than the Company, to enter some or all of the
markets that the Company
16
<PAGE>
presently serves. At least two of these competitors, WorldCom and Teleport,
have entered or announced plans to enter a number of ICI's service areas. ICI
also understands that other entities have indicated their desire to enter the
local exchange services market within specific metropolitan areas served or
targeted by ICI.
In addition, a continuing trend toward consolidation and strategic alliances
within the telecommunications industry could result in significant new
competition for the Company. AT&T and MCI have begun to enter the local
services market. Other potential competitors of the Company include utility
companies, long distance carriers, wireless telephone systems and private
networks built by individual business customers. The Company cannot predict
the number of competitors that will emerge as a result of existing or any new
federal and state regulatory or legislative actions.
Competition in all of the Company's geographic market areas is based on
quality, reliability, customer service and responsiveness, service features
and price. The Company has kept its prices at levels competitive with those of
the ILECs while providing, in the opinion of the Company, a higher level of
service and responsiveness to its customers.
Although the ILECs are generally subject to greater pricing and regulatory
constraints than other local network service providers, ILECs are achieving
increasing pricing flexibility for their local services as a result of recent
legislative and regulatory developments. The ILECs have continued to lower
rates, resulting in downward pressure on certain dedicated and switched access
transport rates. This price erosion has decreased operating margins for these
services. However, the Company believes this effect will be more than offset
by the increased revenues available as a result of access to customers
provided through interconnection co-carrier agreements and the opening of
local exchange service to competition. In addition, the Company believes that
lower rates for dedicated access will benefit other services offered by the
Company.
Enhanced Data Services. The Company faces competition in its enhanced data
services business from ILECs, IXCs, VSAT providers and others. Many of the
Company's existing and potential competitors have financial and other
resources significantly greater than those of the Company.
The Company competes with the larger IXCs on the basis of service
responsiveness, rapid response to technology and service trends, and a
regional focus borne of early market successes. All of the major IXCs,
including AT&T, MCI, Sprint and WorldCom offer frame relay services and
several of the major IXCs have announced plans to provide Internet services.
The Company believes it competes favorably with these providers in its
markets, based on the features and functions of its services, the high density
of its networks, relatively greater experience and in-house expertise.
Continued aggressive pricing is expected to support continued rapid growth,
but will place increasing pressure on operating margins.
The Company also competes with VSAT services on the basis of price and data
capacity. The Company believes that the relatively low bandwidth of each VSAT
terminal and the cost of purchasing and installing VSAT equipment limits the
ability of VSAT to compete with the frame relay services provided by the
Company.
Many of the ILECs now offer services similar to ICI's enhanced data
services, but offer them only on an intraLATA basis. While the ILECs generally
cannot interconnect their frame relay networks with each other, ICI has
interconnected its frame relay network with those of various ILECs. As a
result, ICI can use certain ILEC services to keep its own costs down when
distributing into areas that cannot be more economically serviced on its own
network. ICI expects the ILECs to aggressively expand their enhanced data
services as regulatory developments permit them to deploy interLATA long
distance networks. When the ILECs are permitted to provide such services, they
will be in a position to offer single source service similar to that being
offered by ICI. As part of its various interconnection agreements, ICI has
negotiated favorable rates for unbundled ILEC frame relay service elements.
The Company expects such negotiations to decrease its costs, positively
impacting margins for this service.
17
<PAGE>
Interexchange Services. The Company currently competes with AT&T, MCI and
others in the interexchange services market. Many of the Company's competitors
have longstanding relationships with their customers and have financial,
personnel and technical resources substantially greater than those of ICI. In
providing interexchange services, the Company focuses on quality service and
economy to distinguish itself in a very competitive marketplace. ICI has built
a loyal customer base by emphasizing its customer service. The additional new
services that are offered as the Company implements its local exchange
services should further support this position by allowing the Company to
market a wide array of fully integrated telecommunications services. While
these services are subject to highly competitive pricing pressures, the
Company's cost to provide these services is decreasing as it deploys more
local/long distance voice switches and interexchange network facilities.
Systems Integration. The Company faces competition in its systems
integration business from equipment manufacturers, the RBOCs and other ILECs,
long distance carriers and systems integrators, many of which have financial,
and other resources significantly greater than those of the Company. Because
the Company is not highly dependent on system integration revenues and because
the Company typically provides system integration services to customers who
purchase other services of the Company, ICI's systems integration competitors
should not pose a significant threat to ICI's overall business.
GOVERNMENT REGULATION
Overview. The Company's services are subject to varying degrees of federal,
state and local regulation. The FCC exercises jurisdiction over all facilities
of, and services offered by, telecommunications common carriers to the extent
those facilities are used to provide, originate or terminate interstate or
international communications. The state regulatory commissions retain
jurisdiction over most of the same facilities and services to the extent they
are used to originate or terminate intrastate communications. In addition,
many of the regulations issued by these regulatory bodies may be subject to
judicial review, the result of which ICI is unable to predict.
Federal Regulation. The Company must comply with the requirements of common
carriage under the Communications Act of 1934 (the "Communications Act"), as
amended. Comprehensive amendments to the Communications Act were made by the
1996 Act, which was signed into law on February 8, 1996. The 1996 Act effected
plenary changes in regulation at both the federal and state levels that affect
virtually every segment of the telecommunications industry. The stated purpose
of the 1996 Act is to promote competition in all areas of telecommunications
and to reduce unnecessary regulation to the greatest extent possible. While it
will take years for the industry to feel the full impact of the 1996 Act, it
is already clear that the legislation provides the Company with both new
opportunities and new challenges.
The 1996 Act gives the FCC the authority to forebear from regulating
companies if it finds that such regulation does not serve the public interest,
and directs the FCC to review its regulations for continued relevance on a
regular basis. As a result of this directive, a number of the regulations that
historically applied to the Company have been and may continue to be
eliminated in the future. While it is therefore expected that a number of
regulations that were developed prior to the 1996 Act will be eliminated in
time, those which still apply to the Company at present are discussed below.
The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic common carrier service providers, only GTE and
the RBOCs are classified as dominant carriers, and all other providers of
domestic common carrier services, including the Company, are classified as
non-dominant carriers. The 1996 Act provides the FCC with the authority to
forebear from imposing any regulations it deems unnecessary, including
requiring non-dominant carriers to file tariffs. On November 1, 1996, in its
first major exercise of regulatory forbearance authority granted by the 1996
Act, the FCC issued an order detariffing domestic interexchange services. The
order requires mandatory detariffing and gives carriers such as ICI nine
months to withdraw federal tariffs and move to contractual relationships with
its customers. This order subsequently was stayed by a federal appeals court
and it is unclear at this time whether the detariffing order will be
implemented.
18
<PAGE>
The 1996 Act greatly expands the FCC's interconnection requirements on the
ILECs. The 1996 Act requires the ILECs to: (i) provide physical collocation,
which allows companies such as ICI and other interconnectors to install and
maintain their own network termination equipment in ILEC central offices, and
virtual collocation only if requested or if physical collocation is
demonstrated to be technically infeasible; (ii) unbundle components of their
local service networks so that other providers of local service can compete
for a wider range of local services customers; (iii) establish "wholesale"
rates for their services to promote resale by CLECs and other competitors;
(iv) establish number portability, which will allow a customer to retain its
existing phone number if it switches from the ILEC to a competitive local
service provider; (v) establish dialing parity, which ensures that customers
will not detect a quality difference in dialing telephone numbers or accessing
operators or emergency services; and (vi) provide nondiscriminatory access to
telephone poles, ducts, conduits and rights-of-way. In addition, the 1996 Act
requires ILECs to compensate competitive carriers for traffic originated by
the ILECs and terminated on the competitive carriers' networks. The FCC is
charged with establishing national guidelines to implement the 1996 Act. The
FCC issued its Interconnection Order on August 8, 1996, after which, six
separate motions were filed with the Eighth Circuit Court of Appeals in St.
Louis for a stay of the FCC's Interconnection Order. On October 15, 1996, the
court stayed the pricing and "most favored nation" provisions contained in the
Interconnection Order while leaving in place the structural aspects of the
order. The Eighth Circuit Court is expected to render a decision by June 1997
on the merits of the FCC's interconnection rules and that decision is expected
to be appealed to the United States Supreme Court.
As part of its pro-competitive policies, the 1996 Act frees the RBOCs from
the judicial orders that prohibited their provision of interLATA services.
Specifically, the Act permits RBOCs to provide long distance services outside
their local service regions immediately, and will permit them to provide in-
region interLATA service upon demonstrating to the FCC and state regulatory
agencies that they have adhered to the FCC's interconnection regulations.
BellSouth in Georgia and North Carolina and Ameritech Corporation
("Ameritech") in Michigan have asked their respective state regulatory
agencies to review their applications and to recommend approval by the FCC.
These RBOCs are expected to file their applications with the FCC by June 1997.
The FCC is expected to scrutinize these and future applications to ensure that
the interconnection requirements have been met.
As a result of these provisions of the 1996 Act, the Company has taken the
steps necessary to be a provider of local exchange services and has positioned
itself as a full service, integrated telecommunications services provider. ICI
has obtained local certification in 13 states and the District of Columbia and
has applications pending for local certification in 22 additional states. In
addition, the Company has successfully negotiated interconnection agreements
that meet the interconnection provisions contained in the 1996 Act with six
ILECs. At the same time, the 1996 Act also makes competitive entry more
attractive to RBOCs, other ILECs, interexchange carriers and other companies,
and likely will increase the level of competition that the Company faces.
The 1996 Act also repeals the telecommunications/cable television cross-
ownership prohibition which generally had prohibited ILECs from providing in-
region cable television service.
The 1996 Act's interconnection requirements also apply to interexchange
carriers and all other providers of telecommunications services, although the
terms and conditions for interconnection provided by these carriers are not
regulated as strictly as interconnection provided by the ILECs. This may
provide the Company with the ability to reduce its own access costs by
interconnecting directly with non-ILECs, but may also cause the Company to
incur additional administrative and regulatory expenses in replying to
interconnection requests.
While the 1996 Act reduces regulation to which non-dominant local exchange
carriers are subject, it also reduces the level of regulation that applies to
the ILECs, and increases their ability to respond quickly to competition from
the Company and others. For example, in accordance with the 1996 Act, the FCC
has proposed to subject the ILECs to "streamlined" tariff regulation, which
greatly accelerates the time in which tariffs that change service rates take
effect, and eliminates the requirement that ILECs obtain FCC authorization
before constructing new domestic facilities. These actions will allow ILECs to
change service rates more quickly in
19
<PAGE>
response to competition. The FCC initiated a proceeding on December 24, 1996
that addresses these issues and is expected to issue an order on these issues
in May 1997. Similarly, the FCC has initiated a proceeding to review its price
cap rules that may permit significant new pricing flexibility to ILECs. To the
extent that such increased pricing flexibility is provided, the Company's
ability to compete with ILECs for certain services may be adversely affected.
The 1996 Act directs the FCC, in cooperation with state regulators, to
establish a Universal Service Fund that will provide subsidies to carriers
that provide service to under-served individuals and high cost areas. These
proceedings, which must be concluded in May 1997, may require the Company to
contribute to the Universal Service Fund, but may also allow the Company to
receive payments from the Fund if it is deemed eligible. The Company also may
provide service to under-served customers in lieu of making Universal Service
Fund payments. The net revenue effect of these regulations on the Company
cannot be determined at this time.
In an order released on October 18, 1995, the FCC found that the transport
of frame relay service should be classified as a "basic" service. Previously,
it was common practice in the industry for many carriers to consider frame
relay an "enhanced" service. This decision was significant because the FCC
requires that basic services be tariffed, but permits enhanced services to be
offered on an off-tariff basis. As a result of the FCC's decision, all
carriers that provide frame relay transport were required to include the
service in their federal tariffs by May 6, 1996. The Company has included its
frame relay service in its federal tariff. The "basic" and "enhanced"
terminology used by the FCC is a regulatory term of art denoting the
classification of services for tariffing purposes. This regulatory use of the
term should not be confused with the Company's description of a class of
services-frame relay, ATM and Internet services-as "enhanced" elsewhere in
this document.
State Regulation. To the extent that the Company provides intrastate
service, it is subject to the jurisdiction of the relevant state public
service commissions. The Company currently provides some intrastate services
in 36 states and is subject to regulation by the public service commissions of
those states. The Company is currently certificated (or certification is not
required) in 41 states and the District of Columbia to provide toll services
and is currently seeking certification in the nine remaining states. The
Company is certified as a CLEC in 13 states and the District of Columbia and
is currently seeking CLEC certification in 22 additional states. The Company
is constantly evaluating the competitive environment and may seek to further
expand its intrastate certifications into additional jurisdictions.
The 1996 Act preempts state statutes and regulations that restrict the
provision of competitive local services. As a result of this sweeping
legislation, the Company will be free to provide the full range of intrastate
local and long distance services in all states in which it currently operates,
and any states into which it may expand. While this action greatly increases
the Company's addressable customer base, it also increases the amount of
competition to which the Company may be subject.
Many of the states in which the Company operates have also enacted
legislation or regulations that have permitted, or will permit, local service
competition. The 1996 Act will require most of the states to modify these
policies to bring them into conformity with federal standards. The 1996 Act
also authorizes the states to adopt additional regulations to the extent that
they do not conflict with federal standards. This aspect of the FCC's order
has been challenged and is awaiting resolution in court. It is unclear at this
time how the states will respond to the new federal legislation, and what
additional regulations they may adopt.
While the 1996 Act's prohibition of state barriers to competitive entry took
effect on February 8, 1996, there have been numerous procedural delays which
must be resolved before the 1996 Act's policies are fully implemented. The
Company continues to support efforts at the state government level to
encourage competition in their markets under the federal law and to permit
ICPs and CLECs to operate on the same basis and with the same rights as the
ILECs. In addition, the Company has been successful in its pursuit of local
certificates from state Commissions and negotiated interconnection agreements
with the ILECs, which permit the Company to meet its business objectives
despite the uncertain regulatory environment.
20
<PAGE>
In most states, the Company is required to file tariffs setting forth the
terms, conditions and prices for services that are classified as intrastate
(local, toll and enhanced). Most states require the Company to list the
services provided and the specific rate for each service. Under different
forms of regulatory flexibility, the Company may be allowed to set price
ranges for specific services, and in some cases, prices may be set on an
individual customer basis. The Company is not subject to price cap or rate of
return regulation in any state in which it is currently certificated to
provide local exchange service.
As the Company expands its operations into other states, it may become
subject to the jurisdiction of their respective public service commissions for
certain services offered by ICI. The Company does not believe that its
relationship with Latin American or other international service providers
currently subjects it to (or will subject it to) regulation outside the United
States.
Local Government Authorizations. The Company may be required to obtain from
municipal authorities street opening and construction permits to install and
expand its fiber optic networks in certain cities. In some cities, local
partners or subcontractors may already possess the requisite authorizations to
construct or expand the Company's networks.
In some of the areas where the Company provides service, it may be subject
to municipal franchise requirements and may be required to pay license or
franchise fees based on a percent of gross revenue. There are no assurances
that certain municipalities that do not currently impose fees will not seek to
impose fees in the future, nor is there any assurance that, following the
expiration of existing franchises, fees will remain at their current levels.
In many markets, other companies providing local telecommunications services,
particularly the ILECs, currently are excused from paying license or franchise
fees or pay fees that are materially lower than those required to be paid by
the Company. The 1996 Act requires municipalities to charge nondiscriminatory
fees to all telecommunications providers, but it is uncertain how quickly this
requirement will be implemented by particular municipalities in which the
Company operates or plans to operate or whether it will be implemented without
a legal challenge initiated by the Company or another ICP or CLEC.
If any of the Company's existing network agreements were terminated prior to
their expiration date and the Company was forced to remove its fiber optic
cables from the streets or abandon its network in place, even with
compensation, such termination could have a material adverse effect on the
Company.
The Company also must obtain licenses to attach facilities to utility poles
in order to build and expand facilities. Because utilities that are owned by
cooperatives or municipalities are not subject to federal pole attachment
regulation, there is no assurance that the Company will be able to obtain pole
attachment from these utilities at reasonable rates, terms and conditions.
AGREEMENTS
Interconnection Co-carrier Agreements. The Company has recently entered into
interconnection co-carrier agreements with BellSouth, NYNEX, SBC, GTE, Sprint
and Bell Atlantic, and is in the process of negotiating a similar agreement
with Ameritech. Each of these agreements, among other things, provides for
mutual and reciprocal compensation, local interconnection, resale of local
exchange services, access to unbundled network elements, service provider
number portability and access to operator service, directory service and 911
service, as provided for in the 1996 Act. The agreements further provide that
additional terms and conditions will be set by negotiation between the parties
relating to issues which arise that were not originally contemplated by the
agreements. These agreements were executed within the past year and have terms
ranging from two to three years.
Network Agreements. The Company has built its digital fiber optic networks
pursuant to various rights-of-way, conduit and dark fiber leases, utility pole
attachment agreements and purchase arrangements (collectively, the "Network
Agreements"). Substantially all of the Network Agreements (other than utility
pole attachment agreements, which typically can be terminated on 90 days
notice) are for a long-term and include renewal options.
Although none of the Network Agreements are exclusive, the Company believes
that conduit space, fiber availability and other physical constraints make it
unlikely that the lessors under the various Network Agreements could easily
make similar arrangements available to others. The Company believes that its
21
<PAGE>
relationships with its lessors are satisfactory. Certain of the Network
Agreements require ICI to make revenue sharing payments or, in some cases, to
provide a fixed price alternative or dark fiber to the lessor without an
additional charge. In addition, the Company has various other performance
obligations under its Network Agreements, the breach of which could result in
the termination of such agreements. Further, actions by governmental regulatory
bodies could, in certain instances, also result in the termination of certain
Network Agreements. The cancellation of any of the material Network Agreements
could materially adversely affect the Company's business in the affected
metropolitan area. See "Risk Factors--Risk of Cancellation or Non-Renewal of
Network Agreements, Licenses and Permits."
Interexchange Agreements. ICI, from time to time, enters into purchase
agreements with interexchange carriers for the transport and/or termination of
long distance calls outside of its territory. These contracts are typically two
years in duration and customarily include minimum purchase amounts.
UniSPAN(C). In order to provide end-to-end connectivity and interoperability
throughout the United States to its enhanced data services customers, ICI
entered into a frame relay service agreement (the "UniSPAN Agreement") in
September 1994 with EMI (since acquired by ICI), PacNet, Inc., Integrated
Network Services, Inc. and MRC Telecommunications, Inc. In September 1995,
Telemedia International, Inc., an international telecommunications company,
became a party to the UniSPAN Agreement. Pursuant to the UniSPAN Agreement,
each of the parties agreed to (i) provide frame relay services on its networks
to each of the other parties, subject to available capacity and agreement as to
certain terms including price and access to facilities, and (ii) use reasonable
efforts to utilize the services of the other parties in the event that such
party requires frame relay services in a geographic location not served by its
own networks. The UniSPAN Agreement has an initial three year term with
successive one year renewal periods until terminated by a majority vote of the
parties. However, any party may withdraw from the agreement as of the
expiration of any term by giving 60 days prior written notice thereof.
Throughout the term of the UniSPAN Agreement and for one year thereafter, or
for a period of one year after the withdrawal of any party, none of the parties
may solicit provision of frame relay services to customers which were brought
in to the UniSPAN(C) program by another party or for which frame relay services
were requested by another party.
EMPLOYEES
As of December 31, 1996, ICI employed a total of 874 full-time employees. The
Company anticipates that the number of employees will increase significantly
throughout 1997. 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. ICI has nondisclosure agreements with all of its
employees. The Company also regularly uses the services of contract technicians
for the installation and maintenance of its networks. None of ICI's employees
is represented by a collective bargaining agreement. ICI believes that its
relations with its employees are good.
RISK FACTORS
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. 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, ICI 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. ICI reported
net losses of approximately $3.1 million, $20.7
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<PAGE>
million and $57.2 million for the years ended December 31, 1994, 1995 and
1996, respectively. The Company anticipates having 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 ICI will achieve or sustain profitability or positive EBITDA in the
future.
Significant Capital Requirements and 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. ICI expects to fund its capital requirements through existing
resources, joint ventures, debt or equity financing, and internally generated
funds. The Company expects that to continue to expand its business will
require raising substantial additional equity and/or debt capital after 1998.
The Company's outstanding debt instruments do not permit the incurrence of an
amount of indebtedness sufficient to fund its anticipated future capital
requirements. Accordingly, the Company will need to obtain waivers or consents
from its debtholders or raise equity capital. There can be no assurance,
however, that ICI will be successful in raising sufficient debt or equity
capital on terms that it will consider acceptable. 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 ICI to delay or abandon some of its foreign
expansion or expenditure, 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.
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 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
23
<PAGE>
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
operates from one or more ICPs and CLECs operating fiber optic networks. In
addition, the Company faces competition in its network systems integration
business from equipment manufacturers, the RBOCs and other ILECs, long distance
carriers and systems integrators, and in its enhance data services business
from local telephone companies, long distance carriers, very small aperture
terminal ("VSAT") providers and others. 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 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 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 ICI. 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 has issued an order holding that non-dominant carriers, such as the
Company, are not required to file interstate tariffs for domestic long distance
service on an ongoing basis. 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. The FCC also requires the
Company to file interstate tariffs on an ongoing basis for international
traffic and access services. 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
24
<PAGE>
the Company as the provider of such new telecommunications technology. 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 ICI 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 ICI 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 attain 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 will be able to
obtain and maintain the other franchises, permits and rights needed to
implement its strategy on acceptable terms.
Dependence on Business from 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.
See""Business--Customer Strategy."
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 would 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 ICI 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 terms of the Company's Existing
Senior Notes (as defined) and Series A Preferred Stock (as defined) provide
that a change of control would require the Company to repay the indebtedness
and redeem the Series A Preferred Stock outstanding under such instruments. If
a change of control does occur, there is no assurance that the
25
<PAGE>
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 (as defined) and to redeem the
Series A Preferred Stock.
Forward Looking Statements. The statements contained in this report 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 statements, such as
the Company's plans to expand its existing networks or to build and acquire
networks in new areas, the market opportunity presented by larger metropolitan
areas, its anticipation of installation of switches or the provision of local
exchange services and revenues from designated markets during 1997, and
statements regarding development of the Company's businesses, the estimate of
market sizes and addressable markets for the Company's services and products,
the Company's anticipated capital expenditures, regulatory reform and other
statements contained in this report regarding matters that are not historical
facts, 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. Such risks and assumptions
include, but are not limited to, the Company's ability to successfully market
its services to current and new customers, generate customer demand for its
services in the particular markets where it plans to market services, access
markets, identify, finance and complete suitable acquisitions, design and
construct fiber optic networks, install cable and facilities, including
switching electronics, and obtain rights-of-way, building access rights and
any required governmental authorizations, franchises and permits, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions,
as well as regulatory, legislative and judicial developments that could cause
actual results to vary materially from the future results indicated, expressed
or implied, in such forward-looking statements.
Moreover, the Company presents certain data contained herein on an
annualized basis, based on quarterly or monthly data, because the Company
believes that such annualized data is a standard method to present certain
data in the telecommunications industry. However, actual annual results could
differ materially from annualized data because annualized data does not
account for factors such as seasonality, cyclicability, growth or decline.
Consequently, readers should not place undue reliance on the annualized data.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases its principal administrative, marketing, warehouse and
service development facilities in Tampa, Florida and leases other space for
storage of its electronics equipment and for administrative, sales and
engineering functions in other cities where the Company operates networks
and/or performs sales functions. The Company believes that its properties are
adequate and suitable for their intended purposes.
As of December 31, 1996, the Company's total telecommunications and
equipment in service consisted of fiber optic telecommunications equipment
(53%), fiber optic cable (16%), furniture and fixtures (8%), leasehold
improvements (2%) and construction in progress (21%). Such properties do not
lend themselves to description by character and location of principal units.
Fiber optic cable plant used in providing service is primarily on or under
public roads, highways or streets, with the remainder being on or under
private property. Substantially all of the Company's telecommunications
equipment is housed in multiple leased facilities in various locations
throughout the metropolitan areas served by the Company.
Equipment additions over the past five years include gross additions to
telecommunications equipment having an estimated service life of one year or
more. Additions, including capital leases and excluding equipment
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<PAGE>
acquired and capital leases assumed in business acquisitions, since January 1,
1992 were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- -------
<S> <C>
1992........................................................... $ 9,687
1993........................................................... 10,767
1994........................................................... 18,289
1995........................................................... 34,873
1996........................................................... 131,466
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings except for
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or
lawsuits will have a material effect on the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is listed for trading on the Nasdaq National Market under
the symbol "ICIX." As of March 19, 1997, based upon 77 holders of record of
the Common Stock and an estimate of the number of individual participants
represented by security position listings, there are approximately 3,200
beneficial holders of the Common Stock. The approximate high and low bid
prices for the Common Stock tabulated below are as reported by the Nasdaq
National Market and represent inter-dealer quotations which do not include
retail mark-ups, mark-downs or commissions. Such prices do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
BID PRICE
-------------
QUARTER HIGH LOW
------- ----- ----
<S> <C> <C>
1995
First................................................ 15 11
Second............................................... 13 8 1/2
Third................................................ 17 1/2 10 1/2
Fourth............................................... 17 1/2 11
1996
First................................................ 19 3/4 13 7/8
Second............................................... 38 1/2 17 3/4
Third................................................ 34 3/4 22
Fourth............................................... 35 21
</TABLE>
Holders of shares of Common Stock are entitled to dividends, when and if
declared by the Board of Directors, out of funds legally available therefor.
ICI has never declared or paid cash dividends on its Common Stock. ICI intends
to retain its earnings, if any, to finance the development and expansion of
its business, and therefore does not anticipate paying any dividends in the
foreseeable future. In addition, the terms of (i) the Company's 13 1/2% Series
B Senior Notes due 2005 (the "Senior Notes"), (ii) the Company's 12 1/2%
Senior Discount Notes due 2006 (the "Discount Notes" and together with the
Senior Notes, the "Existing Senior Notes") and (iii) the Company's Series A
Preferred Stock restrict the payment of dividends. When such restrictions no
longer exist, the decision whether to pay dividends will be made by the Board
of Directors in
27
<PAGE>
light of conditions then existing, including the Company's results of
operations, financial condition and capital requirements, business conditions
and other factors. The payment of dividends on the Common Stock is also
subject to the preference applicable to the outstanding shares of the
Company's Series A Preferred Stock and to the preference that may be
applicable to any additional outstanding shares of the Company's Preferred
Stock.
On June 28, 1996, ICI purchased EMI's telecommunications division in
exchange for 937,500 newly and validly issued, fully paid and nonassessable
shares of Common Stock (the "EMI Shares"), issued by ICI to Newhouse, the
parent corporation of EMI. The number of EMI Shares payable to Newhouse was
based upon a purchase price of $15,000,000 divided by the average trading
price per share of the Common Stock during the twenty-one day period ending on
February 14, 1996 (which was equal to $16.00). As of June 28, 1996, the
closing date of acquisition, the EMI Shares were valued at approximately $16.9
million. The EMI Shares were transferred to Newhouse pursuant to an exemption
from registration provided for under Section 4(2) of the Securities Act of
1933, as amended (the "Act"). Prior to the issuance of the EMI Shares,
Newhouse represented to ICI, among other things, that: (i) it is acquiring the
EMI Shares for its own account for investment and without any view to any
distribution thereof; (ii) it understands that it must bear the economic risk
of its investment in the EMI Shares for an indefinite period of time; and
(iii) it is aware of the Company's business affairs and financial condition
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the EMI Shares.
On December 6, 1996, the Company acquired certain assets of UTT for a
purchase price of $2.9 million, including assumed liabilities and 31,380
unregistered shares of Common Stock (the "UTT Shares"). The UTT Shares were
issued by ICI to UTT pursuant to an exemption from registration provided for
under Section 4(2) of the Act. Prior to the issuance of the UTT Shares, UTT
represented to ICI, among other things, that: (i) it is acquiring the UTT
Shares for its own account for investment purposes and without any view to
distribution of thereof; (ii) it understands that it must bear the economic
risk of its investment in the UTT Shares for an indefinite period of time; and
(iii) it is aware of the Company's business affairs and financial condition
and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the UTT Shares.
On March 7, 1997, ICI consummated a private placement (the "Private
Placement") of 30,000 shares of its 13 1/2% Series A Redeemable Exchangeable
Preferred Stock due 2009, liquidation preference $10,000 per share (the
"Series A Preferred Stock"), to "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act of 1933, as amended (the "Act")) (the
"Purchasers") to generate gross proceeds to the Company of $300,000,000,
including an aggregate of $11,125,000 of underwriting discounts and
commissions. The shares of Series A Preferred Stock were issued to the
Purchasers pursuant to an exemption from registration provided by Rule 144A
under the Act. In connection with the Private Placement, the Purchasers and
the Company entered into a Registration Rights Agreements, whereby the Company
agreed to file a registration statement with respect to an offer to exchange
the Series A Preferred Stock for a new issue of preferred stock of the Company
registered under the Act, with terms substantially identical to those of the
Series A Preferred Stock. Each of the Purchasers represented to the Company,
among other things, that it is a qualified institutional buyer and is aware
that the sale to it is being made in reliance on Rule 144A, and that it is
acquiring the Series A Preferred Stock for its own account or for the account
of another qualified institutional buyer.
ITEM 6. SELECTED FINANCIAL AND OTHER OPERATING DATA
The selected financial data and balance sheet data presented below as of and
for the five years in the period ended December 31, 1996 have been derived
from the consolidated financial statements of the Company, which financial
statements have been audited by Ernst & Young LLP, independent certified
public accountants.
The operating results of EMI are included in the Company's consolidated
operating results commencing July 1, 1996. The operating results of UTT and
NetSolve are included in the Company's consolidated operating results
commencing December 1, 1996. The pro forma operating information gives effect
to the EMI, UTT and NetSolve acquisitions as if they occurred on January 1,
1996. The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the
Company and the Notes thereto, included elsewhere in this report.
28
<PAGE>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenue................ $ 7,030 $ 8,292 $14,272 $ 38,631 $103,397 $152,071
Expenses
Facilities
administration and
maintenance and line
costs................. 1,760 2,843 5,396 22,989 81,105 121,803
Selling, general and
administrative........ 2,607 3,893 6,412 14,993 36,610 40,663
Depreciation and
amortization.......... 2,190 3,020 5,132 10,196 19,836 23,022
------- ------- ------- -------- -------- --------
6,557 9,756 16,940 48,178 137,551 185,488
------- ------- ------- -------- -------- --------
Operating income
(loss)................ 473 (1,464) (2,668) (9,547) (34,154) (33,417)
Other income (expense)
Interest expense...... (1,031) (844) (1,218) (13,767) (35,213) (35,213)
Interest and other
income............... 323 234 819 4,060 12,168 11,428
Income tax benefit.... -- -- -- 97 -- --
------- ------- ------- -------- -------- --------
Loss before
extraordinary item... (235) (2,074) (3,067) (19,157) (57,199) (57,202)
Extraordinary loss on
early extinguishment
of debt.............. -- -- -- (1,592) -- --
------- ------- ------- -------- -------- --------
Net loss............... $ (235) $(2,074) $(3,067) $(20,749) $(57,199) $(57,202)
======= ======= ======= ======== ======== ========
Net loss per share:(2)
Loss before
extraordinary item... $ (.10) $ (.29) $ (.34) $ (1.91) $ (4.08) $ (3.94)
Extraordinary loss.... -- -- -- (.16) -- --
------- ------- ------- -------- -------- --------
Net loss.............. $ (.10) $ (.29) $ (.34) $ (2.07) $ (4.08) $ (3.94)
======= ======= ======= ======== ======== ========
Weighted average number
of shares
outstanding........... 4,797 7,077 8,956 10,036 14,018 14,518
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------ ------- ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Earnings before
interest, income taxes,
depreciation and
amortization
("EBITDA")(3).......... $2,663 $ 1,556 $ 2,464 $ 649 $(14,318) $ (10,395)
Capital expenditures,
including acquisitions
of businesses, net of
cash acquired.......... $8,818 $10,486 $13,731 $31,915 $143,615 $146,679
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
NETWORK DATA:(4)
Buildings connected..................... 161 234 293 380 487
Route miles............................. 240 335 378 504 655
Fiber miles............................. 6,184 10,239 11,227 17,128 24,122
Number of city-based networks in serv-
ice.................................... 4 5 6 9 9
ENHANCED DATA SERVICES:(4)
Nodes(5)................................ -- 100 900 2,300 9,500
Cities(6)............................... -- 37 336 600 2,200
Switches................................ -- 4 12 31 89
EMPLOYEES(4)............................. 49 58 146 287 874
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7)........ $ 1,775 $27,954 $10,208 $ 50,997 $189,546
Working capital(8).................. 8,999 25,712 9,588 70,353 206,029
Total assets........................ 36,174 61,219 74,086 216,018 512,940
Long-term obligations and redeemable
preferred stock (including current
maturities)........................ 11,742 11,614 16,527 165,545 358,508
Total stockholders' equity.......... 21,257 45,987 52,033 40,254 114,230
</TABLE>
- -------
1. The pro forma operating information gives effect to the EMI, UTT and
NetSolve acquisitions, which occurred effective June 30, 1996, December 1,
1996 and December 1, 1996, respectively, as if they occurred on January 1,
1996.
2. Net loss per share in 1992 has been increased to reflect preferred stock
dividends.
3. EBITDA consists of earnings before interest, income taxes, depreciation
and amortization. In addition, 1995 EBITDA excludes an extraordinary
charge of $1,592 related to the early extinguishment of debt. EBITDA is
provided in the Summary of Financial and Other Operating Data since it is
a measure commonly used in the telecommunications industry to measure
operating performance, asset value and financial leverage. It is presented
to enhance the reader's understanding of the Company's operating results
and is not intended to present cash flow for the periods presented. See
the Consolidated Statements of Cash Flows included in the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere
in this report.
29
<PAGE>
4. Amounts as reflected in the table are based upon information contained in
the Company's operating records.
5. Amount represents an individual point of origin and termination of data
served by the Company's enhanced network. In the opinion of management of
the Company, all node numbers are appropriate.
6. Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
7. Cash and cash equivalents excludes investments of $20,954 and $26,675 in
1995 and 1996, respectively, restricted under the terms of various notes
and other agreements.
8. Working capital includes the restricted investments referred to in Note 7,
above.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
audited Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this report.
OVERVIEW
Since its inception in 1987, the Company has experienced substantial growth.
Building from its original base in Florida, ICI is now a provider of
integrated telecommunications services to customers that have a presence in
the eastern half of the United States. The Company currently has nine digital,
fiber optic networks in service and one under development. In addition, the
Company's frame relay network serves customers in approximately 2,200 cities
and provides end-to-end connectivity throughout the United States and many
international markets. As its networks and service offerings have expanded,
the Company has experienced significant year to year growth in revenues and
customers.
ICI competes with the ILECs and IXCs in its service territory and offers a
full range of voice and data telecommunications services. ICI's customers
include a broad range of business and government end users and IXCs. The
Company delivers local network services, including local exchange service,
primarily over digital fiber optic telecommunications networks that it either
owns or leases. In some circumstances, leasing facilities enables the Company
to more rapidly initiate service to customers, reduces the risk of network
construction or acquisition and potentially improves cash flow due to the
reduction or deferment of capital expenditures. The Company also offers
enhanced data services to its customers on an extensive intercity network that
connects its customers, either through its own network or through other
carriers, to locations throughout the country and internationally. This
intercity network combined with the Company's local/long distance voice
switches allows the Company to provide interexchange long distance service
domestically and internationally.
At its inception, ICI provided special access and private line services to
IXC's. In 1988, ICI was the first telecommunications service provider in
Florida to begin providing special access and private line services to
business customers. In 1991, ICI began offering integration services in
response to customers' needs and in 1992, ICI introduced its first enhanced
data services to provide flexible capacity and highly reliable end-to-end data
service for its business and government customers. The Company began offering
interexchange long distance service in December 1994, Internet services in
1995 and local exchange services in 1996. The pace with which the Company has
introduced new service offerings has enabled it to achieve substantial growth,
improve its mix of customers and diversify its sources of revenue. The Company
believes that business and government customers will continue to account for a
substantial share of its revenues over the next several years, because of
ICI's ability to offer such customers integrated, cost-effective
telecommunications solutions. The Company believes that during the first few
years of local exchange competition, the IXCs may enter the market by becoming
resellers of the Company's local services. If the IXCs pursue a reseller
strategy, the amount of revenue the Company realizes from carriers may
increase during this period.
From 1992 through 1995, the Company had achieved positive EBITDA and
increased its revenue base substantially. However, as a result of significant
investments in resources necessary to launch local exchange services and
expand enhanced data services, EBITDA decreased as a percentage of revenue and
the Company's EBITDA was negative for 1996. This was due to the significant up
front expenses related to the development of its networks and leased
facilities, the revenue from which is expected to be realized in later
periods. The development of the Company's business and the installation and
expansion of its networks have resulted in substantial capital expenditures
and net losses during this period of its operations. Procurement of rights-of-
way, administration and maintenance of facilities, depreciation of network
capital expenditures and sales, general and administrative costs will continue
to represent a large portion of the Company's expenses during its rapid
expansion. In addition, the Company is experiencing rapid growth in marketing
and selling expenses consistent with the addition of new customers and an
increased level of selling and marketing activity. All of the marketing and
selling expenses associated with the acquisition of new customers are expensed
as they are incurred even though these customers are expected to generate
recurring revenue for the Company for several years. The continued expansion
of the Company's networks in anticipation of new customers and the marketing
of services
31
<PAGE>
to new and existing customers is therefore adversely impacting EBITDA of the
Company in the near term. The Company anticipates, but there can be no
assurance, that as its customer base grows, incremental revenues will be
greater than incremental operating expenses.
PLAN OF OPERATION
In 1997 and beyond, the Company believes that its growth will be balanced
among its local exchange, long distance and enhanced data services. Based on
the Company's analysis of FCC data and its knowledge of the industry, the
Company estimates that the market for local exchange, long distance and data
services was approximately $25 billion in 1996 in the Company's service
territory. As a result of the Company's planned expansion in 1997, the Company
expects to be positioned to provide these services in markets with a total
opportunity of approximately $34 billion by the end of 1997.
In order to develop its businesses more rapidly and efficiently utilize its
capital resources, ICI plans to use the existing fiber optic infrastructure of
other providers in addition to using its existing networks. While the Company
will use significant amounts of capital to deploy enhanced data and voice
switches on a demand driven basis in selected markets, ICI believes that its
substantial existing network capacity should enable it to add new customers
and provide additional services that will result in increased revenues with
lower incremental costs and, correspondingly, over time improve its EBITDA.
For example, selling additional services, such as local exchange services, to
existing or new customers allows the Company to utilize unused portions of the
capacity inherent in its existing fiber optic networks. This operating
leverage increases the utilization of the network with limited additional
capital expenditures. The Company's strategy to offer a full complement of
telecommunications services is designed to enable the Company to take
advantage of the operating leverage of its networks.
REVENUE AND CUSTOMER BASE ANALYSIS
Since the Company's founding in 1987, ICI has continually introduced new
services. Due to these efforts, ICI's customer and revenue base has expanded
substantially in recent years. The Company believes that the continued
aggressive expansion of its enhanced data and interexchange voice services and
the continued deployment of local exchange services will accelerate the
diversification of the Company's customer and revenue base. The Company
believes the expansion of the Company's customer base and the diversification
of its revenue sources have (i) lowered the Company's reliance on any one
customer, (ii) increased the total addressable market for the Company's
services and (iii) reduced the Company's percentage of revenue associated with
services to IXCs. The table set forth below provides an analysis of the
Company's customer and revenue base.
REVENUE AND CUSTOMER BASE ANALYSIS
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------- DECEMBER 31,
1994 1995 1996 1996
-------- ------- -------- ------------
<S> <C> <C> <C> <C>
Customer revenue:
Non-IXCs.......................... 77% 90% 90% 91%
IXCs.............................. 23 10 10 9
-------- ------- -------- ------
Total........................... 100% 100% 100% 100%
======== ======= ======== ======
Number of customers served (at end
of period)(2)...................... 8,148 9,530 14,133 14,133
Revenue sources:
Local network services............ 57% 28% 13% 9
Enhanced data services............ 16 18 31 24
Interexchange services............ 9 49 51 64
System integration................ 18 5 5 3
-------- ------- -------- ------
100% 100% 100% 100%
======== ======= ======== ======
</TABLE>
- --------
(1) Gives effect to the acquisitions of EMI, UTT and NetSolve as if they had
occurred at the beginning of the period presented.
(2) Excludes long distance customers for whom billings during December 1996
were less than $5.00.
32
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain information
derived from the Consolidated Statements of Operations of the Company and the
Unaudited Pro Forma Condensed Consolidated Financial Statements expressed in
percentages of revenue:
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------- DECEMBER 31,
1994 1995 1996 1996
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Revenue........................... 100.0% 100.0% 100.0% 100.0%
Facilities administration and
maintenance and line cost........ 37.8 59.5 78.4 80.1
Selling, general and administra-
tive............................. 44.9 38.8 35.4 26.7
Depreciation and amortization..... 36.0 26.4 19.2 15.1
------- ------- -------- -----
Operating loss.................... (18.7) (24.7) (33.0) (21.9)
Interest expense.................. (8.5) (35.6) (34.1) (23.2)
Interest and other income......... 5.7 10.5 11.8 7.5
Income tax benefit................ -- 0.2 -- --
------- ------- -------- -----
Loss before extraordinary item.... (21.5) (49.6) (55.3) (37.6)
Extraordinary loss on early extin-
guishment of debt................ -- (4.1) -- --
------- ------- -------- -----
Net loss.......................... (21.5)% (53.7)% (55.3)% (37.6)%
======= ======= ======== =====
</TABLE>
- --------
(1) Gives effect to the acquisitions EMI, UTT and NetSolve as if they had
occurred at the beginning of the period presented.
YEAR ENDED 1996 VS. YEAR ENDED 1995
The Company's revenue grew from $38.6 million to $103.4 million or 168% from
1995 to 1996. Revenues in 1995 and 1996 for each of the product lines were as
follows:
<TABLE>
<CAPTION>
1995 1996 INCREASE
----- ------ --------
<S> <C> <C> <C>
Local network services............................... $10.8 $ 13.5 $2.7
Enhanced data services............................... 6.9 31.7 24.8
Interexchange services............................... 18.9 53.1 34.2
Systems integration.................................. 2.0 5.1 3.1
----- ------ -----
$38.6 $103.4 $64.8
===== ====== =====
</TABLE>
The increase in revenue was derived principally from growth in the Company's
local network services, enhanced data services and interexchange services. EMI
contributed $27.8 million to the growth during the last six months of 1996, of
which $20.5 million related to interexchange services and $7.3 million related
to enhanced data services. The Company acquired the telecommunications
division of EMI in June 1996. The Company's annualized monthly recurring
revenue increased to $12.3 million at December 31, 1996 from $3.3 million at
December 31, 1995, an increase of 273%. Monthly recurring revenue represents
the monthly service charges billable to telecommunications service customers
as of the last day of the period indicated and excludes nonrecurring revenues
for certain one-time charges, such as installation fees or equipment sales.
The increase in the level of enhanced data services was evidenced by the
increase in nodes which grew approximately 313% from approximately 2,300 at
December 31, 1995 to approximately 9,500 at December 31, 1996. The geographic
coverage of the Company's networks also grew in 1996 primarily through the
acquisitions of EMI, UTT and NetSolve and the expansion of the Company's
intercity network. Monthly recurring revenue in the backlog (booked sales that
have yet to be installed) at December 31, 1996 was approximately $4.8 million
annualized, a 14.3% increase from the prior year. From December 31, 1995 to
December 31, 1996, the number of fiber miles in the Company's networks
increased from 17,128 to 24,122; route miles increased from 504 to 655; and
the number of customers served by ICI increased from 9,530 to 14,133.
33
<PAGE>
Operating expenses in total increased by 186% from $48.2 million for 1995 to
$137.6 million in 1996, a $89.4 million increase. Of the increase,
approximately $25.9 million, $1.9 million and $.5 million were attributable to
the inclusion of EMI, NetSolve and UTT operating expenses, respectively. The
operating results of EMI have been included in the consolidated results since
July 1, 1996. NetSolve and UTT operating results have been included in the
consolidated results since December 1, 1996. The balance of the increase was
consistent with the significant expansion of the Company's owned and leased
networks and equipment sales to customers.
Facilities administration and maintenance and line costs increased $58.1
million or 253% to $81.1 million in 1996 from $23.0 million in 1995. Of the
increase, approximately $20.9 million, $.9 million and $.4 million were
attributable to the inclusion of EMI, NetSolve and UTT operating results,
respectively. In addition, increases in leased network capacity associated
with the growth of local network service, enhanced data service and
interexchange service revenues, increases in maintenance expense due to
network expansion, payroll expense increases due to hiring additional
engineering and operations staff along with increased cost of goods sold
related to equipment sold to customers contributed to the change.
Selling, general and administrative expenses increased to $36.6 million in
1996 from $15.0 million in 1995, an increase of $21.6 million or 144%. The
increase in expense is primarily related to increased sales commissions as a
result of increases in sales bookings, in addition to increased sales,
customer service, marketing and management information systems and payroll
expense along with related costs, including one-time recruitment, relocation
and training expenses. Of the increase, approximately $2.7 million was
attributable to the inclusion of EMI operating results. Selling, general and
administrative expenses in 1996 include $.9 million of amortization of
deferred compensation expense related to the Company's 1996 Long-Term
Incentive Plan. Unamortized deferred compensation to be amortized into expense
over approximately the next 5 years amounts to $7.6 million.
Depreciation and amortization expense increased to $19.8 million in 1996
from $10.2 million in 1995, an increase of $9.6 million or 95%. These
increases are directly related to the $149.6 million and $34.9 million of
telecommunications equipment additions (including capital leases and business
acquisitions) in 1996 and 1995, respectively, relating to ongoing network
expansion.
Interest expense increased to $35.2 million in 1996 from $13.8 million in
1995, an increase of $21.4 million or 156%. This increase is the result of
interest expense on the May 1996 issuance of $330 million principal amount of
the Company's 12 1/2% Discount Notes and the effect of a full year of interest
expense on the June 1995 issuance of $160 million principal amount of the
Company's 13 1/2% Senior Notes. Included in the $35.2 million of interest
expense for 1996 was $14.3 million of interest on the 12 1/2% Discount Notes
which was accreted into principal without a cash outlay.
Interest and other income increased to $12.2 million in 1996 from $4.1
million in 1995, an increase of $8.1 million or 200%, resulting from interest
income earned on the excess proceeds of the May 1996 issuance of $330 million
principal amount of the 12 1/2% Discount Notes and the issuance of 4,674,503
shares of Common Stock, at $26.00 per share, combined with a full year of
interest income earned on the excess proceeds of the June 1995 issuance of
$160 million principal amount of the 13 1/2% Senior Notes.
Extraordinary loss of $1.6 million in 1995 reflects $1.2 million in
prepayment penalties related to certain indebtedness which was repaid from the
proceeds of the June 1995 issuance of $160 million principal amount of 13 1/2%
Senior Notes and the write-off of the unamortized deferred financing costs
associated with the indebtedness repaid.
EBITDA for 1996 decreased $15.0 million in 1996 from $.6 million in 1995 to
$(14.3) million in 1996. As a percentage of revenue, 1996 and 1995 EBITDA were
approximately (13.8%) and 1.7%, respectively. This decline was the result of
the acceleration in the deployment of ICI's capital expansion plan which
significantly increased growth oriented expenses (such as increases in sales,
customer service and market development costs) prior to realizing revenues
associated with these expenditures.
34
<PAGE>
YEAR ENDED 1995 VS. YEAR ENDED 1994
The Company's revenue grew from $14.3 million to $38.6 million or 171% from
1994 to 1995. Revenues in 1995 and 1994 for each of the product lines were as
follows:
<TABLE>
<CAPTION>
1994 1995 INCREASE
----- ----- --------
<S> <C> <C> <C>
Local network services................................ $ 8.2 $10.8 $ 2.6
Enhanced data services................................ 2.3 6.9 4.6
Interexchange services................................ 1.3 18.9 17.6
Systems integration................................... 2.5 2.0 (0.5)
----- ----- -----
$14.3 $38.6 $24.3
===== ===== =====
</TABLE>
A substantial portion of the increase in revenue was derived from growth in
the Company's enhanced data services and the revenues of Phone One, Inc.
("Phone One") (interexchange services) for the full year in 1995. The Company
acquired all of the outstanding common stock of Phone One on December 2, 1994.
Monthly recurring revenue increased to $2.9 million at December 31, 1995 from
$2 million at December 31, 1994, an increase of 45%. Monthly recurring revenue
represents the monthly service charges billable to telecommunications service
customers as of the last day of the period indicated and excludes nonrecurring
revenues for certain one-time charges, such as installation fees or equipment
charges. The increase in the level of enhanced data services was evidenced by
the increase in nodes which grew approximately 156% from approximately 900 at
December 31, 1994 to approximately 2,300 at December 31, 1995. The geographic
coverage of the Company's networks also grew in 1995 primarily through the
acquisition of FiberNet USA, Inc. and FiberNet Telecommunications of
Cincinnati, Inc. (collectively, "FiberNet") and the expansion of the Company's
intercity network. Monthly recurring revenue in the backlog at December
31, 1995 was approximately $4.2 million annualized, an approximately 45%
increase from the prior year. From December 31, 1994 to December 31, 1995, the
number of fiber miles in the Company's networks increased from 11,227 to
17,128; route miles increased from 378 to 504; and the number of customers
serviced by ICI (including interexchange customers) increased from 8,148 to
9,530.
Operating expense in total increased by 184% from $16.9 million for 1994 to
$48.2 million in 1995, a $31.3 million increase. Approximately $20.5 million
of the increase was attributable to the inclusion of operating expenses
relating to the Company's interexchange long distance services. Approximately
$2.1 million of the increase was attributable to the inclusion of FiberNet's
operating expenses. The operating results of FiberNet have been included in
the consolidated results since March 1, 1995. The balance of the increase was
consistent with the significant expansion of the Company's owned and leased
networks and equipment sales to customers. As a result, the Company incurred a
net loss of $20.7 million for 1995, as compared to a net loss of $3.1 million
in 1994.
Facilities administration and maintenance and line costs increased by 326%
from $5.4 million in 1994 to $23.0 million in 1995, a $17.6 million increase.
Approximately $13.3 million of the increase is due to inclusion of the
operating results of the Company's interexchange long distance services. In
addition, increases in maintenance expense due to network expansion, payroll
expense due to hiring additional engineering staff and cost of goods sold
related to equipment sold to customers contributed to the change.
Selling, general, and administrative expense increased by 134% from $6.4
million in 1994 to $15.0 million in 1995, an $8.6 million increase.
Approximately $5.2 million of the increase is due to the inclusion of the
operating results of the Company's interexchange long distance services and
$.3 million is due to the inclusion of FiberNet's operating results. The
remaining change was primarily due to increases in sales commissions as a
result of increases in sales bookings, accounting, marketing and management
information systems staff, and increased property taxes relating to network
expansion and enhancements. In addition, the Company expended additional
resources by increasing the number and skill level of its sales and sales
support staff. Recovery of these additional expenditures typically is
recognized in future periods.
35
<PAGE>
Depreciation and amortization expense increased by 99% from $5.1 million in
1994 to $10.2 million in 1995, an increase of $5.1 million. These increases
are directly related to the $34.9 million and $18.3 million of
telecommunications equipment additions (including capital leases) in 1995 and
1994, respectively, relating to ongoing network expansion and increases in the
amortization of intangibles associated with the acquisitions of Phone One and
FiberNet.
Interest and other income increased 396% from $0.8 million in 1994 to $4.1
million in 1995, a $3.3 million increase, as a result of interest earned on
the cash available from the proceeds of the offering of the Senior Notes which
were received in June 1995.
Interest expense increased by 1029% from $1.2 million in 1994 to $13.8
million in 1995, an increase of $12.6 million. The increase is primarily due
to the interest incurred on the Senior Notes.
Extraordinary loss of $1.6 million was incurred which consisted of $1.2
million in prepayment penalties relating to certain indebtedness which was
repaid from the proceeds of the offering of the Senior Notes and the write off
of the unamortized deferred financing costs associated with the indebtedness
repaid.
EBITDA decreased by $1.8 million or 74% from $2.5 million in 1994 to $0.6
million in 1995. As a percent of revenue, 1995 and 1994 EBITDA were
approximately 2% and 17%, respectively. This decline was the result of the
inclusion of a full year of revenues and expenses relating to interexchange
long distance services which have a lower operating margin than the Company's
other services, the incurrence of additional growth oriented expenses (such as
increases in sales and support staff and market development costs) prior to
realizing revenues associated with these expenditures and the Company's
introduction of switched access transport services to IXCs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the purchase of telecommunications equipment and the design, construction and
development of the Company's networks. Capital expenditures for the Company
were $13.7 million, $30.0 million and $131.2 million in 1994, 1995 and 1996,
respectively, excluding capital leases and telecommunications equipment
acquired in connection with business acquisitions. The Company expects that it
will continue to have substantial capital requirements in connection with the
(i) expansion and improvement of the Company's existing networks, (ii) design,
construction and development of new networks, (iii) connection of additional
buildings and customers to the Company's networks, (iv) purchase of switches
necessary for local exchange services and expansion of interexchange services
and (v) development of the Company's enhanced data services.
The Company has funded a substantial portion of these expenditures through
the public sale of debt and equity securities and, to a lesser extent,
privately placed debt. From inception through December 31, 1996, the Company
has raised approximately $212.6 million from the sale of Common Stock,
including Common Stock issued in connection with the acquisitions of FiberNet,
Phone One, EMI and UTT, and $324.6 million from the sale of the Existing
Senior Notes.
The substantial capital investment required to build the Company's networks
has resulted in negative cash flow from operations after consideration of
investing activities over the last five year period. This negative cash flow
after investing activities is a result of the requirement to build a
substantial portion of the Company's network in anticipation of connecting
revenue generating customers. The Company expects to continue to produce
negative cash flow after investing activities for the next several years due
to expansion activities associated with the development of the Company's
networks. Until sufficient cash flow after investing activities is generated
from operation, the Company will be required to utilize its current and future
capital resources to meet its cash flow requirements, including the issuance
of additional debt and/or equity securities.
In response to the new pro-competitive telecommunications environment (See
"Business--Government Regulation"), the Company has accelerated and expanded
its capital deployment plan to allow for an increased
36
<PAGE>
level of demand-driven capital spending necessary to more rapidly exploit the
market opportunity in the local exchange market. The Company expects to expend
substantial amounts to upgrade its existing networks in order to switch
traffic within the local service area in those states where it is currently
permitted to provide such services. The Company is certified as a CLEC in 13
states and the District of Columbia, allowing the Company to provide local
exchange services in those markets, and has CLEC certification applications
pending in 22 states. In addition, the Company expects to expend capital
toward the further development of the Company's enhanced data service and
interchange service offerings.
The Company currently estimates that it will require approximately $190
million to fund anticipated capital requirements during 1997, which it expects
to fund from its available cash, including the proceeds of the Private
Placement described in the next paragraph.
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000,000) of the Series A Preferred Stock in a private
placement transaction. Net proceeds to the Company amounted to approximately
$288,875,000. Dividends on the Series A 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 shares of Series A Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. The Series A Preferred Stock is subject to mandatory redemption at
its liquidation preference of $10,000 per share, plus accumulated and unpaid
dividends on March 31, 2009. The Series A 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 Company may, at its option, exchange some or all shares of the Series A
Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures, due
2009 (the "Exchange Debentures"). The Exchange Debentures mature on March 31,
2009. Interest on the Exchange Debentures is payable semi-annually, and may be
paid in the form of additional Exchange Debentures at the Company's option.
Exchange Debentures will 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 Company expects that its available cash, including proceeds from the
Private Placement, will be sufficient to fund its accelerated and expanded
capital deployment plan through 1998. The Company expects to require
additional financing to continue its capital deployment plan beyond 1998. The
Company may obtain additional funding through the sale of public or private
debt and/or equity securities or through securing a bank credit facility.
There can be no assurance as to the availability or the terms upon which such
financing might be available. Moreover, the Existing Senior Notes and the
Series A Preferred Stock impose certain restrictions upon the Company's
ability to incur additional indebtedness or issue additional preferred stock.
The Company has from time to time held, and continues to hold, preliminary
discussions with (i) potential strategic investors (i.e., investors in the
same or a related business) who have expressed an interest in making an
investment in or acquiring the Company, (ii) potential joint venture partners
looking toward formation of strategic alliances that would expand the reach of
the Company's network or services without necessarily requiring an additional
investment in the Company and (iii) companies that represent potential
acquisition opportunities for the Company. There can be no assurance that any
agreement with any potential strategic investor, joint venture partner or
acquisition target will be reached nor does management believe that any such
agreement is necessary to successfully implement its strategic plans.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations over
the past three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 14(a)(1) and (2) are included in
this report beginning on page F-1.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference from
the information captioned "Proposal One: Election of Directors" and "Executive
Officers" to be included in the Company's proxy statement to be filed in
connection with the annual meeting of stockholders, to be held on May 22, 1997
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from
the information captioned "Executive Compensation" and "Comparative Stock
Performance" to be included in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from
the information captioned "Beneficial Ownership" to be included in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from
the information captioned "Certain Transactions" to be included in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a)(1) and
(2) Financial Statements and Financial Statement Schedules
</TABLE>
The following consolidated financial statements of the Company and the notes
thereto, the related reports thereon of the independent certified public
accountants, and financial statement schedules, are filed under Item 8 of this
Report:
<TABLE>
<S> <C> <C>
(a) (1) Financial Statements
Report of Independent Certified Public Accountants.............................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1996....................... F-2
Consolidated Statements of Operations for the years ended December 31, 1994,
1995, and 1996.................................................................. F-3
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1994, 1995 and 1996......................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996................................................................... F-5
Notes to Consolidated Financial Statements...................................... F-6
(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts.................................. F-18
</TABLE>
All other financial statement schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission
(the "Commission") are not required under the instructions to Item 8 or are in
applicable, and therefore have been omitted.
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<PAGE>
<TABLE>
<S> <C>
(3) Exhibits
</TABLE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C>
2.1(a) Acquisition agreement between the Company and Phone One International, Inc.
dated November 9, 1994 (the "Acquisition Agreement"). Exhibit 2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1994 filed with the Commission on November 15, 1994 is incorporated herein
by reference.
</TABLE>
<TABLE>
<S> <C>
2.1(b) Amendment No. 1 to the Acquisition Agreement, dated as of December 2, 1994.
Exhibit 2.1(b) to the Company's Current Report on Form 8-K filed with the
Commission on December 14, 1994 (the "1994 Form 8-K") is incorporated herein
by reference.
</TABLE>
<TABLE>
<S> <C>
2.1(c) Letter agreement dated December 16, 1994 between the Company and Phone One
International, Inc. Exhibit 2.1(c) to the Company's Current Report on Form
8-K filed with the Commission on January 27, 1995 is incorporated herein by
reference.
</TABLE>
<TABLE>
<S> <C> <C>
2.2 Agreement and Plan of Merger, dated as of February 15, 1995, among the
Company, FAC Acquisition, Inc., CAC Acquisition, Inc., FiberNet USA, Inc.,
FiberNet Telecommunications Cincinnati, Inc., James F. Geiger, Mark A. Masi,
Joseph A. Tortoretti, Petrocelli Industries, Inc. and Santo Petrocelli.
Exhibit 2.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
2.3 Asset Purchase Agreement (the "EMI Asset Purchase Agreement") dated as of
February 20, 1996 among EMI Communications Corp., Eastern Message, Inc.,
Eastern Message of New Jersey, Inc., Eastern Message of Pennsylvania, Inc.,
Eastern Message of Massachusetts, Inc., Eastern Message of Maryland, Inc.,
Newhouse Broadcasting Corporation and Intermedia Communications of Florida,
Inc. Exhibit 2.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (the "1995 Form 10-K") is incorporated herein by
reference.
</TABLE>
<TABLE>
<S> <C> <C>
2.3(a) Amendment No. 1 to the EMI Asset Purchase Agreement. Exhibit 2.2 to the
Company's Current Report on Form 8-K filed with the Commission on June 28,
1996 is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
3.1 Restated Certificate of Incorporation of ICI, together with all amendments
thereto.
</TABLE>
<TABLE>
<S> <C> <C>
3.2 By-laws of ICI, together with all amendments thereto. Exhibit 3.2 to the
Company's Form S-1, filed with the Commission on November 8, 1993 (No. 33-
69053) (the "Form S-1") is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.1 Registration Rights Agreement between the Company and Phone One
International, Inc., dated December 2, 1994. Exhibit 4.1 to the 1994 Form 8-
K is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.1(a) Amended and Restated Stockholders Agreement, dated as of June 5, 1991, among
ICI, Robert Benton, Richard Anthony, James Burt, Mary Couture, Robert
Hardie, Sheryl Houff, Thomas Klump, Richard Kolsby, William Miller, Daniel
Montague, Susan Rodriguez, Barbara Samson, Harvard Southall, Bruce
Sutcliffe, Marion Samson Joseph, APA Excelsior II, National Westminster
Jersey Trust Co. Ltd., Custodian for APA Excelsior Venture Capital Holdings
(Jersey) Ltd, Morgan Holland Fund L.P., MBW Venture Partners Limited
Partnership, Michigan Investment Fund L.P. and Philip E. McCarthy, Vista III
L.P., Kronish, Lieb, Weiner & Hellman Profit Sharing Plan and Trust F/B/O
Ralph J. Sutcliffe, New York Life Insurance Company, and Community
Investment Partners, L.P. (the "Stockholders Agreement"). Exhibit 4.1(a) to
the Form S-1 is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.1(b) Amendment to Stockholders Agreement dated as of February 21, 1992. Exhibit
4.1(b) to the Form S-1 is incorporated herein by reference.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C> <C>
4.2 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) (the "Form S-4") is incorporated herein by
reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.2(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.
</TABLE>
<TABLE>
<S> <C> <C>
4.3 Registration Rights Agreement, dated as of June 2, 1995 among the Company,
Bear, Stearns, & Co., Inc. and Morgan Stanley & Co., as initial purchasers.
Exhibit 4.3 to the Form S-4 is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.4 Rights Agreement dated as of March 7, 1996, between Intermedia
Communications of Florida, Inc., and Continental Stock Transfer and Trust
Company. Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Commission on March 12, 1996 is incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.4(a) Amendment to Rights Agreement, dated as of February 20, 1997 between
Intermedia Communications Inc. and Continental Stock Transfer & Trust
Company.
</TABLE>
<TABLE>
<S> <C> <C>
4.5 Warrant Agreement, dated as of February 18, 1988, between ICI and certain of
its stockholders. Exhibit 10.16 to the Company's Form S-1 is incorporated
herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.6 Warrant Agreement, dated as of June 5, 1991, between ICI and New York Life
Insurance Company. Exhibit 10.17 to the Company's Form S-1 is incorporated
herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.7 Form of Warrant Agreement, dated as of March 4, 1992, between ICI and
certain of its stockholders. Exhibit 10.18 to the Company's Form S-1 is
incorporated herein by reference.
</TABLE>
<TABLE>
<S> <C> <C>
4.8 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.
4.9 Certificate of Designation of the Company's 13 1/2% Series A and Series B
Redeemable Exchangeable Preferred Stock due 2009 is contained in the
Company's Restated Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to this report.
4.10 Registration Rights Agreeement, dated as of March 7, 1997, by and among the
Company and Bear, Stearns & Co. Inc., Morgan Stanley & Co. Incorporated and
Salomon Brothers Inc, as the initial purchasers.
4.11 Certificate of Designation, as amended, of the Company's Series C Preferred
Stock is contained in the Company's Restated Certificate of Incorporation,
as amended, filed as Exhibit 3.1 to this report.
10.1(a) 1992 Stock Option Plan. Exhibit 10.1 to the Form S-1 is incorporated herein
by reference.
10.1(b) Amendment to 1992 Stock Option Plan dated May 20, 1993. Exhibit 10.1(b) to
the Form S-1 is incorporated herein by reference.
10.1(c) Long Term Incentive Plan. Exhibit 10.1(c) to the Company's 1995 Form 10-K is
incorporated herein by reference.
10.2 David C. Ruberg Employment Agreement, dated May 1, 1993, between David C.
Ruberg and ICI. Exhibit 10.2 to the Company's 1995 Form 10-K is incorporated
herein by reference.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C> <C>
10.3 Sublease, dated August 28, 1995, between ICI and Pharmacy Management
Services, Inc. for its principal executive offices located at 3625 Queen
Palm Drive, Tampa, Florida. Exhibit 10.3 to the Company's 1995 Form 10-K is
incorporated herein by reference.
10.4 Stock Purchase Agreement, dated as of February 18, 1988, among ICI, Marion
Samson Joseph, Robert Benton, Barbara Samson, Bruce Sutcliffe, William
Miller, Richard Kolsby; and National Westminster Jersey Trust Co. Ltd.,
Custodian for APA Excelsior Venture Capital Holdings (Jersey) Ltd, APA
Excelsior II, Morgan Holland Fund L.P., MBW Venture Partners Limited
Partnership, Michigan Investment Fund L.P., and Philip E. McCarthy, as
amended. Exhibit 10.11 to the Form S-1 is incorporated herein by reference.
10.5 Stock Purchase Agreement, dated as of March 18, 1988, among ICI, Marion
Samson Joseph. Robert Benton, Barbara Samson, Bruce Sutcliffe, William
Miller, Richard Kolsby; and Vista III L.P., Morgan Holland Fund L.P., MBW
Venture Partners Limited Partnership, Michigan Investment Fund L.P., and
Kronish, Lieb, Weiner & Hellman Profit Sharing Plan and Trust F/B/O Ralph J.
Sutcliffe, as amended. Exhibit 10.12 to the Form S-1 is incorporated herein
by reference.
10.6 Stock Purchase Agreement, dated as of July 18, 1989, between ICI and New
York Life Insurance Company. Exhibit 10.13 to the Form S-1 is incorporated
herein by reference.
10.7(a) Stock Purchase Agreement, dated as of June 5, 1991, as amended (the "1991
Stock Purchase Agreement"), among ICI, New York Life Insurance, National
Westminster Jersey Trust Co. Ltd., Custodian for APA Excelsior Venture
Capital Holdings (Jersey) Ltd, APA Excelsior II, Morgan Holland Fund L.P.,
Vista III, L.P., MBW Venture Partners Limited Partnership Michigan
Investment Fund L.P., Philip E. McCarthy, Community Investment Partners,
L.P. and Kronish, Lieb, Weiner & Hellman Profit Sharing Plan and Trust F/B/O
Ralph J. Sutcliffe. Exhibit 10.14(a) to the Form S-1 is incorporated herein
by reference.
</TABLE>
<TABLE>
<S> <C> <C>
10.7(b) Amendment to 1991 Stock Purchase Agreement, dated as of March 2, 1992.
Exhibit 10.14(b) to the Form S-1 is incorporated herein by reference.
10.7(c) Instrument of Approval, dated as of February 21, 1992, by parties to the
1991 Stock Purchase Agreement. Exhibit 10.14(c) to the Company's Form S-1 is
incorporated herein by reference.
10.11 401(k) Plan. Exhibit 10.20 to the Company's Form S-1 is incorporated herein
by reference.
10.12 Frame Relay Service Program Agreement, dated September 12, 1994, among
PacNet, Inc., ICI, EMI Communications Corp., Integrated Network Services,
Inc. and MRC Telecommunications, Inc. Exhibit 10.12 to the Company's 1995
Form 10-K is incorporated herein by reference.
11 Statement Re: Computation of Per Share Earnings.
12 Statement Re: Computation of Ratios.
21 Subsidiaries of the company.
23 Consent of Ernst & Young LLP.
(b) Reports on Form 8-K filed in the fourth quarter of 1996: There were no
reports on Form 8-K filed during the fourth quarter of 1996.
</TABLE>
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<PAGE>
GLOSSARY
Access Charges--The charges paid by an interexchange carrier to a LEC for
the origination or termination of the IXC's customer's long distance calls.
Access Line--A circuit that connects a telephone user (customer) to the
public switched telephone network. The access line usually connects to a
telephone at the customer's end.
Access Node--A Nortel switching device, which extends the presence of the
DMS-500 switch to a remote site, such as an On-Net building. The Access Node
provides interfaces for line connections to the network, and provides
concentration of lines back to the DMS-500 switch.
Access Trunk--A circuit that connects a telephone user's PBX or other
intelligent device to the public switched telephone network. An access trunk
is designed to carry more traffic than an access line, since it is accessible
to a number of users.
ATM (Asynchronous Transfer Mode)--A modern information transfer standard
that allows packetized voice and data to share a transmission circuit. ATM
provides much greater efficiency than typical channelized transmission media.
Bandwidth--The range of analog frequencies or the bit rate of digital
signals that can be supported by a circuit or device. The bandwidth of a
particular circuit is generally determined by the medium itself (wire, fiber
optic cable, etc.) and the device that transmits the signal to the
transmission medium (laser, audio amplifier, etc.)
Bell System--The name given to the large, single entity that comprised what
are today AT&T and the RBOCs, including Bell Laboratories and other
subsidiaries.
CAP (Competitive Access Provider)--A name for a category of local service
provider that appeared in the late 1980's, who competed with local telephone
companies by placing its own fiber optic cables in a city and sold various
private line telecommunications services in direct competition to the local
telephone company.
CENTREX--A Central office based business telephone service that roughly
provides the user with the same services as a PBX, without the capital
investment of the PBX. Centrex services include station to station dialing (2
through 5 digits), customized long distance call handling, and user-input
authorization codes.
CLEC (Competitive Local Exchange Carrier)--A category of telephone service
provider (carrier) that offers services similar to the former monopoly local
telephone company, as recently allowed by changes in telecommunications law
and regulation. A CLEC may also provide other types of telecommunications
services (long distance, etc.)
CLEC (Certification)--Granted by a state public service commission or public
utility commission, this allows a telecommunications services provider the
legal standing to offer local exchange telephone services in direct
competition with the incumbent LEC and other CLECs. Such certifications are
granted on a state by state basis.
CO (Central Office)--The switching center and/or central circuit terminating
facility of a local telephone company.
Communications Act of 1934, The--The first major federal legislation that
established rules for broadcast and non-broadcast communications, both
wireless and wired telephony.
Connected Building--A building that is connected to a carrier's network via
a non-switched circuit that is managed and monitored by that carrier.
Dedicated Access--A circuit that connects a customer to a carrier's network,
not shared amongst multiple customers.
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<PAGE>
Diverse Routing--A network topology that provides reliability by providing
two distinct physical routes for network transmission path (fiber optic or
copper cables) with the ability to quickly "switch" traffic from one route to
the other, should one of the routes be rendered inoperable.
DMS-500--A telephone switch manufactured by Nortel, that provides both local
exchange switching (also known as a "class 5" switch) and a long distance
switch (also known as a "class 4" switch) in a single device.
EBITDA--Earnings Before Interest, Tax, Depreciation, and Amortization - a
financial measure of cash flow
Enhanced Data Services--Data networking services provided on a sophisticated,
software managed transport and switching network, such as a frame relay or ATM
data network.
FCC (Federal Communications Commission)--The US Government organization
charged with the oversight of all public communications media.
Feature Group Circuit--A telecommunications channel that connects a LEC
telephone switch with an IXC telephone switch, for the purpose of passing long
distance calls between the two carriers' networks. Calls placed by dialing "1+"
are routed over these circuits.
Frame Relay--A wide area information transport technology that organizes data
into units called frames, with variable bit length, designed to move
information that is "bursty" in nature.
ICP (Integrated Communications Provider)--A telecommunications carrier that
provides packaged or integrated services from among a broad range of
categories, including local exchange service, long distance service, enhanced
data service, cable TV service, and other communications services.
ILEC (Incumbent Local Exchange Carrier)--The local exchange carrier that was
the monopoly carrier, prior to the opening of local exchange services to
competition.
ILEC Collocation--A location serving as the interface point for a CLEC's
network at the point of interconnection to the ILEC. Subcollocation can be 1)
physical, in which the CLEC "builds" a fiber optic network extension into the
ILEC central office, or 2) virtual, in which the ILEC leases a facility,
similar to that which it might build, to affect a presence in the ILEC central
office.
Interconnection (co-carrier) Agreement--A contract between an ILEC and a CLEC
for the interconnection of the two's networks, for the purpose of mutual
passing of traffic between the networks, allowing customers of one of the
networks to call users served by the other network. These agreements set out
the financial and operational aspects of such interconnection.
Interexchange Services--Telecommunications services that are provided between
two exchange areas, generally meaning between two cities. These services can be
either voice or data.
Interim Number Portability--A temporary technique that allows local exchange
service customers of an ILEC to keep their existing telephone number, while
moving their service to a CLEC. Their interim technique uses a central office
feature called remote call forwarding. The permanent solution to number
portability is to implemented over the next few years.
ISDN (Integrated Services Digital Network)--a modern telephone technology
that combines voice and data switching in an efficient manner.
ISP (Internet Service Provider)--a recently created category of
telecommunications service provider who provides access to the Internet,
normally for dial access customers, by sharing communications lines and
equipment.
IXC (Interexchange Carrier)--A provider of telecommunications services that
extend between exchanges, or cities. Also called long distance carrier.
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<PAGE>
LATA (Local Access and Transport Area)--A geographic area inside of which a
LEC can offer switched telecommunications services, even long distance (known
as local toll). There are 161 LATAs in the continental US. The LATA boundaries
were established at the Divestiture of the regional Bell operating companies.
LEC (Local Exchange Carrier)--Any telephone service provider offering local
exchange services.
Local Exchange--An area inside of which telephone calls are generally
completed without any toll, or long distance charges. Local exchange areas are
defined by the state regulator of telephone services.
Local Exchange Services--Telephone services that are provided within a local
exchange. These usually refer to local calling services (dial tone services.)
Business local exchange services include Centrex, access lines and trunks, and
ISDN.
POP (Point of Presence)--A location where a carrier, usually an IXC, has
located transmission and terminating equipment to connect its network to the
networks of other carriers, or to customers.
RBOC (Regional Bell Operating Company)--One of the Leeks created by the
Divestiture of the local exchange business by AT&T. These include BellSouth,
NYNEX, Bell Atlantic, Ameritech, US West, SBC, and PacTel.
SONET (Synchronous Optical NETwork)--A transmission technology that is used
by carriers in both local and long distance telecommunications networks to
provide efficient, highly reliable communications channels.
Special Access Services--Private, non-switched connections between an IXC and
a customer, for the purpose of connecting the customer's long distance calls to
the IXC's network, without having to pay the LEC's access charges.
Systems Integration--The provision of specialized skills and equipment to
meet specific customer needs.
VSAT (Very Small Aperture Terminal)--A satellite communication system that
comprises small diameter (approximately 1 meter in diameter) antennae and
electronics to establish a communications terminal, use mostly for data. VSAT
networks compete with other, landline based networks such as private lines and
frame relay.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
INTERMEDIA COMMUNICATIONS, INC. (REGISTRANT)
Company Name
/s/ David C. Ruberg
By:---------------------------------
DAVID C. RUBERG PRESIDENT, CHIEF
EXECUTIVE OFFICER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
PRINCIPAL EXECUTIVE OFFICER:
SIGNATURES TITLE DATE
/s/ David C. Ruberg Chairman of the March 14, 1997
- ------------------------------------- Board, President
DAVID C. RUBERG and Chief Executive
Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERS:
Robert M. Manning Senior Vice March 14, 1997
- ------------------------------------- President and Chief
ROBERT M. MANNING Financial Officer
Jeanne M. Walters Controller and Chief March 14, 1997
- ------------------------------------- Accounting Officer
JEANNE M. WALTERS
OTHER DIRECTORS:
John C. Baker March 14, 1997
- -------------------------------------
JOHN C. BAKER
George F. Knapp March 14, 1997
- -------------------------------------
GEORGE F. KNAPP
Philip A. Campbell March 14, 1997
- -------------------------------------
PHILIP A. CAMPBELL
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Intermedia Communications Inc.
We have audited the accompanying consolidated balance sheets of Intermedia
Communications Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Intermedia Communications Inc. at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
February 10, 1997, except for Note 13, as to which the date is March 7, 1997
F-1
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 50,996,919 $189,545,939
Short-term investments........................... -- 6,041,000
Restricted investments........................... 20,954,015 26,674,831
Accounts receivable, less allowance for doubtful
accounts of $869,000 in 1995 and $1,346,000 in
1996............................................ 7,954,194 19,271,769
Prepaid expenses and other current assets........ 1,832,186 5,230,149
------------ ------------
Total current assets............................... 81,737,314 246,763,688
Restricted investments............................. 30,869,001 10,481,358
Telecommunications equipment, net.................. 76,169,589 203,907,013
Intangible assets, net............................. 26,986,915 48,397,317
Other assets....................................... 255,306 3,391,001
------------ ------------
Total assets....................................... $216,018,125 $512,940,377
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 4,810,175 $ 29,895,061
Accrued taxes.................................... 285,757 1,660,279
Accrued interest................................. 1,800,000 1,800,000
Other accrued expenses........................... 1,575,925 3,709,951
Advance billings................................. 1,747,081 3,137,093
Current portion of long-term debt................ 107,757 55,015
Current portion of capital lease obligations..... 1,057,927 476,973
------------ ------------
Total current liabilities.......................... 11,384,622 40,734,372
Long-term debt..................................... 159,199,226 353,449,031
Capital lease obligations.......................... 5,179,914 4,526,764
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 and
460,000 shares authorized in 1995 and 1996,
respectively; no shares issued.................. -- --
Series C preferred stock, $1.00 par value; 40,000
shares authorized in 1996, none in 1995; no
shares issued................................... -- --
Common stock, $.01 par value; 20,000,000 and
50,000,000 shares authorized in 1995 and 1996,
respectively; 10,359,771 and 16,285,340 shares
issued and outstanding in 1995 and 1996,
respectively.................................... 103,597 162,853
Additional paid-in capital....................... 74,093,476 212,810,661
Accumulated deficit.............................. (33,942,710) (91,141,421)
Deferred compensation............................ -- (7,601,883)
------------ ------------
Total stockholders' equity......................... 40,254,363 114,230,210
------------ ------------
Total liabilities and stockholders' equity......... $216,018,125 $512,940,377
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Revenues.............................. $14,272,396 $ 38,630,574 $103,396,887
Expenses:
Facilities administration and
maintenance and line costs......... 5,395,932 22,989,195 81,105,107
Selling, general, and
administrative..................... 6,412,287 14,992,458 36,609,846
Depreciation and amortization....... 5,131,940 10,195,871 19,835,686
----------- ------------ ------------
16,940,159 48,177,524 137,550,639
----------- ------------ ------------
Loss from operations.................. (2,667,763) (9,546,950) (34,153,752)
Other income (expense):
Interest expense.................... (1,218,876) (13,766,639) (35,213,179)
Interest and other income........... 819,260 4,060,040 12,168,220
----------- ------------ ------------
Loss before income tax benefit and ex-
traordinary item..................... (3,067,379) (19,253,549) (57,198,711)
Income tax benefit.................... -- 96,952 --
----------- ------------ ------------
Loss before extraordinary item........ (3,067,379) (19,156,597) (57,198,711)
Extraordinary loss on early extin-
guishment of debt.................... -- (1,592,045) --
----------- ------------ ------------
Net loss.............................. $(3,067,379) $(20,748,642) $(57,198,711)
=========== ============ ============
Loss per share:
Loss before extraordinary item...... $ (0.34) $ (1.91) $ (4.08)
Extraordinary loss.................. -- (0.16) --
----------- ------------ ------------
Net loss per share.................. $ (0.34) $ (2.07) $ (4.08)
=========== ============ ============
Weighted average number of shares out-
standing............................. 8,955,993 10,035,774 14,017,597
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
PAID-IN ACCUMULATED DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY
---------- -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................... 8,877,432 $ 88,774 $ 56,025,341 $(10,126,689) $ -- $ 45,987,426
Issuance of shares of
common stock for
business combination.. 740,000 7,400 8,836,100 -- -- 8,843,500
Exercise of stock
options for 41,756
shares of common stock
at prices ranging from
$6.25 to $10.63 per
share................. 41,756 418 269,398 -- -- 269,816
Net loss............... -- -- -- (3,067,379) -- (3,067,379)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1994................... 9,659,188 96,592 65,130,839 (13,194,068) -- 52,033,363
Issuance of shares of
common stock for
business combination.. 683,583 6,836 7,854,369 -- -- 7,861,205
Return and cancellation
of escrowed shares
issued for 1994
business combination.. (22,357) (224) (279,239) -- -- (279,463)
Exercise of stock
options and warrants
for 39,357 shares of
common stock at prices
ranging from $4.20 to
$12.20 per share...... 39,357 393 336,307 -- -- 336,700
Issuance of detachable
stock purchase
warrants, net of
issuance costs........ -- -- 1,051,200 -- -- 1,051,200
Net loss............... -- -- -- (20,748,642) -- (20,748,642)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1995................... 10,359,771 103,597 74,093,476 (33,942,710) -- 40,254,363
Sale of common stock... 4,674,503 46,745 111,670,973 -- -- 111,717,718
Issuance of shares of
common stock for
business
combinations.......... 968,880 9,689 17,767,495 -- -- 17,777,184
Exercise of stock
options and warrants
for 82,186 shares of
common stock at prices
ranging from $4.20 to
$27.06 per share...... 82,186 822 706,222 -- -- 707,044
Issuance of stock
options under long-
term compensation
plan.................. -- -- 3,574,500 -- (3,574,500) --
Issuance of common
stock under long-term
compensation plan..... 200,000 2,000 4,997,995 -- (4,999,995) --
Amortization of
deferred
compensation.......... -- -- -- -- 972,612 972,612
Net loss............... -- -- -- (57,198,711) -- (57,198,711)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1996................... 16,285,340 $162,853 $212,810,661 $(91,141,421) $(7,601,883) $114,230,210
========== ======== ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................... $ (3,067,379) $ (20,748,642) $ (57,198,711)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 5,131,940 10,607,666 21,087,749
Amortization of deferred
compensation................... -- -- 972,612
Accretion of interest on notes.. -- -- 14,304,460
Extraordinary loss.............. -- 1,592,045 --
Deferred tax benefit............ -- (96,952) --
Provision for doubtful
accounts....................... 80,222 856,055 2,284,502
Changes in operating assets and
liabilities:
Accounts receivable............ (1,273,985) (3,442,940) (13,150,097)
Prepaid expenses and other
current assets................ (741,888) (204,824) (1,702,353)
Other assets................... -- 159,751 (178,009)
Accounts payable............... (552,512) (591,955) 22,326,204
Other accrued expenses and
taxes......................... (360,073) 1,483,878 2,107,548
Advance billings............... 367,290 691,046 1,390,012
------------ ------------- -------------
Net cash used in operating activi-
ties............................. (416,385) (9,694,872) (7,756,083)
INVESTING ACTIVITIES
Purchase of restricted invest-
ments............................ -- (60,952,496) (5,250,000)
Maturities of restricted invest-
ment............................. -- 9,179,480 19,916,827
Purchase of business, net of cash
acquired......................... -- (1,952,268) (12,401,086)
Purchases of short-term invest-
ments............................ -- -- (6,041,000)
Purchases of telecommunications
equipment........................ (13,730,693) (29,962,419) (131,214,187)
Proceeds from sale of telecommuni-
cations equipment................ -- -- 624,110
Other investing activities........ 201,701 -- --
------------ ------------- -------------
Net cash used in investing activi-
ties............................. (13,528,992) (83,687,703) (134,365,336)
FINANCING ACTIVITIES
Proceeds from sale of common
stock, net of issuance costs..... -- -- 111,717,718
Exercise of stock warrants and op-
tions............................ 269,816 336,700 707,044
Payments on long-term debt........ (3,143,782) (14,804,457) (1,320,510)
Net proceeds from issuance of
long-term debt and warrants...... -- 153,766,848 170,862,622
Payments on capital leases........ (926,318) (5,127,784) (1,296,435)
------------ ------------- -------------
Net cash (used in) provided by fi-
nancing activities............... (3,800,284) 134,171,307 280,670,439
------------ ------------- -------------
Increase (decrease) in cash and
cash equivalents................. (17,745,661) 40,788,732 138,549,020
Cash and cash equivalents at be-
ginning of year.................. 27,953,848 10,208,187 50,996,919
------------ ------------- -------------
Cash and cash equivalents at end
of year.......................... $ 10,208,187 $ 50,996,919 $ 189,545,939
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid..................... $ 1,481,679 $ 12,318,014 $ 23,436,882
============ ============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Intermedia Communications Inc. (ICI or the Company), formerly Intermedia
Communications of Florida, Inc. through May 29, 1996, is an integrated
communications services provider offering a full suite of local, long-distance
and enhanced data services to business and government end users. Services
include data and video telecommunications services, frame relay, Internet
access services, local exchange services, long-distance services and
telecommunications equipment. The Company offers its full product package of
telecommunications services to customers in 15 metropolitan statistical areas
in the eastern half of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Intermedia
Communications Inc. and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-Term Investments
Short-term investments consist of certificates of deposit with maturities of
more than three months when purchased and are stated at cost.
Restricted Investments
Restricted investments consist of U.S. Treasury Notes which are restricted
for the repayment of interest on certain debt and are stated at amortized
cost. Management designated these investments as held-to-maturity securities
in accordance with the provisions of Statement of Financial Accounting
Standards No.115, Accounting for Certain Investments in Debt and Equity
Securities.
Telecommunications Equipment
Telecommunications equipment is stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Telecommunications equipment...................................... 3--7 years
Fiber optic cable................................................. 20 years
Furniture and fixtures............................................ 5--7 years
</TABLE>
F-6
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leasehold improvements are amortized using the straight-line method over the
shorter of the term of the lease or the estimated useful life of the
improvements.
Intangible Assets
Intangible assets are stated at cost and include purchased customer lists,
deferred debt issuance costs, and goodwill. Customer lists are amortized using
the straight-line method over their estimated useful lives of eight years.
Goodwill is amortized using the straight-line method over periods of eight to
forty years.
As more fully discussed in Note 2, during December 1996, the Company
acquired Universal Telcom, Inc. and NetSolve, Inc. in transactions accounted
for using the purchase method. The excess of the respective purchase prices
over the fair value of tangible net assets acquired have been preliminarily
classified in the accompanying consolidated balance sheets as intangible
assets. The final allocation to identifiable intangible assets is currently
underway by management. The preliminary intangible assets not allocated to
identifiable tangible and intangible assets will be recorded as goodwill.
Deferred debt issuance costs relate to the issuance of debt and are
amortized using the effective interest method over the term of the debt
agreements. The related amortization is included as a component of interest
expense in the accompanying consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue in the period the service is provided or the
goods are shipped for equipment product sales. Unbilled revenues represent
revenues earned for telecommunications services provided which will be billed
in the succeeding month and totaled $636,257 and $2,403,584 and as of December
31, 1995 and 1996, respectively. Unbilled revenues are included as a component
of accounts receivable in the accompanying consolidated balance sheets. The
Company invoices customers one month in advance for recurring services
resulting in advance billings at December 31, 1995 and 1996 of $1,747,100 and
$3,137,000 respectively.
Income Taxes
The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires an asset and
liability approach in accounting for income taxes for all years presented.
Deferred income taxes are provided for in the consolidated financial
statements and principally relate to net operating losses and basis
differences for customer lists and telecommunications equipment.
Loss Per Share
Loss per share is based on the weighted average shares outstanding. Common
stock equivalents are not considered in the Company's calculation of loss per
share as all are antidilutive and would have no impact on the results.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No.
105, Disclosure of Information About Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments with Concentrations of Credit Risk, are
primarily cash and cash equivalents and accounts receivable.
F-7
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company places its cash and temporary cash investments with high-quality
institutions. As of December 31, 1996, cash equivalents totaling approximately
$227,000,000 were held by a single financial institution. Such amounts were
collateralized by government-backed securities.
Accounts receivable are due from residential and commercial
telecommunications customers. Credit is extended based on evaluation of the
customer's financial condition and generally collateral is not required.
Anticipated credit losses are provided for in the consolidated financial
statements and have been within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with APB No.
25, Accounting for Stock Issued to Employees, and, in cases where exercise
prices equal or exceed fair market value, recognizes no compensation expense
for the stock option grants. In cases where exercise prices are less than fair
value, compensation is recognized over the period of performance or the
vesting period.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting and Disclosure of Stock-Based Compensation, (Statement
123) which encourages, but does not require, companies to recognize stock
awards based on their fair value at the date of grant. Unaudited pro forma
financial information, assuming that the Company had adopted the measurement
standards of Statement 123, is included in Note 7.
RECLASSIFICATIONS
Certain prior year investment accounts have been reclassified as restricted
in order to conform with the 1996 presentation.
2. BUSINESS ACQUISITIONS
During December 1994, the Company acquired the common stock of Phone One,
Inc. in exchange for 740,000 shares of common stock of the Company, valued at
approximately $8,800,000. The acquisition was accounted for by the purchase
method of accounting, with the purchase price allocated based on fair values
of assets acquired, principally customer lists, and liabilities assumed. The
operating results of Phone One, Inc. are included in the Company's
consolidated financial statements from the date of acquisition.
During February 1995, the Company acquired FiberNet in exchange for 683,583
shares of the Company's common stock, valued at approximately $7,800,000, the
assumption of approximately $5,000,000 in liabilities and a note payable of
$1,200,000 which was paid on July 17, 1995. The acquisition was accounted for
by the purchase method of accounting with the purchase price allocated based
on fair values of assets acquired and liabilities assumed. The excess of the
purchase price over the fair values of the net assets amounted to $11,000,000
and is being amortized over 20 years. The operating results of FiberNet are
included in the Company's consolidated financial statements since March 1,
1995 since the operating results from the date of acquisition were deemed to
be immaterial.
During June 1996, the Company acquired the Telecommunications Division of
EMI Communications Corporation (EMI) in exchange for 937,500 shares of the
Company's common stock, valued at approximately $16,900,000. The acquisition
was accounted for by the purchase method of accounting, with the purchase
price allocated to the fair values of assets acquired, principally
telecommunications equipment. The operating results of EMI are included in the
Company's consolidated financial statements from the date of acquisition.
F-8
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During December 1996, the Company acquired, in two separate transactions,
certain assets and the related businesses of Universal Telcom, Inc. (UTT) and
NetSolve, Incorporated (NetSolve). The purchase price for UTT included 31,380
shares of the Company's common stock, valued at approximately $900,000, and
the assumption of approximately $2,000,000 of UTT's liabilities. NetSolve was
purchased for cash of $12,800,000. The operations of UTT and NetSolve are
included in the Company's consolidated financial statements from December 1,
1996, at which date the Company exercised control. The acquisitions are
accounted for by the purchase method, with the purchase price to be allocated
to the assets acquired based upon fair values. The allocation of the purchase
price to both UTT and NetSolve is tentative pending completion of the
valuations of certain identifiable intangibles.
The following unaudited pro forma results of operations for the years ended
December 31 assume the acquisitions of FiberNet, EMI, UTT and NetSolve had
occurred at the beginning of the periods presented, and do not purport to be
indicative of the results that actually would have occurred if the
acquisitions had been made as of those dates or of results which may occur in
the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenue......................................... $104,687,000 $152,071,000
Loss before extraordinary item.................. $(18,354,000) $(57,202,000)
Net loss........................................ $(19,946,000) $(57,202,000)
Net loss per share.............................. $ (1.79) $ (3.94)
</TABLE>
3. TELECOMMUNICATIONS EQUIPMENT
Telecommunications equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Telecommunications equipment..................... $ 50,506,651 $128,995,630
Fiber optic cable................................ 27,891,274 38,098,811
Furniture and fixtures........................... 5,223,389 18,492,948
Leasehold improvements........................... 985,876 4,500,441
Construction in progress......................... 12,830,122 51,393,299
------------ ------------
97,437,312 241,481,129
Less accumulated depreciation.................... (21,267,723) (37,574,116)
------------ ------------
$ 76,169,589 $203,907,013
============ ============
</TABLE>
Depreciation expense totaled $4,911,001, $7,940,173 and $15,453,931 in 1994,
1995 and 1996, respectively.
Interest expense capitalized in connection with the Company's internally-
managed construction of telecommunications equipment amounted to $257,058,
$677,512 and $2,780,125 in 1994, 1995 and 1996, respectively.
Telecommunications equipment and construction in progress included
$7,264,534 and $6,867,256 of equipment recorded under capitalized lease
arrangements at December 31, 1995 and 1996, respectively. Accumulated
amortization of assets recorded under capital leases amounts to $1,007,802 and
$1,450,381 at December 31, 1995 and 1996, respectively. Telecommunications
equipment purchases financed through capital lease obligations totaled
$4,558,761, $4,910,724 and $251,824, in 1994, 1995 and 1996, respectively. The
amortization of assets recorded under capital leases is included in
depreciation expense.
F-9
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with network expansion, the Company had firm commitments for
capital expenditures of approximately $4,500,000 at December 31, 1996.
4. INTANGIBLE ASSETS
Intangible assets consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Goodwill........................................... $13,210,045 $13,233,045
Customer lists..................................... 10,096,975 10,376,437
Preliminary intangible assets (Notes 1 and 2)...... -- 15,451,050
Debt issuance costs................................ 6,233,152 15,288,931
----------- -----------
29,540,172 54,349,463
Less accumulated amortization...................... (2,553,257) (5,952,146)
----------- -----------
$26,986,915 $48,397,317
=========== ===========
</TABLE>
Amortization of goodwill and customer lists amounted to $220,939 in 1994,
$2,011,508 in 1995 and $3,123,157 in 1996. Amortization of debt issuance
costs, included in interest expense, amounted to $69,192, $411,795 and
$1,252,063 in 1994, 1995 and 1996, respectively.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
13.5% Senior Notes............................... $158,983,840 $159,115,240
12.5% Senior Discount Notes...................... -- 194,223,760
Other notes payable.............................. 323,143 165,046
------------ ------------
159,306,983 353,504,046
Less current portion............................. (107,757) (55,015)
------------ ------------
$159,199,226 $353,449,031
============ ============
</TABLE>
During June 1995, ICI issued $160,000,000 principal amount of 13.5% Senior
Notes due 2005 (the Senior Notes) and warrants to purchase 350,400 shares of
the Company's common stock. The Company allocated $1,051,200 of the proceeds
to the warrants, representing the estimated fair value at the date of
issuance. The Senior Notes are limited in aggregate principal amount to $160
million and mature on June 1, 2005. The Senior Notes may be redeemed at the
option of the Company, in whole or in part, on or after June 1, 2000,
beginning at a premium of 106.75% of par and declining to par in 2003, plus
accrued and unpaid interest and liquidated damages, if any, through the
redemption rate. The Senior Notes bear interest at the rate of 13.5% per annum
payable semiannually in arrears on June 1 and December 1. The Senior Notes
agreement contains certain covenants including limits on the incurrence of
additional indebtedness, with which the Company is in compliance at December
31, 1996.
The Company used a portion of the proceeds from the Senior Notes to retire
certain other long-term indebtedness. In connection with the repayment of
certain indebtedness, the Company incurred a prepayment
F-10
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
penalty of approximately $1,156,000. This amount, plus the write-off of
related unamortized financing costs have been reported as an extraordinary
loss in the accompanying 1995 consolidated statements of operations.
During May 1996, the Company issued $330,000,000 principal amount of 12.5%
Senior Discount Notes, due May 15, 2006 (the Senior Discount Notes). The
original issue discounted price for each $1,000 face value Senior Discount
Note was $545. The original issue discount is to be amortized over the term of
the Senior Discount Notes using the effective interest method. Commencing on
November 15, 2001, interest on the Senior Discount Notes will be payable
semiannually in arrears on May 15 and November 15 at a rate of 12.5% per
annum. Amortization of the original issue discount amounted to approximately
$14,304,000 during 1996 and is included in interest expense. The Senior
Discount Notes are redeemable at the option of the Company after May 15, 2001,
at a premium declining to par in 2004, plus accrued and unpaid interest. The
Senior Discount Notes agreement contains certain restrictive covenants
including limitations on the incurrence of additional indebtedness, with which
the Company is in compliance.
Long-term debt maturities as of December 31, 1996 for the next five years
are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 55,015
1998............................................................ 55,015
1999............................................................ 55,016
2000............................................................ --
2001............................................................ --
Thereafter...................................................... 353,339,000
------------
$353,504,046
============
</TABLE>
The Company is a party to various capital lease agreements for fiber optic
cable, underground conduit equipment and utility poles which extend through
the year 2015.
Future minimum lease payments for assets under the capital leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 1,066,442
1998............................................................ 1,036,487
1999............................................................ 1,038,348
2000............................................................ 1,009,265
2001............................................................ 542,298
Thereafter...................................................... 5,875,168
-----------
10,568,008
Less amount representing interest............................... (5,564,271)
-----------
Present value of future minimum lease payments.................. 5,003,737
Less current portion............................................ (476,973)
-----------
$ 4,526,764
===========
</TABLE>
F-11
<PAGE>
INTERMEDIA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............. $ 50,996,919 $ 50,996,919 $189,545,939 $189,545,939
Short-term investments... -- -- 6,041,000 6,041,000
Restricted investments,
current and noncurrent.. 51,823,016 52,064,050 37,156,189 36,920,392
Accounts receivable...... 7,954,194 7,954,194 19,271,769 19,271,769
Liabilities:
Accounts payable......... $ 4,810,175 $ 4,810,175 $ 29,895,061 $ 29,895,061
Long-term debt:
13.5% Senior Notes...... 158,983,840 179,200,000 159,115,240 182,800,000
12.5% Senior Discount
Notes.................. -- -- 194,223,760 216,975,000
Other notes payable..... 323,143 323,143 165,046 165,046
</TABLE>
The following methods and assumptions are used in estimating fair values for
financial instruments:
Cash and cash equivalents: The carrying amount reported in the consolidated
balance sheets for cash and cash equivalents approximates its fair value.
Investments: As of December 31, 1996, these investments are classified as
held-to-maturity, in accordance with SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. The fair value of these investments
is estimated from quoted market prices.
Accounts receivable and accounts payable: The carrying amounts reported in
the consolidated balance sheets for accounts receivable and accounts payable
approximate their fair value.
Long-term and short-term debt: The estimated fair value of the Company's
borrowing is based on negotiated trades for the securities as provided by the
Company's investment banker or by using discounted cash flows at the Company's
incremental borrowing rate.
7. STOCKHOLDERS' EQUITY
Stock Options: The Company has a 1992 Stock Option Plan and a 1996 Long-Term
Incentive Plan (the Plans) under which options to acquire an aggregate of
1,346,000 shares and 1,500,000 shares, respectively, of common stock may be
granted to employees, officers, directors and consultants of the Company. The
Plans authorize the Board of Directors (the Board) to issue incentive stock
options (ISOs), as defined in Section 422A(b) of the Internal Revenue Code,
and stock options that do not conform to the requirements of that Code section
(Non-ISOs). The Board has discretionary authority to determine the types of
stock options to be granted, the persons among those eligible to whom options
will be granted, the number of shares to be subject to such options, and the
terms of the stock option agreements. Options may be exercised in the manner
and at such times as fixed by the Board, but may not be exercised after the
tenth anniversary of the grant of such options.
F-12
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the transactions for the three years ended
December 31, 1996 relating to the Plans:
<TABLE>
<CAPTION>
PER SHARE
NUMBER OF SHARES OPTION PRICE
---------------- --------------
<S> <C> <C>
Outstanding, January 1, 1994................ 627,739 $ 6.06--$12.13
Granted................................... 233,248 $10.25--$12.25
Exercised................................. (41,756) $ 6.25--$10.63
Canceled.................................. (70,464) $ 6.06--$12.13
---------
Outstanding, December 31,1994............... 748,767 $ 6.06--$12.25
Granted................................... 549,057 $ 9.50--$15.56
Exercised................................. (37,831) $ 6.38--$12.25
Canceled.................................. (121,019) $ 6.38--$12.25
---------
Outstanding, December 31, 1995.............. 1,138,974 $ 6.06--$15.56
Granted................................... 1,187,183 $19.75--$34.50
Exercised................................. (81,996) $ 6.38--$27.06
Canceled.................................. (67,490) $ 6.60--$15.56
---------
Outstanding, December 31, 1996.............. 2,176,671
=========
Exercisable, December 31, 1996.............. 526,528
=========
</TABLE>
The Board of Directors has reserved 674,142 shares of common stock in
connection with stock warrants, and 2,462,341 shares of common stock that may
be issued to employees, officers, directors, and consultants of the Company
pursuant to stock options as may be determined by the Board of Directors.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk-free interest rates of 6.2%; a dividend
yield of zero; volatility factors of the expected market price of the
Company's common stock based on historical trends; and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Pro forma net loss.............................. $(20,961,000) $(58,602,000)
Pro forma earnings (loss) per share............. $ (2.09) $ (4.18)
</TABLE>
F-13
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Award Plans: During 1996, the Company entered into restricted share
agreements with three executive officers that provide stock award incentives.
Pursuant to the agreements, up to an aggregate of 255,000 restricted shares of
common stock are awarded to the respective officers upon the attainment of
certain stock price milestones ranging from $20 to $40. Shares awarded under
these arrangements vest over a period of five years following the award.
During 1996, 200,000 shares were awarded with a fair value of $4,999,995,
which amount will be amortized over the vesting period.
Stock Warrants: At December 31, 1996, warrants to purchase the following
shares of the Company's common stock were outstanding:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE EXPIRATION DATE
------ --------------- ---------------
<S> <C> <C>
6,282 $ 4.20 March 4, 1997
317,460 4.20 June 2, 1997
350,400 10.86 June 1, 2000
</TABLE>
As further discussed in Note 5, the Company issued warrants expiring in 2000
to acquire 350,400 shares of common stock in connection with the issuance of
the Senior Notes. The Company also has warrants outstanding that had been
issued for consulting services.
Shareholder Rights Plan: On March 7, 1996, the Board of Directors adopted a
Shareholder Rights Plan and declared a dividend of one common stock Purchase
Right (a Right) for each outstanding share of common stock to shareholders of
record on March 18, 1996. Such Rights only become exercisable, or transferable
apart from the common stock, ten business days after a person or group (an
Acquiring Person) acquires beneficial ownership of, or commences a tender or
exchange offer for, 15% or more of the Company's common stock.
Each Right then may be exercised to acquire 1/1000th of a share of the
Company's Series C preferred stock at an exercise price of $85. Thereafter,
upon the occurrence of certain events, the Rights entitle holders other than
the Acquiring Person to acquire the existing Company's preferred stock or
common stock of the surviving company having a value of twice the exercise
price of the Rights.
The Rights may be redeemed by the Company at a redemption price of $.01 per
Right at any time until the 10th business day following public announcement
that a 15% position has been acquired or ten business days after commencement
of a tender or exchange offer.
Authorized Shares: On May 24, 1996, the Board of Directors approved an
increase in the number of shares of authorized common stock from 20,000,000 to
50,000,000.
F-14
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
At December 31, 1995 and 1996, the Company had temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. The Company also has net operating loss (NOL)
carryforwards available to offset future taxable income. Significant
components of the Company's deferred tax assets and liabilities as of December
31 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
--------------------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1995 1996
- ----------------------------------- ------------ ------------
<S> <C> <C>
Tax over book depreciation........................... $ (3,410,117) $ (5,751,022)
Intangibles.......................................... (3,324,225) (2,849,139)
------------ ------------
Total deferred tax liabilities..................... (6,734,342) (8,600,161)
Net operating loss carryforwards..................... 14,198,845 37,091,018
Other................................................ 300,746 1,037,985
------------ ------------
Total deferred tax assets.......................... 14,499,591 38,129,003
Less valuation allowance (7,765,249) (29,528,842)
------------ ------------
Net deferred tax assets.............................. 6,734,342 8,600,161
------------ ------------
$ -- $ --
============ ============
</TABLE>
The Company has net operating loss carryforwards of approximately
$98,000,000 at December 31, 1996 that expire in various amounts from 2003 to
2011. Approximately $68,000,000 of these net operating loss carryforward is
subject to the "ownership change" rules of Section 382 of the Internal Revenue
Code of 1986 and can only be utilized at the rate of approximately $31,000,000
per year.
9. RESTRICTED INVESTMENTS
The terms of the Company's Senior Note agreement (see Note 5) required the
Company to use a portion of the debt proceeds to purchase pledged securities
(Restricted Investments) sufficient to provide for the payment of interest on
the Senior Notes through June 1, 1998. The Company has purchased government
securities whose maturity coincides with the interest repayment dates.
The Company's restricted investments at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes........... $30,806,189 $-- $82,070 $30,724,119
Certificates of deposit....... 6,350,000 -- -- 6,350,000
----------- ---- ------- -----------
$37,156,189 $-- $82,070 $37,074,119
=========== ==== ======= ===========
</TABLE>
The amortized cost and estimated fair value of the Company's restricted
investments at December 31, 1996 by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITIES COST FAIR VALUE
---------- ----------- -----------
<S> <C> <C>
Due within one year................................. $26,674,831 $26,635,996
Due after one year through five years............... 10,481,358 10,438,123
----------- -----------
$37,156,189 $37,074,119
=========== ===========
</TABLE>
F-15
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) profit-sharing plan. Employees 21 years
or older with one year of service are eligible to participate in the plan.
Participants may elect to contribute, on a tax-deferred basis, up to 15% of
their compensation, not to exceed $9,500 in 1996. The Company will match one-
half of a participant's contribution, up to a maximum of 3% of the
participant's compensation. The Company's matching contribution fully vests
after five years of service. The Company's contributions to the plan were
approximately $58,000, $85,000 and $77,000 in 1994, 1995 and 1996,
respectively.
11. OPERATING LEASES
The Company leases rights-of-way and cable conduit space, fiber optic cable,
terminal facility space, and office space. The leases generally contain
renewal options which range from one year to fifteen years, with certain
rights-of-way and cable conduit space being renewable indefinitely after the
minimum lease term subject to cancellation notice by either party to the
lease. Lease payments in some cases may be adjusted for related revenues,
increases in property taxes, operating costs of the lessor, and increases in
the Consumer Price Index. Lease expense was $908,000, $1,466,000 and
$4,795,000, and for 1994, 1995, and 1996, respectively.
Future minimum lease payments under noncancelable operating leases with
original terms of more than one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RIGHTS-OF-WAY
AND CABLE
CONDUIT SPACE FIBER OPTIC CABLE TERMINAL FACILITY SPACE OFFICE SPACE TOTAL
------------- ----------------- ----------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1997.................... $12,250 $ 532,300 $ 3,211,780 $ 3,128,806 $ 6,885,136
1998.................... -- 529,344 2,768,667 3,072,439 6,370,450
1999.................... -- 355,434 2,184,255 2,733,543 5,273,232
2000.................... -- 321,280 1,351,807 2,117,851 3,790,938
2001.................... -- 321,280 890,191 890,325 2,101,796
Thereafter.............. -- 937,066 8,648,872 960,767 10,546,705
------- ---------- ----------- ----------- -----------
$12,250 $2,996,704 $19,055,572 $12,903,731 $34,968,257
======= ========== =========== =========== ===========
</TABLE>
12. CONTINGENCIES
On May 3, 1995, the Company asserted a claim for indemnification against the
former shareholder of Phone One, Inc. (the Former Shareholder) for
approximately $1 million on account of various breaches of representations and
warranties made by the Former Shareholder to the Company in the agreement for
the acquisition of Phone One, Inc. (the Phone One Acquisition Agreement). The
Former Shareholder has objected to the indemnification claim, which is subject
to arbitration under the Phone One Acquisition Agreement. On May 24, 1995, the
Former Shareholder advised the Company that it has filed a complaint against
the Company in the Florida circuit court for Dade County seeking rescission of
the Phone One, Inc. acquisition and damages for breach of contract in excess
of $3 million. Pursuant to the mandatory arbitration requirements of the Phone
One Acquisition Agreement, in July 1995, the Company filed a demand for
arbitration, and the action was stayed in the circuit court. The parties
negotiated a settlement proposal, and on August 27, 1996, the dispute was
settled and mutual general releases exchanged by which the Company delivered
22,357 of the holdback shares, pursuant to the terms of the Phone One
Acquisition Agreement. On September 3, 1996, the action in circuit court was
dismissed with prejudice.
The Company is not a party to any other pending legal proceedings except for
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or
lawsuits will have a material effect on the Company's financial condition,
results of operations or cash flows.
F-16
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENT
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000,000) of its 13 1/2% Series A Redeemable Exchangeable
Preferred Stock, due 2009, (the "Preferred Stock") in a private placement
transaction. Net proceeds to the Company amounted to approximately
$288,875,000. Dividends on the Preferred Stock accumulate at a rate of 13 1/2%
of the aggregate liquidation preference and are payable quarterly, in arrears.
Dividends are payable in cash or, at the Company's option, by the issuance of
additional shares of Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. The Preferred Stock is
subject to mandatory redemption at its liquidation preference of $10,000 per
share, plus accumulated and unpaid dividends on March 31, 2009. The 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 Company may, at its option, exchange some or all shares of the Preferred
Stock for the Company's 13 1/2% Senior Subordinated Debentures, due 2009 (the
"Exchange Debentures"). The Exchange Debentures mature on March 31, 2009.
Interest on the exchange debentures is payable semi-annually, and may be paid
in the form of additional Exchange Debentures at the Company's option.
Exchange Debentures will 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.
F-17
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended De-
cember 31, 1994:
Deducted from asset ac-
counts:
Allowance for doubtful
accounts............. $ 53,793 $ 80,222 $527,320(1) $ 115,935(2) $ 545,400
======== ========== ======== ========== ==========
For the year ended De-
cember 31, 1995:
Deducted from asset ac-
counts:
Allowance for doubtful
accounts............. $545,400 $ 856,055 -- $ 532,455(2) $ 869,000
======== ========== ======== ========== ==========
For the year ended De-
cember 31, 1996:
Deducted from asset ac-
counts:
Allowance for doubtful
accounts............. $869,000 $2,284,502 -- $1,807,502(2) $1,346,000
======== ========== ======== ========== ==========
</TABLE>
- --------
(1) Amount represents allowance for doubtful accounts acquired in connection
with the December 2, 1994 acquisition of all the outstanding common stock
of Phone One, Inc.
(2) Uncollectible accounts written off, net of recoveries.
F-18
<PAGE>
EXHIBIT 3.1
-----------
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"INTERMEDIA COMMUNICATIONS OF FLORIDA, INC." FILED IN THIS OFFICE ON THE SEVENTH
DAY OF MAY, A.D. 1992, AT 9 0'CLOCK A.M.
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2143051 8100 AUTHENTICATION: 8349480
971064365 DATE: 02-27-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/07/1992
921285160 - 2143051
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
_________________________
Under Section 245 of the
General Corporation Law
__________________________
The undersigned DOES HEREBY CERTIFY as follows:
I. The name of the Corporation is INTERMEDIA COMMUNICATIONS OF
FLORIDA, INC. ( the "Corporation").
II. The date of filing of the Corporation's original Certificate of
Incorporation with the Secretary of State of the State of Delaware was November
9, 1987.
III. Upon the filing of this Restated Certificate of Incorporation,
each 2.8 issued and outstanding shares of Common Stock, $.01 par value per
share, of the Corporation ("Old Common Stock"), shall automatically, without
any further action by the holder thereof or by the Corporation, be reclassified
and deemed to be one validly issued, fully paid and nonassessable share of
Common Stock, $.01 par value per share, of the Corporation ("New Common Stock").
No certificates or scrip representing fractional shares of New Common Stock
shall be issued by reason hereof. If a fractional share would be issuable to
any one holder of Old Common Stock pursuant hereto, then the number of shares
into which such Old Common Stock will be reclassified pursuant hereto
<PAGE>
will be rounded to the next highest number of whole shares of New Common Stock.
Each certificate for 2.8 shares of Old Common Stock prior to the filing of this
Restated Certificate of Incorporation will be deemed upon the filing hereof to
represent a certificate for one share of New Common Stock (subject to the
treatment of fractional interests described above).
IV. Concurrently with the filing of this Restated Certificate of
Incorporation, each outstanding share of the Corporation's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, $1.00 par value
per share, is being converted (without the payment of accrued but unpaid
dividends thereon), at the election of the Corporation, into fully paid and
nonassessable shares of New Common Stock, all pursuant to the terms and
conditions of such Preferred Stock.
V. The Certificate of Incorporation, as heretofore amended, of the
Corporation ( the "Certificate of Incorporation") is amended hereby as follows:
(a) Article FOURTH is amended to (i) increase the number of shares of capital
stock which the Corporation shall have authority to issue, (ii) eliminate
the designations of the Series A, B, C, and D Preferred Stock of the
Corporation (the "Series Preferred Stock") and all powers, preferences,
privileges, voting, dividend and other special or relative rights and
qualifications of the Series
-2-
<PAGE>
Preferred Stock, including the related prohibition on reissuance of such
Series Preferred Stock, and (iii) eliminate the parenthetical reference in
A(2) of Article FOURTH to written actions by stockholders in lieu of
meetings;
(b) Articles FIFTH and SIXTH are hereby deleted in their entirety, in part, to
eliminate the supermajority voting requirement to effect a merger or
consolidation;
(c) new Articles FIFTH and SIXTH are inserted, among other things, to (i)
establish the number of directors of the Corporation, with the number of
directors to be fixed from time to time by resolution of the Board of
Directors of the Corporation (the "Board"), (ii) reorganize the Board into
three classes with staggered terms, and (iii) eliminate the ability of
stockholders to take action by written consent; and
(d) Article NINTH is amended to conform it to the changes stated hereinabove.
VI. This Restated Certificate of Incorporation was duly adopted by
the Board and authorized by the affirmative vote of the stockholders pursuant to
Sections 222 and 242 of the General Corporation Law of the State of Delaware.
VII. The Certificate of Incorporation is hereby amended and restated
in its entirety to read as follows:
-3-
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
FIRST: The name of the Corporation is Intermedia Communications
Florida, Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 15 East North Street, in the City of Dover, County of
Kent. The name of its registered agent at that address is United Corporate
Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of Delaware as set forth in Title 8 of the Delaware Code (the
"GCL").
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 20,500,000 shares, of which
20,000,000 shares shall be classified as Common stock, $.01 par value per share
("Common Stock"), and 500,000 shares shall be classified as Preferred Stock,
$1.00 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
-4-
<PAGE>
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the
--------
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors of the Corporation (the "Board") upon any issuance of the Preferred
Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one
-------
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common
----------
Stock from funds lawfully available therefor as and when determined by the Board
and subject to any preferential dividend rights of any then outstanding
Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
------------
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential or participating rights of any
then outstanding Preferred Stock.
B. PREFERRED STOCK.
The Preferred Stock may be issued in one or more series. The number,
designation and all of the powers, preferences and rights and the
qualifications, limitations or restrictions of the shares of any series of
Preferred Stock may be fixed by the Board as provided in Section 151 of the GCL.
-5-
<PAGE>
Different series of Preferred Stock shall not be construed to constitute
different classes of shares for the purposes of voting by classes unless
expressly so provided.
FIFTH: The number of directors constituting the entire Board shall
be not less than three nor more than seven as determined from time to time by
resolution of the Board. The Board shall consist of three classes, designated
as Class I, Class II, and Class III, respectively, with the size of each class
determined from time to time by resolution of the Board; each of which classes
shall, however, consist of a number of directors as equal as possible, with no
class having more than one director more than any other class. Except for the
initial directors in each class who shall have terms of office of one, two and
three years, respectively, each class of directors shall thereafter have a term
of office of three years and until their respective successors shall have been
elected and qualified, or until a director's earlier resignation or removal.
Any director may resign at any time upon notice to the Corporation.
SIXTH: All action required or permitted to be taken by the
Corporation's stockholders must be effected at a duly called Annual or Special
Meeting (and may not be effected by written consent in lieu thereof).
SEVENTH: The Corporation shall to the fullest extent permitted by
Section 145 of GCL, as amended from time to time, indemnify all persons whom it
may indemnify pursuant
-6-
<PAGE>
thereto. Directors of the corporation shall have no personal liability for
monetary damages for breach of a fiduciary duty, or failure to exercise any
applicable standard of care, of a director to the fullest extent permitted by
Section 102 (b) (7) of the GCL.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholder of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been
-7-
<PAGE>
made, be binding on all the creditors or class or creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights and powers conferred
upon stockholders, directors and officers are subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation of the
Corporation has been signed, and the statements made herein affirmed as true
under the penalties of perjury, this 27th day of April, 1992.
ATTEST:
/s/ Daniel J. Montague /s/ Robert F. Benton
- ----------------------- ---------------------
Daniel J. Montague, Robert F. Benton,
Secretary President
-8-
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
"INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF JUNE, A.D. 1993, AT 9 0'CLOCK A.M.
/s/ Edward J. Freel
---------------------
Edward J. Freel, Secretary of State
2143051 8100 [SEAL] AUTHENTICATION: 8349477
971064365 DATE: 02-27-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/21/1993
703172017 - 2143051
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Intermedia
Communications of Florida, Inc.
2. To allow the Corporation's Board of Directors to amend the
Corporation's By-laws without stockholder approval, the Certificate of
Incorporation, of the Corporation as heretofore amended and restated, is hereby
further amended to add the following Article TENTH:
"TENTH: The Board of Directors (by action taken by a majority of
the entire Board of Directors then in office) may amend or change the
By-Laws of the Corporation in any respect."
3. The foregoing amendment to the Certificate was duly adopted by the
Board of Directors and stockholders of the Corporation in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed on this 4th day of June, 1993.
INTERMEDIA COMMUNICATIONS OF
FLORIDA, INC.
By: /s/ David C. Ruberg 6/4/93
-----------------------------
David C. Ruberg, Chief Executive Officer
Attest:
/s/ Daniel J. Montague
- -----------------------
Daniel J. Montague, Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.", FILED IN THIS
OFFICE ON THE THIRTEENTH DAY OF MARCH, A.D. 1996, AT 9 0'CLOCK A.M.
/s/ Edward J. Freel
-----------------------
Edward J. Freel, Secretary of State
2143051 8100 [SEAL] AUTHENTICATION: 8349474
971064365 DATE: 02-27-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/13/1996
960073740 -2143051
CERTIFICATE OF DESIGNATION
OF THE VOTING POWER, DESIGNATION,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE
SERIES A PREFERRED STOCK
_________________________________________________
Pursuant to Section 151 of the
General Corporation Law of
the State of Delaware
________________________________________________
I, David C. Ruberg, President and Chief Executive Officer of Intermedia
Communications of Florida, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DO HEREBY
-----------
CERTIFY:
that, pursuant to authority conferred upon the Board of Directors of the
Corporation by its Certificate of Incorporation (the "Certificate"), and,
------------
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, said Board of Directors, at a duly called meeting held on
March 7, 1996, at which a quorum was present and acted throughout, adopted the
following resolutions, which resolutions remain in full force and effect on the
date hereof creating a series of 200,000 shares of Preferred Stock having a par
value of $1.00 per share, designated as Series A Preferred Stock (the "Series A
--------
Preferred Stock") out of the class of 500,000 shares of preferred stock of the
- ---------------
par value of $1.00 per share (the "Preferred Stock"):
---------------
RESOLVED, that pursuant to the authority vested in the Board of Directors
in accordance with the provisions of the Certificate, the Board of Directors
does hereby create, authorize and provide for the issuance of the Series A
Preferred Stock having the voting powers, designation, relative, participating,
optional and other special rights, preferences, and qualifications, limitations
and restrictions thereof that are set forth as follows:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Preferred Stock" and the number of shares constituting
------------------------
such series shall be 200,000.
<PAGE>
Section 2. Dividends and Distributions.
----------------------------
(A) Subject to the prior and superior rights of the holders of any shares
of any other series of Preferred Stock or any other shares of preferred stock of
the Corporation ranking prior and superior to the shares of Series A Preferred
Stock with respect to dividends, each holder of one one-hundredth (1/100) of a
share (a "Unit") of Series A Preferred Stock shall be entitled to receive, when,
----
as and if declared by the Board of Directors out of funds legally available for
that purpose, (i) quarterly dividends payable in cash on the last day of March,
June, September and December in each year (each such date being a "Quarterly
---------
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
- ---------------------
after the first issuance of such Unit of Series A Preferred Stock, in an amount
per Unit (rounded to the nearest cent) equal to the greater of (a) $.01 or (b)
subject to the provision for adjustment hereinafter set forth, the aggregate per
share amount of all cash dividends declared on shares of the Common Stock since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series A Preferred Stock, and (ii) subject to the provision for adjustment
hereinafter set forth, quarterly distributions (payable in kind) on each
Quarterly Dividend Payment Date in an amount per Unit equal to the aggregate per
share amount of all non-cash dividends or other distributions (other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock, by reclassification or otherwise) declared on shares of
Common Stock since the immediately preceding quarterly Dividend Payment Date, or
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of a Unit of Series A Preferred Stock. In the event that the
Corporation shall at any time after March 18, 1996 (the "Rights Declaration")
------------------
(i) declare any dividend on outstanding shares of Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii)
combine outstanding shares of Common Stock into a smaller number of shares, then
in each such case the amount to which the holder of a Unit of Series A Preferred
Stock was entitled immediately prior to such event pursuant to the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which shall be the number of shares of Common Stock that are
outstanding immediately after such event and the denominator of which shall be
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on Units of
Series A Preferred Stock as
2
<PAGE>
provided in paragraph (A) above immediately after it declares a dividend or
distribution on the shares of Common Stock (other than a dividend payable in
shares of Common Stock); provided, however, that, in the event no dividend or
-------- -------
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next Quarterly Dividend
Payment Date, a dividend of $.01 per Unit on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series A Preferred Stock from the quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series A Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on Units of Series A
Preferred Stock in an amount less than the aggregate amount of all such
dividends at the time accrued and payable on such Units shall be allocated pro
rata on a unit-by-unit basis among all Units of Series A Preferred Stock at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of Units of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of Units of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
Unit of Series A Preferred Stock shall entitle the holder thereof to one vote on
all matters submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine
the outstanding shares of Common
3
<PAGE>
Stock into a smaller number of shares, then in each such case the number of
votes per Unit to which holders of Units of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of Units of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) If at any time dividends on any Units of Series A Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends thereon, then
during the period (a "default period") from the occurrence of such event until
--------------
such time as all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all Units of
Series A Preferred Stock then outstanding shall have been declared and paid or
set apart for payment, all holders of Units of Series A Preferred Stock, voting
separately as a class, shall have the right to elect two Directors, provided
that if the Directors are divided into classes, the holders of Units of Series A
Preferred Stock shall not elect more than one Director to any one class.
(ii) During any default period, such voting rights of the holders of Units
of Series A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that neither such voting rights nor any right of the holders of Units
of Series A Preferred Stock to increase, in certain cases, the authorized number
of Directors may be exercised at any meeting unless one-third of the outstanding
Units of Preferred Stock shall be present at such meeting in person or by proxy.
The absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Units of Series A Preferred Stock of such rights. At
any meeting at which the holders of Units of Series A Preferred Stock shall
exercise such voting rights initially during an existing default period, they
shall have the right, voting separately as a class, to elect Directors to fill
up to two vacancies in the Board of Directors, if any such vacancies may then
exist, or, if such right is exercised at an annual meeting, to elect two
4
<PAGE>
Directors. If the number which may be so elected at any special meeting does
not amount to the required number, the holders of the Series A Preferred Stock
shall have the right to make such increase in the number of Directors as shall
be necessary to permit the election by them of the required number. After the
holders of Units of Series A Preferred Stock shall have exercised their right to
elect Directors during any default period, the number of Directors shall not be
increased or decreased except as approved by a vote of the holders of Units of
Series A Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to the Series A Preferred Stock.
(iii) Unless the holders of Series A Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than 25% of the total number of the Units of
Series A Preferred Stock outstanding may request, the calling of a special
meeting of the holders of Units of Series A Preferred Stock, which meeting shall
thereupon be called by the Secretary of the Corporation. Notice of such meeting
and of any annual meeting at which holders of Units of Series A Preferred Stock
are entitled to vote pursuant to this paragraph (C)(iii) shall be give to each
holder of record of Units of Series A Preferred Stock by mailing a copy of such
notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders owning in the
aggregate not less than 25% of the total number of outstanding Units of Series A
Preferred Stock. Notwithstanding the provisions of this paragraph (C) (iii), no
such special meeting shall be called during the 60 days immediately preceding
the date fixed for the next annual meeting of the stockholders.
(iv) During any default period, the holders of shares of Common Stock and
Units of Series A Preferred Stock, and other classes or series of stock of the
Corporation, if applicable, shall continue to be entitled to elect all the
Directors until holders of the Units of Series A Preferred Stock shall have
exercised their right to elect two Directors voting as a separate class, after
the exercise of which right (x) the Directors so elected by the holders of Units
of Series A Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of the default
period, and
5
<PAGE>
(y) any vacancy in the Board of Directors may (except as provided in paragraph
(C) (ii) of this Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of capital stock which
elected the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class of
capital stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Units of Series A Preferred Stock as a separate class to elect
Directors shall cease, (y) the term of an Directors elected by the holders of
Units of Series A Preferred Stock as a separate class shall terminate, and (z)
the number of directors shall be such number as may be provided for in the
Certificate or by-laws irrespective of any increase made pursuant to the
provisions of paragraph (C) (ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in the
Certificate or by-laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(vi) The provisions of this paragraph (C) shall govern the election of
Directors by holders of Units of Preferred Stock during any default period
notwithstanding any provisions of the Certificate to the contrary, including,
without limitation, the provisions of Article FIFTH of the Certificate.
(D) Except as set forth herein, holders of Units of Series A Preferred
Stock shall have no special voting rights and their consents shall not be
required (except to the extent they are entitled to vote with holders of shares
of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
---------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on Units of Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on outstanding Units of Series A
Preferred Stock shall have been paid in full, the Corporation shall not:
6
<PAGE>
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares
of junior stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of parity stock, except dividends paid ratably on Units of
Series A Preferred Stock and shares of all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of such Units and all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any parity stock, provided, however, that the Corporation may
-----------------
at any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any junior stock;
(iv) purchase or otherwise acquire for consideration any Units of
Series A Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to
all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reaquired Shares. Any Units of Series A Preferred Stock
----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
Units shall, upon their cancellation, become authorized but unissued Units of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
---------------------------------------
(A) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, no distribution shall be made (i) to the holders of
shares of junior stock unless the holders of Units of Series A Preferred Stock
shall have received, subject to adjustment as hereinafter provided in paragraph
(B), the greater of either (a) $85.00 per Unit plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or
7
<PAGE>
not earned or declared, to the date of such payment, or (b) the amount equal to
the aggregate per share amount to be distributed to holders of shares of Common
Stock, or (ii) to the holders of shares of shares of parity stock, unless
simultaneously therewith distributions are made ratably on Units of Series A
Preferred Stock and all other shares of such parity stock in proportion to the
total amounts to which the holders of Units of Series A Preferred Stock are
entitled under clause (i) (a) of this sentence and to which the holders of
shares of such parity stock are entitled, in each case upon such liquidation,
dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series A Preferred Stock were entitled immediately prior to such event
pursuant to clause (i) (b) of paragraph (A) of this Section 6 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case Units of
Series A Preferred Stock shall at the same time be similarly exchanged for or
converted into an amount per Unit (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is converted or exchanged. In the event
the Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock, or (iii) combine
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of Units of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the number
of shares of Common Stock that are outstanding immediately after such event and
the denominator of
8
<PAGE>
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. Redemption. The Units of Series A Preferred Stock shall not be
----------
redeemable.
Section 9. Ranking. The Units of Series A Preferred Stock shall rank
-------
junior to all other series of the Preferred Stock and to any other class of
preferred stock that hereafter may be issued by the Corporation as to the
payment of dividends and the distribution of assets, unless the terms of any
such series or class shall provide otherwise.
Section 10. Amendment. The Certificate, including, without limitation,
---------
this resolution, shall not hereafter be amended, either directly or indirectly,
or through merger or consolidation with another corporation, in any manner that
would alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding Units of Series A Preferred
Stock, voting separately as a class.
Section 11. Fractional Shares. The Series A Preferred Stock may be issued
-----------------
in Units or other fractions of a share, which Units or fractions shall entitle
the holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights holders of Series A Preferred Stock.
Section 12. Certain Definitions. As used herein with respect to the
-------------------
Series A Preferred Stock, the following terms shall have the following meanings:
(A) The term "Common Stock" shall mean the class of stock designated
------------
as the common stock, par value $0.01 per share, of the Corporation at the
date hereof or any other class of stock resulting from successive changes
or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 4 shall mean the
------------
Common Stock and any other class or series of capital stock of the
Corporation hereafter authorized or issued over which the Series A
Preferred Stock has preference or priority as to the payment of dividends
and (ii) as used in Section 6, shall mean the Common Stock and any other
class or series of capital stock of the Corporation over which the Series A
Preferred Stock has preference or priority in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation.
9
<PAGE>
(C) The term "parity stock" (i) as used in Section 4, shall mean any
------------
class or series of stock of the Corporation hereafter authorized or issued
ranking pari passu with the Series A Preferred Stock as to dividends and
(ii) as used in Section 6, shall mean any class or series of capital stock
ranking pari passu with the Series A Preferred Stock in the distribution of
----------
assets on any liquidation, dissolution or winding up.
IN WITNESS WHEREOF, Intermedia Communications of Florida, Inc. has
caused this Certificate to be signed by its President and Chief Executive
Officer and attested by its Secretary this 13 day of March, 1996.
INTERMEDIA COMMUNICATIONS OF
FLORIDA, INC.
By: /s/ David C. Ruberg
--------------------
David C. Ruberg,
President and Chief
Executive Officer
Attest:
/s/ Ronald L. Tolliver
- -----------------------
Ronald L. Tolliver,
Secretary
10
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "INTERMEDIA COMMUNICATIONS OF FLORIDA, INC." , CHANGING ITS NAME FROM
"INTERMEDIA COMMUNICATIONS OF FLORIDA, INC." TO "INTERMEDIA COMMUNICATIONS
INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF MAY, A.D. 1996, AT 9 0'CLOCK
A.M.
/s/ Edward J. Freel
____________________
Edward J. Freel, Secretary of State
2143051 8100 [SEAL] AUTHENTICATION: 8349473
971064365 DATE: 02-27-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/30/1996
960157445 - 2143051
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
______________________________________________________________
Under Section 242 of the Delaware General
Corporation Law
______________________________________________________________
Pursuant to the provisions of Sections 242 of the General Corporation
Law of the State of Delaware, the undersigned, being the President and Secretary
of Intermedia Communications of Florida, Inc. do hereby certify that:
FIRST: The name of the corporation is Intermedia Communications of
Florida, Inc. (hereinafter referred to as the "Corporation").
SECOND: The Certificate of Incorporation of the Corporation was filed
with the Office of the Secretary of State of the State of Delaware on November
9, 1987. The Certificate of Incorporation was Restated and filed with the
Office of the Secretary of State of Delaware on May 7, 1992.
THIRD: The Restated Certificate of Incorporation of the Corporation
is hereby amended to (i) change the name of the Corporation from Intermedia
CommunicationS of Florida, Inc. to Intermedia Communications Inc.; and (ii)
increase the authorized Common Stock from 20,000,000 shares to 50,000,000
shares, so that Article FIRST and paragraph 1 of ARTICLE FOURTH of the Restated
Certificate of Incorporation are hereby amended to read as follows:
"FIRST: The name of the corporation is Intermedia Communications Inc.
(hereinafter referred to as the "Corporation").
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 50,500,000, of which 50,000,000
shares shall be classified as Common stock, $.01 par value per share ("Common
Stock"), and 500,000 shares shall be classified as Preferred Stock, $1.00 par
value per share ("Preferred Stock")."
FOURTH: This Amendment to the Restated Certificate of Incorporation of
the Corporation was duly adopted by the Board of Directors and by a majority of
stockholders of the Corporation
<PAGE>
entitled in vote in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 28
day of May, 1996 and affirm that the statements set forth herein are true and
correct under the penalties of perjury.
/s/ David Ruberg
-----------------
David Ruberg, President and Chief
Executive Officer
/s/ Oscar Williams
-------------------
Oscar Williams, Secretary
2
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF CERTIFICATE OF DESIGNATION OF
"INTERMEDIA COMMUNICATIONS INC.", FILED IN THIS OFFICE ON THE TWENTY-FIRST DAY
OF FEBRUARY, A.D. 1997, AT 9 0'CLOCK A.M.
/s/ Edward J. Freel
____________________
Edward J. Freel, Secretary of State
2143051 8100 [SEAL] AUTHENTICATION: 8349470
971064365 DATE: 02-27-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/21/1997
971058712 - 2143051
AMENDED CERTIFICATE OF DESIGNATION
OF THE VOTING POWER, DESIGNATION,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE
SERIES A PREFERRED STOCK
_________________________________________________
Pursuant to Section 151 of the
General Corporation Law of
the State of Delaware
________________________________________________
I, David C. Ruberg, President and Chief Executive Officer of Intermedia
Communications Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DO HEREBY CERTIFY
AND SET FORTH:
FIRST: The name of the Corporation is Intermedia Communications
Inc. The name under which the Corporation was formed is Intermedia
Communications of Florida, Inc.
SECOND: The Corporation filed a Certificate of Designation of the
Voting Power, Designation, Preferences and Relative, Participating, Optional or
other Special Rights and Qualifications, Limitations and Restrictions of the
Series A Preferred Stock with the Secretary of State of the State of Delaware on
the 13th day of March, 1996 (the "Certificate of Designation").
THIRD: The Certificate of Designation is hereby amended as follows:
(a) Section 1 of the Certificate of Designation is hereby amended to read in
its entirety as follows:
Section 1. Designation and Amount. The shares of such series
----------------------
shall be designated as "Series C Preferred Stock" and the number
of shares constituting such series shall be 40,000.
(b) The term "Unit" as used throughout the Certificate of Designation shall
mean one one-thousandth (1/1000) of a share of Series A Preferred Stock.
(c) The term Series A Preferred Stock as used throughout the Certificate of
Designation shall refer to the Series C Preferred Stock.
<PAGE>
FOURTH: The Certificate has not issued any shares of Series A
Preferred Stock. This amendment to the Certificate of Designation was
authorized by a resolution of the board of directors of the Corporation (the
"Board") ratified at a meeting of the Board duly held on January 29, 1997.
IN WITNESS WHEREOF, Intermedia Communications Inc. has caused this
Amended Certificate of Designation to be signed by its President and Chief
Executive Officer and attested by its Secretary, this twenty first day of
February, 1997.
/s/ David C. Ruberg
--------------------
David C. Ruberg
President and Chief
Executive Officer
Attest:
/s/ Robert M. Manning
- ----------------------
Robert M. Manning
Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
_____________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF CERTIFICATE OF DESIGNATION OF
"INTERMEDIA COMMUNICATIONS INC." FILED IN THIS OFFICE ON THE SIXTH DAY OF MARCH,
A.D. 1997, AT 9 0'CLOCK A.M.
A CERTIFICATE OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
____________________
Edward J. Freel, Secretary of State
2143051 8100 [SEAL] AUTHENTICATION: 8361193
971073694 DATE: 03-06-97
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION OF VOTING POWER,
DESIGNATION PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTION
OF
13 1/2% SERIES A AND SERIES B
REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009
OF
INTERMEDIA COMMUNICATIONS INC.
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
Intermedia Communications Inc., a Delaware corporation (the
"Company") certifies that pursuant to the authority contained in ARTICLE FOURTH
of its Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Company at a meeting duly called and held on March 2, 1997, duly approved and
adopted the following resolution which resolution remains in full force and
effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Certificate of Incorporation, the Board of Directors does
hereby designate, create, authorize and provide for the issue of two series of
preferred stock having a par value of $1.00 per share, which shall be designated
as Series A Redeemable Exchangeable Preferred Stock due 2009 (the "Series A
Preferred Stock") and Series B Redeemable Exchangeable Preferred Stock due 2009
(the "Series B Preferred Stock" and, together with the Series A Preferred Stock,
the "Exchangeable Preferred Stock") each consisting of 60,000 shares, provided
that no shares of Series B Preferred Stock may be issued, except upon the
surrender and cancellation of such number of shares of Series A Preferred Stock
having an aggregate Liquidation Preference equal to the aggregate Liquidation
Preference of the shares of Series B Preferred Stock so issued, and each shall
have the following voting powers, preferences and relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions thereof as follows:
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph 1 shall have, for all purposes of this resolution, the meanings herein
specified (with terms defined in the singular having comparable meanings when
used in the plural).
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other
<PAGE>
Person merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Applicable Redemption Price" means a price per share equal to 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 Liquidated Damages, if any, to the date of
redemption if redeemed during the 12-month period commencing on March 31 of each
of the years set forth below:
2002.............................................................. 106.75%
2003.............................................................. 105.40%
2004.............................................................. 104.05%
2005 ............................................................. 102.70%
2006.............................................................. 101.35%
2007 and thereafter................................................100.00%
"Asset Sale" means when the Company and its Subsidiaries, whether in a
single transaction or a series of related transactions occurring within any
twelve-month period, (i) sell, lease, convey, dispose of or otherwise transfer
any assets (including by way of a Sale and Leaseback Transaction) (other than
sales, leases, conveyances, dispositions or other transfers (A) in the ordinary
course of business, (B) to the Company by any Subsidiary of the Company or from
the Company to any Subsidiary of the Company, (C) that constitute a Restricted
Payment, Investment or dividend or distribution permitted under Section 9(a)
hereof or (D) that constitute the disposition of all or substantially all of the
assets of the Company pursuant to Section 9(d) hereof) or (ii) issue or sell
Equity Interests in any of its Subsidiaries (other than an issuance or sale of
Equity Interests of any such Subsidiary to the Company or a Subsidiary), if, in
the case of either (i) or (ii) above, in a single transaction or a series of
related transactions occurring within any twelve-month period, such assets or
securities (x) have a Fair Market Value in excess of $2.0 million or (y) are
sold or otherwise disposed of for net proceeds in excess of $2.0 million.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3
and 13d-5 under the Exchange Act (or any successor rules), including the
provision of such Rules that a Person shall be deemed to have beneficial
ownership of all securities that such Person has a right to acquire within 60
days; provided that a Person will not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership (1) arises solely as a
result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the Exchange Act and (2)
is not also then reportable on Schedule 13D or Schedule 13G (or any successor
schedule) under the Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
2
<PAGE>
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, 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, to any Person or group (as such
term is used in Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) any Person or group (as defined above) is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total Voting Stock or Total
Common Equity of the Company, including by way of merger, consolidation or
otherwise or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share price
of any shares of Capital Stock means the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements. the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means
the ratio of the Consolidated Indebtedness and Liquidation Preference of such
Person to the Consolidated EBITDA of such Person for the relevant period;
provided, however, that (1) if the Company or any Subsidiary of the Company has
incurred any Indebtedness (including Acquired Debt) or if the Company has issued
any Disqualified Stock or if any Subsidiary of the Company has issued any
Disqualified Stock or Preferred Stock since the beginning of such period that
remains outstanding on the date of such determination or if the transaction
giving rise to the need to calculate the Consolidated Cash Flow Leverage Ratio
is an incurrence of Indebtedness (including Acquired Debt) or the issuance of
Disqualified Stock by the Company, Consolidated EBITDA and Consolidated
Indebtedness and Liquidation Preference for such period will be calculated after
giving effect on a pro forma basis to (A) such Indebtedness, Disqualified Stock
or Preferred Stock, as applicable, as if such Indebtedness had been incurred or
such stock had been issued on the first day of such period, (B) the discharge of
any other Indebtedness or Preferred Stock repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness or sale
of stock as if such discharge had occurred on the first day of such period, and
(C) the interest income realized by the Company or its Subsidiaries on the
proceeds of such Indebtedness or of such stock sale, to the extent not yet
applied at the date of determination, assuming such
3
<PAGE>
proceeds earned interest at the rate in effect on the date of determination from
the first day of such period through such date of determination, (2) if since
the beginning of such period the Company or any Subsidiary of the Company has
made any sale of assets (including, without limitation, any Asset Sales or
pursuant to any Sale and Leaseback Transaction), Consolidated EBITDA for such
period will be (A) reduced by an amount equal to Consolidated EBITDA (if
positive) directly attributable to the assets which are the subject of such sale
of assets for such period or (B) increased by an amount equal to Consolidated
EBITDA (if negative) directly attributable thereto for such period and (3) if
since the beginning of such period the Company or any Subsidiary of the Company
(by merger or otherwise) has made an Investment in any Subsidiary of the Company
(or any Person which becomes a Subsidiary of the Company) or has made an
acquisition of assets, including, without limitation, any acquisition of assets
occurring in connection with a transaction causing a calculation of Consolidated
EBITDA to be made hereunder, which constitutes all or substantially all of an
operating unit of a business, Consolidated EBITDA for such period will be
calculated after giving pro forma effect thereto (including the incurrence of
any Indebtedness (including Acquired Debt)) as if such Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the pro
forma calculations will be determined in good faith by a responsible financial
or accounting Officer of the Company, provided, however, that such Officer shall
assume (i) the historical sales and gross profit margins associated with such
assets for any consecutive 12-month period ended prior to the date of purchase
(provided that the first month of such 12-month period will be no more than 18
months prior to such date of purchase) and (ii) other expenses as if such assets
had been owned by the Company since the first day of such period. If any
Indebtedness (including, without limitation, Acquired Debt) or stock bears a
floating rate of interest and is being given pro forma effect, the interest on
such Indebtedness will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, (ii) Consolidated Interest Expense, (iii)
depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period and excluding non-cash interest and dividend income) of such Person and
its Subsidiaries for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation, amortization,
interest expense and other non-cash charges of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated EBITDA
only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary, or loaned to
the Company by any such Subsidiary, without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness and Liquidation Preference" means, with
respect to any Person, as of any date of determination, the aggregate amount of
Indebtedness and liquidation preference of Preferred Stock of such Person and
its Subsidiaries as of such date calculated on a consolidated basis in
accordance with GAAP consistently applied.
4
<PAGE>
"Consolidated Interest Expense" means, for any Person, for any period,
the aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP: (a) the amount of interest in
respect of Indebtedness (including amortization of original issue discount,
amortization of debt issuance costs, and non-cash interest payments on any
Indebtedness, the interest portion of any deferred payment obligation and after
taking into account the effect of elections made under any Interest Rate
Agreement, however denominated with respect to such Indebtedness), (b) the
amount of Redeemable Dividends (to the extent not already included in
Indebtedness in determining Consolidated Interest Expense for the relevant
period) and (c) the interest component of rentals in respect of any Capital
Lease Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined
in accordance with GAAP; provided that:
(i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or other
distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded,
(iv) the cumulative effect of a change in accounting principles
shall be excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Contingent Investment" means, with respect to any Person, any guarantee
by such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a Contingent
Investment shall be deemed made at the time that the guarantee of performance or
the commitment to invest is given, and the amount of such Investment shall be
the maximum monetary obligation under such guarantee of performance or
commitment to invest. To the extent that a Contingent Investment is released or
lapses without payment under the guarantee of performance or the commitment to
invest, such Investment shall be deemed not made to the extent of such release
or lapse. With respect to any Contingent Investment, the payment of the
guarantee of performance or the payment under the commitment to invest shall not
be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated
5
<PAGE>
for election or elected to such Board of Directors with the affirmative vote of
a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Credit Facility" means any credit facility entered into by and among
the Company and/or any Subsidiary and one or more commercial banks or financial
institutions, providing for senior term or revolving credit borrowings of a type
similar to credit facilities typically entered into by commercial banks and
financial institutions, including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as such
credit facility and related agreements may be amended, extended, refinanced,
renewed, restated, replaced or refunded from time to time.
"Debentures" means the Exchange Debentures and the New Exchange
Debentures.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and
only to the extent that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to March 31, 2009, provided, however, that any
Capital Stock which would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require the Company to repurchase or
redeem such Capital Stock upon the occurrence of a Change of Control occurring
prior to March 31, 2009 shall not constitute Disqualified Stock if the change in
control provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions applicable to the Exchangeable
Preferred Stock contained in Section 8 hereof and such Capital Stock
specifically provides that the Company will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
Exchangeable Preferred Stock as are required to be repurchased pursuant to
Section 8 hereof.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock or that are measured by the value of
Capital Stock (but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Event of Default" means any Voting Rights Triggering Event.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"Exchange Debentures" means the Company's 13 1/2% Series A Senior
Subordinated Debentures due 2009, issuable in exchange for the Exchangeable
Preferred Stock.
"Exchange Offer" means the exchange offer of the Series B Preferred
Stock for the Series A Preferred Stock or the New Debentures for the Exchange
Debentures, as applicable, pursuant to the Registration Rights Agreement.
6
<PAGE>
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 13 1/2% Senior Notes due
2005 and the Company's 12 1/2% Senior Discount Notes due 2006.
"Fair Market Value" means with respect to any asset or property, the
sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations or letters of
credit) would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP, all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Persons), all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any Disqualified Stock or any warrants, rights or options to
acquire such Disqualified Stock valued, in the case of Disqualified Stock, at
the greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends, the liquidation
value of any Preferred Stock issued by Subsidiaries of such Person plus accrued
and unpaid dividends, and also includes, to the extent not otherwise included,
the Guarantee of items that would be included within this definition and any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any of the above; notwithstanding the foregoing, in no event will performance
bonds or similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP;
and provided further, that the amount of any Indebtedness in respect of any
Guarantee shall be the maximum principal amount of the Indebtedness so
guaranteed; it being understood that Indebtedness with respect to this
Certificate of Designation does not include any obligation with respect to the
Exchangeable Preferred Stock.
7
<PAGE>
"Interest Rate Agreements" means (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of this Certificate of
Designation.
"Issue Date" means the initial issuance date of the Series A Preferred
Stock.
"Joint Venture" means a Person in the Telecommunications Business in
which the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
"Liquidation Preference" means $10,000 per share of Exchangeable
Preferred Stock.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the
date of acquisition issued by a corporation (other than an Affiliate of
the Company) with a rating at the time as of which any investment
therein is made, of "A-1" (or higher) according to S&P or "P-1" (or
higher) according to Moody's;
(iv) any banker's acceptances or money market deposit accounts
issued or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
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"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that are the subject of such Asset Sale
and any reserve for adjustment in respect of the sale price of such asset or
assets. Net Proceeds shall exclude any non-cash proceeds received from any Asset
Sale, but shall include such proceeds when and as converted by the Company or
any Subsidiary of the Company to cash.
"New Exchange Debentures" means the 13 1/2% Series B Senior Subordinated
Debentures due 2009 of the Company issued pursuant to the Exchange Offer.
"Permitted Investment" means (a) any Investments in the Company or any
Subsidiary of the Company; (b) any Investments in Marketable Securities; (c)
Investments by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Subsidiary of the Company; (d) any Investments in property or
assets to be used in (A) any line of business in which the Company or any of its
Subsidiaries was engaged on the Issue Date or (B) any Telecommunications
Business; (e) Investments in any Person in connection with the acquisition of
such Person or substantially all of the property or assets of such Person by the
Company or any Subsidiary of the Company; provided that within 180 days from the
first date of any such Investment, either (A) such Person becomes a Subsidiary
of the Company or any of its Subsidiaries or (B) the amount of any such
Investment is repaid in full to the Company or any of its Subsidiaries; (f)
Investments pursuant to any agreement or obligation of the Company or a
Subsidiary, in effect on the Issue Date or on the date a Subsidiary becomes a
Subsidiary (provided that any such agreement was not entered into in
contemplation of such Subsidiary becoming a Subsidiary), to make such
Investments; (g) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (h) Hedging Obligations permitted to be incurred by
Section 9(b) hereof; and (i) bonds, notes, debentures or other securities
received as a result of Asset Sales.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising: (i)
accounts; (ii) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance; (iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit, relating
to any of the foregoing after creation of the foregoing or arising therefrom;
(iv) all rights to any goods or merchandise represented by any of the foregoing,
including, without limitation, returned or repossessed goods; (v) all reserves
and credit balances with respect to any such accounts receivable or account
debtors; (vi) all letters of credit, security, or
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Guarantees for any of the foregoing; (vii) all insurance policies or reports
relating to any of the foregoing; (viii) all collection of deposit accounts
relating to any of the foregoing; (ix) all proceeds of any of the foregoing; and
(x) all books and records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to
Disqualified Stock and Preferred Stock, the quotient of the dividend divided by
the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Initial Purchasers.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"S&P" means Standard & Poor's Rating Group and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Strategic Investor" means, with respect to any sale of the Company's
Capital Stock, any Person which, both as of the Trading Day immediately before
the day of such sale and the Trading Day immediately after the day of such sale,
has, or whose parent has, a Total Market Capitalization of at least $1.0 billion
on a consolidated basis. In calculating Total Market Capitalization for the
purpose of this definition, the consolidated Indebtedness of such Person, solely
when calculated as of the Trading Day immediately after the day of such sale,
will be calculated after giving effect to such sale (including any Indebtedness
incurred in connection with such sale). For purposes of this definition, the
term parent means any Person of which the referent Strategic Investor is a
Subsidiary.
"Subsidiary" of any Person means (i) any corporation, association or
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of such Person or a combination thereof and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person or
any combination thereof; provided that any Unrestricted Subsidiary shall be
excluded from this definition of "Subsidiary."
"Telecommunications Business" means, when used in reference to any
Person, that such Person is engaged primarily in the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunications Business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is related to
those
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identified in (i) or (ii) above; provided that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors of the Company.
"Telecommunications Related Assets" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible, used
in connection with a Telecommunications Business.
"Total Common Equity" of any Person means, as of any date of
determination (and as modified for purposes of the definition of "Change of
Control"), the product of (i) the aggregate number of outstanding primary shares
of Common Stock of such Person on such day (which shall not include any options
or warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of the Board of Directors.
"Total Market Capitalization" of any Person means, as of any day of
determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of (1) the consolidated Indebtedness of such Person and its
Subsidiaries (except in the case of the Company, in which case of the Company
and its Subsidiaries) on such day, plus (2) the product of (i) the aggregate
number of outstanding primary shares of Common Stock of such Person on such day
(which shall not include any options or warrants on, or securities convertible
or exchangeable into, shares of Common Stock of such Person) and (ii) the
average Closing Price of such Common Stock over the 20 consecutive Trading Days
immediately preceding such day, plus (3) the liquidation value of any
outstanding share of Preferred Stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (2) of the preceding sentence shall be determined
by the Company's Board of Directors in good faith and evidenced by a resolution
of the Board of Directors.
"Trading Day," with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred in connection with the acquisition or construction of
Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only
2. Ranking.
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The Exchangeable Preferred Stock shall rank, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Company, (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
the date of this Offering Memorandum by the Board of Directors the terms of
which do not expressly provide that it ranks senior to or on a parity with the
Exchangeable 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 Exchangeable Preferred Stock issued by
the Company in the future and any other class of capital stock or series of
preferred
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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 the date of
the Offering Memorandum by the Board of Directors, the terms of which expressly
provide that such class or series will rank on a parity with the Exchangeable
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 each class of capital stock or
series of preferred stock issued by the Company established after the date of
the Offering Memorandum by the Board of Directors the terms of which expressly
provide that such class or series will rank senior to the Exchangeable Preferred
Stock as to dividend distributions and distributions upon liquidation, winding-
up and dissolution of the Company (collectively referred to as "Senior
Securities").
3. Dividends.
---------
(a) The holders of shares of the Exchangeable Preferred Stock shall be
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
preferential dividends from the Issue Date accruing at the rate of 13 1/2% of
the Liquidation Preference per share per annum, payable quarterly in arrears on
each of the last days of March, June, September and December or, if any such
date is not a Business Day, on the next succeeding Business Day (each, a
"Dividend Payment Date"), to the holders of record as of the next preceding
March 15, June 15, September 15 and December 15, (each, a "Record Date").
Dividends shall be payable in cash, except that on each Dividend Payment Date
occurring on or prior March 31, 2002, dividends may be paid, at the Company's
option, by the issuance of additional shares of Exchangeable Preferred Stock
(including fractional shares, provided, that the Company may, at its option, pay
cash in lieu of issuing fractional shares) having an aggregate Liquidation
Preference equal to the amount of such dividends. The issuance of such
additional shares of Exchangeable Preferred Stock shall constitute "payment" of
the related dividend for all purposes of this Certificate of Designation. The
first dividend payment of Exchangeable Preferred Stock shall be payable on June
30, 1997. Dividends payable on the Exchangeable 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.
(b) Dividends on the Exchangeable Preferred Stock shall 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 Company shall
take all actions required or permitted under the Delaware General Corporation
Law (the "DGCL") to permit the payment of dividends on the Exchangeable
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.
(c) 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
Exchangeable 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 Exchangeable Preferred Stock. Unless full cumulative
dividends on all outstanding shares of Exchangeable 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, then: (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
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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 Exchangeable 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.
4. 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 Exchangeable 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 Exchangeable
Preferred Stock held by such holder, plus accrued and unpaid dividends and
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 of
the Company. After payment in full of the Liquidation Preference and all accrued
dividends and Liquidated Damages, if any, to which holders of Exchangeable
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 Exchangeable Preferred Stock and all
other Parity Securities are not paid in full, the holders of the Exchangeable
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 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.
5. Redemption by the Company.
-------------------------
(a) On March 31, 2009 (the "Mandatory Redemption Date"), the Company
shall be required to redeem (subject to the legal availability of funds
therefor) all outstanding shares of Exchangeable Preferred Stock at a price in
cash equal to the Liquidation Preference thereof, plus accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for any
partial dividend period) and Liquidated Damages, if any, to the date of
redemption. The Company shall not be required to make sinking fund payments with
respect to the Exchangeable Preferred Stock. The Company shall take all actions
required or permitted under the DGCL to permit such redemption.
(b) The Exchangeable Preferred Stock may not be redeemed at the option
of the Company prior to March 31, 2002. The Exchangeable Preferred Stock may be
redeemed, in whole or in part, at the option of the Company on or after March
31, 2002, at the Applicable Redemption Price. Notwithstanding the foregoing
sentence, prior to March 31, 2000, the Company may, on any one or more
occasions, use the net proceeds of one or more underwritten public offerings of
its Common Stock or the sale or sales of its Capital Stock (other than
Disqualified Stock) to a Strategic Investor provided that the proceeds of such
offerings and sales are at least equal to $50 million, to redeem up to 35% of
the shares of Exchangeable Preferred Stock then outstanding (whether initially
issued or issued in lieu of cash dividends) at a redemption price equal to 113
1/2% of the Liquidation Preference per share plus, accumulated and unpaid
dividends and Liquidated Damages, if
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any, to the date of redemption; provided that, after any such redemption, at
least 65% of Exchangeable Preferred Stock initially issued remains outstanding.
(c) In case of redemption of less than all of the shares of Exchangeable
Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected pro rata or by lot as determined by the Company in its sole discretion.
(d) Notice of any redemption shall be sent by or on behalf of the
Company not less than 30 nor more than 60 days prior to the date specified for
redemption in such notice (including the Mandatory Redemption Date, the
"Redemption Date"), by first class mail, postage prepaid, to all holders of
record of the Exchangeable Preferred Stock at their last addresses as they shall
appear on the books of the Company; provided, however, that no failure to give
such notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Exchangeable
Preferred Stock except as to the holder to whom the Company has failed to give
notice or except as to the holder to whom notice was defective. In addition to
any information required by law or by the applicable rules of any exchange upon
which Exchangeable Preferred Stock may be listed or admitted to trading, such
notice shall state: (i) whether such redemption is being made pursuant to the
optional or the mandatory redemption provisions hereof; (ii) the Redemption
Date; (iii) the Applicable Redemption Price; (iv) the number of shares of
Exchangeable Preferred Stock to be redeemed and, if less than all shares held by
such holder are to be redeemed, the number of such shares to be redeemed; (v)
the place or places where certificates for such shares are to be surrendered for
payment of the Applicable Redemption Price, including any procedures applicable
to redemptions to be accomplished through book-entry transfers; and (vi) that
dividends on the shares to be redeemed will cease to accumulate on the
Redemption Date. Upon the mailing of any such notice of redemption, the Company
shall become obligated to redeem at the time of redemption specified thereon all
shares called for redemption.
(e) If notice has been mailed in accordance with Section 5(d) above and
provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be, and to continue to
be available therefor, then, from and after the Redemption Date, dividends on
the shares of the Exchangeable Preferred Stock so called for redemption shall
cease to accumulate, and said shares shall no longer be deemed to be outstanding
and shall not have the status of shares of Exchangeable Preferred Stock, and all
rights of the Holders thereof as stockholders of the Company (except the right
to receive from the Company the Applicable Redemption Price) shall cease. Upon
surrender, in accordance with said notice, of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Company shall so
require and the notice shall so state), such shares shall be redeemed by the
Company at the Applicable Redemption Price. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares without cost to
the holder thereof.
(f) Any funds deposited with a bank or trust company for the purpose of
redeeming Exchangeable Preferred Stock shall be irrevocable except that:
(i) the Company shall be entitled to receive from such bank or
trust company the interest or other earnings, if any, earned on any
money so deposited in trust, and the holders of any shares redeemed
shall have no claim to such interest or other earnings; and
(ii) any balance of monies so deposited by the Company and
unclaimed by the holders of the Exchangeable Preferred Stock entitled
thereto at the expiration of two years from the applicable Redemption
Date shall be repaid, together with any interest or other earnings
earned thereon, to the
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Company, and after any such repayment, the holders of the shares
entitled to the funds so repaid to the Company shall look only to the
Company for payment without interest or other earnings.
(g) No Exchangeable Preferred Stock may be redeemed except with funds
legally available for the purpose. The Company shall take all actions required
or permitted under the DGCL to permit any such redemption.
(h) Notwithstanding the foregoing provisions of this Section 5, unless
the full cumulative dividends on all outstanding shares of Exchangeable
Preferred Stock shall have been paid or contemporaneously are declared and paid
for all past dividend periods, none of the shares of Exchangeable Preferred
Stock shall be redeemed unless all outstanding shares of Exchangeable Preferred
Stock are simultaneously redeemed.
(i) All shares of Exchangeable Preferred Stock redeemed pursuant to this
Section 5 shall be restored to the status of authorized and unissued shares of
preferred stock, without designation as to series and may thereafter be reissued
as shares of any series of preferred stock other than shares of Exchangeable
Preferred Stock.
6. Exchange.
--------
(a) The Company may, at its option, on any Dividend Payment Date,
exchange, in whole, but not in part, the then outstanding shares of Exchangeable
Preferred Stock for Debentures; provided, that on the date of such exchange (i)
there are no accumulated and unpaid dividends and Liquidated Damages, if any, on
the Exchangeable Preferred Stock (including the dividends payable on such date)
or other contractual impediments to such exchange; (ii) there shall be legally
available funds sufficient therefor; (iii) immediately after giving effect to
such exchange, no Default or Event of Default would exist under the Indenture
and; (iv) the Indenture has been qualified under the Trust Indenture Act, if
such qualification is required at the time of exchange; and (v) the Company
shall have delivered a written opinion of counsel to the Trustee to the effect
that all conditions to be satisfied prior to such exchange have been satisfied.
(b) The Debentures shall be issuable in principal amounts of $1,000 and
integral multiples thereof to the extent possible, and shall also be issuable in
principal amounts less than $1,000 so that each holder of Exchangeable Preferred
Stock will receive certificates representing the entire amount of Debentures to
which such holder's shares of Exchangeable Preferred Stock entitle such holder;
provided that the Company may pay cash in lieu of issuing any Debentures having
a principal amount less than $1,000. Notice of the intention to exchange shall
be sent by or on behalf of the Company not more than 60 days nor less than 30
days prior to the date fixed for the exchange (the "Exchange Date"), by first
class mail, postage prepaid, to each holder of record of Exchangeable Preferred
Stock at its registered address. In addition to any information required by law
or by the applicable rules of any exchange upon which the Exchangeable Preferred
Stock may be listed or admitted to trading, such notice shall state: (i) the
Exchange Date; (ii) the place or places where certificates for such shares are
to be surrendered for exchange, including any procedures applicable to exchanges
to be accomplished through book-entry transfers; and (iii) that dividends on the
shares of Exchangeable Preferred Stock to be exchanged will cease to accumulate
on the Exchange Date.
(c) A holder delivering Exchangeable Preferred Stock for exchange shall
not be required to pay any taxes or duties in respect of the issue or delivery
of Debentures on exchange but shall be required to pay any tax or duty that may
be payable in respect of any transfer involved in the issue or delivery of the
Debentures in a name other than that of the holder of the Exchangeable Preferred
Stock. Certificates representing Debentures shall not be issued or delivered
unless all taxes and duties, if any, payable by the holder have been paid.
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(d) If notice of any exchange has been properly given, and if on or
before the Exchange Date the Debentures have been duly executed and
authenticated and an amount in cash or additional shares of Exchangeable
Preferred Stock (as applicable) equal to all accumulated and unpaid dividends
and Liquidated Damages, if any, thereon to the Exchange Date has been deposited
with the Transfer Agent, then on and after the close of business on the Exchange
Date, the shares of Exchangeable Preferred Stock to be exchanged shall no longer
be deemed to be outstanding and may thereafter be issued in the same manner as
the other authorized but unissued preferred stock, but not as Exchangeable
Preferred Stock, and all rights of the holders thereof as stockholders of the
Company shall cease, except the right of the holders to receive upon surrender
of their certificates the Debentures and all accrued interest, if any, thereon
to the Exchange Date.
(e) As a condition to the exercise of the exchange rights described in
this Section 6, the Company shall deliver an opinion to the Trustee as to the
due authorization, execution, delivery and enforceability of both the Debentures
and the Indenture and as to the compliance by the Company with the provisions
hereof.
7. Voting Rights.
-------------
(a) The holders of record of shares of the Exchangeable Preferred Stock
shall have no voting rights, except as required by law and as hereinafter
provided in this Section 7.
(b) Upon:
(i) the accumulation of accumulated and unpaid dividends on the
outstanding Exchangeable Preferred Stock in an amount equal to six (6)
quarterly dividends (whether or not consecutive);
(ii) the failure of the Company to satisfy any mandatory
redemption or repurchase obligation (including, without limitation,
pursuant to any required Change of Control Offer) with respect to the
Exchangeable Preferred Stock;
(iii) the failure of the Company to make a Change of Control
Offer on the terms and in accordance with the provisions described below
in Section 8 hereof;
(iv) the failure of the Company to comply with any of the other
covenants or agreements set forth in this Certificate of Designation and
the continuance of such failure for 60 consecutive days or more after
notice; or
(v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the Closing Date, which default (1) is
caused by a failure to pay principal of or premium, if any, or interest
on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (2) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the
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principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more (each of the events described in clauses
(i), (ii), (iii), (iv) and (v) being referred to herein as a "Voting
Rights Triggering Event");
then the holders of a majority of the outstanding shares of Exchangeable
Preferred Stock, voting as a separate single class, shall 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 shall be immediately and automatically increased by one or
two, as the case may be. The voting rights provided for in this Section 7 shall
be the exclusive remedy for the holders of the Exchangeable Preferred Stock for
any violation by the Company of its obligations under this Certificate of
Designation that constitutes an Event of Default.
(c) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of Exchangeable
Preferred Stock, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of the holders of Exchangeable
Preferred Stock. Such right of the holders of Exchangeable Preferred Stock to
elect directors may be exercised until (i) all dividends in arrears shall have
been paid in full and (ii) all other Voting Rights Triggering Events have been
cured or waived, at which time the term of such directors previously elected
shall thereupon terminate, and such directors shall be deemed to have resigned.
(d) At any time when such voting right shall have vested in the holders
of Exchangeable Preferred Stock and if such right shall not already have been
initially exercised, a proper officer of the Company shall, upon the written
request of holders of record of 10% or more of the Exchangeable Preferred Stock
then outstanding, addressed to the Secretary of the Company, call a special
meeting of holders of Exchangeable Preferred Stock. Such meeting shall be held
at the earliest practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of the
Company or, if none, at a place designated by the Secretary of the Company. If
such meeting shall not be called by the proper officers of the Company within 30
days after the personal service of such written request upon the Secretary of
the Company, or within 30 days after mailing the same within the United States,
by registered mail, addressed to the Secretary of the Company at its principal
office (such mailing to be evidenced by the registry receipt issued by the
postal authorities), then the holders of record of 10% of the shares of
Exchangeable Preferred Stock then outstanding may designate in writing a holder
of Exchangeable Preferred Stock to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall be held at the
place for holding annual meetings of the Company or, if none, at a place
designated by such holder. Any holder of Exchangeable Preferred Stock that would
be entitled to vote at such meeting shall have access to the stock books of the
Company for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this Section 7. Notwithstanding the provisions of
this paragraph, however, no such special meeting shall be called if any such
request is received less than 90 days before the date fixed for the next ensuing
annual or special meeting of stockholders.
(e) If any director so elected by the holders of Exchangeable Preferred
Stock shall cease to serve as a director before his term shall expire, the
holders of Exchangeable Preferred Stock then outstanding may, at a special
meeting of the holders called as provided above, elect a successor to hold
office for the unexpired term of the director whose place shall be vacant.
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(f) The Company shall not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Exchangeable Preferred Stock
then outstanding (with shares held by the Company or any of its Affiliates not
being considered to be outstanding for this purpose) voting or consenting as the
case may be, as one class:
(i) authorize, create (by way of reclassification or otherwise)
or issue any Senior Securities or any obligation or security convertible
into or evidencing the right to purchase, shares of any class or series
of Senior Securities, except, the Company may issue Senior Securities
pursuant to Section 9(b) hereof;
(ii) 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, except, the Company may issue: (i)
shares of the Series B Preferred Stock as provided herein, (ii) shares
of Exchangeable Preferred Stock to pay dividends thereon in accordance
with the terms of this Certificate of Designation, and (iii) Parity
Securities pursuant to Section 9(b) hereof;
(iii) amend or otherwise alter this Certificate of Designation
(including the provisions of Section 8 hereof) in any manner that
adversely affects the specified rights, preferences, privileges or
voting rights of holders of Exchangeable Preferred Stock (a change in
the initial Liquidation Preference per share of the Series B Preferred
Stock not being deemed to be adverse, provided that the aggregate
Liquidation Preference of the Series B Preferred Stock is equal to the
aggregate Liquidation Preference of the Series A Preferred Stock
exchanged for the Series B Preferred Stock);
(iv) authorize the issuance of any additional shares of
Exchangeable Preferred Stock (except for increases resulting from a
change in the Liquidation Preference of the Series B Preferred Stock or
resulting from a 10 for 1 stock split of the Series B Preferred Stock,
provided that, in each case, the aggregate Liquidation Preference of the
Series B Preferred Stock is equal to the aggregate Liquidation
Preference of the Series A Preferred Stock exchanged for the Series B
Preferred Stock); or
(v) waive any existing Voting Rights Triggering Event or
compliance with any provision of this Certificate of Designation;
provided, however, that (a) the Company may not amend the Change of Control
provisions of this Certificate of Designation (including the related
definitions) without the approval of the holders of at least 662/3% of the then
outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the
case may be, as one class and (b) without the consent of the holders of the
Exchangeable Preferred Stock, the Company will have the ability to issue
additional shares of Exchangeable Preferred Stock to pay dividends.
(g) Without the consent of each holder affected, an amendment or waiver
of the Company's Certificate of Incorporation or of this Certificate of
Designation may not (with respect to any shares of Exchangeable Preferred Stock
held by a non-consenting holder):
(i) alter the voting rights with respect to the Exchangeable
Preferred Stock or reduce the number of shares of Exchangeable Preferred
Stock whose holders must consent to an amendment, supplement or waiver;
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(ii) reduce the Liquidation Preference of or change the Mandatory
Redemption Date of any share of Exchangeable Preferred Stock or alter
the provisions with respect to the redemption of the Exchangeable
Preferred Stock (except as provided with respect to Section 8 hereof and
except that the Company may reduce the Liquidation Preference on the
Series B Preferred Stock prior to its issuance or effect a 10 for 1
stock split with respect to the Series B Preferred Stock, provided that,
in each case, the aggregate Liquidation Preference of the Series B
Preferred Stock is equal to the aggregate Liquidation Preference of the
Series A Preferred Stock exchanged for the Series B Preferred Stock);
(iii) reduce the rate of or change the time for payment of
dividends on any share of Exchangeable Preferred Stock;
(iv) waive the consequences of any failure to pay dividends on
the Exchangeable Preferred Stock;
(v) make any share of Exchangeable Preferred Stock payable in any
form other than that stated in this Certificate of Designation;
(vi) make any change in the provisions of this Certificate of
Designation relating to waivers of the rights of holders of Exchangeable
Preferred Stock to receive the Liquidation Preference and dividends on
the Exchangeable Preferred Stock;
(vi) waive a redemption payment with respect to any share of
Exchangeable Preferred Stock (except as provided with respect to Section
8 hereof); or
(vii) make any change in the foregoing amendment and waiver
provisions.
(h) The Company in its sole discretion may without the vote or consent
of any holders of the Exchangeable Preferred Stock amend or supplement this
Certificate of Designation:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Exchangeable Preferred Stock
in addition to or in place of certificated Exchangeable Preferred Stock;
or
(iii) to make any change that would provide any additional rights
or benefits to the holders of the Exchangeable Preferred Stock or that
does not adversely affect the legal rights under this Certificate of
Designation of any such holder.
Except as set forth above, (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
the Exchangeable Preferred Stock and shall not be deemed to affect adversely the
rights, preferences, privileges, special rights or voting rights of holders of
shares of Exchangeable Preferred Stock.
8. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Company shall make
an offer (the "Change of Control Offer") to each holder of shares of
Exchangeable Preferred Stock to repurchase all or any part (but
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not, in the case of any holder requiring the Company to purchase less than all
of the shares of Exchangeable Preferred Stock held by such holder, any
fractional shares) of such holder's Exchangeable Preferred Stock at an offer
price in cash equal to 101% of the aggregate Liquidation Preference thereof plus
accumulated and unpaid dividends and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment").
(b) The Change of Control Offer shall include all instructions and
materials necessary to enable holders to tender their shares of Exchangeable
Preferred Stock.
(c) The Company shall comply with the requirements of Rule 14e-1 under
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 Exchangeable Preferred Stock as a result of a Change of
Control.
(d) Within 30 days following any Change of Control, the Company shall
mail a notice to each holder stating:
(i) that the Change of Control Offer is being made pursuant to
this Section 8 and that all shares of Exchangeable Preferred Stock
tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date");
(iii) that any share of Exchangeable Preferred Stock not tendered
will continue to accumulate dividends;
(iv) that, unless the Company fails to pay the Change of Control
Payment, all shares of Exchangeable Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accumulate
dividends after the Change of Control Payment Date;
(v) that holders electing to have any shares of Exchangeable
Preferred Stock purchased pursuant to a Change of Control Offer will be
required to surrender the shares of Exchangeable Preferred Stock, with
the form entitled "Option of Holder to Elect Purchase" which shall be
included with the Notice of Change of Control completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control
Payment Date;
(vi) that holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the number of shares of Exchangeable Preferred Stock
delivered for purchase, and a statement that such holder is withdrawing
his election to have such shares purchased; and
(vii) the circumstances and relevant facts regarding such Change
of Control (including, but not limited to, information with respect to
pro forma historical financial information after giving effect to such
Change of Control and information regarding the Person or Persons
acquiring control).
(e) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all shares of Exchangeable Preferred Stock
or portions thereof properly tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the Change of Control
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Payment in respect of all shares of Exchangeable Preferred Stock or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Transfer
Agent the shares of Exchangeable Preferred Stock so accepted together with an
Officers' Certificate stating the aggregate Liquidation Preference of the shares
of Exchangeable Preferred Stock or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each holder of Exchangeable
Preferred Stock so tendered the Change of Control Payment for such Exchangeable
Preferred Stock, and the Transfer Agent shall promptly authenticate and mail (or
cause to be transferred by book entry) to each holder a new certificate
representing the shares of Exchangeable Preferred Stock equal in Liquidation
Preference amount to any unpurchased portion of the shares of Exchangeable
Preferred Stock surrendered, if any. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
(f) If, at the time of a Change of Control, the Company is prohibited by
the terms of any Indebtedness from purchasing shares of Exchangeable Preferred
Stock that may be tendered by holders pursuant to a Change of Control Offer,
prior to complying with the provisions of this Section 8, but in any event
within 90 days following a Change of Control, the Company shall either (i) repay
in full all outstanding Indebtedness or (ii) obtain the requisite consents, if
any, under all agreements governing outstanding Indebtedness to permit the
repurchase of Exchangeable Preferred Stock required by this covenant. The
Company must first comply with the covenant described in the preceding sentence
before it will be required to repurchase shares of Exchangeable Preferred Stock
in the event of a Change of Control; provided, that if the Company fails to
comply with the covenant described in the preceding sentence, the sole remedy to
holders of Exchangeable Preferred Stock will be the voting rights arising from a
Voting Rights Triggering Event. Moreover, the Company will not repurchase or
redeem any Exchangeable Preferred Stock pursuant to this Change of Control
provision prior to the Company's repurchase of the Existing Senior Notes
pursuant to the Change of Control covenants in the Existing Senior Notes
Indentures.
(g) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 8 applicable to a Change of Control Offer made by the
Company and purchases all shares of Exchangeable Preferred Stock validly
tendered and not withdrawn under such Change of Control Offer.
9. Certain Covenants
-----------------
(a) Restricted Payments.
The Company and its Subsidiaries shall not, directly or
indirectly:
(i) declare or pay any dividend or make any distribution on
account of any Equity Interests of the Company that are Junior
Securities or of any of its Subsidiaries other than dividends or
distributions payable (A) in Junior Securities of the Company that are
not Disqualified Stock or (B) to the Company or any Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for
value ("Retire" and correlatively, a "Retirement") any Equity Interests
of the Company that are Junior Securities or of any of its Subsidiaries
or other Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Subsidiary);
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(iii) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iii) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(A) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
(B) after giving effect to such Restricted Payment on a
pro forma basis as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, the Company
could incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Cash Flow Leverage Ratio test described under
Section 9(b) hereof; and
(C) such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date including any Restricted
Payments made pursuant to clauses (i), (iii) and (iv) of the next
paragraph), is less than the sum of
(w) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing
after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale of Equity
Interests of the Company or of debt securities or
Disqualified Stock of the Company that have been converted
into such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified
Stock) after the Issue Date (other than any such Equity
Interests, the proceeds of which were used as set forth in
clause (ii) below), plus
(y) 100% of the sum of, without duplication, (1)
aggregate dividends or distributions received by the
Company or any Subsidiary from any Joint Venture (other
than dividends or distributions to pay any obligations of
such Joint Venture to Persons other than the Company or
any Subsidiary, such as income taxes), with non-cash
distributions to be valued at the lower of book value or
Fair Market Value as determined by the Board of Directors,
(2) the amount of the principal and interest payments
received since the Issue Date by the Company or any
Subsidiary from any Joint Venture and (3) the net proceeds
from the sale of an Investment in a Joint Venture received
by the Company or any Subsidiary; provided that there is
no obligation to return any such amounts to the Joint
Venture, and excluding any such dividend, distribution,
interest payment or net proceeds that constitutes a return
of capital invested pursuant to clause (vi) of the next
succeeding paragraph, plus
(z) $10.0 million.
The foregoing provisions will not prohibit:
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(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions hereof;
(ii) the Retirement of any Junior Securities of the
Company or Equity Interests of any Subsidiary of the Company, in
exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of,
Junior Securities of the Company (other than Disqualified Stock)
or other Equity Interests of such Subsidiary that is not
Disqualified Stock;
(iii) the Retirement of any Junior Securities of the
Company or any Subsidiary of the Company held by any member of
the Company's (or any of its Subsidiaries') management pursuant
to any management equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $1.0 million in any twelve-month period plus the
aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by
the Company to members of management of the Company and its
Subsidiaries; and
(iv) Investments in any Joint Venture; provided that at
the time any such Investment is made, such Investment will not
cause the aggregate amount of Investments at any one time
outstanding under this clause (vi) to exceed 5% of the Total
Common Equity of the Company;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), and (iv), no
Default or Event of Default shall have occurred and be continuing.
A Permitted Investment that ceases to be a Permitted Investment pursuant
to the definition thereof, shall become a Restricted Investment, deemed to have
been made on the date that it ceases to be a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or an
Event of Default. For purposes of making such determination, all outstanding
Investments by the Company and its Subsidiaries (except to the extent repaid in
cash) in such Subsidiary so designated will be deemed to be Restricted Payments
at the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the Fair Market Value of such Investments at the time
of such designation and (z) the original Fair Market Value of such Investments
at the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 9(b) hereof and (ii) no Default or Event of Default would be in
existence following such designation.
(b) Incurrence of Indebtedness and Issuance of Disqualified Stock or
Preferred Stock.
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(i) The Company and its Subsidiaries shall not, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable for the payment of (collectively, "incur"
and, correlatively, "incurred" and "incurrence") any Indebtedness
(including, without limitation, Acquired Debt) and
(ii) The Company and its Subsidiaries shall not issue any
Disqualified Stock or any Preferred Stock,
provided, however, that the Company and/or any of its Subsidiaries may incur
Indebtedness (including, without limitation, Acquired Debt) or issue shares of
Disqualified Stock or any Preferred Stock if, after giving effect to the
incurrence of such Indebtedness or the issuance of such Disqualified Stock or
Preferred Stock, the Consolidated Cash Flow Leverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such incurrence or
issuance (A) does not exceed 6.5 to 1 if such incurrence or issuance occurs on
or prior to June 1, 1999 and (B) does not exceed 6.0 to 1 if such occurrence or
issuance occurs after June 1, 1999, in each case, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
Preferred Stock had been issued, as the case may be, at the beginning of such
four-quarter period. If the Company incurs any Indebtedness or issues or redeems
any Preferred Stock or Disqualified Stock subsequent to the commencement of the
period for which such ratio is being calculated but prior to the event for which
the calculation of the ratio is made, then the ratio will be calculated giving
pro forma effect to any such incurrence of Indebtedness, or such issuance or
redemption of Preferred Stock or Disqualified Stock as if the same had occurred
at the beginning of the applicable period. In making such calculation on a pro
forma basis, interest attributable to Indebtedness bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period.
The foregoing limitation will not apply to (with each exception to be
given independent effect):
(a) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness under the Credit Facility in an aggregate principal amount at any
one time outstanding (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and/or any of its
Subsidiaries thereunder) not to exceed $75.0 million in the aggregate at any one
time outstanding;
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total cost
of the Telecommunications Related Assets financed therewith if such Vendor
Indebtedness was extended for the purchase of tangible physical assets and was
so financed by the vendor thereof or an affiliate of such vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of the
Existing Indebtedness, including the Existing Senior Notes; and the Series B
Preferred Stock issued in exchange for the Series A Preferred Stock pursuant to
the Registration Rights Agreement (and any shares of Exchangeable Preferred
Stock issued as dividends thereon):
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $25.0 million at any one time
outstanding;
(e) the incurrence by the Company of Indebtedness or Preferred Stock in
an aggregate principal amount and liquidation preference not to exceed 2.0 times
the net cash proceeds received by the Company after
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the Issue Date from the issuance and sale of Equity Interests of the Company
plus the fair market value of Equity Interests (other than Disqualified Stock)
issued in connection with any acquisition of any Telecommunications Business;
(f) the incurrence by the Company and/or any of its Subsidiaries of
Acquired Debt in connection with any acquisition of any Telecommunications
Business in an amount not to exceed $50.0 million;
(g) the incurrence (a "Permitted Refinancing") by the Company and/or any
of its Subsidiaries of Indebtedness issued in exchange for, or the proceeds of
which are used to refinance, replace, refund or defease ("Refinance" and
correlatively, "Refinanced" and "Refinancing") Indebtedness (or the incurrence
of Preferred Stock or Disqualified Stock to Refinance Preferred Stock or
Disqualified Stock, as the case may be), other than Indebtedness incurred
pursuant to clause (a) above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness or
Refinancing Capital Stock, as the case may be, does not exceed the
principal amount of and premium, if any, and accrued interest on the
Indebtedness so Refinanced (or if such Indebtedness was issued at an
original issue discount, the original issue price plus amortization of
the original issue discount at the time of the repayment of such
Indebtedness) or the liquidation preference of the Capital Stock so
Refinanced plus the fees, expenses and costs of such Refinancing and
reasonable prepayment premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness or the Refinancing Capital
Stock, as the case may be, shall have a final maturity no earlier than,
and a Weighted Average Life to Maturity equal to or greater than, the
final maturity and Weighted Average Life to Maturity of the Indebtedness
or Capital Stock being Refinanced; and
(3) if the Capital Stock being Refinanced is subordinated in
right of payment to the Exchangeable Preferred Stock, the Refinancing
Capital Stock shall be subordinated in right of payment to the
Exchangeable Preferred Stock on terms at least as favorable to the
holders of Exchangeable Preferred Stock as those contained in the
documentation governing the Capital Stock being so Refinanced;
(h) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(i) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest rate
or foreign currency risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Certificate of Designation to be outstanding;
(j) the incurrence by the Company of Junior Securities that are not
Disqualified Stock; and
(k) the incurrence by the Company of the Debentures in accordance with
the terms of this Certificate of Designation.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the
criteria of more than one of the categories described in clauses (a) through (k)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item in any
manner that complies with this covenant and such item will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph herein. Accrual of interest or dividends, the accretion of accreted
value or liquidation preference and the
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payment of interest or dividends in the form or additional Indebtedness or
Preferred Stock will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
(c) Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company and its Subsidiaries shall not, directly or indirectly,
create or otherwise cause to become effective any consensual encumbrance or
restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions to the Company
or any of its Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries; except for such encumbrances or restrictions
existing as of the Issue Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the time of
acquisition (except to the extent such Indebtedness was incurred in connection
with, or in contemplation of, such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired;
(d) by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices;
(e) Indebtedness or Preferred Stock in respect of a Permitted
Refinancing, provided that the restrictions contained in the agreements
governing such Refinancing Indebtedness or Refinancing Capital Stock are not
materially more restrictive than those contained in the agreements governing the
Indebtedness or Capital Stock being refinanced;
(f) with respect to clause (iii) above, purchase money obligations for
property acquired in the ordinary course of business, Vendor Indebtedness
incurred in connection with the purchase or lease of Telecommunications Related
Assets or performance bonds or similar security for performance which liens
securing such obligations do not cover any asset other than the asset acquired
or, in the case of performance bonds or similar security for performance, the
assets associated with the Company's performance;
(g) Indebtedness incurred under clause (a) of the Section 9(b) hereof;
(h) this Certificate of Designation, the Indenture, the Exchangeable
Preferred Stock or the Debentures; or
(i) in the case of clauses (a), (c), (e), (g) and (h) above, any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are not materially more restrictive with respect to
such dividend and other
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payment restrictions than those contained in such instruments as in effect on
the date of their incurrence or, if later, the Issue Date.
(d) Merger, Consolidation or Sale of Assets.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another corporation, Person or entity
unless:
(i) the Company is the surviving entity or the entity or Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation organized
or existing under the laws of the United States, any state thereof or
the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made (the "Surviving Person") assumes all the
obligations of the Company under the Exchangeable Preferred Stock;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) if the holders of at least 85% of the common stock of the
Surviving Person immediately after such transaction are not, directly or
indirectly, the same as the holders of the common stock of the Company
immediately prior to such transaction, the Surviving Person, at the time
of such transaction after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable fiscal
quarter (including any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series
of transactions), either (A) could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Cash Flow Leverage Ratio test
described under Section 9(b) hereof or (B) would have (x) Total Market
Capitalization of at least $1.0 billion and (y) total Indebtedness in an
amount no greater than 30% of its Total Market Capitalization; and
(v) such transaction would not result in the loss, material
impairment or adverse modification or amendment of any authorization or
license of the Company or its Subsidiaries that would have a material
adverse effect on the business or operations of the Company and its
Subsidiaries taken as a whole.
(e) Transactions with Affiliates.
The Company and its Subsidiaries shall not sell, lease, transfer or
otherwise dispose of any of their respective properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or
such Subsidiary with an unrelated Person; and
27
<PAGE>
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company;
provided that
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its Subsidiaries, or
any grant of stock, in the ordinary course of business that are approved by the
Board of Directors of the Company,
(b) transactions between or among the Company and its Subsidiaries,
(c) transactions permitted by the provisions of this Certificate of
Designation described above under Section 9(a) hereof, and
(d) loans and advances to employees and officers of the Company or any
of its Subsidiaries in the ordinary course of business in an aggregate principal
amount not to exceed $1.0 million at any one time outstanding,
shall not be deemed Affiliate Transactions.
(f) Reports.
The Company shall file within 15 days after it files them with the
Commission copies of the 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"). 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
Exchangeable Preferred Stock are outstanding, the Company will furnish copies of
the SEC Reports to the holders of Exchangeable Preferred Stock at the time the
Company is required to make such information available to investors who request
it in writing. In addition, the Company has agreed that, for so long as any
Exchangeable 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.
10. Exchange of Exchangeable Preferred Stock for Debentures.
-------------------------------------------------------
(a) The Company may at its option exchange all, but not less than all,
of the then outstanding shares of Exchangeable Preferred Stock into the
Debentures to be issued under an indenture (the "Indenture") in the form
attached hereto as Annex A to be entered into between the Company and a trustee
to be selected by the Company (the "Trustee") on any Dividend Payment Date,
provided that on the date of such exchange: (A) there are no accumulated and
unpaid dividends or Liquidated Damages, if any, on the Exchangeable Preferred
Stock (including the dividends payable and Liquidated Damages on such date) or
other contractual impediments to such exchange; (B) there shall be legally
available funds sufficient therefor; (C) either (i) a registration statement
relating to the Debentures shall have been declared effective under the
Securities Act of 1933, as amended (the "Securities Act"), prior to such
exchange, and shall continue to be in effect on the date of such exchange; or
(ii) (A) the Company shall have obtained a written opinion of counsel that an
exemption from the registration requirements of the Securities Act is available
for such exchange, and that upon receipt of such Debentures pursuant to such
exchange made in accordance with such exemption, the
28
<PAGE>
holders (assuming such holder is not an Affiliate of the Company) thereof shall
not be subject to any restrictions imposed by the Securities Act upon the resale
thereof other than any such restrictions to which the holder thereof already is
subject on the Exchange Date, and (B) such exemption is relied upon by the
Company for such exchange; (D) if required by applicable law, the Indenture and
the Trustee thereunder shall have been qualified under the Trust Indenture Act
of 1939, as amended; (E) immediately after giving effect to such exchange, no
Default or Event of Default (each as defined in the Indenture) would exist under
the Indenture; and (F) the Company shall have delivered to the Trustee a written
opinion of counsel, dated the date of exchange, to the effect that all
conditions to be satisfied prior to such exchange have been satisfied. In the
event that the issuance of the Debentures is not permitted on the date of
exchange or any of the conditions set forth in clauses (A) through (F) of the
preceding sentence are not satisfied on the date of exchange, the Company shall
use its best efforts to satisfy such conditions and effect such exchange as soon
as practicable.
The Company shall send a written notice (the "Exchange Notice") of
exchange by mail to each holder of record of Exchangeable Preferred Stock, which
notice shall state: (v) that the Company is exercising its option to exchange
the Exchangeable Preferred Stock for Debentures pursuant to this Certificate of
Designation; (w) the date fixed for exchange (the "Exchange Date"), which date
shall not be less than 30 days nor more than 60 days following the date on which
the Exchange Notice is mailed (except as provided in the last sentence of this
paragraph); (x) that the holder is to surrender to the Company, at the place or
places where certificates for shares of Exchangeable Preferred Stock are to be
surrendered for exchange, including any procedures applicable to exchanges to be
accomplished through book-entry transfers, in the manner designated in the
Exchange Notice, the certificate or certificates representing the shares of
Exchangeable Preferred Stock to be exchanged; (y) that dividends on the shares
of Exchangeable Preferred Stock to be exchanged shall cease to accrue on the
Exchange Date whether or not certificates for shares of Exchangeable Preferred
Stock are surrendered for exchange on the Exchange Date unless the Company shall
default in the delivery of Debentures; and (z) that interest on the Debentures
shall accrue from the Exchange Date whether or not certificates for shares of
Exchangeable Preferred Stock are surrendered for exchange on the Exchange Date.
On the Exchange Date, if the conditions set forth in clauses (A) through (F)
above are satisfied, the Company shall issue Debentures in exchange for the
Exchangeable Preferred Stock as provided in the next paragraph.
(b) Upon any exchange pursuant to this paragraph 10, Debentures shall be
issued in exchange for Exchangeable Preferred Stock, in registered form without
coupons, in an amount equal the Liquidation Preference thereof, plus an amount
in cash equal to all accumulated and unpaid dividends (including a prorated
dividend for the period from the immediately preceding Dividend Payment Date to
the Exchange Date). Debentures will be issued in principal amounts of $1,000 and
integral multiples thereof to the extent possible, and will also be issued in
principal amounts less than $1,000 so that each holder of Exchangeable Preferred
Stock will receive certificates representing the entire amount of Debentures to
which its shares of Exchangeable Preferred Stock entitles it, provided that the
Company may, at its option, pay cash in lieu of issuing a Debenture in a
principal amount of less than $1,000.
(c) Procedure for Exchange. (A) On or before the date fixed for
exchange, each holder of Exchangeable Preferred Stock shall surrender the
certificate or certificates representing such shares of Exchangeable Preferred
Stock, in the manner and at the place designated in the Exchange Notice. The
Company shall cause the Debentures to be executed on the Exchange Date and, upon
surrender in accordance with Exchange Notice of the certificates for any shares
of Exchangeable Preferred Stock so exchanged (properly endorsed or assigned for
transfer, if the notice shall so state), such shares shall be exchanged by the
Company for Debentures. The Company shall pay interest and Liquidated Damages,
if any, on the Debentures at the rate and on the dates specified therein from
the Exchange Date.
29
<PAGE>
(d) If notice has been mailed as aforesaid, and if before the Exchange
Date (1) the Indenture shall have been duly executed and delivered by the
Company and the Trustee and (2) all Debentures necessary for such exchange shall
have been duly executed by the Company and delivered to the Trustee with
irrevocable instructions to authenticate the Debentures necessary for such
exchange, then on and after the close of business on the Exchange Date,
dividends shall cease to accrue on the outstanding shares of Exchangeable
Preferred Stock and all of the rights of the holders of shares of the
Exchangeable Preferred Stock as stockholders of the Company shall cease (except
the right to receive Debentures and all accrued interest, if any, thereon), and
the Person or Persons entitled to receive the Debentures issuable upon exchange
shall be treated for all purposes as the registered holder or holders of such
Debentures as of the Exchange Date.
11. Amendment.
---------
This Certificate of Designation shall not be amended, either directly or
indirectly, or through merger or consolidation with another entity, in any
manner that would alter or change the powers, preferences or special rights of
the Exchangeable Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
Exchangeable Preferred Stock, voting separately as a class. Notwithstanding the
foregoing, this Certificate of Designation may be amended by the Board of
Directors in order to provide for the Series B Preferred Stock to have a
Liquidation Preference of $1,000 per share.
12. Exclusion of Other Rights.
-------------------------
Except as may otherwise be required by law, the shares of Exchangeable
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Certificate of Incorporation. The shares of Exchangeable
Preferred Stock shall have no preemptive or subscription rights.
13. Headings of Subdivisions.
------------------------
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
14. Severability of Provisions.
--------------------------
If any voting powers, preferences and relative, participating, optional
and other special rights of the Exchangeable Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
voting powers, preferences and relative, participating, optional and other
special rights of Exchangeable Preferred Stock and qualifications, limitations
and restrictions thereof set forth in this resolution (as so amended) which can
be given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Exchangeable Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Exchangeable Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Exchangeable Preferred Stock and qualifications, limitations
and restrictions thereof unless so expressed herein.
30
<PAGE>
15. Form of Exchangeable Preferred Stock.
------------------------------------
(a) The Exchangeable Preferred Stock shall initially be issued in the
form of one or more Global Securities ("Global Securities"). The Global
Securities shall be deposited on the Issue Date with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to as the "Global
Security Holder").
(b) So long as the Global Security Holder is the registered owner of any
Exchangeable Preferred Stock, the Global Security Holder will be considered the
sole holder under this Certificate of Designation of any shares of Exchangeable
Preferred Stock evidenced by the Global Security. Beneficial owners of shares of
Exchangeable Preferred Stock evidenced by the Global Security shall not be
considered the owners or holders thereof under this Certificate of Designation
for any purpose.
(c) Payments in respect of the Liquidation Preference, dividends and
Liquidated Damages, if any, on any Exchangeable Preferred Stock registered in
the name of the Global Security Holder on the applicable record date shall be
payable by the Company to or at the direction of the Global Security Holder in
its capacity as the registered holder under this Certificate of Designation. The
Company may treat the persons in whose names Exchangeable Preferred Stock,
including the Global Security, are registered as the owners thereof for the
purpose of receiving such payments.
(d) Any person having a beneficial interest in a Global Security may,
upon request to the Company, exchange such beneficial interest for Exchangeable
Preferred Stock in the form of registered definitive certificates (the
"Certificated Securities"). Upon any such issuance, the Company shall register
such Certificated Securities in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). If (i) the Company
notifies the holders in writing that the Depositary is no longer willing or able
to act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the holders in
writing that it elects to cause the issuance of Exchangeable Preferred Stock in
the form of Certificated Securities under this Certificate of Designation, then,
upon surrender by the Global Security Holder of its Global Security,
Exchangeable Preferred Stock in such form will be issued to each person that the
Global Security Holder and the Depositary identify as being the beneficial owner
of the related Exchangeable Preferred Stock.
(e) Each Global Security shall bear a legend in substantially the
following form:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A SECURITY IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY
THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY. THE DEPOSITARY TRUST COMPANY SHALL
ACT AS THE DEPOSITARY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE
COMPANY AND THE TRANSFER AGENT. UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY (55 WATER
STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY
BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO
31
<PAGE>
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
(f) The shares of Exchangeable Preferred Stock and the Debentures
issuable upon exchange thereof will bear a legend to the following effect,
unless the Company determines otherwise in compliance with applicable law:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, OR (c) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON
AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
32
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be
duly executed by David C. Ruberg, Chairman of the Board, President and Chief
Executive Officer of the Company and attested by Robert M. Manning, Senior Vice
President, Chief Financial Officer and Secretary of the Company, this third day
of March, 1997.
INTERMEDIA COMMUNICATIONS INC.
By:
-------------------------------
Name: David C. Ruberg
Title: Chairman of the Board,
President and Chief Executive
Officer
ATTEST:
By:
---------------------------
Name: Robert M. Manning
Title: Senior Vice President, Chief
Financial Officer and Secretary
33
<PAGE>
ANNEX A
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERMEDIA COMMUNICATIONS INC.
$
----------------
13 1/2% SENIOR SUBORDINATED DEBENTURES DUE 2009
-----------------------------------------------
-----------------
INDENTURE
Dated as of ___________
-----------------
-----------------
-------------------------------------
-----------------
Trustee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1). 7.10
(a)(2)....................................................... 7.10
(a)(3) ...................................................... N.A.
(a)(4)....................................................... N.A.
(a)(5)....................................................... 7.10
(b) ......................................................... 7.10
(c) ......................................................... N.A.
311 (a) ... 7.11
(b) ......................................................... 7.11
(c) ......................................................... N.A.
312 (a).... 2.05
(b).......................................................... 10.03
(c) ......................................................... 10.03
313 (a) ... 7.06
(b)(1) ...................................................... N.A.
(b)(2) ...................................................... 7.06
(c) ......................................................... 7.06; 10.02
(d).......................................................... 7.06
314 (a) ... 4.03; 10.05
(b) ......................................................... 4.17
(c)(1) ...................................................... 10.04
(c)(2) ...................................................... 10.04
(c)(3) ...................................................... N.A.
(d).......................................................... 4.17
(e) ........................................................ N.A.
(f).......................................................... N.A.
315 (a).... N.A.
(b).......................................................... 7.05
(c) ........................................................ N.A.
(d).......................................................... N.A.
(e).......................................................... N.A.
316 (a)(last sentence) N.A.
(a)(1)(A) N.A.
(a)(2) ...................................................... N.A.
(b) ......................................................... N.A.
(c) ......................................................... 2.13
317 (a)(1) N.A.
(a)(2)....................................................... N.A.
(b) ......................................................... N.A.
318 (a).... N.A.
(b).......................................................... N.A.
(c).......................................................... 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions................................................... 1
Section 1.02. Other Definitions............................................. 15
Section 1.03. Incorporation by Reference of Trust Indenture Act............. 15
Section 1.04. Rules of Construction......................................... 16
ARTICLE 2
THE DEBENTURES
Section 2.01. Form and Dating............................................... 16
Section 2.02. Execution and Authentication.................................. 17
Section 2.03. Registrar and Paying Agent.................................... 17
Section 2.04. Paying Agent to Hold Money in Trust........................... 18
Section 2.05. Holder Lists.................................................. 18
Section 2.06. Transfer and Exchange......................................... 18
Section 2.07. Replacement Debentures........................................ 25
Section 2.08. Outstanding Debentures........................................ 25
Section 2.09. Treasury Debentures........................................... 26
Section 2.10. Temporary Debentures.......................................... 26
Section 2.11. Cancellation.................................................. 26
Section 2.12. Defaulted Interest............................................ 27
Section 2.13. Record Date................................................... 27
Section 2.14. CUSIP Number.................................................. 27
ARTICLE 3
REDEMPTION AND CERTAIN REPURCHASES
Section 3.01. Notices to Trustee............................................ 27
Section 3.02. Selection of Debentures to Be Redeemed........................ 27
Section 3.03. Notice of Redemption.......................................... 28
Section 3.04. Effect of Notice of Redemption................................ 29
Section 3.05. Deposit of Redemption Price................................... 29
Section 3.06. Debentures Redeemed in Part................................... 29
Section 3.07. Optional Redemption........................................... 30
Section 3.08. Mandatory Redemption.......................................... 30
Section 3.09. Offer to Purchase with Excess Asset Sale Proceeds............. 31
ARTICLE 4
COVENANTS
Section 4.01. Payment of Debentures......................................... 33
Section 4.02. Maintenance of Office or Agency............................... 33
Section 4.03. Reports....................................................... 34
Section 4.04. Compliance Certificate........................................ 34
Section 4.05. Taxes......................................................... 35
Section 4.06. Stay, Extension and Usury Laws................................ 35
Section 4.07. Restricted Payments........................................... 35
i
<PAGE>
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.................................................. 38
Section 4.09. Incurrence of Indebtedness and Issuance of
Disqualified Stock............................................ 39
Section 4.10. Asset Sales................................................... 42
Section 4.11. Transactions with Affiliates.................................. 43
Section 4.12. Liens......................................................... 44
Section 4.13. Limitations on Sale and Leaseback Transactions................ 44
Section 4.14. Corporate Existence........................................... 44
Section 4.15. Offer to Purchase Upon Change of Control...................... 44
Section 4.16. Business Activities........................................... 46
Section 4.17. Payments for Consent.......................................... 46
Section 4.18. No Senior Subordinated Debt................................... 46
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets....................... 46
Section 5.02. Successor Corporation Substituted............................. 47
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default............................................. 47
Section 6.02. Acceleration.................................................. 49
Section 6.03. Other Remedies................................................ 50
Section 6.04. Waiver of Past Defaults....................................... 50
Section 6.05. Control by Majority........................................... 50
Section 6.06. Limitation on Suits........................................... 50
Section 6.07. Rights of Holders of Debentures to Receive Payment............ 51
Section 6.08. Collection Suit by Trustee.................................... 51
Section 6.09. Trustee May File Proofs of Claim.............................. 51
Section 6.10. Priorities.................................................... 52
Section 6.11. Undertaking for Costs......................................... 52
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee............................................. 53
Section 7.02. Rights of Trustee............................................. 54
Section 7.03. Individual Rights of Trustee.................................. 54
Section 7.04. Trustee's Disclaimer.......................................... 55
Section 7.05. Notice of Defaults............................................ 55
Section 7.06. Reports by Trustee to Holders of the Debentures............... 55
Section 7.07. Compensation and Indemnity.................................... 55
Section 7.08. Replacement of Trustee........................................ 56
Section 7.09. Successor Trustee by Merger, etc.............................. 57
Section 7.10. Eligibility; Disqualification................................. 57
Section 7.11. Preferential Collection of Claims Against Company............. 57
ii
<PAGE>
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance.................................................... 57
Section 8.02. Legal Defeasance and Discharge................................ 58
Section 8.03. Covenant Defeasance........................................... 58
Section 8.04. Conditions to Legal or Covenant Defeasance.................... 59
Section 8.05 Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions................. 60
Section 8.06. Repayment to Company.......................................... 60
Section 8.07. Reinstatement................................................. 61
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Debentures...................... 61
Section 9.02. With Consent of Holders of Debentures......................... 62
Section 9.03. Compliance with Trust Indenture Act........................... 63
Section 9.04. Revocation and Effect of Consents............................. 63
Section 9.05. Notation on or Exchange of Debentures......................... 63
Section 9.06. Trustee to Sign Amendments, etc............................... 64
Section 9.07. Payment for Consents.......................................... 64
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate...................................... 64
Section 10.02. Liquidation; Dissolution; Bankruptcy.......................... 64
Section 10.03. Default on Designated Senior Debt............................. 65
Section 10.04. Acceleration of .............................................. 65
Section 10.05. When Distribution Must Be Paid Over........................... 66
Section 10.06. Notice By Company............................................. 66
Section 10.07. Subrogation................................................... 66
Section 10.08. Relative Rights............................................... 66
Section 10.09. Subordination May Not Be Impaired by Company.................. 67
Section 10.10. Distribution or Notice to Representative...................... 67
Section 10.11. Rights of Trustee and Paying Agent............................ 67
Section 10.12. Authorization to Effect Subordination......................... 68
Section 10.13. Amendments.................................................... 68
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.................................. 68
Section 11.02. Notices....................................................... 68
Section 11.03. Communication by Holders of Debentures with Other
Holders of Debentures......................................... 69
Section 11.04. Certificate and Opinion as to Conditions Precedent............ 69
Section 11.05. Statements Required in Certificate or Opinion................. 69
Section 11.06. Rules by Trustee and Agents................................... 70
Section 11.07. No Personal Liability of Partners, Directors, Officers,
Employees and Stockholders.................................... 70
Section 11.08. Governing Law................................................. 70
Section 11.09. No Adverse Interpretation of Other Agreements................. 70
iii
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Section 11.10. Successors.................................................... 70
Section 11.11. Severability.................................................. 70
Section 11.12. Counterpart Originals......................................... 71
Section 11.13. Table of Contents, Headings, etc.............................. 71
EXHIBITS
Exhibit A Form of Debenture
Exhibit B Form of Certificate
Exhibit C Form of Accredited Investors Letter
iv
<PAGE>
INDENTURE dated as of ____________, between Intermedia
Communications Inc. (the "Company"), and ______________ ,as trustee (the
"Trustee").
The Company and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the Company's
13 1/2% Series A Senior Subordinated Debentures due 2009 (the "Exchange
Debentures") and 13 1/2% Series B Senior Subordinated Debentures due 2009 (the
"New Exchange Debentures" and, together with the Exchange Debentures, the
"Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise,
provided, however, that beneficial ownership of 25% or more of the voting
securities of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules
13d-3 and 13d-5 under the Exchange Act (or any successor rules), including the
provision of such Rules that a Person shall be deemed to have beneficial
ownership of all securities that such Person has a right to acquire within 60
days; provided that a Person will not be deemed a beneficial owner of, or to own
beneficially, any securities if such beneficial ownership (1) arises solely as a
result of a revocable proxy delivered in response to a proxy or consent and (2)
is not also then reportable on Schedule 13D or Schedule 13G (or any successor
schedule) under the Exchange Act.
"Board of Directors" means, unless otherwise specified, the Board
of Directors of the Company or any authorized committee thereof.
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"Board Resolution" means a resolution authorized by the Board of
Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and (iii) in the case of a partnership,
partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, 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, to any Person or group (as such
term is used in Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) any Person or group (as defined above) is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total Voting Stock or Total
Common Equity of the Company, including by way of merger, consolidation or
otherwise or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share
price of any shares of Capital Stock means the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b- 4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any
Person means the ratio of the Consolidated Indebtedness of such Person to the
Consolidated EBITDA of such Person for the relevant period; provided, however,
that (1) if the Company or any Subsidiary of the Company has incurred any
Indebtedness (including Acquired Debt) or if the Company has issued any
Disqualified Stock or if any Subsidiary of the Company has issued any Preferred
Stock since the beginning of such period that remains outstanding on the date of
such determination or if the transaction giving rise to the need to calculate
the Consolidated Cash Flow Leverage Ratio is an incurrence of Indebtedness
(including Acquired Debt) or the issuance of Disqualified
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Stock by the Company, Consolidated EBITDA and Consolidated Indebtedness for such
period will be calculated after giving effect on a pro forma basis to (A) such
Indebtedness, Disqualified Stock or Preferred Stock, as applicable, as if such
Indebtedness had been incurred or such stock had been issued on the first day of
such period, (B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness or
sale of stock as if such discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company or its Subsidiaries on the
proceeds of such Indebtedness or of such stock sale, to the extent not yet
applied at the date of determination, assuming such proceeds earned interest at
the rate in effect on the date of determination from the first day of such
period through such date of determination, (2) if since the beginning of such
period the Company or any Subsidiary of the Company has made any sale of assets
(including, without limitation, any Asset Sales or pursuant to any Sale and
Leaseback Transaction), Consolidated EBITDA for such period will be (A) reduced
by an amount equal to Consolidated EBITDA (if positive) directly attributable to
the assets which are the subject of such sale of assets for such period or (B)
increased by an amount equal to Consolidated EBITDA (if negative) directly
attributable thereto for such period and (3) if since the beginning of such
period the Company or any Subsidiary of the Company (by merger or otherwise) has
made an Investment in any Subsidiary of the Company (or any Person which becomes
a Subsidiary of the Company) or has made an acquisition of assets, including,
without limitation, any acquisition of assets occurring in connection with a
transaction causing a calculation of Consolidated EBITDA to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness (including Acquired
Debt)) as if such Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the pro forma calculations will be determined
in good faith by a responsible financial or accounting Officer of the Company,
provided, however, that such Officer shall assume (i) the historical sales and
gross profit margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the first month of
such 12-month period will be no more than 18 months prior to such date of
purchase) and (ii) other expenses as if such assets had been owned by the
Company since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, (ii) Consolidated Interest Expense, (iii)
depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period and excluding non-cash interest and dividend income) of such Person and
its Subsidiaries for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation, amortization,
interest expense and other non-cash charges of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated EBITDA
only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary, or loaned to
the Company by any such Subsidiary, without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
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"Consolidated Indebtedness" means, with respect to any Person, as
of any date of determination, the aggregate amount of Indebtedness of such
Person and its Subsidiaries as of such date calculated on a consolidated basis
in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any Person, for any
period, the aggregate of the following for such Person for such period
determined on a consolidated basis in accordance with GAAP: (a) the amount of
interest in respect of Indebtedness (including amortization of original issue
discount, amortization of debt issuance costs, and non-cash interest payments on
any Indebtedness, the interest portion of any deferred payment obligation and
after taking into account the effect of elections made under any Interest Rate
Agreement, however denominated, with respect to such Indebtedness), (b) the
amount of Redeemable Dividends (to the extent not already included in
Indebtedness in determining Consolidated Interest Expense for the relevant
period) and (c) the interest component of rentals in respect of any Capital
Lease Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition, interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in such
Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or other
distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded,
(iv) the cumulative effect of a change in accounting principles
shall be excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Contingent Investment" means, with respect to any Person, any
guarantee by such Person of the performance of another Person or any commitment
by such Person to invest in another Person. Any Investment that consists of a
Contingent Investment shall be deemed made at the time that the guarantee of
performance or the commitment to invest is given, and the amount of such
Investment shall be the maximum monetary obligation under such guarantee of
performance or commitment to invest. To the extent that a Contingent Investment
is released or lapses without payment under the guarantee of performance or the
commitment to invest, such Investment shall be deemed not made to the extent of
such release or lapse. With respect to any Contingent Investment, the payment of
the guarantee of performance or the payment under the commitment to invest shall
not be deemed to be an additional Investment.
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"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 10.02 hereof or such other address as to
which the Trustee may give notice to the Company.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means any credit facility entered into by and
among the Company and/or any Subsidiary and one or more commercial banks or
financial institutions, providing for senior term or revolving credit borrowings
of a type similar to credit facilities typically entered into by commercial
banks and financial institutions, including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit facility and related agreements may be amended,
extended, refinanced, renewed, restated, replaced or refunded from time to time.
"Debenture Custodian" means the Trustee, as custodian with
respect to the Debentures in global form, or any successor entity thereto.
"Debentures" means the Exchange Debentures and the New Exchange
Debentures.
"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Definitive Debentures" means Debentures that are in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto).
"Depository" means, with respect to the Debentures issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depository with respect to the Debentures, until a successor shall
have been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Designated Senior Debt" means (i) the Credit Facility and (ii)
any other Senior Debt permitted under this Indenture the principal amount of
which is $5.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock to the extent that,
and only to the extent that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to March 31, 2009, provided, however, that any
Capital Stock which would not constitute Disqualified Stock but for provisions
thereof giving Holders thereof the right to require the Company to repurchase or
redeem such Capital Stock upon the occurrence of a Change of Control occurring
prior to March 31, 2009, shall not constitute Disqualified Stock if the change
in control provisions applicable to such Capital Stock are no more favorable to
the Holders of such Capital Stock than the provisions applicable to the
Debentures contained in Section 4.15 hereof and such Capital Stock specifically
provides that the Company will not repurchase or redeem any such stock pursuant
to such provisions prior to the Company's repurchase of such Debentures as are
required to be repurchased pursuant to Section 4.15 hereof.
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"Eligible Institution" means a commercial banking institution
that has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A" (or higher) according to
S&P or Moody's at the time as of which any investment or rollover therein is
made.
"Eligible Receivable" means any Receivable not more than 90 days
past due under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock or that are measured by the value of
Capital Stock (but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended (or any successor act), and the rules and regulations thereunder.
"Exchange Debentures" means the Exchange Debentures described
above issued under this Indenture.
"Exchange Offer" means the exchange offer of the New Preferred
Stock for the Series A Preferred Stock or the New Debentures for the Exchange
Debentures, as applicable, pursuant to the Registration Rights Agreement.
"Existing Indebtedness" means the Debentures and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 13 1/2% Senior Notes
due 2005 and the Company's 12 1/2% Senior Discount Notes due 2006.
"Fair Market Value" means with respect to any asset or property,
the sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect on the Issue
Date.
"Global Debenture" means a Debenture that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 2
to the form of the Debenture attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under Interest Rate Agreements.
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"Holder" means a Person in whose name a Debenture is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations or letters of
credit) would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP, all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Persons), all obligations to purchase, redeem, retire, defease or otherwise
acquire for value any Disqualified Stock or any warrants, rights or options to
acquire such Disqualified Stock valued, in the case of Disqualified Stock, at
the greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends, the liquidation
value of any Preferred Stock issued by Subsidiaries of such Person plus accrued
and unpaid dividends, and also includes, to the extent not otherwise included,
the Guarantee of items that would be included within this definition and any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any of the above; notwithstanding the foregoing, in no event will performance
bonds or similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP;
and provided, further that the amount of any Indebtedness in respect of any
Guarantee shall be the maximum principal amount of the Indebtedness so
guaranteed.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Purchasers" means Bear, Stearns & Co. Inc., Morgan
Stanley & Co. Incorporated and Salomon Brothers Inc as initial purchasers in the
Offering.
"Interest Rate Agreements" means (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements and
(ii) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of this Indenture.
"Issue Date" means the original issuance date for the Series A
Preferred Stock of the Company.
"Joint Venture" means a Person in the Telecommunications Business
in which the Company holds less than a majority of the shares of Voting Stock or
an Unrestricted Subsidiary in the Telecommunications Business.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain
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closed. If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages with respect to
the Debentures then owing pursuant to Section 5 of the Registration Rights
Agreement.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the
date of acquisition issued by a corporation (other than an Affiliate of
the Company) with a rating, at the time as of which any investment
therein is made, of "A-1" (or higher) according to S&P or "P-1" (or
higher) according to Moody's;
(iv) any banker's acceptances or money market deposit accounts
issued or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that are
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets. Net Proceeds shall exclude any non-cash
proceeds received from any Asset Sale, but shall include such proceeds when and
as converted by the Company or any Subsidiary of the Company to cash.
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"New Exchange Debentures" means the new issue of debentures of
the Company issued pursuant to the Exchange Offer pursuant to the Registration
Rights Agreement.
"Offering" means the offering of the Series A Preferred Stock
pursuant to the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum of the
Company, dated March 4, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, Controller,
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed by two
Officers of the Company, one of whom must be the principal executive officer,
principal financial officer, treasurer or principal accounting officer of the
Company.
"Opinion of Counsel" means an opinion from legal counsel, who may
be an employee of or counsel to the Company, any Subsidiary of the Company or
the Trustee.
"Pari Passu Notes" means any notes issued by the Company which,
by their terms and the terms of any indenture governing such notes, have an
obligation to be repurchased by the Company upon the occurrence of an Asset
Sale.
"Permitted Investment" means (a) any Investments in the Company
or any Subsidiary of the Company; (b) any Investments in Marketable Securities;
(c) Investments by the Company or any Subsidiary of the Company in a Person, if
as a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Subsidiary of the Company; (d) any Investments in
property or assets to be used in (A) any line of business in which the Company
or any of its Subsidiaries was engaged on the Issue Date or (B) any
Telecommunications Business; (e) Investments in any Person in connection with
the acquisition of such Person or substantially all of the property or assets of
such Person by the Company or any Subsidiary of the Company; provided that
within 180 days from the first date of any such Investment, either (A) such
Person becomes a Subsidiary of the Company or any of its Subsidiaries or (B) the
amount of any such Investment is repaid in full to the Company or any of its
Subsidiaries; (f) Investments pursuant to any agreement or obligation of the
Company or a Subsidiary, in effect on the Issue Date or on the date a Subsidiary
becomes a Subsidiary (provided that any such agreement was not entered into in
contemplation of such Subsidiary becoming a Subsidiary), to make such
Investments; (g) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (h) Hedging Obligations permitted to be incurred
pursuant to Section 4.09 hereof; and (i) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under Section 4.10
hereof.
"Permitted Junior Securities" means Equity Interests in the
Company or debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the Debentures are subordinated to
Senior Debt pursuant to Article 10 of this Indenture.
"Permitted Liens" means (i) Liens securing Indebtedness
(including Capital Lease Obligations) permitted to be incurred pursuant to
Sections 4.09(b)(i) and 4.09(b)(ii) hereof; (ii) Liens in favor of the
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Company; (iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the Issue Date; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings timely instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (ix)
existing Liens to secure the Existing Senior Notes pursuant to the indenture
governing the Existing Senior Notes; (x) Liens on Telecommunications Related
Assets existing during the time of the construction thereof; (xi) Liens on
Receivables to secure Indebtedness permitted to be incurred pursuant to Section
4.09(b) hereof, but only to the extent that the outstanding amount of the
Indebtedness secured by such Liens would not represent more than 80% of Eligible
Receivables; and (xii) Liens to secure any Permitted Refinancing of any
Indebtedness secured by Liens referred to in the foregoing clauses (i), (iii),
(v) or (xi); but only to the extent that such Liens do not extend to any other
property or assets and the principal amount of the Indebtedness secured by such
Liens is not increased.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person,
means Capital Stock of such Person of any class or classes (however designated)
that ranks prior, as to payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Receivables" means, with respect to any Person, all of the
following property and interests in property of such person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts; (ii) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance; (iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit, relating
to any of the foregoing after creation of the foregoing or arising therefrom;
(iv) all rights to any goods or merchandise represented by any of the foregoing,
including, without limitation, returned or repossessed goods; (v) all reserves
and credit balances with respect to any such accounts receivable or account
debtors; (vi) all letters of credit, security, or Guarantees for any of the
foregoing; (vii) all insurance policies or reports relating to any of the
foregoing; (viii) all collection of deposit accounts relating to any of the
foregoing; (ix) all proceeds of any of the foregoing; and (x) all books and
records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to
Disqualified Stock and Preferred Stock, the quotient of the dividend divided by
the difference between one and the maximum statutory
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federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such Disqualified Stock or Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated March 7, 1997, between the Company and the Initial Purchasers.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"S&P" means Standard & Poor's Rating Group and its successors.
"Sale and Leaseback Transaction" means, with respect to any
Person, any direct or indirect arrangement pursuant to which any property (other
than Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended (or
any successor act), and the rules and regulations thereunder.
"Senior Debt" means any Indebtedness permitted to be incurred by
the Company under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to the Debentures. Notwithstanding anything to the contrary in
the foregoing, Senior Debt will not include (i) any liability for federal,
state, local or other taxes owed or owing by the Company, (ii) any Indebtedness
of the Company to any of its Subsidiaries or other Affiliates, (iii) any trade
payables or (iv) any Indebtedness that is incurred in violation of this
Indenture.
"Series A Preferred Stock" means the Company's 13 1/2% Series A
Redeemable Exchangeable Preferred Stock due 2009.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Strategic Investor" means, with respect to any sale of the
Company's Capital Stock, any Person which, both as of the Trading Day
immediately before the day of such sale and the Trading Day immediately after
the day of such sale, has, or whose parent has, a Total Market Capitalization of
at least $1.0 billion on a consolidated basis. In calculating Total Market
Capitalization for the purpose of this definition, the consolidated Indebtedness
of such Person, solely when calculated as of the Trading Day immediately after
the day of such sale, will be calculated after giving effect to such sale
(including any Indebtedness incurred
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in connection with such sale). For purposes of this definition, the term
"parent" means any Person of which the referent Strategic Investor is a
subsidiary.
"Subsidiary" of any Person means (i) any corporation, association
or business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of such Person or a combination thereof and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person or
any combination thereof; provided that any Unrestricted Subsidiary shall be
excluded from this definition of "Subsidiary."
"Telecommunications Business" means, when used in reference to
any Person, that such Person is engaged primarily in the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) creating,
developing or marketing communications related network equipment, software and
other devices for use in a Telecommunications Business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is related to
those identified in (i) or (ii) above; provided that the determination of what
constitutes a Telecommunications Business shall be made in good faith by the
Board of Directors of the Company.
"Telecommunications Related Assets" means all assets, rights
(contractual or otherwise) and properties, whether tangible or intangible, used
in connection with a Telecommunications Business.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"Total Common Equity" of any Person means, as of any date of
determination (and as modified for purposes of the definition of "Change of
Control"), the product of (i) the aggregate number of outstanding primary shares
of Common Stock of such Person on such day (which shall not include any options
or warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of the Board of Directors filed with the Trustee.
"Total Market Capitalization" of any Person means, as of any day
of determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of (1) the consolidated Indebtedness of such Person and its
subsidiaries (except in the case of the Company, in which case of the Company
and its Subsidiaries) on such day, plus (2) the product of (i) the aggregate
number of outstanding primary shares of Common Stock of such Person on such day
(which shall not include any options or warrants on, or securities convertible
or exchangeable into, shares of Common Stock of such Person) and (ii) the
average Closing Price of such Common Stock over the 20 consecutive Trading Days
immediately preceding such day, plus (3) the liquidation value of any
outstanding shares of Preferred Stock of such Person on such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (2) of the preceding sentence shall be determined
by the Company's Board of Directors in good faith and evidenced by a resolution
of the Board of Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
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"Transfer Restricted Securities" means securities that bear or
are required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution.
"Vendor Indebtedness" means any Indebtedness of the Company or
any Subsidiary incurred in connection with the acquisition or construction of
Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; provided, that with respect
to Capital Lease Obligations, that maturity shall be calculated after giving
effect to all renewal options by the Lessee.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"............................. 4.11
"Asset Sale"........................................ 4.10
"Asset Sale Offer".................................. 3.09
"Bankruptcy Law".................................... 4.01
"Change of Control Offer"........................... 4.15
"Change of Control Payment"......................... 4.15
"Change of Control Payment Date".................... 4.15
"Covenant Defeasance"............................... 8.03
"Custodian"......................................... 6.01
"Event of Default".................................. 6.01
"Excess Proceeds"................................... 4.10
"Excess Proceeds Offer"............................. 3.09
"incur"............................................. 4.09
"Legal Defeasance" ................................. 8.02
"Offer Amount"...................................... 3.09
"Offer Period"...................................... 3.09
"Paying Agent"...................................... 2.03
"Payment Default"................................... 6.01
"Permitted Refinancing"............................. 4.09
"Purchase Date"..................................... 3.09
"Refinance"......................................... 4.09
"Registrar"......................................... 2.03
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"Restricted Payments"............................... 4.07
"Retire"............................................ 4.07
"SEC Reports"....................................... 4.03
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Debentures;
"indenture security Holder" means a Holder of a Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Debentures means the Company and any successor obligor
upon the Debentures.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a capitalized term has the meaning assigned to it under this
Article 1;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation; and
(5) words in the singular include the plural, and in the plural include
the singular.
ARTICLE 2
THE DEBENTURES
SECTION 2.01. FORM AND DATING.
The Debentures and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Debentures may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Debenture shall be dated the date of its authentication. The
Debentures shall be issued in denominations of $1,000 and
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integral multiples thereof; provided that in connection with the original
issuance of Debentures hereunder in exchange for shares of the Series A
Preferred Stock and the payment of interest on the Debentures in additional
Debentures, if applicable, the Company may elect to pay any amount remaining
after issuance of Debentures in denominations of $1,000 or less and/or integral
multiples thereof, in cash or in additional Debentures in denominations of less
than $1,000.
The terms and provisions contained in the Debentures shall constitute,
and are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Debentures issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 2
thereto). Debentures issued in definitive form shall be substantially in the
form of Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 2 thereto). Each Global Debenture shall represent such of the
outstanding Debentures as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Debentures from time to
time endorsed thereon and that the aggregate amount of outstanding Debentures
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Debenture to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall be made by the Trustee or the
Debenture Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers of the Company shall sign the Debentures for the Company
by manual or facsimile signature. The Company's seal shall be reproduced on the
Debentures and may be in facsimile form.
If an Officer whose signature is on a Debenture no longer holds that
office at the time a Debenture is authenticated, the Debenture shall
nevertheless be valid. In addition, if a Person is not an Officer at the time a
Debenture is authenticated, but becomes an Officer on or prior to the delivery
of the Debenture, the Debenture shall nevertheless be valid.
A Debenture shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature of the
Trustee shall be conclusive evidence that the Debenture has been authenticated
under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Debentures for original issue up to the
aggregate principal amount stated in paragraph 4 of the Debentures. The
aggregate principal amount of Debentures outstanding at any time may not exceed
such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate the Debentures. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
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The Company shall maintain an office or agency where Debentures may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Debentures may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Debentures and of their transfer and
exchange. The Company may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and the
term "Paying Agent" includes any additional paying agent. The Company may change
any Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee and the Trustee shall notify the Holders of the Debentures in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may
act as Paying Agent or Registrar. The Company shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the
Trustee shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Debentures.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Debenture Custodian with respect to the Global
Debentures. Except as otherwise specifically provided herein, (i) all references
in this Indenture to the Trustee shall be deemed to refer to the Trustee in its
capacity as Trustee and in its capacities as Registrar, Paying Agent and
Debenture Custodian and (ii) every provision of this Indenture relating to the
conduct of or affecting the liability of or offering protection, immunity or
indemnity to the Trustee shall be deemed to apply with the same force and effect
to the Trustee acting in its capacities as Paying Agent and Registrar.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money (or Debentures, if applicable), held by the
Paying Agent for the payment of principal, premium, if any, interest and
Liquidated Damages, if any, on the Debentures, and will notify the Trustee of
any default by the Company in making any such, premium, if any, payment. While
any such default continues, the Trustee may require a Paying Agent to pay all
money held by it to the Trustee. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money (or Debentures, if applicable), held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent and Registrar for the
Debentures.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and
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as of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Debentures, including the aggregate principal amount of the
Debentures held by each such Holder, and the Company shall otherwise comply with
TIA (s)(s) 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Debentures. When Definitive
Debentures are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Debentures; or
(y) to exchange such Definitive Debentures for an equal principal
amount of Definitive Debentures of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Debentures presented or surrendered for register of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in
writing; and
(ii) in the case of a Definitive Debenture that is a Transfer
Restricted Security, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from such
Holder (in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Security is being
transferred (1) to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or
(2) pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act (and
based on an opinion of counsel if the Company so
requests) or (3) pursuant to an effective registration
statement under the Securities Act, a certification to
that effect from such Holder (in substantially the
form of Exhibit B hereto);
(C) if such Transfer Restricted Security is being
transferred to an institutional "accredited investor,"
within the meaning of Rule 501(a)(1), (2),(3) or (7)
under the Securities Act pursuant to a private
placement exemption from the registration requirements
of the Securities Act (and based on an opinion of
counsel if the Company so requests), a certification
to that effect from such Holder (in substantially the
form of Exhibit B hereto) and a certification from the
applicable transferee (in substantially the form of
Exhibit C hereto);
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(D) if such Transfer Restricted Security is being
transferred pursuant to an exemption from registration
in accordance with Rule 904 under the Securities Act
(and based on an opinion of counsel if the Company so
requests), a certification to that effect from such
Holder (in substantially the form of Exhibit B
hereto); or
(E) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act (and
based on an opinion of counsel if the Company so
requests), a certification to that effect from such
Holder (in substantially the form of Exhibit B
hereto).
(b) Transfer of a Definitive Debenture for a Beneficial Interest in a
Global Debenture. A Definitive Debenture may not be exchanged for a beneficial
interest in a Global Debenture except upon satisfaction of the requirements set
forth below. Upon receipt by the Trustee of a Definitive Debenture, duly
endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
(i) if such Definitive Debenture is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form of
Exhibit B hereto) to the effect that such Definitive Debenture is
being transferred by such Holder to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Debenture is a Transfer Restricted
Security, written instructions from the Holder thereof directing
the Trustee to make, or to direct the Debenture Custodian to make,
an endorsement on the Global Debenture to reflect an increase in
the aggregate principal amount of the Debentures represented by
the Global Debenture,
the Trustee shall cancel such Definitive Debenture in accordance with Section
2.11 hereof and cause, or direct the Debenture Custodian to cause, in accordance
with the standing instructions and procedures existing between the Depository
and the Debenture Custodian, the aggregate principal amount of Debentures
represented by the Global Debenture to be increased accordingly. If no Global
Debentures are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Debenture in the appropriate principal amount.
(c) Transfer and Exchange of Global Debentures. The transfer and
exchange of Global Debentures or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures of
the Depository therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Debenture for a
Definitive Debenture.
(i) Any Person having a beneficial interest in a Global Debenture
may upon request exchange such beneficial interest for a
Definitive Debenture. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary
for the Depository, from the Depository or its nominee on
behalf of any Person having a beneficial interest in a Global
Debenture, and, in the case of a Transfer Restricted Security,
the following additional information and documents (all of
which may be submitted by facsimile):
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(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the
beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being transferred (1)
to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or (2) pursuant to
an exemption from registration in accordance with Rule
144 under the Securities Act (and based on an opinion
of counsel if the Company so requests) or (3) pursuant
to an effective registration statement under the
Securities Act, a certification to that effect from
the transferor (in substantially the form of Exhibit B
hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if
the Company so requests), a certification to that
effect from such Holder (in substantially the form of
Exhibit B hereto) and a certification from the
applicable transferee (in substantially the form of
Exhibit C hereto); or
(D) if such beneficial interest is being transferred
pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act (and
based on an opinion of counsel if the Company so
requests), certifications to that effect from such
Holder (in substantially the form of Exhibit B
hereto); or
(E) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel if the Company so requests), a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto);
the Trustee or the Debenture Custodian, at the direction of
the Trustee, shall, in accordance with the standing
instructions and procedures existing between the Depository
and the Debenture Custodian, cause the aggregate principal
amount of Global Debentures to be reduced accordingly and,
following such reduction, the Company shall execute and, upon
receipt of an authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate and deliver to the
transferee a Definitive Debenture in the appropriate principal
amount.
(ii) Definitive Debentures issued in exchange for a beneficial
interest in a Global Debenture pursuant to this Section
2.06(d) shall be registered in such names and in such
authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall
deliver in accordance with the standard procedures of the
Depository such Definitive Debentures to the Persons in whose
names such Debentures are so registered.
(e) Restrictions on Transfer and Exchange of Global Debentures.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Debenture may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
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(f) Authentication of Definitive Debentures in Absence of Depository.
If at any time:
(i) the Depository for the Debentures notifies the Company that
the Depository is unwilling or unable to continue as
Depository for the Global Debentures and a successor
Depository for the Global Debentures is not appointed by the
Company within 120 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive
Debentures under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Debentures in an aggregate principal amount equal to the
principal amount of the Global Debentures in exchange for such Global Debentures
and registered in such names as the Depository shall instruct the Trustee or the
Company in writing.
(g) Legends.
(i) Except for any Transfer Restricted Security sold or
transferred (including any Transfer Restricted Security
represented by a Global Debenture) as described in (ii) below,
each Debenture certificate evidencing Global Debentures and
Definitive Debentures (and all Debentures issued in exchange
therefor or substitution thereof) shall bear legends in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. BY ITS ACQUISITION
HEREOF, THE Holder (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY
IN AN OFFSHORE TRANSACTION. THE Holder OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
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BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS),
(2) TO THE COMPANY, (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
IT WILL NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY,
PRIOR TO CLOSING OF ANY SALE, OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Debenture) pursuant to an effective registration
statement under the Securities Act, pursuant to Rule 144 under
the Securities Act or pursuant to an Opinion of Counsel
reasonably satisfactory to the Company and the Registrar that
no legend is required:
(A) in the case of any Transfer Restricted Security that is a
Definitive Debenture, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a Definitive Debenture that does not bear the
legend set forth in (i) above and rescind any restriction
on the transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Debenture, such Transfer
Restricted Security shall not be required to bear the
legend set forth in (i) above if all other interests in
such Global Debenture have been or are concurrently being
sold or transferred pursuant to Rule 144 under the
Securities Act or pursuant to an effective registration
statement under the Securities Act, but such Transfer
Restricted Security shall continue to be subject to the
provisions of Section 2.06(c) hereof; provided, however,
that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a
Global Debenture for a Definitive Debenture that does not
bear the legend set forth in (i) above, which request is
made in reliance upon Rule 144, the Holder thereof shall
certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of
an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate New Exchange Debentures
in exchange for Exchange Debentures accepted for exchange in
the Exchange Offer, which New Exchange Debentures shall not
bear the legend set forth in (i) above, and the Registrar
shall rescind any restriction on the transfer of such
Debentures, in each case unless the Holder of such Exchange
Debentures is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Exchange Debentures
or (C) a Person who is an affiliate (as defined in Rule 144A)
of the Company. The Company shall identify to the Trustee such
Holders of the Debentures in a written certification signed by
an Officer of the Company and, absent certification from the
Company to such effect, the Trustee shall assume that there
are no such Holders.
(h) Cancellation and/or Adjustment of Global Debentures. At such time
as all beneficial interests in Global Debentures have been exchanged for
Definitive Debentures, redeemed, repurchased or cancelled, all Global Debentures
shall be returned to or retained and cancelled by the Trustee in accordance with
Section
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2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Debenture is exchanged for Definitive Debentures, redeemed,
repurchased or cancelled, the principal amount of Debentures represented by such
Global Debenture shall be reduced accordingly and an endorsement shall be made
on such Global Debenture, by the Trustee or the Debentures Custodian, at the
direction of the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Definitive Debentures and Global Debentures at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer
pursuant to Sections 3.07, 4.10, 4.15 and 9.05 hereto).
(iii) Neither the Company nor the Registrar shall be required to
register the transfer of or exchange any Debenture
selected for redemption in whole or in part, except the
unredeemed portion of any Debenture being redeemed in
part.
(iv) All Definitive Debentures and Global Debentures issued
upon any registration of transfer or exchange of
Definitive Debentures or Global Debentures (including any
increase in the aggregate principal amount of the
Debentures represented by the Global Debenture pursuant to
subsection (b) above) shall be the valid obligations of
the Company, evidencing the same debt, and entitled to the
same benefits under this Indenture, as the Definitive
Debentures or Global Debentures surrendered upon such
registration of transfer or exchange.
(v) The Company shall not be required to issue Debentures and
the Registrar shall not be required to register the
transfer of or to exchange Debentures during a period
beginning at the opening of business 15 days before the
day of any selection of Debentures for redemption under
Section 3.02 hereof and ending at the close of business on
the day of selection, or to register the transfer of or to
exchange a Debenture between a record date and the next
succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Debenture, the Trustee, any Agent and the
Company may deem and treat the Person in whose name any
Debenture is registered as the absolute owner of such
Debenture for the purpose of receiving payment of
principal of and interest on such Debentures, and neither
the Trustee, any Agent nor the Company shall be affected
by notice to the contrary.
(vii) The Trustee shall authenticate Definitive Debentures and
Global Debentures in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07. REPLACEMENT DEBENTURES.
If any mutilated Debenture is surrendered to the Trustee, or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Debenture, the Company shall issue and the
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Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Debenture if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Debenture is
replaced. The Company may charge for its expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Debentures hereunder.
SECTION 2.08. OUTSTANDING DEBENTURES.
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Debenture
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section 2.08 as not outstanding. Except as set forth in
Section 2.09 hereof, a Debenture does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Debenture.
If a Debenture is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If the principal amount of any Debenture is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date, money sufficient to pay all
principal, interest, premium and Liquidated Damages, if any, payable on that
date with respect to the Debentures (or the portion thereof to be redeemed or
maturing, as the case may be), then on and after that date such Debentures (or
portions thereof) shall be deemed to be no longer outstanding and shall cease to
accrue interest.
SECTION 2.09. TREASURY DEBENTURES.
In determining whether the Holders of the required principal amount of
Debentures have concurred in any direction, waiver or consent, Debentures owned
by the Company, or an Affiliate of the Company, shall be considered as though
not outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Debentures that a Responsible Officer of the Trustee knows are so owned shall be
so disregarded.
SECTION 2.10. TEMPORARY DEBENTURES.
Until definitive Debentures are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Debentures. Temporary
Debentures shall be substantially in the form of definitive Debentures but may
have variations that the Company and the Trustee consider appropriate for
temporary Debentures. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate definitive Debentures and deliver them in
exchange for temporary Debentures.
Holders of temporary Debentures shall be entitled to all of the
benefits of this Indenture.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Debentures surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Debentures (subject to the record retention requirement
of the Exchange Act), unless the Company directs cancelled Debentures to be
returned to it. Certification of the destruction of all cancelled Debentures
shall be delivered to the Company for all certificates so destroyed. The Company
may not issue new Debentures to replace Debentures that it has redeemed, paid or
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Debentures, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, which date shall be at the earliest
practicable date but in all events at least five Business Days prior to the
payment date, in each case at the rate provided in the Debentures and in Section
4.01 hereof. The Company shall fix or cause to be fixed each such special record
date and payment date, provided that the Company shall fix or cause to be fixed
each such special record date as early as practicable prior to the payment date,
and the Company shall mail or cause to be mailed as early as practicable to each
Holder a notice that states the special record date, the related payment date
and the amount of defaulted interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders of
the Debentures entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA ss. 316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Debentures may use a "CUSIP" number and, if
it does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Debentures and that reliance may be
placed only on the other identification numbers printed on the Debentures. The
Company will promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND CERTAIN REPURCHASES
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Debentures pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the clause of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Debentures to be
redeemed and (iv) the redemption price.
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SECTION 3.02. SELECTION OF DEBENTURES TO BE REDEEMED.
If less than all of the Debentures are to be redeemed at any time,
except as provided in Section 3.09, the Trustee shall select the Debentures to
be redeemed or purchased in compliance with the requirements of the principal
national securities exchange, if any, on which the Debentures are listed, or, if
the Debentures are not so listed, on a pro rata basis, by lot or in accordance
with any other method the Trustee considers fair and appropriate (and in such
manner as complies with applicable legal and stock exchange requirements, if
any), provided that no Debentures with a principal amount of $1,000 or less
shall be redeemed or purchased in part. A new Debenture in principal amount
equal to the unredeemed or unpurchased portion shall be issued in the name of
the Holder thereof upon cancellation of the original Debenture. On and after the
redemption or purchase date, interest shall cease to accrue on the Debentures or
portions of them called for redemption or purchase. In the event of partial
redemption by lot, the particular Debentures to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days prior
to the redemption date by the Trustee from the outstanding Debentures not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Debentures selected for redemption and, in the case of any Debenture selected
for partial redemption, the principal amount thereof to be redeemed. Debentures
and portions of them selected shall be in amounts of $1,000 or whole multiples
of $1,000; except that if all of the Debentures of a Holder are to be redeemed,
the entire outstanding amount of Debentures held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Debentures called for
redemption also apply to portions of Debentures called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Debentures are to be redeemed at its registered address (provided that in the
event of a redemption pursuant to Section 3.07(b) hereof arising out of a sale
of the Company's Capital Stock (other than Disqualified Stock) to a Strategic
Equity Investor, such notice shall not be mailed prior to the consummation of
such sale).
The notice shall identify the Debentures to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price, separately stating the amount of Liquidated
Damages to be paid in connection with redemption;
(c) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
redemption date upon surrender of such Debenture, a new Debenture or
Debentures in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Debenture;
(d) the name and address of the Paying Agent;
(e) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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(f) that, unless the Company defaults in making such redemption
payment, interest on Debentures (or portions thereof) called for redemption
ceases to accrue on and after the redemption date;
(g) the paragraph of the Debentures and/or section of this Indenture
pursuant to which the Debentures called for redemption are being redeemed;
and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the
Debentures.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Debentures called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
At least one Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) immediately
available funds sufficient to pay the redemption price of and accrued interest,
if any, on all Debentures to be redeemed on that date. The Trustee or the Paying
Agent shall promptly return to the Company any funds deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest and Liquidated Damages, if any, on,
all Debentures to be redeemed.
If the Company complies with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the
Debentures or the portions of Debentures called for redemption (regardless of
whether certificates for such Debentures are actually surrendered). If a
Debenture is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name such
Debenture was registered at the close of business on such record date. If any
Debenture called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the
Debentures and in Section 4.01 hereof.
SECTION 3.06. DEBENTURES REDEEMED IN PART.
Upon surrender of a Debenture that is redeemed in part, the Company
shall issue, upon the Company's written request and the Trustee shall
authenticate for the Holder of the Debentures at the expense of the Company a
new Debenture equal in principal amount to the unredeemed portion of the
Debenture surrendered.
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SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in Section 3.07(b) below, the Debentures will
not be redeemable at the Company's option prior to March 31, 2002. Thereafter,
the Debentures will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on March 31 of the years indicated below:
Year Percentage
- ---- ----------
2002..................................................... 106.75%
2003..................................................... 105.40%
2004..................................................... 104.05%
2005..................................................... 102.70%
2006..................................................... 101.35%
2007 and thereafter...................................... 100.00%
(b) Notwithstanding the provisions of Section 3.07(a) above, prior to
March 31, 2000, the Company may, on any one or more occasions, use the net
proceeds of one or more underwritten public offerings of its Common Stock or
from the sale of its Capital Stock (other than Disqualified Stock) to a
Strategic Investor in a single transaction or series of related transactions for
an aggregate purchase price equal to or exceeding $50.0 million, to redeem up to
a maximum of 35% of the aggregate principal amount of the Debentures originally
issued from the net cash proceeds of such sale or offering (but only to the
extent such proceeds consist of cash or readily marketable cash equivalents) at
a redemption price equal to 113 1/2% of the principal amount thereof with
respect to the Debentures to be redeemed on the redemption date, provided that
at least 65% of the aggregate principal amount of the Debentures originally
issued remains outstanding immediately after the occurrence of such redemption
and that such redemption occurs within 90 days of the date of the closing of
such sale.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Sections 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09 and 4.15 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Debentures.
SECTION 3.09. OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS.
If at any time the cumulative amount of Excess Proceeds that have not
been applied in accordance with this Section 3.09 exceeds $5.0 million, the
Company shall, within 30 days thereafter, make an offer to all Holders of
Debentures and Holders of Pari Passu Notes (an "Excess Proceeds Offer" or "Asset
Sale Offer"), to purchase the maximum principal amount of Debentures and Pari
Passu Notes that may be purchased out of such Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the outstanding principal amount of the
Debentures and the Pari Passu Notes, plus accrued and unpaid interest thereon
and Liquidated
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Damages, if any, to the date fixed for the closing of such offer, in accordance
with the procedures specified below.
The Excess Proceeds Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the maximum principal amount of Debentures
and Pari Passu Notes that may be purchased with such Excess Proceeds (or such
pro rata portion based upon the principal amount of the Debentures and Pari
Passu Notes tendered, if the principal amount of Debentures and Pari Passu Notes
tendered is in excess of the Excess Proceeds) (which maximum principal amount of
Debentures shall be the "Offer Amount") or, if less than the Offer Amount has
been tendered, all Debentures and Pari Passu Notes tendered in response to the
Excess Proceeds Offer, subject to the provisions of Section 4.10 hereof.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued interest on the Debentures
shall be paid to the Person in whose name a Debenture is registered at the close
of business on such record date, and no additional interest shall be payable to
Holders who tender Debentures pursuant to the Excess Proceeds Offer on the
portion of the tendered Debentures purchased pursuant to the Excess Proceeds
Offer.
Upon the commencement of any Excess Proceeds Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders of
the Debentures, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender Debentures
pursuant to the Excess Proceeds Offer. The Excess Proceeds Offer shall be made
to all Holders. The notice, which shall govern the terms of the Excess Proceeds
Offer, shall state:
(a) that the Excess Proceeds Offer is being made pursuant to
Sections 3.09 and 4.10 hereof and the length of time the Excess Proceeds
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Debenture or portion thereof not tendered or accepted
for payment shall continue to accrue interest;
(d) that any Debenture or portion thereof accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest after
the Purchase Date;
(e) that Holders electing to have a Debenture or portion thereof
purchased pursuant to any Excess Proceeds Offer shall be required to
surrender the Debenture, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Debenture completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three Business Days before the Purchase
Date;
(f) that Holders shall be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Debenture or portion thereof the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have the Debenture or portion thereof purchased;
(g) that, if the aggregate principal amount of Debentures and Pari
Passu Notes tendered by Holders of such notes exceeds the Offer Amount, the
Trustee shall select the Debentures to be purchased
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on a pro rata basis as described above (with such adjustments as may be
deemed appropriate by the Trustee so that only Debentures in denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(h) that Holders whose Debentures were purchased only in part shall
be issued new Debentures equal in principal amount to the unpurchased
portion of the Debentures surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis (as described above) to the
extent necessary, the Offer Amount of Debentures or portions thereof tendered
pursuant to the Excess Proceeds Offer, or if less than the Offer Amount has been
tendered, all Debentures or portion thereof tendered, and deliver to the Trustee
an Officers' Certificate stating that such Debentures or portions thereof were
accepted for payment by the Company in accordance with the terms of this Section
3.09. The Company, Depository or Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Debenture or portion thereof tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Debenture, and the
Trustee shall authenticate and mail or deliver such new Debenture to such Holder
equal in principal amount to any unpurchased portion of the Debenture
surrendered. Any Debenture not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall publicly announce the
results of the Excess Proceeds Offer on the Purchase Date. In the event that the
aggregate amount of Excess Proceeds exceeds the aggregate principal amount of
Debentures, Pari Passu Notes or portion thereof surrendered by Holders of such
notes pursuant to an Excess Proceeds Offer, the Company may use the remaining
Excess Proceeds for general purposes. Upon completion of an Excess Proceeds
Offer, the amount of Excess Proceeds shall be deemed to be reset at zero.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof. No repurchase of Debentures under this
Section 3.9 shall be deemed to be a redemption of Debentures.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF DEBENTURES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Debentures on the dates and in the manner provided in
the Debentures and this Indenture. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company, holds as of the due date money deposited by, or on behalf of, the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement. If any Liquidated Damages become
payable, the Company shall not later than three Business Days prior to the date
that any payment of Liquidated Damages is due (i) deliver an Officers'
Certificate to the Trustee setting forth the amount of Liquidated Damages
payable to Holders and (ii) instruct the Paying Agent to pay such amount of
Liquidated Damages to Holders entitled to receive such Liquidated Damages.
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The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
the then applicable interest rate on the Debentures to the extent lawful until
such overdue principal is paid; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful until such overdue installments of
interest and Liquidated Damages are paid.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an office
of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Debentures may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Debentures and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.
SECTION 4.03. REPORTS.
(a) So long as any of the Debentures remain outstanding, the Company
shall cause copies of all quarterly and annual financial reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13(a) or 15(d) of
the Exchange Act ("SEC Reports") to be filed with the Trustee and mailed to the
Holders at their addresses appearing in the register of Debentures maintained by
the Registrar, in each case, within 15 days of filing with the SEC. If the
Company is not subject to the requirements of Section 13(a) or 15(d) of the
Exchange Act or shall cease to be required by the SEC to file SEC Reports, the
Company shall nevertheless continue to cause SEC Reports, comparable to those
which it would be required to file pursuant to Section 13(a) or 15(d) of the
Exchange Act if it were subject to the requirements of either such Section, to
be so filed with the SEC for public availability (unless the SEC will not accept
such a filing) and with the Trustee and mailed to the Holders, in each case,
within the same time periods as would have applied (including under the
preceding sentence) had the Company been subject to the requirements of Section
13(a) or 15(d) of the Exchange Act. The Company shall make all such information
available to investors who request it in writing. The Company shall also comply
with the provisions of TIA (s)(s) 314(a).
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(b) So long as any of the Debentures remain outstanding, the Company
shall furnish to the Holders of the Debentures and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
(c) The Company shall provide the Trustee with a sufficient number of
copies of all SEC Reports that the Trustee may be required to deliver to the
Holders of the Debentures under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year of the Company, an Officers' Certificate stating that
(i) a review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has (x) kept, observed,
performed and fulfilled, and (y) caused each of its Subsidiaries to keep,
observe, perform and fulfill, its obligations under this Indenture, and (ii) as
to each such Officer signing such certificate, that to the best of his or her
knowledge (A) the Company has kept, observed, performed and fulfilled, and has
caused each of its Subsidiaries to keep, observe, perform and fulfill, each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture to be performed or observed by it (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action each is taking or proposes
to take with respect thereto) and (B) no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Debentures is prohibited or if such event has occurred,
a description of the event and what action each is taking or proposes to take
with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Debentures are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default, Event of Default or default and what action the Company is taking or
proposes to take with respect thereto.
(d) The Company shall deliver to the Trustee an Officers' Certificate
as required by, and in accordance with, Section 4.07(f) hereof.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies,
except as contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Holders of the Debentures.
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SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:
(i) declare or pay any dividend or make any distribution on account
of any Equity Interests of the Company or any of its Subsidiaries other
than dividends or distributions payable (A) in Equity Interests of the
Company that are not Disqualified Stock or (B) to the Company or any
Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for
value ("Retire" and correlatively, a "Retirement") any Equity Interests
of the Company or any of its Subsidiaries or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or
any Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that is
subordinate in right of payment to the Debentures or (B) any
Subsidiary, except, with respect to clause (i)(A) or (i)(B) above, at
final maturity or in accordance with the mandatory redemption or
repayment provisions set forth in the original documentation governing
such Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro
forma basis as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, the Company could
incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Cash Flow Leverage Ratio test set forth in Section
4.09(a) hereof; and
(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date (including any Restricted
Payments made pursuant to clauses (i), (v) and (vi) of the next
paragraph), is less than the sum of
(w) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the
beginning of the first fiscal quarter
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commencing after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such
deficit), plus
(x) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale of Equity Interests
of the Company or of debt securities or Disqualified Stock
of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock) after the Issue
Date (other than any such Equity Interests, the proceeds
of which were used as set forth in clause (ii) below, plus
(y) 100% of the sum of, without duplication, (1) aggregate
dividends or distributions received by the Company or any
Subsidiary from any Joint Venture (other than dividends or
distributions to pay any obligations of such Joint Venture
to Persons other than the Company or any Subsidiary, such
as income taxes), with non-cash distributions to be valued
at the lower of book value or fair market value as
determined by the Board of Directors, (2) the amount of
the principal and interest payments received since the
Issue Date by the Company or any Subsidiary from any Joint
Venture and (3) the net proceeds from the sale of an
Investment in a Joint Venture received by the Company or
any Subsidiary; provided that there is no obligation to
return any such amounts to the Joint Venture, and
excluding any such dividend, distribution, interest
payment or net proceeds that constitutes a return of
capital invested pursuant to clause (vi) of the next
succeeding paragraph, plus
(z) $10.0 million.
The foregoing provisions in Section 4.07(a) shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
have complied with the provisions of this Indenture;
(ii) the Retirement of (A) any Equity Interests of the Company or
any Subsidiary of the Company, (B) Indebtedness of the Company that is
subordinate to the Debentures or (C) Indebtedness of a Subsidiary of
the Company, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock);
(iii) the Retirement of any Indebtedness of the Company subordinated
in right of payment to the Debentures in exchange for, or out of the
proceeds of the substantially concurrent incurrence of Indebtedness of
the Company (other than Indebtedness to a Subsidiary of the Company),
but only to the extent that such new Indebtedness is permitted under
Section 4.09 hereof and (1) is subordinated in right of payment to the
Debentures at least to the same extent as, (2) has a Weighted Average
Life to Maturity at least as long as, and (3) has no scheduled
principal payments due in any amount earlier than, any equivalent
amount of principal under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Subsidiary of the
Company in exchange for, or out of the proceeds of the substantially
concurrent incurrence of Indebtedness of the Company or any Subsidiary
but only to the extent that such incurrence is permitted under Section
4.09 hereof and only to the extent that such Indebtedness (1) is not
secured by any assets of the Company or any
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Subsidiary to a greater extent than the Retired Indebtedness was so
secured, (2) has a Weighted Average Life to Maturity at least as long
as the Retired Indebtedness and (3) if such Retired Indebtedness was an
obligation of the Company, is pari passu or subordinated in right of
payment to the Debentures at least to the same extent as the Retired
Indebtedness;
(v) the Retirement of any Equity Interests of the Company or any
Subsidiary of the Company held by any member of the Company's (or any
of its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any
twelve-month period plus the aggregate cash proceeds received by the
Company during such twelve-month period from any reissuance of Equity
Interests by the Company to members of management of the Company and
its Subsidiaries; and
(vi) Investments in any Joint Venture; provided that at the time
any such Investment is made, such Investment shall not cause the
aggregate amount of Investments at any one time outstanding under this
clause (vi) to exceed 5% of the Total Common Equity of the Company;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v) and (vi),
no Default or Event of Default shall have occurred and be continuing.
A Permitted Investment that ceases to be a Permitted Investment pursuant to
the definition thereof set forth in Section 1.01 hereof, shall become a
Restricted Investment, deemed to have been made on the date that it ceases to be
a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default or an Event of Default
pursuant to Article 6 hereof. For purposes of making such determination, all
outstanding Investments by the Company and its Subsidiaries (except to the
extent repaid in cash) in such Subsidiary so designated shall be deemed to be
Restricted Payments at the time of such designation and shall reduce the amount
available for Restricted Payments under the first paragraph of this Section
4.07. All such outstanding Investments will be deemed to constitute Investments
in an amount equal to the greatest of (x) the net book value of such Investments
at the time of such designation, (y) the fair market value of such Investments
at the time of such designation and (z) the original fair market value of such
Investments at the time they were made. Such designation will only be permitted
if such Restricted Payment would be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
Section 4.09 hereof and (ii) no Default or Event of Default pursuant to Article
6 hereof would be in existence following such designation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by Section 4.09 were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
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The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or become effective any
consensual encumbrance or restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Subsidiaries on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any
of its Subsidiaries;
except for such encumbrances or restrictions existing as of the Issue Date or
under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the time
of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
(g) Indebtedness incurred under Section 4.09(a) hereof;
(h) this Indenture, the Series A Preferred Stock and the
Debentures; or
(i) in the case of clauses (a), (c), (e), (g) and (h) above, any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof;
provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings are not materially more restrictive with respect to
such dividend and other payment restrictions than those contained
in such instruments as in effect on the date of their incurrence
or, if later, the Issue Date.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK.
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(i) The Company and its Subsidiaries shall not, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable for the payment of (collectively, "incur" and, correlatively,
"incurred" and "incurrence") any Indebtedness (including, without limitation,
Acquired Debt), and
(ii) the Company and its Subsidiaries shall not issue any Disqualified
Stock, provided, however, that the Company and/or any of its Subsidiaries may
incur Indebtedness (including, without limitation, Acquired Debt) or issue
shares of Disqualified Stock if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock, the Consolidated Cash
Flow Leverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence or issuance (A) does not exceed 5.5 to 1
if such incurrence or issuance occurs on or prior to June 1, 1999 and (B) does
not exceed 5.0 to 1 if such occurrence or issuance occurs after June 1, 1999, in
each case, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period. If the Company incurs any Indebtedness or
issues or redeems any Preferred Stock subsequent to the commencement of the
period for which such ratio is being calculated but prior to the event for which
the calculation of the ratio is made, then the ratio will be calculated giving
pro forma effect to any such incurrence of Indebtedness, or such issuance or
redemption of Preferred Stock, as if the same had occurred at the beginning of
the applicable period. In making such calculation on a pro forma basis, interest
attributable to Indebtedness bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period.
The foregoing limitation shall not apply to (with each exception to be
given independent effect):
(a) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness under the Credit Facility in an aggregate principal amount
at any one time outstanding (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company and/or any of its Subsidiaries thereunder) not to exceed $75.0
million in the aggregate at any one time outstanding, less the
aggregate amount of all Net Proceeds of Asset Sales applied to
permanently reduce the commitments with respect to such Indebtedness
pursuant to Section 4.10 hereof;
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the
total cost of the Telecommunications Related Assets financed therewith
if such Vendor Indebtedness was extended for the purchase of tangible
physical assets and was so financed by the vendor thereof or an
affiliate of such vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of the
Existing Indebtedness, including the Existing Senior Notes;
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $25.0 million at any one time
outstanding;
(e) the incurrence by the Company of Indebtedness, but only to the
extent that such Indebtedness is expressly subordinate to the payment
in full of all Obligations with respect to the Existing Senior Notes
and are not senior in right of payment of the Debentures and has a
final maturity no earlier than, and a Weighted Average Life to Maturity
equal to or greater than, the final maturity and
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Weighted Average Life to Maturity, respectively, of the Debentures, in
an aggregate principal amount not to exceed 2.0 times the net cash
proceeds received by the Company after May 14, 1996 from the issuance
and sale of Equity Interests of the Company plus the fair market value
of Equity Interests (other than Disqualified Stock) issued in
connection with any acquisition of any Telecommunications Business;
(f) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Subsidiaries of Indebtedness issued in exchange for, or the
proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness, other than Indebtedness incurred pursuant to clause (a)
above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness
shall not exceed the principal amount of and premium, if any, and
accrued interest on the Indebtedness so Refinanced (or if such
Indebtedness was issued at an original issue discount, the original
issue price plus amortization of the original issue discount at the
time of the repayment of such Indebtedness) plus the fees, expenses
and costs of such Refinancing and reasonable prepayment premiums,
if any, in connection therewith;
(2) the Refinancing Indebtedness shall have a final
maturity no earlier than, and a Weighted Average Life to Maturity
equal to or greater than, the final maturity and Weighted Average
Life to Maturity of the Indebtedness being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinated
in right of payment to the Debentures, the Refinancing Indebtedness
shall be subordinated in right of payment to the Debentures on
terms at least as favorable to the Holders of Debentures as those
contained in the documentation governing the Indebtedness being so
Refinanced;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; and
(h) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate or foreign currency risk with respect to any floating
rate Indebtedness that is permitted by the terms of this Indenture to
be outstanding.
For purposes of determining compliance with this Section 4.09, in the event
that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the
criteria of more than one of the categories described in clauses (a) through (h)
above or is entitled to be incurred pursuant to the first paragraph of this
Section 4.09, the Company shall, in its sole discretion, classify such item in
any manner that complies with this Section 4.09 and such item will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph herein. Accrual of interest or dividends, the accretion of
accreted value or liquidation preference and the payment of interest or
dividends in the form or additional Indebtedness or Preferred Stock will not be
deemed to be an incurrence of Indebtedness for purposes of this Section 4.09.
SECTION 4.10. ASSET SALES.
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, whether in a single transaction or a series of related transactions
occurring within any twelve-month period,
(i) sell, lease, convey, dispose or otherwise transfer any assets
(including by way of a Sale and Leaseback Transaction) (other than
sales, leases, conveyances, dispositions or other transfers
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(A) in the ordinary course of business, (B) to the Company by any
Subsidiary of the Company or from the Company to any Subsidiary of the
Company, (C) that constitute a Restricted Payment, Investment or
dividend or distribution permitted under Section 4.07 hereof or (D)
that constitute the disposition of all or substantially all of the
assets of the Company pursuant to Section 5.01 hereof) or
(ii) issue or sell Equity Interests in any of its Subsidiaries
(other than an issuance or sale of Equity Interests of any such
Subsidiary to the Company or a Subsidiary),
if, in the case of either (i) or (ii) above, in a single transaction or a series
of related transactions occurring within any twelve-month period, such assets or
securities
(x) have a Fair Market Value in excess of $2.0 million or
(y) are sold or otherwise disposed of for net proceeds in excess of
$2.0 million (each of the foregoing, an "Asset Sale"), unless:
(a) no Default or Event of Default exists or would occur as a
result thereof;
(b) the Company, or such Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair
Market Value (evidenced by a resolution of the Board of Directors of
the Company set forth in an Officers' Certificate delivered to the
Trustee), of the assets or securities issued or sold or otherwise
disposed of; and
(c) at least 85% of the consideration therefor received by the
Company or such Subsidiary is in the form of cash, provided, however,
that (A) the amount of (x) any liabilities (as shown on the Company's
or such Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Subsidiary of the Company (other than
liabilities that are by their terms subordinated to the Debentures)
that are assumed by the transferee of any such assets and (y) any
notes, obligations or other securities received by the Company or any
such Subsidiary from such transferee that are immediately converted by
the Company or such Subsidiary into cash, shall be deemed to be cash
(to the extent of the cash received in the case of subclause (y)) for
purposes of this clause (c); and (B) an amount equal to the Fair Market
Value (determined as set forth in clause (b) above) of (1)
Telecommunications Related Assets received by the Company or any such
Subsidiary from the transferee that will be used by the Company or any
such Subsidiary in the operation of a Telecommunications Business in
the United States and (2) the Voting Stock of any Person engaged in the
Telecommunications Business in the United States received by the
Company or any such Subsidiary (provided that such Voting Stock is
converted to cash within 270 days or such Person concurrently becomes
or is a Subsidiary of the Company) shall be deemed to be cash for
purposes of this clause (c).
The foregoing provisions shall not apply to a sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, which
shall be governed by Article 5 hereof.
Within 270 days after the receipt of net proceeds of any Asset Sale,
the Company (or such Subsidiary, as the case may be) may apply the Net Proceeds
from such Asset Sale to (i) permanently reduce the amounts permitted to be
borrowed by the Company under the terms of any of its Senior Debt (including the
Existing Senior Notes) or (ii) the purchase of Telecommunications Related Assets
or Voting Stock of any Person engaged in the Telecommunications Business in the
United States (provided that such Person concurrently becomes a Subsidiary of
the Company). Any Net Proceeds from any Asset Sales that are not
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so applied or invested, shall constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $5.0 million, the Company shall be required to
make an Asset Sale Offer in accordance with the terms of Section 3.09 hereof.
Notwithstanding the foregoing, the Company shall have no obligation to make an
Asset Sale Offer unless the Existing Senior Notes outstanding, if any, have
matured or are no longer outstanding.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries to,
sell, lease, transfer or otherwise dispose of any of their respective properties
or assets to, or purchase any property or assets from, or enter into any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless:
(i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors of the Board of Directors; and
(iii) the Company delivers to the Trustee, with respect to any Affiliate
Transaction involving aggregate payments in excess of $1.0 million, a resolution
of a committee of independent directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clauses (i)
and (ii) above;
provided that
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its Subsidiaries,
or any grant of stock, in the ordinary course of business that are approved
by the Board of Directors,
(b) transactions between or among the Company and its Subsidiaries,
(c) transactions permitted by Section 4.07 hereof, and
(d) loans and advances to employees and officers of the Company or any
of its Subsidiaries in the ordinary course of business in an aggregate
principal amount not to exceed $1.0 million at any one time outstanding,
shall not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except for Permitted Liens.
SECTION 4.13. LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS.
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The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into, assume, Guarantee or otherwise become liable
with respect to any Sale and Leaseback Transaction, provided that the Company or
any Subsidiary of the Company may enter into any such transaction if (i) the
Company or such Subsidiary would be permitted under Sections 4.09 and 4.12
hereof to incur secured Indebtedness in an amount equal to the Attributable Debt
with respect to such transaction, (ii) the consideration received by the Company
or such Subsidiary from such transaction is at least equal to the Fair Market
Value of the property being transferred, and (iii) the Net Proceeds received by
the Company or such Subsidiary from such transaction are applied in accordance
with Section 4.10 hereof.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
existence as a corporation, and the corporate, partnership or other existence of
any Subsidiary, in accordance with the respective organizational documents (as
the same may be amended from time to time) of the Company or any such Subsidiary
and (ii) the rights (charter and statutory), licenses and franchises of the
Company and its Subsidiaries; provided, however, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Debentures.
SECTION 4.15. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall make
an offer (the "Change of Control Offer") to each Holder of Debentures to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Debentures at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase (the "Change of Control Payment"),
provided that if the date of purchase is on or after an interest record date and
on or before the related interest payment date, any accrued interest shall be
paid to the Person in whose name a Debenture is registered at the close of
business on such record date, and no additional interest shall be paid or
payable to Holders who tender Debentures pursuant to the Change of Control
Offer. Within thirty (30) days following any Change of Control, the Company
shall mail a notice to the Trustee and each Holder stating: (1) that the Change
of Control Offer is being made pursuant to this Section 4.15 and that all
Debentures or portions thereof tendered will be accepted for payment; (2) the
purchase price and the purchase date, which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any Debenture or portion thereof not tendered will
continue to accrue interest in accordance with its terms; (4) that, unless the
Company defaults in the payment of the Change of Control Payment, all Debentures
or portions thereof accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (5)
that Holders electing to have any Debentures or portions thereof purchased
pursuant to a Change of Control Offer will be required to surrender the
Debentures, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Debentures completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Debentures or portions thereof
delivered for purchase, and a statement that such Holder is withdrawing his
election to have such Debentures or portions thereof purchased; and (7) that
Holders whose Debentures are being purchased only in part will be issued new
Debentures equal in principal amount to the unpurchased portion of the
Debentures surrendered, which
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unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of Rule 14e-1
under 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 Debentures or portions thereof in connection with a Change of
Control. Notwithstanding the foregoing, prior to complying with the provisions
of this Section 4.15, the Company shall either (i) repay all outstanding Senior
Debt or (ii) obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Debentures
hereunder.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment Debentures or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Debentures or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Debentures so accepted together with an Officers' Certificate
stating the Debentures or portions thereof tendered to the Company. The Paying
Agent shall promptly mail to each Holder of Debentures so accepted payment in an
amount equal to the purchase price for such Debentures or portions thereof, and
the Trustee shall promptly authenticate and mail to each Holder a new Debenture
equal in principal amount to any unpurchased portion of the Debentures
surrendered, if any; provided, that each such new Debenture shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
SECTION 4.16. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, engage in any business other than the Telecommunications
Business.
SECTION 4.17. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Affiliates shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Debenture for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Debentures unless such consideration is offered to be
paid or agreed to be paid to all Holders of the Debentures that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
SECTION 4.18. NO SENIOR SUBORDINATED DEBT.
The Company shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt and senior in any respect in right of
payment to the Debentures.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to another corporation, Person or entity
unless:
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(i) the Company is the surviving entity or the entity or Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or
Person to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made assumes all the obligations of the
Company under the Debentures, the Registration Rights Agreement and
this Indenture pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) the Company, or any entity or Person formed by or surviving
any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made, at the
time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable fiscal
quarter (including any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series
of transactions), either (A) could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Cash Flow Leverage Ratio test
described under Section 4.09 hereof or (B) would have (x) Total Market
Capitalization of at least $1.0 billion and (y) total Indebtedness in
an amount no greater than 30% of its Total Market Capitalization; and
(v) such transaction would not result in the loss, material
impairment or adverse modification or amendment of any authorization or
license of the Company or its Subsidiaries that would have a material
adverse effect on the business or operations of the Company and its
Subsidiaries taken as a whole.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the Company shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person has been named
as the Company, herein; provided, however, that the predecessor Company shall
not be relieved from the obligations to pay the principal of, premium, if any,
and interest on the Debentures except in the case of a sale of all of the
Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
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(1) the Company defaults in the payment of interest on, or Liquidated
Damages, if any, with respect to the Debentures when the same becomes due
and payable and the Default continues for a period of 30 days, whether or
not such payment is prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of or premium,
if any, on the Debentures when the same becomes due and payable at
maturity, upon redemption or otherwise, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(3) the Company fails to perform or comply with any covenant, condition
or agreement on the part of the Company to be observed or performed
pursuant to Sections 4.07, 4.09, 4.16 and 5.01 hereof;
(4) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, this Indenture or the Exchange Indentures
and the Default continues for the 30 days after given notice thereof by the
Trustee or the Holders of at least 25% in principal amount of the
Debentures then outstanding;
(5) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or guarantee now exists, or is
created after the Issue Date, which default (x) is caused by a failure to
pay principal, premium, if any, or interest on such Indebtedness within the
grace period provided in such Indebtedness (a "Payment Default"), and the
principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness of the Company or any Significant
Subsidiary under which there has been a Payment Default or the maturity of
which has been accelerated as provided in clause (y), aggregates $5.0
million or more or (y) results in the acceleration (which acceleration has
not been rescinded) of such Indebtedness prior to its express maturity and
the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5.0
million or more;
(6) failure by the Company or any of its Significant Subsidiaries to
pay final judgments (other than any judgment as to which a reputable
insurance company has accepted full liability in writing) aggregating in
excess of $5.0 million which judgments are not paid, discharged or stayed
within 45 days after their entry; and
(7) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
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(a) is for relief against the Company or any Significant Subsidiary
in an involuntary case,
(b) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of the
Company or any Significant Subsidiary, or
(c) orders the liquidation of the Company or any Significant
Subsidiary, and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
--------------
Federal or state law for the relief of debtors. The term "Custodian" means any
---------
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing under this Indenture,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all of the Debentures to be due and payable
immediately, provided that the Existing Senior Notes outstanding, if any, have
become due and payable. Upon such declaration, the principal of premium, if any,
and accrued and unpaid interest and Liquidated Damages, if any, on the
Debentures shall be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising under Sections 6.01(g) and (h) hereof
with respect to the Company or any of its Significant Subsidiaries, the
foregoing amount shall ipso facto become due and payable without further action
or notice, provided that the Existing Senior Notes outstanding, if any, have
become due and payable. No premium is payable upon acceleration of the
Debentures except that in the case of an Event of Default that is the result of
an action or inaction by the Company or any of its Subsidiaries intended to
avoid restrictions on or premiums related to redemptions of the Debentures
contained in this Indenture or the Debentures, the amount declared due and
payable will include the premium that would have been applicable on a voluntary
prepayment of the Debentures or, if voluntary prepayment is not then permitted,
the premium set forth in this Indenture. Holders of the Debentures may not
enforce this Indenture or the Debentures except as provided in this Indenture.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Debentures pursuant to
Section 3.07, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law. If an Event of Default occurs prior to
March 31, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Debentures prior to such date pursuant to
Section 3.07, then the premium payable for purposes of this paragraph for each
of the years beginning on March 31 of the years set forth below shall be as set
forth in the following table, expressed as a percentage of the amount that would
otherwise be due for the provisions of this paragraph, plus accrued interest, if
any, to the date of payment:
YEAR PERCENTAGE
1997.....................................................113.50%
1998.....................................................112.15%
1999.....................................................110.80%
2000.....................................................109.45%
2001 and thereafter .....................................108.10%
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Debentures or to enforce the performance of any provision of the
Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Debenture in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of the Debentures then outstanding, by notice to the Trustee, may on behalf of
the Holders of all of the Debentures then outstanding, waive any existing
Default or Event of Default and its consequences under this Indenture, except a
continuing Default or Event of Default in the payment of interest or Liquidated
Damages or premium on, or the principal of, the Debentures then outstanding.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Debentures may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with the law or this Indenture that the Trustee, in its sole
discretion, determines may be unduly prejudicial to the rights of other Holders
of Debentures or that may involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
No Holder of a Debenture shall have any right to institute any
proceeding with respect to this Indenture or the Debentures or for any remedy
thereunder, unless:
(i) the Holder of a Debenture gives to the Trustee written notice of
a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the then
outstanding Debentures make a written request to the Trustee to pursue the
remedy;
(iii) such Holder of a Debenture or Holders of Debentures offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense; and
(iv) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity.
Otherwise, no Holder of any Debenture shall have any right to institute
any proceeding with respect to this Indenture or the Debentures or for any
remedy thereunder, except:
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(x) a Holder of a Debenture may institute suit for enforcement of
payment of principal of and premium, if any, or interest on such Debenture on or
after the respective due dates expressed in such Debenture (including upon
acceleration thereof) or
(y) the institution of any proceedings with respect to this Indenture
or the Debentures or any remedy thereunder, including without limitation
acceleration, by the Holders of a majority in principal amount of the
outstanding Debentures; provided that, upon institution of any proceeding or
exercise of any remedy such Holders provide the Trustee with prompt written
notice thereof.
A Holder of a Debenture may not use this Indenture to prejudice the
rights of another Holder of a Debenture or to obtain a preference or priority
over another Holder of a Debenture.
SECTION 6.07. RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Debenture to receive payment of principal, premium, if any, and
interest on the Debenture, on or after the respective due dates expressed in the
Debenture, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder of the Debenture.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Debentures and interest on overdue principal and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Debentures allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Debentures), the Company's creditors or
the Company's property and shall be entitled and empowered to collect, receive
and distribute any money or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is hereby authorized by
each Holder of a Debenture to make such payments to the Trustee, and in the
event that the Trustee shall consent to the making of such payments directly to
the Holders of the Debentures, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties which the Holders of the
Debentures may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing
contained herein shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder of a Debenture any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any Holder of a Debenture thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder of a Debenture in any such
proceeding.
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SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: (i) first to Holders of Debentures, for amounts due and unpaid
on such Debentures for interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Debentures for interest,
and (ii) second, to the extent any other monies are available, to Holders of all
Debentures for amounts due and unpaid on all such Debentures for principal and
premium, if any, ratably, without preference or priority of any kind, according
to the amounts due and payable on the Debentures for principal and premium; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any such payment
to Holders of Debentures.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Debenture pursuant to Section 6.07 hereof, or a suit by Holders of more than
10% in principal amount of the then outstanding Debentures.
ARTICLE 7
TRUSTEE
SECTIDUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee, and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine
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the certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders of Debentures, unless such Holder shall have provided to
the Trustee security and indemnity satisfactory to the Trustee against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have provided to the
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Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture or the Debentures, it shall not be
accountable for the Company's use of the proceeds from the Debentures or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the
Debentures or any other document in connection with the sale of the Debentures
or pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Debentures a notice of the Default or Event of Default within 90 days after
it occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on any Debenture, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders of the Debentures.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES.
Within 60 days after each May 15th beginning with the May 15th
following the date of this Indenture, the Trustee shall mail to the Holders of
the Debentures a brief report dated as of such reporting date that complies with
TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within
the twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall also
transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Debentures shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Debentures are listed. The Company shall promptly notify
the Trustee when the Debentures are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the
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compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except any such
loss, liability or expense as may be attributable to the negligence or bad faith
of the Trustee. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee, in
its sole discretion, may elect to have separate counsel selected by it and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company' payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Debentures on all money or property held
or collected by the Trustee, except that held in trust to pay principal,
premium, if any, and interest on particular Debentures. Such Lien shall survive
the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Debentures
of a majority in principal amount of the then outstanding Debentures may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Debentures may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Debentures of at least 10% in principal amount of the then
outstanding Debentures may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee after written request by any Holder of a Debenture who
has been a Holder of a Debenture for at least six months fails to comply with
Section 7.10 hereof, such Holder of a Debenture may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Debentures. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by federal or
state authority and shall have a combined capital and surplus of at least $25.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
(s)(s) 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (s)(s) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate and at any time, with respect
to the Debentures, elect to have either Section 8.02 or 8.03
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hereof be applied to all outstanding Debentures upon compliance with the
conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Debentures on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Debentures, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all of its other obligations under such Debentures and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Debentures to receive from the trust described below
payments in respect of the principal of, premium, if any, and interest on and
Liquidated Damages with respect to, such Debentures when such payments are due,
or on the redemption date, as the case may be; (b) the Company's obligations
with respect to the Debentures concerning issuing temporary Debentures,
registration of Debentures, mutilated, destroyed, lost or stolen Debentures and
the maintenance of an office or agency for payment and money for security
payments held in trust; (c) the rights, powers, trust, duties and immunities of
the Trustee, and the Company's obligations in connection therewith; and (d) the
legal defeasance provisions of this Indenture.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.03, 4.04, 4.05, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16 and 4.17 hereof and Article 5
hereof with respect to the outstanding Debentures on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Debentures shall thereafter be deemed not "outstanding" for the purposes
of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Debentures shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Debentures, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Sections 6.01 (c), (d), (e) or (f) hereof but, except as specified above, the
remainder of this Indenture and such Debentures shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, Sections 6.01(g) through 6.01(h) hereof shall
not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or Section 8.03 hereof to the outstanding Debentures:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the
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provisions of this Article 8 applicable to it), in trust, for purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Debentures, (i)
U.S. dollars, (ii) non-callable Government Securities, or (iii) a
combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants selected
by the Company, to pay the principal of, premium, if any, and interest on,
and Liquidated Damages with respect to outstanding Debentures, the stated
maturity or on the applicable optional redemption date, as the case may be,
of such principal or installment of principal of, premium, if any, or
interest on the outstanding Debentures;
(b) In the case of legal defeasance, the Company shall deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Debentures will
not recognize income, gain or loss for federal income tax purposes as a
result of such legal defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such legal defeasance had not occurred;
(c) In the case of covenant defeasance, the Company shall deliver to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred;
(d) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(e) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) The Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(g) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Debentures over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and Government Securities
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant
to Section 8.04 hereof in respect of the outstanding Debentures shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Debentures of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
and Government Securities (including any proceeds thereof) need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 hereof or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Debentures.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in Section
8.04 hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are
in excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Debenture and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its written request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Debenture shall
thereafter, as a creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
Dollars or Government Securities in accordance with Section 8.02 or 8.03 hereof,
as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Debentures shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such money in accordance with Section 8.02 or
8.03 hereof, as the case may be; provided, however, that, if the Company makes
any payment of principal of, premium, if any, or interest on any Debenture
following the reinstatement of its obligations, the Company shall be subrogated
to the rights
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of the Holders of such Debentures to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF DEBENTURES.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Debentures without the consent of any
Holder of a Debenture:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures;
(c) to provide for the assumption of the Company's obligations to
Holders of the Debentures in the case of a merger or consolidation;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Debentures or that does not
adversely affect the legal rights under this Indenture of any such
Holder; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust
Indenture Act.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture which affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF DEBENTURES.
The Company and the Trustee may amend or supplement this Indenture or
the Debentures or any amended or supplemental Indenture with the written consent
of the Holders of Debentures of at least a majority in aggregate principal
amount of the Debentures then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Debentures), and any
existing Default and its consequences or compliance with any provision of this
Indenture or the Debentures may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Debentures (including
consents obtained in connection with a tender offer or exchange offer for the
Debentures).
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Debentures as
aforesaid, and upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
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otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Debentures
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Debentures then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Debentures. However, without the consent
of each Holder affected, an amendment or waiver may not (with respect to any
Debentures held by a nonconsenting Holder of Debentures):
(i) reduce the principal amount of Debentures whose Holders must
consent to an amendment, supplement or waiver;
(ii)reduce the principal of or change the fixed maturity of any
Debenture or alter the provisions with respect to the redemption of
the Debentures (other than Sections 3.09 and 4.15 hereof);
(iii)reduce the rate of or change the time for payment of interest on
any Debentures;
(iv)waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Debentures (except a
rescission of acceleration of the Debentures by the Holders of at
least a majority in aggregate principal amount of the Debentures
and a waiver of the payment default that resulted from such
acceleration);
(v) make any Debenture payable in money other than that stated in the
Debentures;
(vi)make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Debentures to
receive payments of principal of, premium, if any, or interest on
the Debentures;
(vii) waive a redemption payment with respect to any Debenture (other
than a payment required by Sections 3.09 or 4.15 hereof); or
(viii) make any change in the foregoing amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 hereof shall
required the consent of the Holders of at least 75% in aggregate principal
amount of the Debentures then outstanding if such amendment would adversely
affect the rights of Holders of Debentures.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Debentures shall
be set forth in a amended or supplemental Indenture that complies with the TIA
as then in effect.
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SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Debenture is a continuing consent by the Holder of a
Debenture and every subsequent Holder of a Debenture or portion of a Debenture
that evidences the same debt as the consenting Holder's Debenture, even if
notation of the consent is not made on any Debenture. However, any such Holder
of a Debenture or subsequent Holder of a Debenture may revoke the consent as to
its Debenture if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder of a Debenture.
The Company may fix a record date for determining which Holders of the
Debentures must consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders of Debentures furnished to the Trustee prior to such
solicitation pursuant to Section 2.05 hereof or (ii) such other date as the
Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF DEBENTURES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Debenture thereafter authenticated. The Company in
exchange for all Debentures may issue and the Trustee shall authenticate new
Debentures that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Debenture shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it.
SECTION 9.07. PAYMENT FOR CONSENTS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of Debentures for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture, the Registration Rights Agreement or the Debentures, unless
such consideration is offered to be paid or agreed to be paid to all Holders of
the Debentures that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
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ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Debenture agrees,
that the Indebtedness evidenced by the Debentures is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt (whether outstanding on the date hereof
or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the Holders of Senior Debt.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) Holders of Senior Debt shall be entitled to receive payment in full
of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before Holders of the Debentures shall be entitled
to receive any payment with respect to the Debentures (except that Holders
may receive (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section
8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, any distribution to which Holders
would be entitled but for this Article 10 shall be made to Holders of
Senior Debt (except that Holders of Debentures may receive (i) Permitted
Junior Securities and (ii) payments and other distributions made from any
defeasance trust created pursuant to Section 8.01 hereof), as their
interests may appear.
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the Trustee or
any Holder in respect of Obligations with respect to the Debentures and may not
acquire from the Trustee or any Holder any Debentures for cash or property
(other than (i) Permitted Junior Securities and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof), if:
(i) a default in the payment of any principal or other Obligations with
respect to Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii)a default, other than a payment default, on Designated Senior Debt
occurs and is continuing that then permits Holders of the Designated Senior
Debt to accelerate its maturity and the Trustee receives a notice of the
default (a "Payment Blockage Notice") from a Person who may give it
pursuant to Section 10.11 hereof. If the Trustee receives any such Payment
Blockage Notice, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section unless and until (1) at least 360 days shall
have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice and (ii) all scheduled payments of principal, premium, if
any, and interest on the Debentures that have come due have been paid in
full in cash. No nonpayment default that existed or was continuing on the
date of
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delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice. No more than one
Payment Blockage Notice to the Trustee may be given in any 360 day period.
The Company may and shall resume payments on and distributions in
respect of the Debentures and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.03(ii) hereof,
179 days pass after notice is received if the maturity of such Designated
Senior Debt has not been accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.04. ACCELERATION OF DEBENTURES.
If payment of the Debentures is accelerated because of an Event of
Default, the Company shall promptly notify Holders of Senior Debt of the
acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Debentures at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.03 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the Holders of Senior Debt as their interests may
appear or their Representative under the indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the Holders of Senior Debt.
With respect to the Holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the Holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
Holders of Senior Debt, and shall not be liable to any such Holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any Holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Debentures to violate this Article 10, but failure to give
such notice shall not affect the subordination of the Debentures to the Senior
Debt as provided in this Article 10.
SECTION 10.07. SUBROGATION.
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After all Senior Debt is paid in full and until the Debentures are paid
in full, Holders of Debentures shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Debentures) to the rights of Holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Holders of Debentures have been
applied to the payment of Senior Debt. A distribution made under this Article 10
to Holders of Senior Debt that otherwise would have been made to Holders of
Debentures is not, as between the Company and Holders, a payment by the Company
on the Debentures.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Debentures
and Holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Debentures, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Debentures in accordance with their terms;
(2) affect the relative rights of Holders of Debentures and creditors
of the Company other than their rights in relation to Holders of Senior
Debt; or
(3) prevent the Trustee or any Holder of Debentures from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of Holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Debentures.
If the Company fails because of this Article 10 to pay principal of or
interest on a Debenture on the due date, the failure is still a Default or Event
of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any Holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Debentures shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company or
any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to Holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Debentures shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Debentures for the purpose of ascertaining the Persons entitled to
participate in such distribution, the Holders of the Senior Debt and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
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Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Debentures, unless the Trustee shall have received at
its Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Debentures to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Debentures, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, a Representative of the Designated Senior Debt is
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Debentures.
SECTION 10.13. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the Holders of all Senior Debt.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Telecopier No.: (813) 744-2470
Attention: Chief Financial Officer
If to the Trustee:
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-------------------------------------
-------------------------------------
-------------------------------------
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders of
Debentures) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder of a Debenture shall be mailed
by first class mail to its address shown on the register kept by the Registrar.
Any notice or communication shall also be so mailed to any Person described in
TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder of a Debenture or any defect in it shall not affect
its sufficiency with respect to other Holders of Debentures.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders of
Debentures, it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF DEBENTURES WITH OTHER HOLDERS OF
DEBENTURES.
Holders of the Debentures may communicate pursuant to TIA ss. 312(b)
with other Holders of Debentures with respect to their rights under this
Indenture or the Debentures. The Company, the Trustee, the Registrar and anyone
else shall have the protection of TIA ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section
10.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
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SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA ss. 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Debentures. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Debentures or this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of the
Debentures by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Debentures.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
SECTION 11.08. GOVERNING LAW.
The internal law of the State of New York shall govern and be used to
construe this Indenture and the Debentures.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Debentures
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successor.
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SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
articles and sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of ___INTERMEDIA COMMUNICATIONS, INC.
(SEAL)
By:
---------------------------------------
Name:
Title:
Attest:
- ----------------------------------
Name:
Title:
Dated as of __________ _______________________,
-----------------------
Trustee
(SEAL)
By:
---------------------------------------
Name:
Title:
Attest:
- ----------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
(Face of Debenture)
13 1/2% Senior Subordinated Debentures due 2009
No. $____________
CUSIP No.
INTERMEDIA COMMUNICATIONS INC.
promises to pay to __________
or its registered assigns,
the principal sum of _______________________
on March 31, 2009.
Interest Payment Dates: March 31 and September 30, commencing _______________.
Record Dates: March 15 and September 15 (whether or not a Business Day).
Dated: INTERMEDIA COMMUNICATIONS INC.
By:
----------------------------------------
Title:
By:
----------------------------------------
Title:
Trustee's Certification of Authentication
Dated:
This is one of the [Global] Debentures
referred to in the within-
mentioned Indenture:
- ------------------------------------,
as Trustee
By:
--------------------------------
(Authorized Signatory) (SEAL)
Additional provisions of this Debenture are set forth
on the other side of this Debenture.
A-1
<PAGE>
[Unless and until it is exchanged in whole or in part for Debentures in
definitive form, this Debenture may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. The Depositary Trust Company shall act as the Depositary until a
successor shall be appointed by the Company and the Registrar. Unless this
certificate is presented by an authorized representative of The Depositary Trust
Company (55 Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or such other name as may be
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]/1/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. BY ITS ACQUISITION HEREOF, THE Holder (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION. THE Holder OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY, (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) IT WILL NOTIFY ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY, PRIOR
TO CLOSING OF ANY SALE, OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
- --------
/1/ This paragraph should be included only if the Note is issued in global
form.
A-2
<PAGE>
(Back of Debenture)
13 1/2% Senior Subordinated Debentures due 2009
Capitalized terms used herein have the meanings assigned to them in the
Indenture (as defined below) unless otherwise indicated.
1. Interest. Intermedia Communications Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Debenture at the rate and in the manner specified below. Interest will accrue at
the rate of 13 1/2% per annum and will be payable semi-annually, in arrears, on
March 31 and September 30 of each year, commencing on the first such date after
the issuance date of the Debentures, or if any such day is not a Business Day on
the next succeeding Business Day (each an "Interest Payment Date") to Holders of
record of the Debentures at the close of business on the immediately preceding
March 15 and September 15, whether or not a Business Day. Interest on the
Debentures will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the Issue Date. Interest payable on or
prior to March 31, 2002 may be paid in the form of additional Debentures valued
at the principal amount thereof. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. To the extent lawful, the
Company shall pay interest on overdue principal at the then applicable interest
rate on the Debentures; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the same rate to
the extent lawful.
2. Method of Payment. The Company will pay interest on the Debentures
(except defaulted interest) to the Persons who are registered Holders of
Debentures at the close of business on the record date next preceding the
Interest Payment Date, even if such Debentures are cancelled after such record
date and on or before such Interest Payment Date. The Holder hereof must
surrender this Debenture to a Paying Agent to collect principal payments.
Principal, premium, if any, and interest and Liquidated Damages on the
Debentures will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders of the Debentures at their respective addresses set forth in the
register of Holders of Debentures; provided that all payments with respect to
Global Debentures and Certificated Securities the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Unless otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without prior notice to any Holder of a Debenture. The Company
may act in any such capacity.
4. Indenture. The Company issued the Debentures under an Indenture,
dated as of ________ (the "Indenture"), between the Company and the Trustee. The
terms of the Debentures include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of the
Indenture. The Debentures are subject to all such terms, and Holders of
Debentures are referred to the Indenture and such act for a statement of such
terms. The terms of the Indenture shall govern any inconsistencies between the
Indenture and the Debentures. The Debentures are obligations of the Company
limited to the sum of $____________ million in aggregate principal amount of
Debentures to be issued on the Issue Date.
5. Optional Redemption. Except as set forth below, the Debentures will
not be redeemable at the Company's option prior to March 31, 2002. Thereafter,
the Debentures will be subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice to the
Holders
A-3
<PAGE>
thereof, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on March 31 of the years indicated below:
YEAR PERCENTAGE
2002.................................................106.75%
2003................................................ 105.40%
2004 ................................................104.05%
2005................................................ 102.70%
2006 ................................................101.35%
2007 and thereafter..................................100.00%
(b) Notwithstanding the provisions above, prior to March 31, 2000, the
Company may, on any one or more occasions, use the net proceeds of one or more
underwritten public offerings of its Common Stock or from the sale of its
Capital Stock (other than Disqualified Stock) to a Strategic Investor in a
single transaction or series of related transactions for an aggregate purchase
price equal to or exceeding $50.0 million, to redeem up to a maximum of 35% of
the aggregate principal amount of the Debentures originally issued from the net
cash proceeds of such sale or offering (but only to the extent such proceeds
consist of cash or readily marketable cash equivalents) at a redemption price
equal to 113 1/2% of the principal amount thereof with respect to the Debentures
to be redeemed on the redemption date, provided that at least 65% of the
aggregate principal amount of the Debentures originally issued remains
outstanding immediately after the occurrence of such redemption and that such
redemption occurs within 90 days of the date of the closing of such sale.
6. Mandatory Redemption. Except as set forth in Sections 3.09 and 4.15
of the Indenture, the Company will not be required to make mandatory redemption
or sinking fund payments with respect to the Debentures.
7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change
of Control, the Company shall be required to offer to purchase on the Change of
Control Payment Date all outstanding Debentures at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the Change of Control Payment Date. Holders
of Debentures that are subject to an offer to purchase will receive a Change of
Control Offer from the Company prior to any related Change of Control Payment
Date and may elect to have such Debentures purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Company shall be required when the cumulative amount of Excess
Proceeds from Asset Sales exceeds $5.0 million to offer to purchase the maximum
principal amount of Debentures and Pari Passu Notes that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
outstanding principal amount of the Debentures and the Pari Passu Notes, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
fixed for the closing of such offer. If the aggregate principal amount of
Debentures and Pari Passu Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Debentures and Pari Passu Notes to be purchased
shall be selected on a pro rata basis based upon their principal amount (with
such adjustments as may be deemed appropriate by the Company so that only
Debentures and Pari Passu Notes in denominations of $1,000, or integral
multiples thereof shall be purchased). Holders of Debentures that are the
subject of an offer to purchase will receive an Excess Proceeds Offer from the
Company prior to any related purchase date and may elect to have such Debentures
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed by first
class mail at least 30 days but not more than 60 days before the redemption date
to each Holder whose Debentures are to be redeemed
A-4
<PAGE>
at its registered address. Debentures may be redeemed in part but only in whole
multiples of $1,000, unless all of the Debentures held by a Holder of Debentures
are to be redeemed. If any Debenture is to be redeemed in part only, the notice
of redemption that relates to such Debenture shall state the portion of the
principal amount to be redeemed. On and after the redemption date, interest
ceases to accrue on Debentures or portions of them called for redemption.
9. Denominations, Transfer, Exchange. The Debentures are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Debentures may be registered and Debentures may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder of a Debenture, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder of a
Debenture to pay any taxes and fees required by law or permitted by the
Indenture. Neither the Company nor the Registrar need exchange or register the
transfer of any Debenture or portion of a Debenture selected for redemption.
Also, neither the Company nor the Registrar need exchange or register the
transfer of any Debentures for a period of 15 days before a selection of
Debentures to be redeemed.
10. Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Debenture, the Trustee, any Agent and the
Company shall deem and treat the Person in whose name this Debenture is
registered as its absolute owner for the purpose of receiving payment of
principal of, premium, if any, and interest and Liquidated Damages, if any, on
this Debenture and for all other purposes whatsoever, whether or not this
Debenture is overdue, and neither the Trustee, any Agent nor the Company shall
be affected by notice to the contrary. The registered Holder of a Debenture
shall be treated as its owner for all purposes.
11. Amendments, Supplement and Waivers. Subject to certain exceptions,
the Indenture or the Debentures may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the then
outstanding Debentures (including consents obtained in connection with a tender
offer or exchange offer for Debentures), and any existing default or compliance
with any provision of the Indenture or the Debentures may be waived with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Debentures (including consents obtained in connection with a tender
offer or exchange offer for Debentures). Without the consent of any Holder of a
Debenture, the Indenture or the Debentures may be amended or supplemented to
cure any ambiguity, defect or inconsistency; to provide for uncertificated
Debentures in addition to or in place of certificated Debentures; to provide for
the assumption of the Company's obligations to Holders of the Debentures in case
of a merger or consolidation; to make any change that would provide any
additional rights or benefits to the Holders of the Debentures or that does not
adversely affect the legal rights under the Indenture of any such Holder; or to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act. However, without
the consent of each Holder affected, an amendment or waiver may not (with
respect to any Debentures held by a nonconsenting Holder of Debentures) reduce
the principal amount of Debentures whose Holders must consent to an amendment,
supplement or waiver; reduce the principal of or change the fixed maturity of
any Debenture or alter the provisions with respect to the redemption of the
Debentures (other than a payment required by Section 3.09 or Section 4.15 of the
Indenture); reduce the rate of or change the time for payment of interest on any
Debenture; waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Debentures (except a rescission of
acceleration of the Debentures by the Holders of at least a majority in
aggregate principal amount of the then outstanding Debentures and a waiver of
the payment default that resulted from such acceleration); make any Debenture
payable in money other than that stated in the Debentures; make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Debentures to receive payments of principal of, premium, if
any, or interest on any Debenture; waive a redemption payment with respect to
any Debenture (other than a payment required by Section 3.09 or Section 4.15 of
the Indenture) or make any change in the foregoing amendment and waiver
provisions.
A-5
<PAGE>
12. Defaults and Remedies. Events of Default include: (i) a default in
the payment of interest on, or Liquidated Damages, if any, with respect to the
Debentures when the same becomes due and payable and the Default continues for a
period of 30 days, whether or not such payment is prohibited by the provisions
of Article 10 of the Indenture; (ii) a default in the payment of the principal
of or premium, if any, on the Debentures when the same becomes due and payable
at maturity, upon redemption or otherwise, whether or not such payment is
prohibited by the provisions of Article 10 of the Indenture; (iii) failure to
perform or comply with any covenant, condition or agreement on the part of the
Company to be observed or performed pursuant to Sections 4.07, 4.09, 4.16 and
5.01 of the Indenture; (iv) failure to comply with any of its other agreements
or covenants in, or provisions of, this Indenture or the Exchange Indentures and
the Default continues for the 30 days after given notice thereof by the Trustee
or the Holders of at least 25% in principal amount of the Debentures then
outstanding; (v) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or guarantee now exists, or is created
after the Issue Date, which default (x) is caused by a failure to pay principal,
premium, if any, or interest on such Indebtedness within the grace period
provided in such Indebtedness (a "Payment Default"), and the principal amount of
any such Indebtedness, together with the principal amount of any other such
Indebtedness of the Company or any Significant Subsidiary under which there has
been a Payment Default or the maturity of which has been accelerated as provided
in clause (y), aggregates $5.0 million or more or (y) results in the
acceleration (which acceleration has not been rescinded) of such Indebtedness
prior to its express maturity and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) failure by the Company or any
of its Significant Subsidiaries to pay final judgments (other than any judgment
as to which a reputable insurance company has accepted full liability in
writing) aggregating in excess of $5.0 million which judgments are not paid,
discharged or stayed within 45 days after their entry; and (vii) certain events
of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all the Debentures to be due and payable
immediately, provided that the Existing Senior Notes outstanding, if any, have
become due and payable. Upon such declaration, the principal of premium, if any,
and accrued and unpaid interest and Liquidated Damages, if any, on the
Debentures shall be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries, the foregoing
amount shall ipso facto become due and payable without further action or notice,
provided that the Existing Senior Notes outstanding, if any, have become due and
payable. Holders of the Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Debentures may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Debentures notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest on the Debentures) if it determines that withholding
notice is in such Holders' interest. The Holders of a majority in aggregate
principal amount of the Debentures then outstanding, by notice to the Trustee,
may on behalf of the Holders of all of the Debentures, waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest or premium on,
or the principal of, the Debentures. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee; however, if the
Trustee
A-6
<PAGE>
acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as Trustee or resign.
14. Subordination. Each Holder by accepting a Debenture agrees that the
payment of principal of, premium and Liquidated Damages, if any, and interest on
each Debenture is subordinated in right of payment, to the extent and in the
manner provided in the Indenture, to the prior payment in full of all Senior
Debt in cash or Cash Equivalents (whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the Holders of Senior Debt.
15. No Personal Liabilities of Directors, Officers, Employees and
Stockholders. No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Debentures or the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of the
Debentures by accepting a Debenture waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Debentures.
16. Authentication. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder of a Debenture or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Debentures and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders of
Debentures. No representation is made as to the accuracy of such numbers either
as printed on the Debentures or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
19. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Debentures under the Indenture,
Holders of Transfer Restricted Securities shall have all the rights set forth in
the Registration Rights Agreement described in the Indenture.
A-7
<PAGE>
The Company will furnish to any Holder of a Debenture upon written
request and without charge a copy of the Indenture. Request may be made to:
Intermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below: (I) or (we) assign and
transfer this Debenture to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
--------------------------------------------------------
agent to transfer this Debenture on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ______________
Your Signature:
--------------------------------
(Sign exactly as your name appears
on the face of this Debenture)
Signature Guarantee.
<PAGE>
OPTION OF Holder TO ELECT PURCHASE
If you want to elect to have all or any part of this Debenture purchased
by the Company pursuant to Section 3.09 or Section 4.15 of the Indenture check
the appropriate box:
[_] Section 3.09 [_] Section 4.15
If you want to have only part of the Debenture purchased by the Company
pursuant to Section 3.09 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$
----------------
Date:____________
Your Signature:
--------------------------------
(Sign exactly as your name appears
on the face of this Debenture)
Signature Guarantee.
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE DEBENTURE/2/
The following exchanges of a part of this Global Debenture for
Definitive Debentures have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease Amount of increase Global Debenture authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Debenture
Date of Exchange this Global Debenture this Global Debenture (or increase) Custodian
---------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------
2 This should be included only if the Debenture is issued in global form.
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF DEBENTURES
Re: 13 1/2% Series [A/B] Senior Subordinated Debentures due 2009 of Intermedia
Communications Inc.
This Certificate relates to $_____ principal amount of Debentures held
in * ________ book-entry or *_______ definitive form by ________________ (the
"Transferor").
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Debenture held by the Depositary a
Debenture or Debentures in definitive, registered form equal to its beneficial
interest in such Global Debenture (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Debenture or Debentures.
In connection with such request and in respect of each such Debenture,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Debentures and that the transfer of
this Debenture does not require registration under the Securities Act (as
defined below) because:*
[_] Such Debenture is being acquired for the Transferor's own account
without transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section
2.06(d)(i)(A) of the Indenture).
[_] Such Debenture is being transferred (i) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act")), in reliance on Rule 144A or (ii) pursuant to an
exemption from registration in accordance with Rule 904 under the Securities Act
(and in the case of clause (ii), based on an opinion of counsel if the Company
so requests).
[_] Such Debenture is being transferred (i) in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel if the Company so
requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
[_] Such Debenture is being transferred to an institutional accredited
investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (and based on an opinion of counsel if the
Company so requests together with a certification in substantially the form of
Exhibit C to the Indenture).
- ---------------
*Check applicable box.
B-1
<PAGE>
[_] Such Debenture is being transferred in reliance on and in compliance
with another exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company so requests).
--------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------------
Name:
Title:
Address:
Date:
--------------------------
- ---------------
*Check applicable box.
B-2
<PAGE>
EXHIBIT C
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INSTITUTIONS
We are delivering this letter in connection with an offering of 13 1/2%
Senior Subordinated Debentures due 2009 (the "Debentures") of Intermedia
Communications Inc., a Delaware corporation (the "Company"), all as described in
the Offering Memorandum (the "Offering Memorandum") relating to the offering.
We hereby confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act"), or an entity in which all of the equity owners
are accredited investors within the meaning of Rule 501(a)(1), (2), (3)
or (7) under the Securities Act (an "Institutional Accredited
Investor");
(ii) any purchase of Debentures by us will be for our own account
or for the account of one or more other Institutional Accredited
Investors;
(iii) in the event that we purchase any Debentures, we will acquire
Debentures having a minimum purchase price of at least $100,000 for our
own account and for each separate account for which we are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of evaluating the merits and risks
of purchasing Debentures;
(v) we are not acquiring Debentures with a view to any distribution
thereof in a transaction that would violate the Securities Act or the
securities laws of any State of the United States or any other
applicable jurisdiction; provided that the disposition of our property
and the property of any accounts for which we are acting as fiduciary
shall remain at all times within our control; and
(vi) we have received a copy of the Offering Memorandum and
acknowledge that we have had access to such financial and other
information, and have been afforded the opportunity to ask such
questions of representatives of the Company and receive answers
thereto, as we deem necessary in connection with our decision to
purchase Debentures.
We understand that the Debentures are being offered in a transaction
not involving any public offering within the meaning of the Securities Act and
that the Debentures have not been registered under the Securities Act, and we
agree, on our own behalf and on behalf of each account for which we acquire any
Debentures, that such Debentures may be offered, resold, pledged or otherwise
transferred only (i) to a person whom we reasonably believe to be a qualified
institutional buyer (as defined in Rule 144A, under the Securities Act) in a
transaction meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144 under the Securities Act, outside the United States in
a transaction meeting the requirements of Rule 904 under the Securities Act, or
in accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (ii) to the Company or (iii)
C-1
<PAGE>
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. We understand that the registrar and
transfer agent will not be required to accept for registration of transfer any
Debentures, except upon presentation of evidence satisfactory to the Company
that the foregoing restrictions on transfer have been complied with.
We acknowledge that you, the Company and others will rely upon our
confirmations, acknowledgements and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
---------------------------------
(Name of Purchaser)
By:_______________________________
Name:
Title:
Address:
C-2
<PAGE>
EXHIBIT 4.4(a)
AMENDMENT TO RIGHTS AGREEMENT
Agreement (this "Amendment") dated as of February 20, 1997,
between Intermedia Communications Inc., a Delaware Corporation (the "Company")
f/k/a Intermedia Communications of Florida, Inc., and Continental Stock Transfer
& Trust Company (the "Rights Agent").
Reference is made to the Rights Agreement between the Company and
the Rights Agent, dated as of March 7, 1996 (the "Agreement"). Capitalized terms
used herein and not otherwise defined herein have the respective meanings
ascribed to them in the Agreement.
1. Paragraph (b) of Section 7 of the Agreement is hereby
deleted and replaced with the following:
(b) The purchase price for each one-thousandth of a share (each
such one one-thousandth of a share being a "Unit") of Preferred Stock
upon exercise of Rights shall be $85.00, subject to adjustment from time
to time as provided in Sections 11 and 13(a) hereof (such purchase
price, as so adjusted, being the "Purchase Price"), and shall be payable
in accordance with paragraph (c) below.
2. The second sentence of paragraph (d)(ii) of Section 11
of the Agreement is hereby deleted and replaced with the following:
If the current market price per share of Preferred Stock cannot be
determined in the manner provided above or if the Preferred Stock is not
publicly held or listed or traded in a manner described in clause (i) of
this section 11(d), the "current market price" per share of Preferred
Stock shall be conclusively deemed to be an amount equal to 1000 (as
such amount may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to Company
Common Stock occurring after the date of this Agreement) multiplied by
the current market price per share of Company Common Stock.
3. The last sentence of paragraph (d)(ii) of Section 11 of
the Agreement is hereby deleted and replaced with the following:
For all purposes of this Agreement, the "current market price" of a Unit
of Preferred Stock shall be equal to the "current market price" of one
share of Preferred Stock divided by 100 .
<PAGE>
4. Paragraph (b) of Section 14 of the Agreement is hereby
deleted and replaced with the following:
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock) upon
exercise of the Rights or to distribute certificates which evidence such
fractional shares of Preferred Stock (other than fractions which are
integral multiples of one one-thousandth of a share of Preferred Stock).
In lieu of such fractional shares of Preferred Stock that are not
integral multiples of one one-thousandth of a share, the Company may pay
to the registered holders of Rights Certificates at the time such Rights
are exercised as herein provided an amount in cash equal to the same
fraction of the then current market price of a share of Preferred Stock
on the day of exercise, determined in accordance with Section 11(d)
hereof.
5. The term Unit as used throughout the Agreement, including any
exhibits to the Agreement and any certificates issued pursuant thereto, shall
have the meaning set forth above in Paragraph 1 of this Amendment.
6. Exhibit C is hereby amended to reflect that the number
of authorized Series A Preferred Shares shall be 40,000.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed, all as of the date first above written.
ATTEST: INTERMEDIA COMMUNICATIONS INC.
By:__________________ By:___________________________
Robert M. Manning David C. Ruberg,
Senior Vice President, President and Chief
Chief Financial Officer Executive Officer
ATTEST: CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY
By:___________________ By:___________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT 4.10
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of March 7, 1997
by and among
INTERMEDIA COMMUNICATIONS INC.,
and
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of March 7, 1997 by and among Intermedia Communications Inc., a
Delaware corporation (the "Company"), and Bear, Stearns & Co. Inc., Morgan
-------
Stanley & Co. Incorporated and Salomon Brothers Inc (each an "Initial Purchaser"
-----------------
and together, the "Initial Purchasers"), each of whom have agreed to purchase
------------------
the Company's 13 1/2% Series A Redeemable Exchangeable Preferred Stock due 2009
(the "Series A Preferred Stock") pursuant to the Purchase Agreement (as defined
------------------------
below). Pursuant to the terms of the Certificate of Designation (as defined
below), the Series A Preferred Stock is exchangeable under certain circumstances
for the Company's 13 1/2% Senior Subordinated Debentures due 2009 (the "Exchange
--------
Debentures") or for the New Preferred Stock (as defined below).
- ----------
This Agreement is made pursuant to the Purchase Agreement, dated
March 4, 1997 (the "Purchase Agreement"), by and among the Company and the
------------------
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Preferred Stock, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
8 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
---
Broker-Dealer: Any broker or dealer registered under the
-------------
Exchange Act.
Broker-Dealer Transfer Restricted Securities: New Preferred Stock
--------------------------------------------
or New Exchange Debentures that are acquired by a Broker-Dealer in the Exchange
Offer in exchange for Series A Preferred Stock or Exchange Debentures, as the
case may be, that such Broker-Dealer acquired for its own account as a result of
market making activities or other trading activities (other than Series A
Preferred Stock or Exchange Debentures acquired directly from the Company or any
of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day in
------------
the City of New York, or in the city of the corporate trust office of the
Trustee, on which banks are authorized to close.
Certificate of Designation: The Certificate of Designation
--------------------------
pursuant to which the shares of Series A Preferred Stock and New Preferred Stock
are to be issued, as such Certificate of Designation is amended or supplemented
from time to time in accordance with the terms thereof.
Certificated Securities: As defined in the Certificate of
-----------------------
Designation and the Indenture.
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Preferred Stock, or if the Series A Preferred Stock has been
exchanged for Exchange Debentures, the New Exchange Debentures to be issued in
the Exchange Offer, (b) the maintenance of such Registration Statement
continuously effective and the keeping of the Exchange Offer open for a period
not less than the minimum period required pursuant to Section 3(b) hereof and
(c) the
<PAGE>
delivery by the Company to the Transfer Agent of shares of New Preferred
Stock with the same aggregate Liquidation Preference as the aggregate
Liquidation Preference of the shares of Series A Preferred Stock that were
tendered by Holders thereof pursuant to the Exchange Offer, or, if the Series A
Preferred Stock has been exchanged for Exchange Debentures, the delivery by the
Company to the Trustee of New Exchange Debentures in the same aggregate
principal amount as the aggregate principal amount of Exchange Debentures that
were tendered by Holders thereof pursuant to the Exchange Offer..
Damages Payment Date: Each Dividend Payment Date or Interest
--------------------
Payment Date, as the case may be.
Dividend Payment Date: As defined in the Certificate of
---------------------
Designation.
Effectiveness Target Date: As defined in Section 5.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The registration by the Company under the Act of
--------------
the New Preferred Stock or, if the Series A Preferred Stock has been exchanged
for Exchange Debentures, the New Exchange Debentures pursuant to the Exchange
Offer Registration Statement pursuant to which the Company shall offer the
Holders of all outstanding Transfer Restricted Securities the opportunity to
exchange all such outstanding Transfer Restricted Securities for New Preferred
Stock with the same aggregate Liquidation Preference as the Series A Preferred
Stock tendered in such exchange by such Holders, or New Exchange Debentures in
an aggregate principal amount equal to the aggregate principal amount of the
Exchange Debentures tendered in such exchange offer by such Holders, as the case
may be..
Exchange Offer Registration Statement: The Registration
-------------------------------------
Statement relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Series A Preferred Stock or Exchange Debentures to certain
"qualified institutional buyers," as such term is defined in Rule 144A under the
Act, and to certain institutional "accredited investors," as such term is
defined in Rule 501(a)(1), (2), (3) and (7) of Regulation D under the Act.
Global Security Holder: As defined in the Certificate of
----------------------
Designation and the Indenture.
Holders: As defined in Section 2 hereof.
-------
Indenture: The Indenture to be entered into upon exchange of the
---------
Series A Preferred Stock for Exchange Debentures, by the Company and the
Trustee, pursuant to which the Exchange Debentures and New Exchange Debentures
are to be issued, as such Indenture is amended or supplemented from time to time
in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the
---------------------
Exchange Debentures.
Liquidated Damages: As defined in Section 5 hereof.
------------------
Liquidation Preference: As defined in the Certificate of
----------------------
Designation.
2
<PAGE>
NASD: National Association of Securities Dealers, Inc.
----
Offering Memorandum: The final offering memorandum, dated
-------------------
March 4, 1997, relating to the Company and the Series A Preferred Stock.
New Exchange Debentures: The Company's 13 1/2% Series B Senior
-----------------------
Subordinated Debentures due 2009 to be issued pursuant to the Indenture (i) in
the Exchange Offer or (ii) upon the request of any Holder of Exchange Debentures
covered by a Shelf Registration Statement in exchange for such Exchange
Debentures.
New Preferred Stock: The Company's 13 1/2% Series B Redeemable
-------------------
Exchangeable Preferred Stock due 2009 to be issued pursuant to the Certificate
of Designation (i) in the Exchange Offer or (ii) upon the request of any Holder
of Series A Preferred Stock covered by a Shelf Registration Statement in
exchange for such Series A Preferred Stock.
Person: An individual, partnership, corporation, trust,
------
unincorporated organization, or a government or agency or political
subdivision thereof.
Preliminary Offering Memorandum: The preliminary offering
-------------------------------
memorandum, dated February 24, 1997 relating to the Company and the Series A
Preferred Stock.
Prospectus: The prospectus included in a Registration Statement
----------
at the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of New Preferred Stock or New Exchange Debentures
pursuant to an Exchange Offer or (b) the registration for resale of Transfer
Restricted Securities pursuant to the Shelf Registration Statement, in each
case, (i) which is filed pursuant to the provisions of this Agreement and (ii)
including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds
------------------------
Broker-Dealer Transfer Restricted Securities.
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
---
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Agent: The transfer agent with respect to the Series
--------------
A Preferred Stock.
Transfer Restricted Securities: Each share of New Preferred Stock
------------------------------
or each Exchange Debenture until the earliest to occur of (i) the date on which
such Series A Preferred Stock or Exchange Debenture is exchanged by a person
other than a broker-dealer in the Exchange Offer, (ii) following the
3
<PAGE>
exchange by a broker-dealer in the Exchange Offer, the date on which such New
Preferred Stock or New Debenture, as the case may be, is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Series A Preferred Stock or Exchange Debenture is effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Series A Preferred Stock
or Exchange Debenture is distributed to the public pursuant to Rule 144 under
the Act.
Underwritten Registration or Underwritten Offering: A
--------------------------------------------------
registration in which securities of the Company are sold to an underwriter for
re-offering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "Holder") whenever such Person owns Transfer Restricted
Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Company shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 30 days after the Closing Date, the Exchange Offer Registration Statement,
(ii) use its best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 120
days after the Closing Date, (iii) in connection with the foregoing, (A) file
all pre-effective amendments to such Exchange Offer Registration Statement as
may be necessary in order to cause such Exchange Offer Registration Statement to
become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the New Preferred Stock or the New Exchange Debentures, as the
case may be, to be made under the Blue Sky laws of such jurisdictions as are
necessary to permit Consummation of the Exchange Offer and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the New Preferred Stock or the New Exchange
Debentures, as the case may be, to be offered in exchange for the Series A
Preferred Stock or the Exchange Debentures, as the case may be, that are
Transfer Restricted Securities and to permit sales of Broker-Dealer
Transfer-Restricted Securities by Restricted Broker-Dealers as contemplated by
Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously, and shall keep the Exchange Offer open,
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 Business Days. The
Company shall cause the Exchange Offer to comply with all applicable federal and
state securities laws. No securities other than the New Preferred Stock and the
New Exchange Debentures shall be included in the Exchange Offer Registration
Statement. The Company shall use its best efforts to cause the Exchange Offer to
be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter.
4
<PAGE>
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Restricted Broker- Dealer who holds Series A Preferred
Stock or Exchange Debentures that are Transfer Restricted Securities and that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities, may exchange such Series A Preferred
Stock or Exchange Debentures (other than Transfer Restricted Securities acquired
directly from the Company) pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act
and must, therefore, deliver a prospectus meeting the requirements of the Act in
connection with its initial sale of each New Preferred Stock or New Exchange
Debenture received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers that the Commission may require in order to permit
such sales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker- Dealer or disclose the amount of Series A Preferred Stock or
Exchange Debentures held by any such Broker-Dealer except to the extent required
by the Commission as a result of a change in policy after the date of this
Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period expiring on the earlier of (i) the date that all Holders of
Transfer Restricted Securities have registered such securities pursuant to the
Exchange Offer and (ii) 365 days from the date on which the Exchange Offer
Registration Statement is declared effective.
The Company shall promptly provide sufficient copies of the
latest version of such Prospectus to such Restricted Broker-Dealers upon request
at any time during such 365-day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to
------------------
file the Exchange Offer Registration Statement with respect to the New Preferred
Stock or the New Exchange Debentures or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable law or
Commission policy (after the procedures set forth in Section 6(a)(i) below have
been complied with) or (ii) any Holder of Transfer Restricted Securities
notifies the Company within 20 Business Days following the Consummation of the
Exchange Offer that (A) such Holder is prohibited by law or Commission policy
from participating in the Exchange Offer or (B) such Holder may not resell the
New Preferred Stock or New Exchange Debentures acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Series A Preferred Stock or Exchange Debentures acquired directly from the
Company or an affiliate of the Company, then the Company shall
(x) cause to be filed on or prior to (1) in the case of a
Registration Statement filed pursuant to clause (i) above, 30 days after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement and (2) in the case of a
Registration
5
<PAGE>
Statement filed pursuant to clause (ii) above, 30 days after the date on
which the Company receives the notice specified in clause (ii) above
(and in any event, within 150 days after the Closing Date), a shelf
registration statement pursuant to Rule 415 under the Act, (which may be
an amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement")), relating to all Transfer
----------------------------
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and
(y) use its best efforts to cause such Shelf Registration
Statement to become effective on or prior to (1) in the case of a
Registration Statement filed pursuant to clause (i) above, 120 days
after the date on which the Company becomes obligated to file such Shelf
Registration Statement and (2) in the case of a Registration Statement
filed pursuant to clause (ii) above, 120 days after the date on which
the Company receives the notice specified in clause (ii) above (and in
any event, within 240 days after the Closing Date). If, after the
Company has filed an Exchange Offer Registration Statement which
satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement
solely because the Exchange Offer is not permitted under applicable
federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x)
above. Such an event shall have no effect on the requirements of this
clause (y), or on the Effectiveness Target Date as defined in Section 5
below.
The Company shall use its best efforts to keep the Shelf Registration Statement
discussed in this Section 4(a) continuously effective, supplemented and amended
as required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period expiring on the earlier of (i) the date that all Holders
of Transfer Restricted Securities have sold such securities pursuant to the
Exchange Offer and (ii) 365 days from the date on which the Exchange Offer
Registration Statement is declared effective.
(b) Provision by Holders of Certain Information in Connection
---------------------------------------------------------
with the Shelf Registration Statement. No Holder of Transfer Restricted
- -------------------------------------
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 Business Days after receipt of a
request therefor, such information specified in item 507 of Regulation S-K under
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information required to be provided by such Holder for inclusion therein. Each
Holder as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company, for so long as the Registration Statement is
effective, all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) the Company fails to file any of the Registration
Statements required by this Agreement on or before the date specified for such
filing in this Agreement, (ii) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
-------------------------
Consummate the Exchange Offer within 30 business
6
<PAGE>
days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (iv) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in this Agreement without being succeeded within
the time period provided for herein by a post effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective within ten Business Days of the filing thereof (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"), then
--------------------
commencing on the day following the date on which such Registration Default
occurs, the Company agrees to pay to each Holder of Transfer Restricted
Securities affected by such Registration Default, for the first 90-day period
immediately following the occurrence of such Registration Default, liquidated
damages ("Liquidated Damages") in an amount equal to $.005 per week per $100
------------------
Liquidation Preference of Series A Preferred Stock or $.05 per week per $1,000
principal amount of Exchange Debentures constituting Transfer Restricted
Securities held by such Holder for each week or pro rata for a portion of each
week thereof that the Registration Default continues. The amount of Liquidated
Damages payable to each Holder shall increase by an additional $.005 per week
per $100 Liquidation Preference of Series A Preferred Stock or $.05 per week per
$1,000 principal amount of Exchange Debentures constituting Transfer Restricted
Securities held by such Holder for each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum of $.05 per week per $100
Liquidation Preference of Series A Preferred Stock or $.50 per week per $1,000
principal amount of Exchange Debentures constituting Transfer Restricted
Securities held by such Holder.
All accrued Liquidated Damages shall be paid to the Global
Security Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by mailing checks to their
registered addresses by the Company on each Damages Payment Date. All
obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published
a change in Commission policy with respect to exchange offers such as
the Exchange Offer, such that in the reasonable opinion of counsel to
the Company there is a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Company hereby agrees
to seek a no-action letter or other favorable decision from the
Commission allowing the Company to Consummate an Exchange Offer for such
Series A Preferred Stock or Exchange Debentures, as the case may be. The
Company hereby agrees to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company
hereby agrees to take all such other actions as are requested by the
Commission or otherwise required in connection with the issuance of such
decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff
an analysis prepared by counsel to the Company setting forth the legal
bases, if any, upon which such counsel has concluded that such an
Exchange Offer should be permitted and (C)
7
<PAGE>
diligently pursuing a resolution by the Commission staff of such
submission. Nothing in this Section 6(a)(i) shall prevent the Company
from promptly filing a Registration Statement in accordance with Section
3(a) hereof.
(ii) As a condition to its participation in the Exchange
Offer pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an affiliate of the Company, (B) it is
not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of
the New Preferred Stock or New Exchange Debentures to be issued in the
Exchange Offer and (C) it is acquiring the New Preferred Stock or New
Exchange Debentures in its ordinary course of business. Each Holder
hereby acknowledges and agrees that any Broker-Dealer and any such
Holder using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
----------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation
----------------------------------
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including, if applicable, any no-action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507
or 508, as applicable, of Regulation S-K if the resales are of New
Preferred Stock or New Exchange Debentures obtained by such Holder in
exchange for Series A Preferred Stock or Exchange Debentures acquired by
such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a supplemental letter
to the Commission (A) stating that the Company is registering the
Exchange Offer in reliance on the position of the Commission enunciated
in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
---------------------------------- ------
Stanley and Co., Inc. (available June 5, 1991), K-III Communications
--------------------- --------------------
Corporation (available May 14, 1993) and, if applicable, any no-action
-----------
letter obtained pursuant to clause (i) above, (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the New Preferred Stock or
New Exchange Debentures to be received in the Exchange Offer and that,
prior to consummation of the Exchange Offer the Company will have
received appropriate representations from participating Holders to allow
the Company to state to the best of the Company's information and
belief, that each Holder participating in the Exchange Offer is not
affiliated with the Company, is acquiring the New Preferred Stock or New
Exchange Debentures in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the New Preferred Stock or New Exchange Debentures
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company will prepare and file with the Commission a
8
<PAGE>
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(c) General Provisions. In connection with any Registration
------------------
Statement and any related Prospectus required by this Agreement to permit the
sale or resale of Transfer Restricted Securities (including, without limitation,
any Exchange Offer Registration Statement and the related Prospectus, to the
extent that the same are required to be available to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers), the
Company shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement (1) in the case of
clause (A), correcting any such misstatement or omission, and (2) in the
case of either clause (A) or (B), use its best efforts to cause such
amendment to be declared effective and such Registration Statement and
the related Prospectus to become usable for their intended purpose(s) as
soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold; cause the Prospectus to
be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to
comply fully with Rules 424 and 430A, as applicable, under the Act in a
timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or
that requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness
9
<PAGE>
of the Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order
at the earliest possible time;
(iv) make available to each selling Holder named in any
Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein
or any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders of the Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s) in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains a material misstatement or omission or fails to comply with the
applicable requirements of the Act;
(v) promptly upon the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
make available copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by
the selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
Holder, underwriter, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
provided that any person to whom information is provided under this
clause (vi) agrees in writing to maintain the confidentiality of such
information to the extent such information is not in the public domain;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include in
any Registration Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as
soon as practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
10
<PAGE>
(viii) cause the Transfer Restricted Securities covered by
the Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
Liquidation Preference of Series A Preferred Stock or aggregate
principal amount of Exchange Debentures, as the case may be, covered
thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, and make available all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby
consents to the use of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s),
if any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(xi) enter into such agreements (including, unless not
required pursuant to Section 10 hereof, an underwriting agreement) and
make such representations and warranties and take all such other actions
in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the
Company shall:
(A) furnish to each selling Holder and each underwriter,
if any, upon the effectiveness of the Shelf Registration
Statement and to each Restricted Broker-Dealer upon consummation
of the Exchange Offer:
(1) a certificate, dated the date of effectiveness
of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be,
signed by (x) the President or any Vice President and (y)
a principal financial or accounting officer of the
Company, confirming, as of the date thereof, the matters
set forth in paragraphs (a), (b), (c) and (d) of Section 8
of the Purchase Agreement and such other matters as the
Holders and/or underwriter(s) may reasonably request;
(2) an opinion, dated the date of effectiveness of
the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, of
counsel for the Company, covering (i) due authorization
and enforceability of the Series A Preferred Stock, the
New Preferred Stock, the Exchange Debentures and the New
Exchange Debentures, (ii) a statement to the effect that
such counsel has participated in conferences with officers
and other representatives of the Company and
representatives of the independent public accountants for
the Company and have considered the matters required to be
stated therein and the statements contained therein,
although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and
that such counsel advises that, on the basis of the
foregoing (relying as to materiality to a large extent
upon facts
11
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provided to such counsel by officers and other
representatives of the Company and without independent
check or verification), no facts came to such counsel's
attention that caused such counsel to believe that the
applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment
thereto became effective, and, in the case of the Exchange
Offer Registration Statement, as of the date of
Consummation, contained an untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein
not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of
the opinion dated the date of Consummation of the Exchange
Offer, as of the date of Consummation, contained an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading and (iii) such other
matters of the type customarily covered in opinions of
counsel for an issuer in connection with similar
securities offerings, as may reasonably be requested by
such parties. Without limiting the foregoing, such counsel
may state further that such counsel assumes no
responsibility for, and has not independently verified,
the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial,
statistical and accounting data included in any
Registration Statement contemplated by this Agreement or
the related Prospectus; and
(3) a customary comfort letter, dated as of the
date of effectiveness of the Shelf Registration Statement
or the date of Consummation of the Exchange Offer, as the
case may be, from the Company's independent accountants,
in the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in
connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters
delivered pursuant to Section 8(i) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or
resale pursuant to any Shelf Registration Statement the
indemnification provisions and procedures of Section 8 hereof
with respect to all parties to be indemnified pursuant to said
Section; and
(C) deliver such other documents and certificates as may
be reasonably requested by such parties to evidence compliance
with clause (A) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by
the Company pursuant to this clause (xi), if any.
The above shall be done at each closing under such underwriting
or similar agreement, as and to the extent required thereunder, and if
at any time the representations and warranties of the Company
contemplated in (A)(1) above cease to be true and correct, the Company
shall so advise the underwriter(s), if any, and selling Holders promptly
and if requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky
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<PAGE>
laws of such jurisdictions as the selling Holders or underwriter(s), if
any, may request and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiii) issue, upon the request of any Holder of Series A
Preferred Stock or covered by any Shelf Registration Statement
contemplated by this Agreement, New Preferred Stock or New Exchange
Debentures, as the case may be, having an aggregate Liquidation
Preference or an aggregate principal amount, as the case may be, equal
to the aggregate Liquidation Preference of Series A Preferred Stock or
the aggregate principal amount of Exchange Debentures, as the case may
be, surrendered to the Company by such Holder in exchange therefor or
being sold by such Holder; such New Preferred Stock or New Exchange
Debentures to be registered in the name of such Holder or in the name of
the purchaser(s) of such New Preferred Stock or New Exchange Debentures,
as the case may be; in return, the Series A Preferred Stock or Exchange
Debentures, as the case may be, held by such Holder shall be surrendered
to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as
the Holders or the underwriter(s), if any, may request at least two
Business Days prior to such sale of Transfer Restricted Securities;
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities, subject to the proviso contained in clause (xii) above;
(xvi) if any fact or event contemplated by Section
6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Transfer
Agent or the Trustee, as the case may be, with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(xviii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified
13
<PAGE>
independent underwriter") that is required to be retained in accordance
with the rules and regulations of the NASD, and use its best efforts to
cause such Registration Statement to become effective and approved by
such governmental agencies or authorities as may be necessary to enable
the Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective
date of the Registration Statement (as such term is defined in paragraph
(c) of Rule 158 under the Act);
(xx) in the event such Transfer Restricted Securities are
Exchange Debentures, cause the Indenture to be qualified under the TIA
not later than (a) the date on which the Series A Preferred Stock is
exchanged for Exchange Debentures or (b) the effective date of the first
Registration Statement relating to the Exchange Debentures required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Exchange Debentures to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner;
(xxi) use its best efforts to obtain at its annual meeting
of shareholders to be held in 1997 any necessary shareholder consents to
increase the number of shares of Series A Preferred Stock and New
Preferred Stock authorized for issuance in order to (a) enable the
holders of Series A Preferred Stock with a Liquidation Preference of
$10,000 per share to exchange such shares for New Preferred Stock with a
Liquidation Preference of $1,000 per share in the Exchange Offer or, if
such exchange has already occurred, (b) effect a ten for one stock split
of the New Preferred Stock;
(xxii) cause all Transfer Restricted Securities covered by
the Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed if
requested by the Holders of a majority in aggregate Liquidation
Preference of Series A Preferred Stock or aggregate principal amount of
Exchange Debentures or the managing underwriter(s), if any;
(xxiii) provide promptly to each Holder upon written
request each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act; and
(d) Restrictions on Holders. Each Holder agrees by acquisition of
-----------------------
a Transfer Restricted Security that, upon receipt of any notice from the Company
of the existence of any fact of the kind described in Section 6(c)(iii)(D)
hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xvi) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. If so directed by the Company, each Holder will
deliver to the Company (at the Company's expense) all copies, other than
14
<PAGE>
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
time period regarding the effectiveness of such Registration Statement set forth
in Section 3 or 4 hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 6(c)(iii)(D) hereof to and including the date when each
selling Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xvi) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the NASD (including, if applicable, the fees and expenses (excluding
underwriting discounts or commissions) of any "qualified independent
underwriter" and its counsel, as may be required by the rules and regulations of
the NASD)); (ii) all fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the New Preferred Stock or New Exchange Debentures and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company and, in accordance with
Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the New Preferred Stock
or New Exchange Debentures on a national exchange or automated quotation system
if required hereunder; and (vi) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by
this Agreement, the Company will reimburse the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel chosen by the
Holders of a majority in Liquidation Preference or principal amount of the
Transfer Restricted Securities for whose benefit such Registration Statement is
being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder, (ii) each person, if any, who controls a Holder within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person to the fullest extent lawful, from and
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever,
and any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or
15
<PAGE>
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus, or in any supplement thereto or amendment thereof,
or 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 the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company will not be liable in
any such case to the extent, but only to the extent, that (i) any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Holder expressly for use
therein and (ii) the foregoing indemnity with respect to any untrue statement
contained in or omitted from a Registration Statement or the Prospectus shall
not inure to the benefit of any Holder (or any person controlling such Holder),
from whom the person asserting any such loss, liability, claim, damage or
expense purchased any of the Series A Preferred Stock, New Preferred Stock,
Exchange Debentures or New Exchange Debentures, as the case may be, which are
the subject thereof if it is finally judicially determined that such loss,
liability, claim, damage or expense resulted solely from the fact that the
Holder sold Series A Preferred Stock, New Preferred Stock, Exchange Debentures
or New Exchange Debentures, as the case may be, to a person to whom there was
not sent or given, at or prior to the written confirmation of such sale, a copy
of the Registration Statement and the Prospectus, as amended or supplemented,
and (x) the Company shall have previously and timely furnished sufficient copies
of the Registration Statement or Prospectus, as so amended or Supplemented, to
such Holder in accordance with this Agreement and (y) the Registration Statement
or Prospectus, as so amended or supplemented, would have corrected such untrue
statement or omission of a material fact. This indemnity agreement will be in
addition to any liability which the Company may otherwise have, including, under
this Agreement.
(b) Each Holder, severally and not jointly, agrees to indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever
and any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus, or in any amendment thereof or
supplement thereto, or 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 the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
expressly for use therein. This indemnity will be in addition to any liability
which a Holder may otherwise have, including under this Agreement. In no event,
however, shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the proceeds received by such Holder upon its
sale of the Series A Preferred Stock, New Preferred Stock, Exchange Debenture or
New Exchange Debenture giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification
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<PAGE>
is to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may
otherwise have). In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action, (ii) the indemnifying parties shall not have employed counsel to take
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party or parties shall not
have the right to direct the defense of such action on behalf of the indemnified
party or parties), in any of which events such fees and expenses of counsel
shall be borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above, shall only be liable for
the legal expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or action
effected without its prior written consent; provided, however, that such consent
was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in
which the indemnification provided for in this Section 8 is for any reason held
to be unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company and each Holder shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company, any contribution received by the Company from persons,
other than the Holders, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) to which the Company and any Holder may be
subject, in such proportion as is appropriate to reflect the relative benefits
received by the Company from the offering of Series A Preferred Stock, New
Preferred Stock, Exchange Debentures or New Exchange Debentures, as the case may
be, and any such Holder from its sale of Series A Preferred Stock, New Preferred
Stock, Exchange Debentures or New Exchange Debentures, as the case may be, or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in this Section 8, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Holders in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and any Holder shall be deemed to be in the same proportion as (x)
the total proceeds from the offering (net of discounts but before deducting
expenses) of the Series A Preferred Stock, New Preferred Stock, Exchange
Debentures or New Exchange Debentures, as the case may be, received by the
Company and (y) the total proceeds received by such Holder upon its sale of
Series A Preferred Stock, New Preferred Stock, Exchange Debentures or New
Exchange Debentures, as the case may be, which would otherwise give rise to the
indemnification obligation, respectively. The relative fault of the Company and
of the Holders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a
17
<PAGE>
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Holders and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each Holder agree that it
would not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) no Holder shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder with respect to the sale of its Series A
Preferred Stock, New Preferred Stock, Exchange Debentures or New Exchange
Debentures, as the case may be, exceeds the sum of (A) the amount paid by such
Holder for such Series A Preferred Stock, New Preferred Stock, Exchange
Debentures or New Exchange Debentures, as the case may be, plus (B) the amount
of any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (ii)
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8, (A)
each person, if any, who controls a Holder within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of a Holder or any
controlling person shall have the same rights to contribution as such Holder,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 8(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the failure to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request of any Holder of Transfer Restricted Securities, to any Holder or
beneficial owner of Transfer Restricted Securities in connection with any sale
thereof and any prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information required by Rule
144A(d)(4) under the Act in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
The Holders of Transfer Restricted Securities may elect to sell
their Transfer Restricted Securities pursuant to one or more Underwritten
Registrations; provided, however, that in no event shall any Holder commence any
such Underwritten Registration if a period of less than 180 days has elapsed
since the consummation of the most recent Underwritten Registration hereunder;
and provided further that in no event shall the Holders effect more than three
such Underwritten Registrations hereunder. No Holder may participate in any
Underwritten Registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in customary
underwriting arrangements entered into in connection therewith and (b) completes
and executes all reasonable questionnaires, powers of attorney,
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<PAGE>
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
In any Underwritten Offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders of a majority in aggregate Liquidation Preference or
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company. Such investment bankers and managers are
referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to
--------
exercise all rights provided herein, in the Certificate of Designation, the
Indenture, the Purchase Agreement or granted by law, including recovery of
liquidated or other damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages (including
the Liquidated Damages contemplated hereby) would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after
--------------------------
the date of this Agreement enter into any agreement with respect to its
securities that conflicts with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any agreement in effect on the date hereof, except where a waiver with
respect thereto has been obtained prior to the date of effectiveness of any
registration statement required under this Agreement.
(c) Adjustments Affecting the Series A Preferred Stock or
-----------------------------------------------------
Exchange Debentures. The Company will not take any action, or permit any change
- -------------------
to occur, with respect to the Series A Preferred Stock or Exchange Debentures
that would materially adversely affect the ability of the Holders to Consummate
any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless the Company has
obtained the written consent of Holders of a majority of the outstanding
Liquidation Preference or principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding Liquidation Preference or principal amount of
Transfer Restricted Securities that are subject to such Exchange Offer.
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(e) Notices. All notices and other communications provided for or
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permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Transfer Agent or the Trustee, as the case may be, with a
copy to the Transfer Agent or the Trustee, as the case may be; and
(ii) if to the Company:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Telecopier No.: (813) 829-2470
Attention: Chief Financial Officer
With a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas, 46th Floor
New York, New York 10036
Telecopier No.: (212) 997-3527
Attention: Ralph J. Sutcliffe
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Transfer Agent or
the Trustee, as the case may be, at the address specified in the Certificate of
Designation or the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
20
<PAGE>
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other
----------------
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
INTERMEDIA COMMUNICATIONS INC.
By:
--------------------------------
Name: David C. Ruberg
Title: Chairman of the Board, President
and Chief Executive Officer
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
By: BEAR, STEARNS & CO. INC.
By:
------------------------------
Name:
Title:
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
INTERMEDIA COMMUNICATIONS INC.
By:
--------------------------------
Name: David C. Ruberg
Title: Chairman of the Board, President
and Chief Executive Officer
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
By: BEAR, STEARNS & CO. INC.
By:
------------------------------
Name:
Title:
23
<PAGE>
EXHIBIT 11
INTERMEDIA COMMUNICATIONS INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Average shares outstanding............ 8,955,993 10,035,774 14,017,597
=========== ============ ============
Loss before extraordinary item........ $(3,067,379) $(19,156,597) $(57,198,711)
Extraordinary item.................... -- (1,592,045) --
----------- ------------ ------------
Net loss.............................. $(3,067,379) $(20,748,642) $(57,198,711)
=========== ============ ============
Per share amount:
Loss before extraordinary item...... $ (0.34) $ (1.91) $ (4.08)
Extraordinary item.................. -- (0.16) --
----------- ------------ ------------
Net loss.............................. $ (0.34) $ (2.07) $ (4.08)
=========== ============ ============
</TABLE>
<PAGE>
EXHIBIT 12
Intermedia Communications Inc.
------------------------------
Statement re: Computation of Ratios
-----------------------------------
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Loss before extraordinary items ($3,087) ($19,157) ($57,198)
Income tax benefit 0 97 0
Loss before income taxes ($3,067) ($19,060) ($57,198)
Fixed Charges:
Interest expensed $1,219 $13,355 $35,213
Capitalized interest 257 677 2,780
Amortization of deferred financing costs 69 412 1,252
Estimated interest factor on operating leases 200 428 1,598
Dividends on redeemable preferred stock 0 0 0
------------ ------------ ------------
Total fixed charges $1,745 $14,872 $40,843
============ ============ ============
Earnings:
Loss before income tax ($3,067) ($19,157) ($57,198)
Fixed charges excluding capitalized interest 1,488 14,195 38,063
------------ ------------ ------------
Total earnings ($1,570) ($4,962) ($19,135)
============ ============ ============
Ratio of earnings to fixed charges (0.90) (0.33) (0.47)
============ ============ ============
Insufficiency of earnings to cover fixed charge $3,324 $19,834 $59,978
</TABLE>
<PAGE>
EXHIBIT 21
----------
Subsidiaries of Intermedia Communications Inc.
- ----------------------------------------------
FiberNet North Carolina, Inc./1//2/
FiberNet Huntsville, Inc./2/
FiberNet St. Louis, Inc./2/
FiberNet Telecommunications Cincinnati, Inc.
Phone One, Inc.
FiberNet USA, Inc.
EMI Telecommunications Inc.
Eastern Message Communications Inc.
- --------------
/1/ AT&T Credit Corporation owns warrants to purchase 10% of the outstanding
capital stock of FiberNet North Carolina, Inc.
/2/FiberNet North Carolina, Inc., FiberNet Huntsville, Inc. and FiberNet St.
Louis, Inc. are wholly-owned subsidiaries of FiberNet, USA, Inc.
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-64752 and Form S-8 No. 33-97720) pertaining to the Intermedia
Communications of Florida, Inc. 1992 Stock Option Plan and in the Registration
Statements (Form S-3 No. 33-86628, Form S-3 No. 33-94702, Form S-3 No. 33-99940,
and Form S-3 No. 33-32738) of Intermedia Communications Inc. 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 the Annual Report (Form 10-K) for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Tampa, Florida
March 17, 1997
