<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 1997
REGISTRATION NO. 33-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTERMEDIA COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 59-29-13586
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification
organization) Code Number)
3625 QUEEN PALM DRIVE
TAMPA, FLORIDA 33619
(813) 829-0011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DAVID C. RUBERG, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERMEDIA COMMUNICATIONS INC.
3625 QUEEN PALM DRIVE
TAMPA, FLORIDA 33619
(813) 829-0011
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPY TO:
RALPH J. SUTCLIFFE, ESQ.
KRONISH, LIEB, WEINER & HELLMAN LLP
1114 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036-7798
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: , 1997
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE PROPOSED OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/4% Series B Senior
Discount Notes
due 2007.............. $649,000,000 58.145% $377,361,164 $114,352
</TABLE>
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- -------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(f)(2) based upon the book value on July
31, 1997 of the securities to be received by the registrant in the
exchange.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE OR DATES AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
---- ------------------- ----------------------
<C> <S> <C>
1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page; Available
Information; Outside Back Cover Page
3 Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............. Prospectus Summary; The Company; Risk
Factors; Selected Financial and Other
Operating Data
4 Terms of the Transaction................... Prospectus Summary; Risk Factors; The
Exchange Offer; Description of the Senior
Discount Notes; Plan of Distribution
5 Pro Forma Financial Statements............. Selected Financial and Other Operating Data
6 Material Contracts with the Company Being
Acquired.................................. *
7 Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ *
8 Interests of Named Experts and Counsel..... Legal Matters; Experts
9 Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities............................... *
10 Information With Respect to S-3
Registrants................................ Outside and Inside Cover Pages of
Prospectus; Prospectus Summary; Risk
Factors; Use of Proceeds; Capitalization;
Selected Financial and Other Operating
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Description of the Senior Discount Notes
11 Incorporation of Certain Information by
Reference.................................. Incorporation of Certain Documents by
Reference
12 Information With Respect to S-2 or S-3
Registrants............................... *
13 Incorporation of Certain Information by
Reference.................................. *
14 Information With Respect to Registrants
Other Than S-3 or S-2 Registrants......... *
15 Information With Respect to S-3 Companies.. *
16 Information With Respect to S-2 or S-3
Companies................................. *
17 Information With Respect to Companies Other
Than S-2 or S-3 Companies................. *
18 Information if Proxies, Consents or
Authorizations Are to be Solicited........ *
19 Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or
in an Exchange Offer...................... Management
</TABLE>
- --------
* Omitted because item is inapplicable or answer is in the negative.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST , 1997
OFFER TO EXCHANGE
11 1/4% SERIES B SENIOR DISCOUNT NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING 11 1/4% SENIOR DISCOUNT NOTES DUE 2007
OF
INTERMEDIA COMMUNICATIONS INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------
Intermedia Communications Inc., a Delaware corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount at
maturity of 11 1/4% Series B Senior Discount Notes due 2007 (the "Senior
Discount Notes") of the Company for each $1,000 principal amount at maturity of
the issued and outstanding 11 1/4% Senior Discount Notes due 2007 (the "Old
Notes" and collectively with the Senior Discount Notes, the "Notes") of the
Company. As of the date of this Prospectus, $649,000,000 principal amount at
maturity of the Old Notes were outstanding. The terms of the Senior Discount
Notes are substantially identical in all material respects (including interest
rate and maturity) to the terms of the Old Notes except for certain transfer
restrictions and registration rights relating to the Old Notes.
The Exchange Offer is being made to satisfy certain obligations of the
Company under the Registration Rights Agreement, dated July 9, 1997, among the
Company and the other signatories thereto (the "Registration Rights
Agreement"). Upon consummation of the Exchange Offer, holders of Old Notes that
were not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement covering such Old Notes not tendered and such Old Notes will
continue to be subject to the restrictions on transfer contained in the legend
thereon. If the Exchange Offer is not consummated, or the Shelf Registration
Statement is not filed or is not declared effective or, after either this
Exchange Registration Statement or the Shelf Registration Statement has been
declared effective, such registration statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Old Notes or Senior Discount Notes in accordance with and during the periods
specified in the Registration Rights Agreement, additional interest will accrue
and be payable on the Notes until so declared effective or consummated. See
"The Exchange Offer; Description of the Senior Discount Notes--Registration
Rights."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") with respect to similar
transactions, the Company believes that Senior Discount Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that the Senior Discount Notes are acquired in the ordinary
course of the holders' business, the holders have no arrangement with any
person to participate in the distribution of the Senior Discount Notes and
neither the holder nor any other person is engaging in or intends to engage in
a distribution of the Senior Discount Notes. Each broker-dealer that receives
Senior Discount Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
Senior Discount Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Senior
Discount Notes received in exchange for Old Notes acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 365 days after the Exchange Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Senior Discount Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture (as defined). For a more
complete description of the terms of the Senior Discount Notes, see
"Description of the Senior Discount Notes." There will be no cash proceeds to
the Company from the Exchange Offer. The Senior Discount will be senior
obligations of the Company, will rank pari passu in right of payment with all
existing and future senior indebtedness of the Company, including the Existing
Senior Notes and the Old Notes, and will rank senior in right of payment to any
future subordinated indebtedness of the Company. Holders of secured
indebtedness of the Company will, however, have claims that are prior to the
claims of the holders of the Senior Discount Notes with respect to the assets
securing such other indebtedness. See "Description of the Senior Discount
Notes". As of March 31, 1997, on a pro forma basis after giving effect to the
Offering (as defined herein) and the Concurrent Offering (as defined herein),
the total amount of senior indebtedness outstanding of the Company, including
trade payables, was approximately $624 million and the Company's subsidiaries
would have had approximately $34 million of indebtedness outstanding.
(continued on next page)
<PAGE>
The Old Notes were originally issued and sold on July 9, 1997 in a
transaction exempt from registration under the Securities Act in reliance upon
the exemptions provided by Rule 144A and by Section 4(2) of the Securities
Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise
pledged,
hypothecated or transferred in the United States unless so registered or
unless an exemption from the registration requirements of the Securities Act
and applicable state securities laws is available.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Discount Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Senior Discount Notes in
its ordinary course of business and has no arrangement or understanding with
any person to participate in the distribution of the Senior Discount Notes to
be received in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the
Old Notes for the Senior Discount Notes (the "Exchange Date") will be the
first business day following the Expiration Date. Old Notes tendered pursuant
to the Exchange Offer may be withdrawn at any time prior to the Expiration
Date; otherwise such tenders are irrevocable.
The Senior Discount Notes will have the same issue date and issue price as
the Old Notes, which were issued with original issue discount for federal
income tax purposes. Although no interest will accrue on the Senior Discount
Notes prior to July 15, 2002, and there will be no periodic payments of
interest prior to July 15, 2002, original issue discount (that is, the excess
of the sum of the principal amount and all cash interest payments over the
issue price of the Senior Discount Notes) will accrue from July 9, 1997 and
will be includible periodically as interest income in a holder's gross income
for federal income tax purposes in advance of receipt of the cash payments to
which the income is attributable. See "Certain Federal Income Tax
Considerations."
Prior to this Exchange Offer, there has been no public market for the Notes.
If a market for the Senior Discount Notes should develop, the Senior Discount
Notes could trade at a discount from their Accreted Value (as defined herein).
The Company does not currently intend to list the Senior Discount Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active public market for
the Senior Discount Notes will develop.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
---------------
THE DATE OF THIS PROSPECTUS IS AUGUST , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. Such
reports, proxy and other information can be inspected and copied without
charge at the Public Reference Room maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington D.C. 20549. In addition, upon request,
such reports, proxy statements and other information will be made available
for inspection and copying at the Commission's public reference facilities at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven
World Trade Center, 13th floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates upon request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549. The Commission also maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, like the Company, that file
electronically with the Commission. The Company's common stock is listed on
the Nasdaq National Market under the symbol "ICIX". Reports, proxy statements
and other information concerning the Company may be inspected and copied at
the offices of the National Association of Securities Dealers, Inc. 1735 K
Street, N.W., Washington D.C. 20006.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the securities offered hereby remain
outstanding, it will furnish to the holders of the securities and file with
the Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and, with
respect to the annual information only, a report thereon by the Company's
certified independent public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, for so long as any of the
securities offered hereby remain outstanding, the Company has agreed to make
available to any prospective purchaser of the securities or beneficial owner
of the securities in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company with
the Commission and are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December 31,
1996.
The Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 filed with the Commission on May 15, 1997.
The portions of the Proxy Statement for the Annual Meeting of
Stockholders of the Company held on May 22, 1997 that have been
incorporated by reference into the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
The Company's Current Report on Form 8-K filed with the Commission on
February 24, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
March 14, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
June 5, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
July 9, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
July 17, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission on
August 4, 1997.
All documents subsequently filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, upon the
written or oral request of such person to Intermedia Communications Inc., 3625
Queen Palm Drive, Tampa, Florida 33619 (telephone 813-829-0011), Attention:
Investor Relations, a copy of any or all of the documents referred to above
(other than exhibits to such documents) which have been incorporated by
reference in this Prospectus.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the Consolidated
Financial Statements and the Notes thereto incorporated herein by reference.
References in this Prospectus to the "Company" or "Intermedia" mean Intermedia
Communications Inc. together with its subsidiaries, except where the context
otherwise requires. Certain terms used herein are defined in the Glossary
attached hereto as Annex A. This Prospectus contains certain "forward-looking
statements" concerning the Company's operations, economic performance and
financial condition, which are subject to inherent uncertainties and risks,
including those identified under "Risk Factors." Actual results could differ
materially from those anticipated in this Prospectus. When used in this
Prospectus, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements.
THE COMPANY
Intermedia 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 32 cities throughout the eastern
half of the United States and offers a full product package of
telecommunications services in 16 metropolitan statistical areas. In April
1996, Intermedia became one of the first ICPs in the United States to provide
integrated switched local and long distance service and now has six local/long
distance voice switches in service and six long distance voice switches in
service, three of which the Company plans to upgrade to local/long distance
voice switches by the end of 1997. The Company provides enhanced data services,
including frame relay, asynchronous transfer mode ("ATM") and Internet access
services, primarily to business and government customers (including over 100
ISPs), in approximately 2,500 cities nationwide, utilizing 100 Company-owned
data switches. Intermedia also serves as a facilities-based interexchange
carrier to approximately 14,000 customers nationwide. Intermedia continues to
increase its customer base and network density in the eastern half of the
United States and is pursuing attractive opportunities to add additional
services and expand into complementary geographic markets. 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 the Company
estimates that approximately $34 billion will be addressable by the Company by
the end of 1997.
The Company's annualized revenue based on the first quarter of 1997 (before
giving pro forma effect to the acquisition of DIGEX, Incorporated ("DIGEX")
which is described below) was $175.8 million. See "--Recent Developments." The
Company's revenues have grown from $14.3 million in 1994 to $103.4 million in
1996 and $43.9 million for the first quarter of 1997. During the period January
1, 1994 through March 31, 1997, the Company has increased its sales force from
approximately 45 to approximately 200, increased the number of sales offices
from four to 23 and grown its customer base from 8,148 to 15,921. The Company
has positioned itself as a provider of integrated telecommunications services
to its customers by (i) obtaining CLEC certification in 19 states and the
District of Columbia (with 20 applications pending), (ii) completing
interconnection co-carrier agreements with six incumbent local exchange
carriers ("ILECs"), (iii) deploying five local/long distance voice switches and
(iv) deploying a total of 100 data switches, as of March 31, 1997.
As of March 31, 1997, Intermedia had invested $274.4 million (or 68% of its
total invested capital) in gross property, plant and equipment, principally
telecommunications equipment. Intermedia expects to continue to
1
<PAGE>
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 and Internet services. As a result, frame relay nodes
have grown from approximately 2,700 nodes, serving customer locations in 700
cities as of March 31, 1996, to approximately 12,500 nodes, serving customer
locations in 2,500 cities as of March 31, 1997.
Management believes that a well trained team of direct sales and engineering
support professionals, offering customers a full suite of telecommunications
services, is critical in achieving its goal of capturing meaningful market
share in the newly competitive local telecommunications market. By initiating
local exchange services in markets where its sales and engineering support team
is already in place, Intermedia 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.
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 100
enhanced data switches and nearly 300 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.
As part of the implementation of its single source strategy, on July 11, 1997
the Company consummated the final step in its acquisition of 100% of the
outstanding equity of DIGEX for a cash purchase price of approximately $155
million (the "DIGEX Acquisition"). DIGEX, headquartered in suburban Washington,
D.C., is a national ISP, which provides a comprehensive range of industrial
strength Internet solutions, including Internet connectivity, Web site
management and private network solutions, primarily to business and government
customers. The Company estimates that the DIGEX Acquisition will increase its
addressable market by approximately $2 billion in 1997. For the quarter ended
March 31, 1997, DIGEX's revenues were approximately $8.7 million and the
combined pro forma revenues of DIGEX and the Company were approximately $52.7
million for such quarter. See "Risk Factors--Class Action by DIGEX
Stockholders."
Enhanced data services, such as those provided on the Company's frame
relay/ATM network, are specialized connectivity, management and applications
services designed for customers with data intensive telecommunications needs.
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, Intermedia is
currently the fifth largest national provider of frame relay networking
services (based on number of nodes) after AT&T, Inc. ("AT&T"),
2
<PAGE>
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.
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 Intermedia 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, Intranet and Web site management), 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. Intermedia 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.
Intermedia 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). In addition, the Company was recently awarded a contract to provide
Internet services to the State of New York.
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,
3
<PAGE>
Intermedia 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 Intermedia 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
Intermedia 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
Intermedia to achieve greater market share and reach new market segments more
rapidly than it could otherwise. The Company 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. Intermedia has recently
established a preferred vendor relationship with Cable & Wireless, Inc., which
includes the resale of Intermedia'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 Intermedia's top 42 customers as of December 31, 1994
(representing approximately 68% of Intermedia's billings for the month of
December 1994) had increased their aggregate billings in excess of 100% for the
month of December 1996. At December 31, 1996, 37 of these 42 customers were
still customers of Intermedia and, in the aggregate, represented approximately
17% of Intermedia'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
Intermedia'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.
Since January 1, 1996, Intermedia has increased the number of its sales offices
by 20 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 Intermedia 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 Intermedia'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. Intermedia 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.
4
<PAGE>
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 Telecommunications Inc. ("BellSouth"),
Sprint, GTE Corporation ("GTE"), NYNEX Corporation ("NYNEX"), SBC
Communications, Inc. ("SBC") and Bell Atlantic Inc. ("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. Intermedia 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. As a result of the DIGEX Acquisition, the Company has
peering relationships with other Internet carriers at six U.S. peering points.
The Company has deployed, and continues to integrate, network monitoring and
control tools to insure high levels of service quality and reliability.
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 Intermedia'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 March 31, 1997, the Company recorded $.69 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's internal revenue growth rate
for the quarter ended March 31, 1997 over the quarter ended March 31, 1996 was
81%. The Company believes that its customer and network strategies will
continue to enable Intermedia 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
5
<PAGE>
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 six
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 integrated services
in 23 metropolitan areas by the end of 1997.
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, Intermedia 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.
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. 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.
RECENT DEVELOPMENTS
Regulatory Changes. The 1996 Act and the issuance by the Federal
Communications Commission ("FCC") of rules governing local competition,
particularly those requiring the interconnection of all networks and the
exchange of traffic among the ILECs and CLECs, as well as pro-competitive
policies already developed by state regulatory commissions, have caused
fundamental changes in the structure of the local exchange markets. The U.S.
Court of Appeals for the Eighth Circuit initially issued a partial stay of the
FCC's rules relating to pricing of interconnection and a competitor's ability
to impose "most favored nation" requirements on ILECs. On July 18, 1997, the
Court issued a final decision in the case vacating the FCC's pricing and "most
favored nation" rules, as well as certain other of the FCC's interconnection
rules. Despite this action, the Company's analysis shows that interconnection
arrangements that have been approved or mandated by state regulatory
commissions have been consistent with the intent of the 1996 Act and the
Company's business plan. These regulatory developments create opportunities for
new entrants offering local exchange services to capture a portion of the
ILECs' nearly 100% market share. Due to the rapid development and continuing
growth of the Company's sales force and its competitive advantages in providing
integrated telecommunications services, the Company believes that it is well
positioned to capitalize on the new market opportunities emerging in the local
exchange market.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. The Company believes that the FCC's new access charge rules do not
adversely affect the Company's business plan, and that they in fact present
significant new opportunities for new entrants, including the Company. Aspects
of the access charge order may be changed in the future. At least three parties
have filed appeals with federal courts, and numerous parties are expected to
ask the FCC to reconsider portions of its new rules.
Acquisitions. On July 11, 1997, the Company consummated the final step in the
DIGEX Acquisition. DIGEX, headquartered in suburban Washington, D.C., is a
national ISP, which provides a comprehensive range
6
<PAGE>
of industrial strength Internet solutions, including Internet connectivity, Web
site management and private network solutions, primarily to business and
government customers. For the quarter ended March 31, 1997, DIGEX's revenues
were approximately $8.7 million and the combined pro forma revenues of DIGEX
and the Company were approximately $52.7 million for such quarter. DIGEX
presently serves approximately 2,000 customers in 50 metropolitan areas. DIGEX
has approximately 450 employees of whom approximately one third are in sales
and marketing. The Company believes that the DIGEX Acquisition will enhance its
strategic position and provide cost savings opportunities. The strategic
benefits include: (i) expansion of the Company's service portfolio to include
nationwide business Internet connectivity, Web site management and private
network solutions; (ii) expansion of the Company's customer base with the
addition of approximately 2,000 new business and government customers; and
(iii) cross marketing of the expanded service portfolio to the combined
customer base. Cost savings opportunities include: (i) elimination of redundant
facilities on over 75% of DIGEX's network routes, which routes it has in common
with the Company; (ii) reduction of local access costs by utilizing
Intermedia's local networks and interconnection agreements; and (iii)
elimination of duplicative administrative costs. See "Risk Factors--Class
Action by DIGEX Stockholders."
On June 24, 1997, the Company purchased from Telco Communications Group, Inc.
("Telco") five long distance voice switches and ancillary network equipment
located in Atlanta, Chicago, Dallas, Los Angeles and New York (the "Telco
Acquisition"). Three of these switches will be upgraded to local/long distance
voice switches, consistent with the Company's planned deployment of fifteen
local/long distance voice switches by the end of 1997. As part of the Telco
Acquisition, the Company also acquired certain network transport services for a
three year period. The aggregate purchase price of the Telco Acquisition was
approximately $38 million, which was substantially included in the Company's
planned capital expenditures for 1997. The Company believes that the Telco
Acquisition will allow the Company to more rapidly deploy local/long distance
voice switches in these markets and to do so at a lower overall cost. In
addition, the transport services acquired as part of the Telco Acquisition will
permit the Company to accelerate its deployment of ATM in its intercity and
intracity networks. Implementation of ATM will facilitate additional enhanced
data and voice services and network efficiencies.
Intermedia was incorporated in the State of Delaware on November 9, 1987, as
the successor to a Florida corporation that was founded in 1986. The Company's
principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619,
and its telephone number is (813) 829-0011.
7
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $649,000,000 principal amount at maturity
of 11 1/4% Series B Senior Discount Notes due
2007 of the Company (the "Senior Discount Notes"
and collectively with the Old Notes, the
"Notes"). The terms of the Senior Discount Notes
and the Old Notes are substantially identical in
all material respects, except for certain
transfer restrictions and registration rights
relating to the Old Notes which do not apply to
the Senior Discount Notes. See "Description of
the Senior Discount Notes."
The Exchange Offer.......... The Company is offering to exchange $1,000
principal amount at maturity of Senior Discount
Notes for each $1,000 principal amount at
maturity of Old Notes. See "The Exchange Offer"
for a description of the procedures for tendering
Old Notes. The Exchange Offer satisfies the
registration obligations of the Company under the
Registration Rights Agreement. Upon consummation
of the Exchange Offer, holders of Old Notes that
were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes
will not have any registration rights under the
Registration Rights Agreement with respect to
such non-tendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon.
Tenders, Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997, or such
later date and time to which it is extended.
Tender of Old Notes pursuant to the Exchange
Offer may be withdrawn and retendered at any time
prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be
returned without expense to the tendering holder
as promptly as practicable after the expiration
or termination of the Exchange Offer.
Federal Income Tax
Considerations............. The Exchange Offer will not result in any income,
gain or loss to the holders or the Company for
federal income tax purposes. See "Certain Federal
Income Tax Considerations."
Use of Proceeds............. There will be no proceeds to the Company from the
exchange of the Old Notes for the Senior Discount
Notes pursuant to the Exchange Offer.
Exchange Agent.............. SunTrust Bank, Central Florida, National
Association, the trustee (the "Trustee") under
the Indenture (as defined herein), is serving as
Exchange Agent in connection with the Exchange
Offer.
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for Senior Discount Notes pursuant
8
<PAGE>
to the Exchange Offer may offer their Senior Discount Notes for resale, resell
their Senior Discount Notes, and otherwise transfer their Senior Discount Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such Senior Discount Notes are acquired in the
ordinary course of the holders' business, such holders have no arrangement with
any person to participate in a distribution of such Senior Discount Notes and
neither the holder nor any other person is engaging in or intends to engage in
a distribution of the Senior Discount Notes. Each broker-dealer that receives
Senior Discount Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
its Senior Discount Notes. Broker-dealers may not exchange Old Notes which are
part of an unsold original allotment in the Exchange Offer. See "Plan of
Distribution." To comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register the Senior Discount Notes
prior to offering or selling such Senior Discount Notes. The Company is
required, under the Registration Rights Agreement, to register the Senior
Discount Notes in any jurisdiction reasonably requested by the holders, subject
to certain limitations. Upon consummation of the Exchange Offer, holders that
were not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such non-tendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold (except in private transactions), unless registered under the
Securities Act and applicable state securities laws. See "The Exchange Offer--
Consequences of Failure to Exchange".
9
<PAGE>
SUMMARY DESCRIPTION OF THE SENIOR DISCOUNT NOTES
Securities Offered.......... Up to $649 million principal amount at maturity
of 11 1/4% Series B Senior Discount Notes due
July 15, 2007 of the Company. The terms of the
Senior Discount Notes and the Old Notes are
substantially identical in all material aspects,
except for certain transfer restrictions and
registration rights relating to the Old Notes
which do not apply to the Senior Discount Notes.
See "Description of the Senior Discount Notes."
Issue Price................. $1,000 stated principal amount at maturity of the
Old Notes per $1,000 stated principal amount at
maturity of the Senior Discount Notes.
Maturity Date............... July 15, 2007.
Interest.................... Commencing as of July 9, 1997, the Senior
Discount Notes will accrete at a rate of 11 1/4%,
compounded semi-annually, to an aggregate
principal amount of $649 million by July 15,
2002. No interest will be payable on the Senior
Discount Notes prior to July 15, 2002. The Senior
Discount Notes will accrue interest at a rate of
11 1/4% per annum from July 15, 2002, payable
semi-annually in arrears on July 15 and January
15, commencing January 15, 2003.
Yield....................... 11 1/4% per annum, computed on a semi-annual bond
equivalent basis and calculated from July 9,
1997.
Optional Redemption......... The Senior Discount Notes may be redeemed at the
option of the Company, in whole or in part, on or
after July 15, 2002, at a premium declining to
par in 2005, plus accrued and unpaid interest, if
any, through the redemption date.
In the event of the sale by the Company prior to
July 15, 2000 of its capital stock (other than
Disqualified Stock (as defined herein)) (i) to a
Strategic Investor (as defined herein), in a
single transaction or a series of related
transactions, for an aggregate purchase price
equal to or exceeding $50.0 million or (ii) in
one or more Public Offerings (as defined herein)
of Common Stock, up to a maximum of 25% of the
aggregate principal amount at maturity of the
Senior Discount Notes originally issued will, at
the option of the Company, be redeemable from the
net cash proceeds of such sale (but only to the
extent such proceeds consist of cash or readily
marketable cash equivalents received in respect
of the capital stock (other than Disqualified
Stock) so sold) at a redemption price equal to
111 1/4% of the Accreted Value (as defined
herein) thereof, with respect to the Senior
Discount Notes to be redeemed on the redemption
date, provided that at least 75% of the aggregate
principal amount at maturity of Senior Discount
Notes originally issued remains outstanding
immediately after the occurrence of such
redemption.
Change of Control........... In the event of a Change of Control (as defined
herein) prior to July 15, 2002, the holders of
the Senior Discount Notes will have the right to
require the Company to purchase their Senior
Discount
10
<PAGE>
Notes at a price equal to 101% of the Accreted
Value thereof or, in the case of any such
purchase on or after July 15, 2002, at 101% of
the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
Original Issue Discount..... The Senior Discount Notes will have the same
issue date and issue price as the Old Notes,
which were issued with original issue discount
for federal income tax purposes. Thus, although
no interest will accrue on the Senior Discount
Notes prior to July 15, 2002, and there will be
no periodic payments of interest prior to July
15, 2002, original issue discount (that is, the
excess of the sum of the principal amount and all
cash interest payments over the issue price of
the Senior Discount Notes) will accrue from July
9, 1997 and will be includible periodically as
interest income in a holder's gross income for
federal income tax purposes in advance of receipt
of the cash payments to which the income is
attributable. See "Certain Federal Income Tax
Considerations."
Ranking..................... The Senior Discount Notes will be senior
obligations of the Company, will rank pari passu
in right of payment with all existing and future
senior indebtedness of the Company, including the
Existing Senior Notes and the Old Notes, and will
rank senior in right of payment to any future
subordinated indebtedness of the Company. Holders
of secured indebtedness of the Company will,
however, have claims that are prior to the claims
of the holders of the Senior Discount Notes with
respect to the assets securing such other
indebtedness. As of March 31, 1997, on a pro
forma basis after giving effect to the July 9,
1997 private placement of the Old Notes including
the subsequent exercise of the over-allotment
option in connection therewith (collectively, the
"Offering") and the July 9, 1997 private
placement of 6,900,000 depositary shares, each
representing a one-hundredth interest in a share
of 7% Series D Junior Convertible Preferred
Stock, liquidation preference $2,500 per share,
par value $1.00 per share (each a "Depositary
Share"), including the subsequent exercise of the
over-allotment option in connection therewith
(collectively, the "Concurrent Offering"), the
total amount of senior indebtedness outstanding
of the Company, including trade payables, was
approximately $624 million and the Company's
subsidiaries would have had approximately $34
million of indebtedness outstanding.
Certain Covenants........... The indenture governing the Senior Discount Notes
(the "Indenture") contains certain covenants
that, among other things, limit the ability of
the Company and its subsidiaries to make certain
restricted payments, incur additional
indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase
equity interests or subordinated indebtedness,
engage in sale and leaseback transactions, create
certain liens, enter into certain transactions
with affiliates, sell assets of the Company or
its subsidiaries, conduct certain lines of
business, issue or sell equity interests of the
Company's subsidiaries or enter into certain
mergers
11
<PAGE>
and consolidations. In addition, under certain
circumstances, the Company will be required to
offer to purchase the Senior Discount Notes at a
price equal to 100% of the Accreted Value
thereof, if such circumstances occur prior to
July 15, 2002, or at 100% of the principal amount
thereof, if such circumstances occur on or after
July 15, 2002, plus accrued and unpaid interest,
if any, to the date of purchase, with the
proceeds of certain asset sales. See "Description
of the Senior Discount Notes."
For additional information regarding the Senior Discount Notes and the
definitions of certain capitalized terms used above, see "Description of the
Senior Discount Notes."
12
<PAGE>
SUMMARY FINANCIAL AND OTHER OPERATING DATA
Statement of operations 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 summary financial data presented below as of and for the
quarters ended March 31, 1996 and 1997 have been derived from unaudited
financial statements of the Company. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which consist only of
normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the full year.
The operating results of EMI Communications Corp. ("EMI") are included in the
Company's consolidated operating results commencing July 1, 1996. The operating
results of Universal Telecom Inc. ("UTT") and NetSolve Incorporated
("NetSolve") are included in the Company's consolidated operating results
commencing December 1, 1996. The 1996 pro forma operating information gives
effect to the EMI, UTT, NetSolve and DIGEX acquisitions as if they occurred on
January 1, 1996. The 1997 pro forma operating information gives effect to the
DIGEX Acquisition as if it occurred on January 1, 1997. Both 1996 and 1997 pro
forma operating information give effect to the March 1997 sale of $300 million
of preferred stock, as if it occurred at the beginning of the respective
periods. 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 Prospectus.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PRO FORMA(1) QUARTER PRO FORMA(2)
YEAR ENDED ENDED QUARTER ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
-------------------------------------------- ------------ ----------------- -------------
1992 1993 1994 1995 1996 1996 1996 1997 1997
------ ------- ------- -------- -------- ------------ ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues............... $7,030 $ 8,292 $14,272 $ 38,631 $103,397 $ 167,644 $13,503 $ 43,938 $ 52,679
Costs and Expenses:
Facilities
administration and
maintenance and line
costs................ 1,760 2,843 5,396 22,989 81,105 128,023 9,258 36,907 44,239
Selling, general and
administrative....... 2,607 3,893 6,412 14,993 36,610 59,597 5,920 19,526 27,036
Depreciation and
amortization......... 2,190 3,020 5,132 10,196 19,836 47,277 3,281 8,294 15,267
------ ------- ------- -------- -------- --------- ------- -------- --------
6,557 9,756 16,940 48,178 137,551 234,897 18,459 64,727 86,542
------ ------- ------- -------- -------- --------- ------- -------- --------
Income (loss) from
operations............ 473 (1,464) (2,668) (9,547) (34,154) (67,253) (4,956) (20,789) (33,863)
Other income (expense)
Interest expense...... (1,031) (844) (1,218) (13,767) (35,213) (36,779) (5,382) (11,089) (11,435)
Interest and other
income............... 323 234 819 4,060 12,168 2,024 1,445 4,474 2,231
Income tax benefit.... -- -- -- 97 -- -- -- -- --
------ ------- ------- -------- -------- --------- ------- -------- --------
Loss before
extraordinary item... (235) (2,074) (3,067) (19,157) (57,199) (102,008) (8,893) (27,404) (43,067)
Extraordinary loss on
early extinguishment
of debt.............. -- -- -- (1,592) -- -- -- -- --
------ ------- ------- -------- -------- --------- ------- -------- --------
Net loss............. $ (235) $(2,074) $(3,067) $(20,749) $(57,199) $(102,008) $(8,893) $(27,404) $(43,067)
Preferred stock
dividends and
accretions............ (267) -- -- -- -- (41,340) -- (3,375) (10,335)
------ ------- ------- -------- -------- --------- ------- -------- --------
Net loss attributable
to common
stockholders.......... $ (502) $(2,074) $(3,067) $(20,749) $(57,199) $(143,348) $(8,893) $(30,779) $(53,402)
====== ======= ======= ======== ======== ========= ======= ======== ========
Net loss per common
share:
Loss before
extraordinary item... $ (.10) $ (.29) $ (.34) $ (1.91) $ (4.08) $ (9.87) $ (.86) $ (1.89) $ (3.28)
Extraordinary loss.... -- -- -- (.16) -- -- -- -- --
------ ------- ------- -------- -------- --------- ------- -------- --------
Net loss.............. $ (.10) $ (.29) $ (.34) $ (2.07) $ (4.08) $ (9.87) $ (.86) $ (1.89) $ (3.28)
====== ======= ======= ======== ======== ========= ======= ======== ========
Weighted average number
of shares
outstanding........... 4,797 7,077 8,956 10,036 14,018 14,518 10,383 16,297 16,297
OTHER DATA:
Book value per common
share................. 3.09 5.18 5.39 3.89 7.01 4.26 3.02 5.14 6.26
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(3).......... -- -- -- -- -- -- -- -- --
Earnings before
interest, income
taxes, depreciation
and amortization
("EBITDA")(4)......... $2,663 $ 1,556 $ 2,464 $ 649 $(14,318) $ (19,976) $(1,675) $(12,495) $(18,596)
Capital expenditures,
including acquisitions
of businesses, net of
cash acquired......... $8,818 $10,486 $13,731 $ 31,915 $143,615 $ 309,391 $17,625 $ 33,333 $190,787
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NETWORK DATA:(5)
Buildings connected(6)........ 161 234 293 380 487 387 1,157
Route miles................... 240 335 378 504 655 561 679
Fiber miles................... 6,184 10,239 11,227 17,128 24,122 20,541 29,841
Number of city-based networks
in service................... 4 5 6 9 9 9 9
ENHANCED DATA SERVICES:(5)
Nodes(7)...................... -- 100 900 2,300 9,500 2,700 12,500
Cities(8)..................... -- 37 336 600 2,200 700 2,500
Switches...................... -- 4 12 31 89 36 100
EMPLOYEES(5)................... 49 58 146 287 874 387 1,026
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
DECEMBER 31, MARCH 31, MARCH 31, (9)
----------------------------------------- --------- -------------
1992 1993 1994 1995 1996 1997 1997
------- ------- ------- -------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents(10)....... $ 1,775 $27,954 $10,208 $ 50,997 $189,546 $435,859 $ 498,625
Working capital(11).... 8,999 25,712 9,588 70,353 206,029 448,890 455,983
Total assets........... 36,174 61,219 74,086 216,018 512,940 787,388 1,028,475
Long-term obligations
and redeemable
preferred stock
(including current
maturities)........... 11,742 11,614 16,527 165,545 358,508 656,730 885,995
Total stockholders'
equity................ 21,257 45,987 52,033 40,254 114,230 83,866 57,812
</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, and the DIGEX Acquisition as if
they occurred on January 1, 1996. The pro forma operating information also
gives effect to the March 1997 sale of $300 million of preferred stock.
2. The pro forma operating information gives effect to the DIGEX Acquisition
as if it occurred on January 1, 1997. The pro forma operating information
also gives effect to the March 1997 sale of $300 million of preferred
stock.
3. For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends: (i) earnings consist of loss before income
taxes, plus fixed charges excluding capitalized interest and preferred
stock dividends and (ii) fixed charges consist of interest expensed and
capitalized, plus amortization of deferred financing costs, preferred stock
dividends, plus a portion of rent expense under operating leases deemed by
the Company to represent an interest factor plus dividends on the Series B
Preferred Stock. For the years ended December 31, 1992, 1993, 1994, 1995
and 1996 and the quarters ended March 31, 1996 and 1997 the Company's
earnings were insufficient to cover combined fixed charges and preferred
stock dividends by $622, $2,288, $3,324, $19,931, $59,978, $9,289 and
$31,557, respectively. For the year ended December 31, 1996 and the quarter
ended March 31, 1997, the Company's pro forma earnings, after giving effect
to the acquisitions described in Notes 1 and 2 above and the Offering, were
insufficient by $167,531 and $59,215, respectively, to cover pro forma
combined fixed charges and preferred stock dividends. For the year ended
December 31, 1996 and the quarter ended March 31, 1997 the Company's pro
forma earnings, after giving effect to the acquisitions and the sale of
preferred stock described in Notes 1 and 2 above, the Offering, and the
Concurrent Offering, were insufficient by $179,606 and $62,234 to cover pro
forma combined fixed charges and preferred stock dividends.
4. 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 Prospectus.
5. Amounts as reflected in the table are based upon information contained in
the Company's operating records.
6. Beginning in January 1997, the Company changed its definition of "Buildings
connected" to include buildings connected to the Company's network via
leased facilities controlled by the Company in addition to those connected
to the Company's network via facilities constructed by the Company. The
Company believes the new definition is consistent with industry practice.
7. Amount represents an individual point of origin and termination of data
served by the Company's enhanced data network. In the opinion of management
of the Company, all node numbers are appropriate.
8. Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
9. Gives effect to the DIGEX Acquisition and the Offering. See
"Capitalization" for additional information on the Concurrent Offering.
10. Cash and cash equivalents excludes investments of $20,954, $26,675, and
$27,102 for the years ended December 31, 1995 and 1996 and the quarter
ended March 31, 1997, respectively, restricted under the terms of various
notes and other agreements.
11. Working capital includes the restricted investments referred to in Note 10,
above.
14
<PAGE>
RISK FACTORS
In addition to other information set forth elsewhere in this Prospectus,
before tendering their Old Notes for Senior Discount Notes, holders should
consider carefully the following factors which (other than "Consequences of
Failure to Exchange") are generally applicable to the Old Notes as well as to
the Senior Discount Notes.
Consequences of Failure to Exchange. Upon consummation of the Exchange
Offer, holders of Old Notes that were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes will not have any
registration rights under the Registration Rights Agreement with respect to
such non-tendered Old Notes and, accordingly, such Old Notes will continue to
be subject to the restrictions on transfer contained in the legend thereon. In
general, the Old Notes may not be offered or sold, unless registered under the
Securities Act and applicable state securities laws, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not intend to register the
Old Notes under the Securities Act.
Based on interpretations by the staff of the SEC with respect to similar
transactions, the Company believes that Senior Discount Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by holders (other than any holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that the Senior Discount Notes are
acquired in the ordinary course of the holders' business, the holders have no
arrangement with any person to participate in the distribution of the Senior
Discount Notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the Senior Discount Notes. Each broker-
dealer that receives Senior Discount Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the Senior Discount Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Senior Discount Notes received in exchange for Old Notes
acquired by the broker-dealer as a result of market-making activities or other
trading activities. Broker-dealers may not exchange Old Notes which are part
of an unsold original allotment in the Exchange Offer. The Company has agreed
that, for a period of 365 days after the Exchange Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale of the Senior Discount Notes. See "Plan of Distribution." The Senior
Discount Notes may not be offered or sold unless they have been registered or
qualified for sale under applicable state securities laws or an exemption from
registration or qualification is available and is complied with. The
Registration Rights Agreement requires the Company to register or qualify the
Senior Discount Notes for resale in any state as may be reasonably requested
by their holders, subject to certain limitations.
Lack of Public Market. Prior to this Exchange Offer, there has been no
public market for the Notes. If a market for the Senior Discount Notes should
develop, the Senior Discount Notes may trade at a discount from their Accreted
Value depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
financial condition of the Company. The Company does not currently intend to
list the Senior Discount Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. No assurance can be
given as to the liquidity of the trading market for the Senior Discount Notes.
The liquidity of, and trading market for, the Senior Discount Notes also may
be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect such liquidity and trading
markets independent of the financial performance of, and prospects for, the
Company.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges. The Company is highly leveraged. At March 31, 1997, after giving pro
forma effect to the Offering and the Concurrent Offering and the application
of the net proceeds of the Offering and the Concurrent Offering (including the
Retirement), the
15
<PAGE>
Company would have had outstanding approximately $658 million in aggregate
principal amount of indebtedness and other liabilities on a consolidated basis
(including trade payables), approximately $303 million of obligations with
respect to dividend payments and the mandatory redemption of the Series B
Preferred Stock and $172 million of obligations with respect to the Series D
Preferred Stock in the event of a change of control of the Company. The degree
to which the Company is leveraged could have important consequences to holders
of the Senior Discount Notes, including the following: (i) a substantial
portion of the Company's cash flow from operations will be dedicated to
payment of the principal and interest on its indebtedness, to payment of
dividends on and the redemption of the Series B Preferred Stock and the
payment of dividends on the Series D Preferred Stock, thereby reducing funds
available for other purposes; (ii) the Company's significant degree of
leverage could increase its vulnerability to changes in general economic
conditions or increases in prevailing interest rates; (iii) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes could
be impaired; and (iv) the Company may be more leveraged than certain of its
competitors, which may be a competitive disadvantage.
For the quarter ended March 31, 1997, and on a pro forma basis after giving
effect to the Offering and the Concurrent Offering and the application of the
proceeds therefrom (including the Retirement), the Company's pro forma
earnings would have been inadequate to cover its pro forma combined fixed
charges including the Series D Preferred Stock dividend requirements by $62
million. The Company anticipates that earnings will be insufficient to cover
fixed charges for the next several years. In order for the Company to meet its
debt service obligations, its dividend and redemption obligations with respect
to the Series B Preferred Stock and its dividend obligations with respect to
the Series D Preferred Stock, the Company will need to substantially improve
its operating results. There can be no assurance that the Company's operating
results will be of sufficient magnitude to enable the Company to meet its debt
service obligations, its dividend and redemption obligations with respect to
the Series B Preferred Stock and its dividend obligations with respect to the
Series D Preferred Stock. In the absence of such operating results, the
Company could face substantial liquidity problems and might be required to
raise additional financing through the issuance of debt or equity securities;
however, there can be no assurance that Intermedia would be successful in
raising such financing, or the terms or timing thereof. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Effective Subordination of the Senior Discount Notes. The Senior Discount
Notes are not secured by any of the assets of the Company. Holders of secured
indebtedness of the Company will have claims that are prior to the claims of
the holders of the Senior Discount Notes to the extent of the assets securing
such other indebtedness. The Indenture and the indenture governing the 12 1/2%
Notes (the "12 1/2% Notes Indenture") will permit certain indebtedness of the
Company to be secured. In addition, the Senior Discount Notes will be
effectively subordinated to $34 million of indebtedness and other liabilities
and commitments (including trade payables) of the Company's subsidiaries.
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 increase
substantially the size of its operations in the near future. Prospective
investors, therefore, have limited historical financial information about the
Company upon which to base an evaluation of the Company's performance. Given
the Company's limited operating history, there is no assurance that it will be
able to compete successfully in the telecommunications business.
The development of the Company's business and the expansion of its networks
require significant capital, operational and administrative expenditures, a
substantial portion of which are incurred before the realization of revenues.
These capital expenditures will result in negative cash flow until an adequate
customer base is established. Although its revenues have increased in each of
the last three years, Intermedia has incurred significant increases in
expenses associated with the installation of local/long distance voice
switches and expansion of its fiber optic networks, services and customer
base. Intermedia reported net losses of approximately $3.1 million, $20.7
million, $57.2 million and $27.4 million for the years ended December 31,
1994, 1995 and
16
<PAGE>
1996 and the quarter ended March 31, 1997, respectively. The Company
anticipates recording a significant net loss in 1997 that is expected to be
substantially greater than the loss in 1996 and expects net losses to continue
for the next several years. In addition, the Company expects to have negative
EBITDA in 1997. There can be no assurance that Intermedia will achieve or
sustain profitability or positive EBITDA in the future.
Class Action by DIGEX Stockholders. On June 5, 1997, the Company announced
that it had agreed to acquire 100% of the outstanding equity of DIGEX. The
acquisition was consummated through a tender offer for all of the outstanding
shares of DIGEX, which closed on July 9, 1997, followed by a cash merger
effective on July 11, 1997 (the "Merger").
On June 20, 1997, two purported class action complaints were filed in the
Court of Chancery of the State of Delaware in and for New Castle County
respectively By TAAM Associates, Inc. and David and Chaile Steinberg (the
"Complaints"), purported stockholders of DIGEX, on behalf of all non-
affiliated common stockholders of DIGEX against Intermedia, DIGEX and the
Directors of DIGEX (the "DIGEX Directors"). The Complaints allege that the
DIGEX Directors violated their fiduciary duties to the public stockholders of
DIGEX by agreeing to vote in favor of the Merger and that Intermedia knowingly
aided and abetted such violation by offering to retain DIGEX management in
their present positions and consenting to stock option grants to certain
executive officers of DIGEX. The Complaints seek a preliminary and permanent
injunction enjoining the Merger and cash damages from the DIGEX Directors. No
application was made for a preliminary injunction prior to the consummation of
the Merger.
These cases are in their very early stages and no assurance can be given as
to their ultimate outcome. Intermedia, after consultation with its counsel,
believes that there are meritorious factual and legal defenses to the claims
in the Complaints. Intermedia intends to defend vigorously the claims in the
Complaints.
Possible Default Under the 13 1/2% Notes Indenture. In connection with the
Offering, the Company defeased a portion of the Company's outstanding 13 1/2%
Series B Senior Notes due 2005 (the "13 1/2% Notes" and together with the 12
1/2% Notes, the "Existing Senior Notes"). Such defeasance will not become
effective until the 91st day after the deposit with SunTrust Bank, Central
Florida, National Association, as trustee ("SunTrust") of the funds necessary
to defease the covenants in the indenture (the "13 1/2% Notes Indenture" and
together with the 12 1/2% Notes Indenture, the "Existing Senior Notes
Indentures") governing the 13 1/2% Notes. Until such time as the defeasance
becomes effective, the issuance by the Company of the Old Notes in the
Offering will constitute an event which could be declared an Event of Default
under the 13 1/2% Notes Indenture 30 days after the receipt of notice from
SunTrust or the holders of 25% of the outstanding principal amount of the 13
1/2% Notes. If such an Event of Default were declared and the maturity of the
13 1/2% Notes were accelerated, this would constitute an Event of Default
under the 12 1/2% Notes Indenture and under the Certificate of Designation
(the "Series B Certificate of Designation") setting forth the rights of the 13
1/2% Series B Redeemable Exchangeable Preferred Stock due 2009 (the "Series B
Preferred Stock"). If the 13 1/2% Notes were accelerated, a portion of the
funds deposited with SunTrust could be used to repay the 13 1/2% Notes. If the
12 1/2% Notes were also accelerated the Company would have available funds to
pay the 12 1/2% Notes, but such payment would significantly deplete the funds
available for the Company's capital expansion plan. An Event of Default would
not lead to acceleration of the Series B Preferred Stock. The Company's 13
1/2% Notes will be classified as current liabilities on the Company's balance
sheet until such time as the defeasance becomes effective.
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. Intermedia expects to fund its capital requirements through
existing resources, joint ventures, debt or equity financing, including
capital raised through the Offering and Concurrent Offering, and internally
generated funds. The Company expects that to continue to expand its business
will require raising substantial additional equity and/or debt capital in the
year 2000. Depending on market conditions, the Company may determine to raise
additional capital before such time. There can be no assurance, however, that
Intermedia 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
17
<PAGE>
competitive conditions, government regulation and capital costs. Failure to
generate sufficient funds may require Intermedia to delay or abandon some of
its future expansion or expenditures, which would have a material adverse
effect on its growth and its ability to compete in the telecommunications
industry.
Effect of Substantial Additional Indebtedness on the Company's Ability to
Repay the Senior Discount Notes. The Existing Senior Notes Indentures, the
Indenture and the Series B Certificate of Designation limit, but do not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiaries, and the Company may incur substantial additional indebtedness
during the next few years to finance the construction of networks and purchase
of network electronics, including local/long distance voice and data switches.
Additional indebtedness of the Company may rank pari passu with the Senior
Discount Notes in certain circumstances. See "Description of the Senior
Discount Notes." The debt service requirements of any additional indebtedness
could make it more difficult for the Company to make principal and interest
payments on the Senior Discount Notes. No guarantees have been issued with
respect to the Senior Discount Notes; thus the Company's subsidiaries are not
directly obligated under the Senior Discount Notes. Earnings generated by any
of the Company's subsidiaries, as well as the existing assets of such
subsidiaries, will have to be used first by such subsidiaries to fulfill their
debt service requirements. See "--Effective Subordination of the Senior
Discount Notes."
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.
Regulatory Approval of the Offering and the Concurrent Offering. Ten of the
states in which the Company is certificated provide for prior approval of the
issuance of debt and equity securities by the Company. One additional state in
which the Company is certificated provides for prior approval of the issuance
of preferred stock which is convertible into common stock. The requirement for
such approvals may have been pre-empted by the National Securities Market
Improvement Act of 1996, although there is no case law on this point. Because
of time constraints, the Company was not able to obtain such approval from any
of the eleven states prior to consummation of the Offering or the Concurrent
Offering. The Company has filed the required applications or notifications in
each of the states and approval has been obtained in three of the states. In
six of these states, the Company's intrastate revenues for the first quarter
of 1997 were less than $1,000 per state and in only one state did such
revenues exceed $4,000 for the first quarter. After consultation with counsel,
the Company believes the remaining approvals will be granted and that
obtaining such approvals subsequent to the Offering and the Concurrent
Offering should not result in any material adverse consequences to the
Company, although there can be no assurance that such a consequence will not
result.
Maintenance of Peering Relationships. The Internet is comprised of many ISPs
who operate their own networks and interconnect with other ISPs at various
peering points. The establishment and maintenance of peering relationships
with other ISPs is necessary in order to exchange traffic with other ISPs
without having to pay settlement charges. Although DIGEX meets the industries
current standards for peering, there is no assurance that other national ISPs
will maintain peering relationships with DIGEX or with Intermedia. In
addition, there may develop increasing requirements associated with
maintaining peering with the major national ISPs with which DIGEX and the
Company may have to comply. There can be no assurance that DIGEX and the
Company will be able to expand or adapt their network infrastructure to meet
the industry's evolving standards on a timely basis, at a commercially
reasonable cost, or at all.
18
<PAGE>
Potential Liability of On-Line Service Providers. The law in the United
States relating to the liability of on-line service providers and ISPs for
information carried on, disseminated through or hosted on their systems is
currently unsettled. Several private lawsuits seeking to impose such liability
are currently pending. In one case brought against an ISP, Religious
Technology Center v. Netcom On-Line Communication Services, Inc., the United
States District Court for the Northern District of California ruled in a
preliminary phase that under certain circumstances ISPs could be held liable
for copyright infringement. The case has not reached final judgment. The 1996
Act prohibits and imposes criminal penalties and civil liability for using an
interactive computer service to transmit certain types of information and
content, such as indecent or obscene communications. On June 26, 1997, the
Supreme Court affirmed the decision of a panel of three federal judges which
granted a preliminary injunction barring enforcement of this portion of the
1996 Act to the extent that enforcement is based upon allegations other than
obscenity or child pornography as an impermissible restriction on the First
Amendment's right of free speech. In addition, numerous states have adopted or
are currently considering similar types of legislation. The imposition upon
ISPs or Web hosting sites of potential liability for materials carried on or
disseminated through their systems could require DIGEX and the Company to
implement measures to reduce their exposure to such liability, which may
require the expenditure of substantial resources or the discontinuation of
certain product or service offerings. The Company believes that it is
currently unsettled whether the 1996 Act prohibits and imposes liability for
any services provided by DIGEX and the Company should the content or
information transmitted be subject to the statute. The increased attention
focused upon liability issues as a result of these lawsuits, legislation and
legislative proposals could affect the growth of Internet use. Any such
liability or asserted liability could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks. The Company's success in marketing its services to business and
government users requires that the Company provide superior reliability,
capacity and security via its network infrastructure. The Company's networks
are subject to physical damage, power loss, capacity limitations, software
defects, breaches of security (by computer virus, break-ins or otherwise) and
other factors, certain of which have caused, and will continue to cause,
interruptions in service or reduced capacity for the Company's customers.
Similarly, the Company's ISP business, including the DIGEX business, relies on
the availability of its network infrastructure for the provision of Internet
connectivity. Interruptions in service, capacity limitations or security
breaches could have a material adverse effect on the Company's and DIGEX's
business, financial condition and results of operations.
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 may create competitive barriers. Furthermore, ILECs may have the
potential to subsidize competitive service
19
<PAGE>
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 integration services business from equipment manufacturers,
the RBOCs and other ILECs, long distance carriers and systems integrators, and
in its enhanced data services business (including Internet) from local
telephone companies, long distance carriers, very small aperture terminal
("VSAT") providers, certain ISPs and others. In particular, the market for
Internet services is extremely competitive and there are limited barriers to
entry. Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of
the Company.
The Company believes that various legislative initiatives, including the
recently enacted 1996 Act, have removed remaining legislative barriers to
local exchange competition. Nevertheless, in light of the passage of the 1996
Act, regulators are also likely to provide ILECs with increased pricing
flexibility as competition increases. If ILECs are permitted to lower their
rates substantially or engage in excessive volume or term discount pricing
practices for their customers, the net income or cash flow of ICPs and 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 Intermedia. In
addition, AT&T and MCI have entered and other interexchange carriers have
announced their intent to enter into the local exchange services market, which
is facilitated by the 1996 Act's resale and unbundled network element
provisions. The Company cannot predict the number of competitors that will
emerge as a result of existing or new federal and state regulatory or
legislative actions. Competition from the RBOCs with respect to interexchange
services or from AT&T, MCI or others with respect to local exchange services
could have a material adverse effect on the Company's business.
Regulation. The Company is subject to varying degrees of federal, state and
local regulation. The Company is not currently subject to price cap or rate of
return regulation, nor is it currently required to obtain FCC authorization
for the installation, acquisition or operation of its network facilities.
Further, in October 1996 the FCC issued an order holding that non-dominant
carriers, such as the Company, are required to withdraw interstate tariffs for
domestic long distance service. That order has been stayed by a federal
appeals court and it is not clear at this time whether the detariffing order
will be implemented. Until further action is taken by the court, the Company
will continue to maintain tariffs for these services. In June 1997, the FCC
issued another order stating that non-dominant carriers, such as the Company,
could withdraw their tariffs for interstate access services. While the Company
has no immediate plans to withdraw its tariff, this FCC order allows the
Company to do so. The FCC also requires the Company to file interstate tariffs
on an ongoing basis for international traffic 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
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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 Intermedia believes that,
for the foreseeable future, these changes will neither materially affect the
continued use of its fiber optic networks nor materially hinder its ability to
acquire necessary technologies, the effect on the business of Intermedia of
technological changes such as changes relating to emerging wireline and
wireless transmission technologies, including software protocols, cannot be
predicted.
Dependence on Key Personnel. The Company's business is managed by a small
number of key management and operating personnel, the loss of certain of whom
could have a material adverse impact on the Company's business. The Company
believes that its future success will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel. None of
the Company's key executives, other than David C. Ruberg, President, Chief
Executive Officer and Chairman of the Board, is a party to a long-term
employment agreement with the Company.
Risk of Cancellation or Non-Renewal of Network Agreements, Licenses and
Permits. The Company has lease and/or purchase agreements for rights-of-way,
utility pole attachments, conduit and dark fiber for its fiber optic networks.
Although the Company does not believe that any of these agreements will be
cancelled in the near future, cancellation or non-renewal of certain of such
agreements could materially adversely affect the Company's business in the
affected metropolitan area. In addition, the Company has certain licenses and
permits from local government authorities. The 1996 Act requires that local
government authorities treat telecommunications carriers in a competitively
neutral, non-discriminatory manner, and that most utilities, including most
ILECs and electric companies, afford alternative carriers access to their
poles, conduits and rights-of-way at reasonable rates on non-discriminatory
terms and conditions. There can be no assurance that the Company will be able
to maintain its existing franchises, permits and rights or to obtain and
maintain the other franchises, permits and rights needed to implement its
strategy on acceptable terms.
Dependence on Business from 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 could have a material adverse
effect on the Company.
Business Combinations; Change of Control. The Company has from time to time
held, and continues to hold, preliminary discussions with (i) potential
strategic investors who have expressed an interest in making an investment in
or acquiring the Company and (ii) potential joint venture partners looking
toward the formation of strategic alliances that would expand the reach of the
Company's networks or services without necessarily requiring an additional
investment in the Company. In addition to providing additional growth capital,
management believes that an alliance with an appropriate strategic investor
would provide operating synergy to, and enhance the competitive positions of,
both Intermedia and the investor within the rapidly consolidating
telecommunications industry. There can be no assurance that agreements for any
of the foregoing will be reached. An investment, business combination or
strategic alliance could constitute a change of control. The Indenture, the 12
1/2% Notes Indenture and the Series B Certificate of Designation provide that
a change of control would require the Company to repay the indebtedness and
redeem the Series B Preferred Stock outstanding under such instruments. If a
change of control does occur, there is no assurance that the Company would
have sufficient funds to make such repayments and redemption or could obtain
any additional debt or equity financing that could
21
<PAGE>
be necessary in order to repay the Senior Discount Notes and the 12 1/2 Notes
and to redeem the Series B Preferred Stock.
Certain Tax Considerations. For a discussion of certain material federal
income tax considerations which are relevant to the purchase, ownership and
disposition of the Senior Discount Notes, see "Certain Federal Income Tax
Considerations."
Forward Looking Statements. The statements contained in this Prospectus that
are not historical facts are "forward-looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as "estimates,"
"projects," "anticipates," "expects," "intends," "believes," or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. Management wishes
to caution the reader that these forward-looking 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 Prospectus 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, cyclicality, growth or decline. Consequently,
investors should not place undue reliance on the annualized data.
22
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold on July 9, 1997 in reliance
upon the exemptions from registration under Rule 144A and Section 4(2) of the
Securities Act. Pursuant to the Registration Rights Agreement, the Company
agreed to register with the SEC a series of notes with substantially identical
terms as the Old Notes, to be offered in exchange for the Old Notes. The
purpose of the Exchange Offer is to satisfy the Company's obligations under the
Registration Rights Agreement. Holders that are not prohibited from
participating in the Exchange Offer and do not tender all of their Old Notes
will no longer have any registration rights under the Registration Rights
Agreement.
TERMS OF THE EXCHANGE
The Company offers to exchange, subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal accompanying this Prospectus, the
same principal amount at maturity of Senior Discount Notes for the Old Notes
tendered for exchange. The terms of the Senior Discount Notes are substantially
identical to the Old Notes in all material respects (including interest rate
and maturity), except that (i) the Senior Discount Notes will not be subject to
the restrictions on transfer (other than with respect to holders who are
affiliates) and (ii) the Registration Rights Agreement covenants regarding
registration and the related Liquidated Damages (other than those that have
accrued and were not paid) with respect to Registration Defaults will have been
deemed satisfied. The Senior Discount Notes will evidence the same debt as the
Old Notes and will be entitled to the benefits of the Indenture. See
"Description of the Senior Discount Notes." The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
The Company believes that Senior Discount Notes received in exchange for Old
Notes may be offered for sale, sold and otherwise transferred by any holder
(other than any holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that the Senior Discount Notes are acquired in the ordinary course of
the holder's business, the holder has no arrangement or understanding with any
person to participate in the distribution of the Senior Discount Notes and
neither the holder nor any other person is engaging in or intends to engage in
a distribution of the Senior Discount Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a public distribution of the
Senior Discount Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the distribution. Broker-
dealers may not exchange Old Notes which are part of an unsold original
allotment in the Exchange Offer.
Tendering holders of the Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS, TERMINATION; AMENDMENT
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997 or such later
date and time, if any, as extended by the Company, in its sole discretion. The
Company may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to holders of the Old Notes and unless otherwise
required by applicable law or regulation, by timely public announcement, by
making a release to the Dow Jones News Service on or before the Expiration
Date. During any extension of the Exchange Offer, all Old Notes tendered for
exchange will remain subject to the Exchange Offer. In connection with the
Exchange Offer, the Company will comply with all applicable requirements of the
federal securities laws, including, but not limited to, Rule 14e-1 under the
Exchange Act.
23
<PAGE>
The Exchange Date will be the first business day following the Expiration
Date. The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if either of the events set
forth under "Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by the Company and (ii) amend the terms of the Exchange
Offer in any manner which, in its good faith judgment,
is advantageous to the holders of the Old Notes, whether before or after any
tender of the Old Notes. Unless the Company terminates the Exchange Offer prior
to 5:00 p.m., New York City time, on the Expiration Date, the Company will
exchange the Senior Discount Notes for the Old Notes on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The Exchange Offer is subject to the terms and conditions set forth in this
Prospectus and the Letter of Transmittal.
Old Notes may be tendered by properly completing and signing the Letter of
Transmittal and delivering the Letter of Transmittal to the Exchange Agent at
its address set forth in this Prospectus on or prior to the Expiration Date,
together with (i) the certificate or certificates representing the Old Notes
being tendered and any required signature guarantees, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of the Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility" or "Depository")
pursuant to the procedure for book-entry transfer described below, or (iii) the
completion of the procedures for guaranteed delivery set forth below. See
"Guaranteed Delivery Procedures."
If the Senior Discount Notes are to be issued in the name of the registered
holder and the registered holder has signed the Letter of Transmittal the
holder's signature need not be guaranteed. In any other case, the tendered Old
Notes must be endorsed or accompanied by written instruments of transfer in
form satisfactory to the Exchange Agent and duly executed by the registered
holder and the signature on the endorsement or instrument of transfer must be
guaranteed by a commercial bank or trust company located or having an office or
correspondent in the United States, or by a member firm of a national
securities exchange or of the National Association of Securities Dealers, Inc.
(an "Eligible Institution"). If the Senior Discount Notes and/or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the register for the Old Notes, the signature on the Letter
of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER
INSURANCE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal,
the Old Notes or a Book-Entry Confirmation and all other required documents are
received by the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any or all tenders
not in proper form or the acceptance for exchange of which may, in the opinion
of the Company's counsel, be unlawful. The Company also reserves the right to
waive any of the conditions of the Exchange Offer or any defect, withdrawal,
rejection of tender or irregularity in the tender of any Old Notes. Neither the
Company, the Exchange Agent nor any other person will be under any duty to give
notification of any defects, withdrawals, rejections or irregularities or incur
any liability for failure to give any such notification.
24
<PAGE>
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to the Company and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The holder represents and warrants that
(i) it has full power and authority to tender, exchange, assign and transfer
the Old Notes and to acquire Senior Discount Notes in exchange for the Old
Notes, (ii) when the Old Notes are accepted for exchange, the Company will
acquire good and unencumbered title to the Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim and (iii) it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes. The holder further
agrees that acceptance of any tendered Old Notes by the Company and the
issuance of Senior Discount Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement and that the Company shall have no further obligations or
liabilities thereunder (except with respect to accrued and unpaid Liquidated
Damages, if any). All authority conferred by the holder will survive the death
or incapacity of the holder and every obligation of the holder shall be
binding upon the heirs, legal representatives, successors assigns, executors
and administrators of the holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or that, if it
is an "affiliate," it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (ii) is
acquiring the Senior Discount Notes offered in the ordinary course of its
business and (iii) has no arrangement with any person to participate in the
distribution of the Senior Discount Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
To be effective, a written notice of withdrawal must be timely received by
the Exchange Agent at its address set forth in this Prospectus by mail,
courier, telegraphic, telex or facsimile transmission. Any notice of
withdrawal must specify the person named in the Letter of Transmittal as
having tendered Old Notes to be withdrawn, the certificate numbers of Old
Notes to be withdrawn, the principal amount of Old Notes to be withdrawn, a
statement that the holder is withdrawing its election to tender the Old Notes
for exchange, and the name of the registered holder of the Old Notes, and must
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Exchange Agent that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes
have been tendered pursuant to a book-entry transfer, any notice of withdrawal
must specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of the Book-Entry Transfer Facility. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties. Any Old Notes which have been tendered for exchange but which are
not exchanged will be returned to the holder thereof without cost to the
holder (or, in the case of Old Notes tendered by book-entry transfer by
crediting an account maintained with the Book-Entry Transfer Facility for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be re-
tendered at any time on or prior to the Expiration Date. Any Old Notes so
withdrawn and not re-tendered will not be exchanged for Senior Discount Notes
under the Exchange Offer.
25
<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF SENIOR DISCOUNT NOTES
Upon terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly rendered and not withdrawn and
issuance of the Senior Discount Notes will be made on the Exchange Date. For
the purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
has given oral or written notice thereof to the holders.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purpose of causing the Old Notes to be assigned, transferred and
exchanged for Senior Discount Notes. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of Senior Discount Notes in
exchange for Old Notes will be made by the Exchange Agent promptly after
acceptance of the tendered Old Notes by the Company. Tendered Old Notes not
accepted for exchange by the Company will be returned without expense to the
tendering holders (or, in the case of Old Notes tendered by book-entry
transfer crediting an account maintained with the Depository) promptly
following the Expiration Date or, if the Company terminates the Exchange Offer
prior to the Expiration Date, promptly after the Exchange Offer is terminated.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business days after the
date of this Prospectus, and any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer the Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedure for transfer. The
Letter of Transmittal with any required signature guarantees and any other
required documents, must be received by the Exchange Agent on or prior to the
Expiration Date for any book-entry transfers.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date must tender their Old Notes and follow the
guaranteed delivery procedures. Pursuant to such procedures: (i) such tender
must be made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent must have received form the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Old Notes, the certificate number or
numbers of such Old Notes and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
five business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old Notes
(or a confirmation of electronic delivery of book-entry delivery into the
Exchange Agent's account at the Depository) and any of the required documents
will be deposited by the Eligible Institution with the Exchange Agent; and
(iii) such properly completed and executed Letter of Transmittal (or facsimile
hereof), as well as all other documents required by the Letter of Transmittal
and the certificate(s) representing all tendered Old Notes in proper form for
transfer (or a confirmation of electronic mail delivery or book-entry delivery
into the Exchange Agent's account at the Depository) must be received by the
Exchange Agent within five business days after Expiration Date. Any holder of
Old Notes who wishes to tender his Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent
receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City
time, on the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to issue Senior Discount Notes in exchange for any properly
tendered Old Notes not previously accepted and may terminate the Exchange
Offer (by oral or written notice to the holders and by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service), or, at its
option, modify or otherwise amend the Exchange Offer, if any of the following
events occur:
26
<PAGE>
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer, or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clause (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of Senior Discount Notes having
obligations with respect to resales and transfers of Senior Discount Notes
which are greater than those described in the interpretation of the SEC
referred to on the cover page of this Prospectus, or would otherwise make
it inadvisable to proceed with the Exchange Offer; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospectus of the Company, taken as a whole, that, in the sole judgment of
the Company is or may be adverse to the Company, or the Company shall have
become aware of facts that, in the sole judgment of the Company have or may
have adverse significance with respect to the value of the Old Notes or the
Senior Discount Notes; which, in the sole judgment of the Company in any
case, and regardless of the circumstances (including any action by the
Company) giving rise to any such condition, makes it unlawful to proceed
with the Exchange Offer and/or with such acceptance for exchange or with
such exchange.
The Company expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date
if any of the conditions set forth above occur. Moreover, regardless of
whether any of such conditions has occurred, the Company may amend the
Exchange Offer in any manner which, in its good faith judgment, is
advantageous to holders of the Old Notes.
These conditions are for the sole benefit of the Company and may be waived
by the Company, in whole or in part, in its sole discretion. Any determination
made by the Company that any of these conditions has occurred will be final
and binding on all holders, absent manifest error.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Senior Discount Notes will be issued in exchange for any such
Old Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
EXCHANGE AGENT
SunTrust Bank, Central Florida, National Association, the Trustee under the
Indenture, has been appointed as the Exchange Agent for the Exchange Offer.
All executed Letters of Transmittal, questions and requests for assistance and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent, addressed as follows:
SunTrust Bank, Central Florida, National Association
225 East Robinson St.
Suite 350
Orlando, FL 32801
Attention: Alice Springer
Facsimile: (407) 237-5299
Confirm by telephone: (407) 237-5179
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DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus and the Letter of Transmittal. If given or made,
such information or representations should not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any
exchange made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the
respective dates as of which information is given herein. The Exchange Offer
is not being made to (nor will tenders be accepted from or on behalf of)
holders of Old Notes in any jurisdiction in which the making of the Exchange
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. The Company may, however, at the reasonable request of any
holder, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes in exchange for Senior Discount Notes
will not be obligated to pay any transfer taxes in connection therewith,
except that holders who instruct the Company to register Senior Discount Notes
in the name of, or request that Old Notes not tendered or not accepted in the
Exchange Offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax
thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such non-tendered Old Notes and, accordingly such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act and the applicable state
securities laws, except pursuant to an exception from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
Based on interpretations by the staff of the SEC, Senior Discount Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders (other than any holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery requirements of Securities Act provided that the Senior Discount
Notes are acquired in the ordinary course of the holders' business, the
holders have no arrangement with any person to participate in the distribution
of the Senior Discount Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the Senior Discount
Notes. If any holder has any arrangement or understanding with respect to the
distribution of the Senior Discount Notes to be acquired pursuant to the
Exchange Offer, the holder (i) could not rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Senior Discount Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
the Senior Discount Notes. See "Plan of Distribution." In addition, to comply
with the securities laws of certain jurisdictions, if applicable, the Senior
Discount Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdiction or an exemption from registration or
qualification is available and is complied with. The Company has agreed under
the Registration Rights Agreement to register or qualify the Senior Discount
Notes for resale in any jurisdictions reasonably requested by any holder,
subject to certain limitations.
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<PAGE>
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such non-tendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Discount Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Senior Discount Notes in
its ordinary course of business and has no arrangement or understanding with
any person to participate in the distribution of the Senior Discount Notes to
be received in the Exchange Offer. In this regard, the Company will make each
person participating in the Exchange Offer aware (through this Prospectus or
otherwise) that if the Exchange Offer is being registered for the purpose of
secondary resale, any holder using the Exchange Offer to participate in a
distribution of Senior Discount Notes to be acquired in the registered
Exchange Offer (1) may not rely on the staff position enunciated in Morgan
Stanley and Co. Inc. (avail. June 5, 1991) and Exxon Capital Holding Corp.
(avail. May 13, 1988) or similar letters and (2) must comply with registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction.
ACCOUNTING TREATMENT
The Senior Discount Notes will be recorded at the same carrying value as the
Old Notes, as reflected in the Company's accounting records on the Exchange
Date. Accordingly, no gain or loss for accounting purposes will be recognized
by the Company. The expenses of the Exchange Offer will be amortized over the
term of the Senior Discount Notes.
29
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of March 31, 1997, the pro forma capitalization which gives effect to the
DIGEX Acquisition and the capitalization of the Company for both the Offering
and the Concurrent Offering. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto, the
Unaudited Pro Forma Condensed Consolidated Financial Statements and other
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------------------------------
PRO PRO FORMA PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2) AS ADJUSTED(3)
---------- --------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash
equivalents(4)............ $ 435,859 $ 304,051 $498,625 $ 665,725
========== ========= ======== ==========
Long-term debt (including
current maturities):
13 1/2% Senior Notes due
2005.................... $ 159,141 $ 159,141 $ -- $ --
12 1/2% Senior Discount
Notes due 2006.......... 200,114 200,114 200,114 200,114
11 1/4% Senior Discount
Notes due 2007.......... -- -- 374,785 374,785
Other long-term debt..... 96 13,717 13,717 13,717
Capital lease
obligations............. 5,129 5,129 5,129 5,129
---------- --------- -------- ----------
Total long-term debt... 364,480 378,101 593,745 593,745
---------- --------- -------- ----------
Series B redeemable
exchangeable preferred
stock due 2009............ 292,250 292,250 292,250 292,250
Series D junior convertible
preferred stock........... -- -- -- 167,100
Stockholders' equity:
Common stock and
additional paid-in
capital................. 210,081 230,081 230,081 230,081
Accumulated deficit...... (121,921) (121,921) (167,975) (167,975)
Deferred compensation.... (4,294) (4,294) (4,294) (4,294)
---------- --------- -------- ----------
Total stockholders'
equity.................... 83,866 103,866 57,812 57,812
---------- --------- -------- ----------
Total capitalization....... $ 740,596 $ 774,217 $943,807 $1,110,907
========== ========= ======== ==========
</TABLE>
- --------
(1) This column gives effect to the DIGEX Acquisition as if it had occurred on
March 31, 1997.
(2) This column gives effect to the DIGEX Acquisition and the Offering.
(3) This column gives effect to the DIGEX Acquisition, the Offering, the
Concurrent Offering, and the defeasance of the 13 1/2% Notes with the
estimated $46,000 loss on early extinguishment of debt which increases the
accumulated deficit.
(4) Excludes restricted cash.
30
<PAGE>
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 selected financial data presented below as of and for the
quarters ended March 31, 1996 and 1997 have been derived from unaudited
financial statements of the Company. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which consist only of
normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the full year.
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 1996 pro forma operating information gives
effect to the EMI, UTT, NetSolve and DIGEX acquisitions as if they occurred on
January 1, 1996. The 1997 pro forma operating information gives effect to the
DIGEX Acquisition as if it occurred on January 1, 1997. Both 1996 and 1997 pro
forma operating information give effect to the March 1997 sale of $300 million
of preferred stock, as if it occurred at the beginning of the respective
periods. 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 Prospectus.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PRO PRO
FORMA(1) FORMA(2)
YEAR QUARTER
ENDED QUARTER ENDED ENDED
YEAR ENDED DECEMBER 31, DECEMBER, 31 MARCH 31, MARCH 31,
--------------------------------------------- ------------ ----------------- ---------
1992 1993 1994 1995 1996 1996 1996 1997 1997
------- ------- ------- -------- -------- ------------ ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
Revenues.............. $ 7,030 $ 8,292 $14,272 $ 38,631 $103,397 $167,644 $13,503 $ 43,938 $ 52,679
Costs and Expenses:
Facilities
administration and
maintenance and line
costs................ 1,760 2,843 5,396 22,989 81,105 128,023 9,258 36,907 44,239
Selling, general and
administrative....... 2,607 3,893 6,412 14,993 36,610 59,597 5,920 19,526 27,036
Depreciation and
amortization......... 2,190 3,020 5,132 10,196 19,836 47,277 3,281 8,294 15,267
------- ------- ------- -------- -------- --------- ------- -------- --------
6,557 9,756 16,940 48,178 137,551 234,897 18,459 64,727 86,542
------- ------- ------- -------- -------- --------- ------- -------- --------
Income (loss) from
operations........... 473 (1,464) (2,668) (9,547) (34,154) (67,253) (4,956) (20,789) (33,863)
Other income (expense)
Interest expense..... (1,031) (844) (1,218) (13,767) (35,213) (36,779) (5,382) (11,089) (11,435)
Interest and other
income.............. 323 234 819 4,060 12,168 2,024 1,445 4,474 2,231
Income tax benefit... -- -- -- 97 -- -- -- -- --
------- ------- ------- -------- -------- --------- ------- -------- --------
Loss before
extraordinary item.. (235) (2,074) (3,067) (19,157) (57,199) (102,008) (8,893) (27,404) (43,067)
Extraordinary loss on
early extinguishment
of debt............. -- -- -- (1,592) -- -- -- -- --
------- ------- ------- -------- -------- --------- ------- -------- --------
Net loss.............. $ (235) $(2,074) $(3,067) $(20,749) $(57,199) $(102,008) $(8,893) $(27,404) $(43,067)
Preferred stock
dividends and
accretions........... (267) -- -- -- -- (41,340) -- (3,375) (10,335)
------- ------- ------- -------- -------- --------- ------- -------- --------
Net loss attributable
to common
stockholders......... $ (502) $(2,074) $(3,067) $(20,749) $(57,199) $(143,348) $(8,893) $(30,779) $(53,402)
======= ======= ======= ======== ======== ========= ======= ======== ========
Net loss per common
share:
Loss before
extraordinary item.. $ (.10) $ (.29) $ (.34) $ (1.91) $ (4.08) $ (9.87) $ (.86) $ (1.89) $ (3.28)
Extraordinary loss... -- -- -- (.16) -- -- -- --
------- ------- ------- -------- -------- --------- ------- -------- --------
Net loss............. $ (.10) $ (.29) $ (.34) $ (2.07) $ (4.08) $ (9.87) $ (.86) $ (1.89) $ (3.28)
======= ======= ======= ======== ======== ========= ======= ======== ========
Weighted average
number of shares
outstanding.......... 4,797 7,077 8,956 10,036 14,018 14,518 10,383 16,297 16,297
OTHER DATA:
Book value per common
share ............... 3.09 5.18 5.39 3.89 7.01 4.26 3.02 5.14 6.26
Ratio of earnings to
combined fixed
charges and preferred
stock dividends(3)... -- -- -- -- -- -- -- -- --
Earnings before
interest, income
taxes, depreciation
and amortization
("EBITDA")(4)........ $ 2,663 $ 1,556 $ 2,464 $ 649 $(14,318) $ (19,976) $(1,675) $(12,495) $(18,596)
Capital expenditures,
including
acquisitions of
businesses, net of
cash acquired........ $ 8,818 $10,486 $13,731 $ 31,915 $143,615 $ 309,391 $17,625 $ 33,333 $190,787
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NETWORK DATA:(5)
Buildings connected(6).... 161 234 293 380 487 387 1,157
Route miles............... 240 335 378 504 655 561 679
Fiber miles............... 6,184 10,239 11,227 17,128 24,122 20,541 29,841
Number of city-based
networks in service...... 4 5 6 9 9 9 9
ENHANCED DATA SERVICES:(5)
Nodes(7).................. -- 100 900 2,300 9,500 2,700 1,250
Cities(8)................. -- 37 336 600 2,200 700 2,500
Switches.................. -- 4 12 31 89 36 100
EMPLOYEES(5)............... 49 58 146 287 874 387 1,026
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
DECEMBER 31, MARCH 31, MARCH 31,(9)
----------------------------------------- --------- ------------
1992 1993 1994 1995 1996 1997 1997
------- ------- ------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents(10)....... $ 1,775 $27,954 $10,208 $ 50,997 $189,546 $435,839 $ 498,625
Working capital(11).... 8,999 25,712 9,588 70,353 206,029 448,890 455,983
Total assets........... 36,174 61,219 74,086 216,018 512,940 787,388 1,028,475
Long-term obligations
and redeemable
preferred stock
(including current
maturities)........... 11,742 11,614 16,527 165,545 358,508 656,730 885,995
Total stockholders'
equity................ 21,257 45,987 52,033 40,254 114,230 83,866 57,812
</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. The pro forma operating information also gives effect to the DIGEX
Acquisition and the March 1997 sale of $300 million of preferred stock.
2. The pro forma operating information gives effect to the DIGEX Acquisition
as if it occurred on January 1, 1997. The pro forma operating information
also gives effect to the March 1997 sale of $300 million of preferred
stock.
3. For purposes of calculating the ratio of earnings to combined fixed
charges and preferred stock dividends: (i) earnings consist of loss before
income taxes, plus fixed charges excluding capitalized interest and
preferred stock dividends and (ii) fixed charges consist of interest
expensed and capitalized, plus amortization of deferred financing costs,
preferred stock dividends, plus a portion of rent expense under operating
leases deemed by the Company to represent an interest factor plus
dividends on the Series B Preferred Stock. For the years ended December
31, 1992, 1993, 1994, 1995, and 1996 and the quarters ended March 31, 1996
and 1997 the Company's earnings were insufficient to cover combined fixed
charges and preferred stock dividends by $622, $2,288, $3,324, $19,931,
$59,978, $9,289 and $31,557, respectively. For the year ended December 31,
1996 and the quarter ended March 31, 1997, the Company's pro forma
earnings, after giving effect to the acquisitions described in Notes 1 and
2, above and the Offering were insufficient by $167,531 and $59,215,
respectively to cover pro forma combined fixed charges and preferred stock
dividends. For the year ended December 31, 1996 and the quarter ended
March 31, 1997 the Company's pro forma earnings, after giving effect to
the acquisitions and the sale of preferred stock described in Notes 1 and
2 above, the Offering and the Concurrent Offering, were insufficient by
$179,606 and $62,234 to cover pro forma combined fixed charges and
preferred stock dividends.
4. 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 Prospectus.
5. Amounts as reflected in the table are based upon information contained in
the Company's operating records.
6. Beginning in January 1997, the Company changed its definition of
"Buildings connected" to include buildings connected to the Company's
network via leased facilities controlled by the Company in addition to
those connected to the Company's network via facilities constructed by the
Company. The Company believes the new definition is consistent with
industry practice.
7. 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.
8. Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
9. Gives effect to the DIGEX Acquisition and the Offering. See
"Capitalization" for additional information on the Concurrent Offering.
10. Cash and cash equivalents excludes investments of $20,954, $26,675, and
$27,102 for the years ended December 31, 1995 and 1996 and the quarters
ended March 31, 1996 and 1997, respectively, restricted under the terms of
various notes and other agreements.
11. Working capital includes the restricted investments referred to in Note
10, above.
The Company's unaudited revenues, EBITDA, and net loss attributable to
common stock holders for the three months ended June 30, 1997 were
approximately $50.1 million, $(14.1) million and $(39.5) million,
respectively, as compared to $16.9 million, $(2.7) million and $(12.2)
million, respectively, for the three months ended June 30, 1996.
32
<PAGE>
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 incorporated
herein by reference.
OVERVIEW
Since its inception in 1987, the Company has experienced substantial growth.
Building from its original base in Florida, Intermedia now provides 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 2,500 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.
Intermedia competes with the ILECs and IXCs in its service territory and
offers a full range of voice and data telecommunications services.
Intermedia'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, Intermedia provided special access and private line
services to IXCs. In 1988, Intermedia was the first telecommunications service
provider in Florida to begin providing special access and private line
services to business customers. In 1991, Intermedia began offering integration
services in response to customers' needs and in 1992, Intermedia 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 Intermedia'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 and the first quarter of 1997. 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
33
<PAGE>
years. The continued expansion of the Company's networks in anticipation of
new customers and the marketing of services 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.
RECENT ACQUISITIONS
The Company believes that expanding its strong leadership position in
enhanced data services is fundamental to its success in capturing business
telecommunications market share. In pursuit of this strategy, on July 11,
1997, the Company consummated the final step in its acquisition of 100% of the
outstanding equity of DIGEX for a cash purchase price of approximately $155
million ($13 a share). DIGEX, headquartered in suburban Washington, D.C., is a
national ISP, which provides a comprehensive range of "industrial" strength
Internet solutions, including Internet connectivity, Web site management and
private network solutions, primarily to business and government customers. For
the quarter ended March 31, 1997, DIGEX's revenues were approximately $8.7
million and the combined pro forma revenues of DIGEX and the Company were
approximately $52.7 million for such quarter. DIGEX presently serves
approximately 2,000 customers in 50 metropolitan areas. DIGEX has
approximately 450 employees of which approximately one third are in sales and
marketing. The Company believes that the DIGEX Acquisition will enhance its
strategic position and provide cost savings opportunities. The strategic
benefits include: (i) expansion of the Company's service portfolio to include
nationwide business Internet connectivity, Web site management and private
network solutions; (ii) expansion of the Company's customer base with the
addition of approximately 2,000 new business and government customers; and
(iii) cross marketing of the expanded service portfolio to the combined
customer base. Cost savings opportunities include: (i) elimination of
redundant facilities on over 75% of DIGEX's network routes, which routes it
has in common with the Company; (ii) reduction of local access costs by
utilizing Intermedia's local networks and interconnection agreements; and
(iii) elimination of duplicative administrative costs. See "Risk Factors--
Class Action by DIGEX Stockholders."
On June 24, 1997, the Company purchased from Telco five long distance voice
switches and ancillary network equipment located in Atlanta, Chicago, Dallas,
Los Angeles and New York. Three of these switches will be upgraded to
local/long distance voice switches, consistent with the Company's planned
deployment of fifteen local/long distance voice switches by the end of 1997.
As part of the Telco Acquisition, the Company also acquired certain network
transport services for a three year period. The aggregate purchase price of
the Telco Acquisition was approximately $38 million which was substantially
included in the Company's planned capital expenditures for 1997. The Company
believes that the Telco Acquisition will allow the Company to more rapidly
deploy local/long distance voice switches in these markets and to do so at a
lower overall cost. In addition, the transport services acquired as part of
the Telco Acquisition will permit the Company to accelerate its deployment of
ATM in its intercity and intracity networks. Implementation of ATM will
facilitate additional enhanced data and voice services and network
efficiencies.
PLAN OF OPERATION
During the remainder of 1997 and beyond, the Company believes that its
growth will be balanced among its local exchange, long distance and enhanced
data services. In addition to anticipated internal growth, the DIGEX
Acquisition will substantially increase the Company's enhanced data services
offerings, particularly its Internet and Intranet offerings. 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, exclusive of the opportunities
provided by the DIGEX Acquisition.
In order to develop its businesses more rapidly and efficiently utilize its
capital resources, Intermedia 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
34
<PAGE>
driven basis in selected markets, Intermedia 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, Intermedia has continually introduced
new services. Due to these efforts, Intermedia'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) PRO FORMA(1)
YEAR ENDED QUARTER ENDED QUARTER ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
--------------------------- ------------ -------------- -------------
1994 1995 1996 1996 1996 1997 1997
-------- ------- -------- ------------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Customer revenue:
Non-IXCs................ 77% 90% 90% 91% 90% 92% 92%
IXCs.................... 23 10 10 9 10 8 8
-------- ------- -------- ------ ------ ------ ------
Total................... 100% 100% 100% 100% 100% 100% 100%
======== ======= ======== ====== ====== ====== ======
Number of customers
served (at end of
period)(2)............. 8,148 9,530 14,133 15,638 10,782 15,921 17,876
Revenue sources:
Local network
services............. 57% 28% 13% 8% 24% 12% 10%
Enhanced data
services............. 16 18 31 31 26 26 38
Interexchange
services............. 9 49 51 58 39 58 48
Integration services.. 18 5 5 3 11 4 4
-------- ------- -------- ------ ------ ------ ------
100% 100% 100% 100% 100% 100% 100%
======== ======= ======== ====== ====== ====== ======
</TABLE>
- --------
(1) Gives effect to the acquisitions of EMI, UTT, NetSolve and DIGEX as if
they had occurred at the beginning of the period presented.
(2) Excludes long distance customers for whom billings were less than $5.00.
35
<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) QUARTER PRO FORMA(1)
YEAR ENDED ENDED QUARTER
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ENDED
--------------------------- ------------ ------------- MARCH 31,
1994 1995 1996 1996 1996 1997 1997
------- ------- ------- ------------ ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100% 100% 100%
Facilities
administration and
maintenance and line
cost................... 37.8 59.5 78.4 76.4 68.6 84.0 83.9
Selling, general and ad-
ministrative........... 44.9 38.8 35.4 35.5 43.8 44.4 51.3
Depreciation and amorti-
zation................. 36.0 26.4 19.2 28.2 24.3 18.9 29.1
------- ------- ------- ----- ----- ----- -----
Operating loss.......... (18.7) (24.7) (33.0) (40.1) (36.7) (47.3) (64.3)
Interest expense........ (8.5) (35.6) (34.1) (21.9) (39.9) (25.3) (21.7)
Interest and other in-
come................... 5.7 10.5 11.8 1.2 10.7 10.2 4.2
Income tax benefit...... -- 0.2 -- -- -- -- --
------- ------- ------- ----- ----- ----- -----
Loss before extraordi-
nary item.............. (21.5) (49.6) (55.3) (60.8) (65.9) (62.4) (81.8)
Extraordinary loss on
early extinguishment of
debt................... -- (4.1) -- -- -- -- --
------- ------- ------- ----- ----- ----- -----
Net loss................ (21.5)% (53.7)% (55.3)% (60.8)% (65.9)% (62.4)% (81.8)%
======= ======= ======= ===== ===== ===== =====
</TABLE>
- --------
(1) Gives effect to the acquisitions EMI, UTT, NetSolve and DIGEX as if they
had occurred at the beginning of the period presented.
QUARTER ENDED MARCH 31, 1997 VS. QUARTER ENDED MARCH 31, 1996
The Company's revenue increased from $13.5 million for the first quarter of
1996 to $43.9 million for the same period of 1997. Revenues for each of the
product lines were as follows:
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH 31,
-----------
1996 1997 INCREASE
----- ----- --------
<S> <C> <C> <C>
Local network services................................ $ 3.2 $ 5.2 $ 2.0
Enhanced data services................................ 3.6 11.3 7.7
Interexchange services................................ 5.3 25.5 20.2
Integration services.................................. 1.4 1.9 0.5
----- ----- -----
$13.5 $43.9 $30.4
===== ===== =====
</TABLE>
The increase in revenue was derived principally from growth in the Company's
local network services, enhanced data services and interexchange services. The
inclusion of EMI contributed $13.9 million to the growth. The Company acquired
the telecommunications division of EMI in June 1996. The Company's annualized
monthly recurring revenue increased to $14.3 million at March 31, 1997 from
$3.9 million at March 31, 1996, an increase of 267%. 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 360% from approximately 2,700
at March 31, 1996 to approximately 12,500 at March 31, 1997. Monthly recurring
revenue in the backlog (booked sales that have yet to be installed) at March
31, 1997 was approximately $6.5 million annualized, a 4.5% increase from the
prior year. From March 31, 1996 to March 31, 1997, the number of fiber
36
<PAGE>
miles in the Company's networks increased from 20,541 to 29,841; route miles
increased from 561 to 679; and the number of customers served by Intermedia
increased from 10,782 to 15,921.
Total operating expenses increased 251% to $64.7 million for the first
quarter of 1997 compared to $18.5 million for the same period in 1996. The
increase was principally from the costs associated with the significant
expansion of the Company's owned and leased networks and the continued
expansion in personnel to sustain and support the Company's growth. Of the
increase, approximately $11.9 million was attributable to the inclusion of
EMI's operating results for the first quarter of 1997.
Network operations, facilities administration and maintenance and cost of
goods sold increased 297% to $36.9 for the first quarter of 1997, from $9.3
million for the same period in 1996. Of the increase, approximately $8.4
million was attributable to the inclusion of EMI's operating results in the
quarter ended March 31, 1997. In addition, increases in leased network
capacity associated with the growth in revenues, increases in maintenance
expense due to the network expansion, and increases in payroll expense
resulting from the hiring of additional engineering and operations staff
contributed to the change.
Selling, general and administrative expenses increased 230% to $19.5 million
for the first quarter of 1997 compared to $5.9 million for the same period in
1996. This increase was principally from the Company's continued growth and a
major increase in the sales, marketing, management information services and
customer service personnel, one time expenditures for employee recruitment,
relocation, training and increased commissions relating to the rise in
revenues for these periods. Of the increase, approximately $2.4 million was
attributable to the inclusion of EMI's operating results for the first quarter
of 1997.
Depreciation and amortization expenses increased 153% to $8.3 million for
the first quarter of 1997 compared to $3.3 million for the same period in
1996. This increase was principally from additions to telecommunications
equipment placed in service during 1996 and the first quarter of 1997,
relating to ongoing network expansion.
Interest expense increased 106% to $11.1 million for the first quarter of
1997 compared to $5.4 million for the same period in 1996. This increase
resulted from interest expense related to $330 million principal amount of
12.5% Notes issued in May 1996.
Interest and other income increased 210% to $4.5 million for the first
quarter of 1997 compared to $1.4 million for the same period in 1996. This
increase was the result of interest earned on the cash available from the
excess proceeds from May 1996 issuance of $330 million principal amount of
12.5% Notes, the May 1996 issuance of 4,674,503 shares of Common Stock at
$26.00 per share and the March 1997 issuance of 30,000 shares (aggregate
liquidation preference $300 million) of the Company's 13 1/2% Series A
Redeemable Exchangeable Preferred Stock due 2009 (the "Series A Preferred
Stock").
Net loss, before consideration of dividends payable with respect to the
Series A Preferred Stock, increased 208% to $27.4 million for the first
quarter of 1997 compared to $8.9 million for the same period in 1996. This
increase was due primarily to the increased operating expenses resulting from
the expansion of the network and increased interest costs.
Preferred stock dividends and accretions resulted from the March 1997
issuance of 30,000 shares of Series A Preferred Stock. The accretion for the
21 day period for which the Series A Preferred Stock was outstanding during
the first quarter of 1997 was immaterial for recognition.
EBITDA decreased 635% to $(12.5) million for the first quarter of 1997
compared to $(1.7) million for the same period in 1996. This decline was the
result of the acceleration in the deployment of Intermedia'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.
37
<PAGE>
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
Integration services................................. 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 Intermedia increased from 9,530 to 14,133.
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.
38
<PAGE>
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 12.5% Notes and the effect of a full year of interest expense on the June
1995 issuance of $160 million principal amount of the 13.5% Notes. Included in
the $35.2 million of interest expense for 1996 was $14.3 million of interest
on the 12 1/2% 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 12.5% Notes and the issuance of 4,674,503 common shares,
par value $.01 per share, 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 13.5% 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 13.5%
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 2.0%, respectively. This decline was the result of
the acceleration in the deployment of Intermedia'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.
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
Integration services.................................. 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
39
<PAGE>
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 Intermedia (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.
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 13 1/2% 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 13 1/2% 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 13 1/2% 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.
40
<PAGE>
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, $131.2 million and $32.9 million in 1994,
1995, 1996 and the first quarter of 1997, 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. In addition, following the first quarter of
1997 the Company utilized approximately $155.0 million of its available
capital to consummate the DIGEX Acquisition.
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
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.
In March 1997, the Company sold 30,000 shares of Series A Preferred Stock
(aggregate liquidation preference $300.0 million) in a private placement
transaction. Net proceeds to the Company amounted to approximately $288.9
million. On June 5, 1997, all of the outstanding shares of Series A Preferred
Stock were exchanged for 300,000 shares of Series B Preferred Stock (aggregate
liquidation preference $300.0 million) in a registered exchange offer.
In July 1997, the Company sold the Old Notes in the Offering, generating net
proceeds to the Company of approximately $375 million, and 6,900,000
Depositary Shares in the Concurrent Offering, generating net proceeds to the
Company of approximately $167 million.
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 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. As of March 31, 1997, the Company was certified as a CLEC in 19
states and the District of Columbia, allowing the Company to provide local
exchange services in those markets, and had CLEC certification applications
pending in 20 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 (of which $32.9 million had been utilized as of March 31, 1997),
which it expects to fund from its existing operations and cash on hand
(including the proceeds of the Offering and the Concurrent Offering). The
Company does not believe that the DIGEX Acquisition will have a material
impact on its capital expenditure requirements.
41
<PAGE>
The Company expects that its available cash, including proceeds from the
Offering and the Concurrent Offering, will be sufficient to fund its
accelerated and expanded capital deployment plan through 1999 and part of
2000. The Company expects to require additional financing to continue its
capital deployment plan in the year 2000. Depending on market conditions, the
Company may determine to raise additional capital before such time. 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, the Old
Notes and the Series B Preferred Stock impose, and the Senior Discount Notes
will 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
thereof is necessary to successfully implement its strategic plans.
42
<PAGE>
BUSINESS
INDUSTRY HISTORY
The present structure of the U. S. telecommunications market resulted
largely from the divestiture of the "Bell System" in 1984 (the "Divestiture").
As part of the Divestiture, seven RBOCs were created to offer services in
geographically defined areas called LATAs. The RBOCs were separated from the
long distance provider, AT&T, resulting in the creation of two distinct
industries: local exchange and interexchange (commonly known as long
distance). The Divestiture did not provide for competition in the local
exchange market; however, it did provide for direct open competition in the
long distance segment, as a consequence of which, new entrants, including MCI
and Sprint, now have captured approximately 47% of the business long distance
market. Nonetheless, several factors have served to promote competition in the
local exchange market, including (i) the ILECs' monopoly position and
regulated pricing structure, which provided little incentive for the ILECs to
reduce prices, improve service or upgrade their networks, (ii) customers'
desire for an alternative to the ILEC monopoly, which desire grew rapidly and
was spurred in part by the development of competitive activities in the long
distance market and increasing demand for high quality, reliable services,
(iii) the introduction of fiber optic and digital electronic technology (such
as ATM and SONET), which combined the ability to transmit voice and data at
high speeds with greatly increased capacity and reliability as compared to the
ILECs' copper-based networks and (iv) the significant fees, called "access
charges," IXCs were required to pay to the ILECs for access to the ILEC
networks.
Established in the mid-1980's, "competitive access providers" or "CAPs" were
among the first competitors in the local exchange market. CAPs provided non-
switched services (i.e., dedicated special access and private line) by
installing fiber optic facilities connecting IXCs' POPs within a metropolitan
area and, in some cases, connecting customers (primarily large businesses and
government agencies) with IXCs. CAPs used the substantial capacity and
economies of scale inherent in fiber optic cable to offer service that was
generally less expensive and of a higher quality than the ILECs. In addition,
CAPs offered shorter installation and repair intervals and improved service
reliability in comparison to the ILECs.
At the same time, large numbers of regional and/or national IXCs were formed
to compete with AT&T in the interexchange market. These IXCs generally fell
into two categories, facilities-based IXC's and non-facilities-based IXCs
(i.e., switchless resellers).
As CAPs proliferated during the latter part of the 1980's and early 1990's,
regulators in some states and at the federal level issued rulings which
favored competition and promoted the opening of markets to new entrants. These
rulings allowed CAPs to offer a number of new services, including, in certain
states, certain local network services.
In the late 1980's and early 1990's, CAPs could compete effectively only for
dedicated special access and private line services to customers in buildings
physically connected to separate, privately owned CAP networks. In the early
1990's, federal regulations permitted CAPs to interconnect their networks with
the ILEC networks at the ILEC central offices. CAPs then had the opportunity
to increase significantly the number of customers and markets served without
physically expanding their networks. By connecting to the ILEC central
offices, CAPs were able to use the extensive ILEC networks to reach additional
customers, thus conserving their own capital while significantly expanding
their potential markets.
By the summer of 1995, several states began opening their markets to local
exchange competition, thus permitting CAPs to become CLECs. On February 8,
1996, the 1996 Act was signed into law. The 1996 Act provides a framework by
which all states must allow competition for local exchange services. The
Company believes that the 1996 Act will benefit the Company by, among other
things, (i) increasing market access, (ii) requiring network interconnections,
(iii) establishing number portability and (iv) providing standards for
reciprocal compensation, unbundling of network elements and resale of ILEC
network services. The current federal law is intended to create incentives for
ILECs to facilitate access to their networks by CLECs in order to
43
<PAGE>
develop "meaningful competition" in the local exchange market. Under the 1996
Act, the RBOCs will not be permitted to provide interLATA service until they
have demonstrated compliance with the foregoing to the FCC. See "--Government
Regulation." The estimated market for telecommunications services in the
United States was approximately $165 billion in 1996.
This opening of the long distance and local exchange markets has also
coincided with a rapid expansion of Internet use. The Internet is a global
collection of computer networks that enables businesses, government agencies,
other institutional customers and individuals to communicate, access and share
information and conduct business remotely. Use of the Internet has grown
rapidly since the early 1990s, due in large part to increasing personal
computer and modem penetration, the development of the World Wide Web, the
introduction of easy-to-use navigational tools and utilities for the Web and
the availability of informational, entertainment and commercial applications.
Rapid technological advances relating to the Internet continue to occur,
resulting in a more robust, lower-cost infrastructure, improved security and
increased value-added services and content. IDC has estimated that the market
for internet services will reach approximately $18.3 billion in 2000, from
approximately $3.3 billion in 1996.
While there has been significant media interest in the use of the Internet
by consumers, business customers currently account for a more significant
percentage of Internet use. According to IDC approximately 71%, or $2.4
billion, of the $3.3 billion in total Internet service revenue generated in
1996 were attributable to corporate access, value-added, and wholesale
services. Internet capabilities, including corporate Internet sites, are
becoming an increasingly important part of doing business. According to
Netcraft, Ltd., the number of corporate Internet sites, defined as domain
names ending in ".com," has increased from approximately 4,912 in August 1995
to approximately 650,000 in June 1997.
Because Internet and corporate Intranet solutions are increasingly achieving
"mission critical" status, business customers are demanding advanced, highly
reliable solutions designed specifically for the needs of business.
Furthermore, as the use of the Internet expands, business customers are
requiring that providers offer a comprehensive range of services, including
connectivity, Web server hosting and security and other network products.
Finally, business customers often require knowledgeable and highly responsive
sales and customer service representatives in order to determine their optimal
Internet strategy quickly and to resolve any problems with their current
solutions.
The Company refers to itself as an ICP to distinguish itself from CLECs that
do not offer a full range of integrated telecommunications service offerings,
including long distance and enhanced data services.
THE COMPANY
Intermedia is a rapidly growing integrated communications services provider,
offering a full suite of local, long distance and enhanced data
telecommunications services to business and government end user customers,
long distance carriers, ISPs, resellers and wireless communications companies.
Founded in 1987, the Company is currently the third largest (based on
annualized telecommunications services revenues) among providers generally
referred to as CLECs after MFS Communications Company, Inc. and Teleport
Communications Group Inc. The Company has sales offices in 32 cities
throughout the eastern half of the United States and offers a full product
package of telecommunications services in 16 metropolitan statistical areas.
In April 1996, Intermedia became one of the first ICPs in the United States to
provide integrated switched local and long distance service and now has six
local/long distance voice switches in service and six long distance voice
switches in service, three of which the Company plans to upgrade to local/long
distance voice switches by the end of 1997. The Company provides enhanced data
services, including frame relay, ATM and Internet access services, primarily
to business and government customers (including over 100 ISPs), in
approximately 2,500 cities nationwide, utilizing 100 Company-owned data
switches. Intermedia also serves as a facilities-based interexchange carrier
to approximately 14,000 customers nationwide. Intermedia continues to increase
its customer base and network density in the eastern half of the United States
and is pursuing attractive opportunities to add additional services and expand
into complementary geographic markets. The total United States annual market
for the Company's
44
<PAGE>
local, long distance and enhanced data services is estimated to be
approximately $165 billion, of which the Company estimates that approximately
$34 billion will be addressable by the Company by the end of 1997.
The Company's annualized revenue based on the first quarter of 1997 (before
giving pro forma effect to the DIGEX Acquisition) was $175.8 million. See
"Prospectus Summary--Recent Developments." The Company's revenues have grown
from $14.3 million in 1994 to $103.4 million in 1996 and $43.9 million for the
first quarter of 1997. During the period January 1, 1994 through March 31,
1997, the Company has increased its sales force from approximately 45 to
approximately 200, increased the number of sales offices from four to 23 and
grown its customer base from 8,148 to 15,921. The Company has achieved a
significant milestone by introducing local exchange services in its product
portfolio and has positioned itself as a provider of integrated
telecommunications services to its customers by (i) obtaining CLEC
certification in 19 states and the District of Columbia (with 20 applications
pending), (ii) completing interconnection co-carrier agreements with six
ILECs, (iii) deploying five local/long distance voice switches and (iv)
deploying a total of 100 data switches, as of March 31, 1997.
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, Intermedia 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.
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 100
enhanced data switches and nearly 300 NNIs for frame relay data transmission
throughout the continental United States and (v) its interconnection co-
carrier agreements with six ILECs.
In addition to its CLEC certifications, as of March 31, 1997 Intermedia was
certified as a long distance carrier in 45 states and the District of
Columbia. The Company has nine digital, fiber optic networks in service and
one under development. As of March 31, 1997, this infrastructure was comprised
of 29,841 fiber miles and 679 route miles and was connected to 1,157
buildings. As of March 31, 1997, Intermedia had invested $274.4 million (or
68% of its total invested capital) in gross plant, property and equipment,
principally telecommunications equipment. Intermedia 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 and Internet services. As a result,
frame relay nodes have grown from approximately 2,700 nodes, serving customer
locations in 700 cities as of March 31, 1996, to approximately 12,500 nodes,
serving customer locations in 2,500 cities as of March 31, 1997.
45
<PAGE>
Enhanced data services, such as those provided on the Company's frame
relay/ATM network, are specialized connectivity, management and applications
services designed for customers with data intensive telecommunication needs.
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, Intermedia is
currently the fifth largest national provider of frame relay networking
services (based on number of nodes) after AT&T, MCI, Sprint and 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.
Intermedia 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 Intermedia'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.
Intermedia 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. Nearly 300 such NNIs have been implemented with
BellSouth, Sprint, GTE, NYNEX, Bell Atlantic and Southern New England
Telecommunications Corp.
The Company recently acquired 100% of the outstanding equity of DIGEX, a
national ISP. As a result of the DIGEX Acquisition, the Company is one of
fewer than approximately 15 national ISPs with full peering and extensive
expertise in internet protocol ("IP") network development and operation. DIGEX
currently provides (1) Internet connectivity and fault tolerant network to
commercial customers in 50 metropolitan areas, (2) Web site management
services to businesses whose Web sites perform mission critical functions and
(3) turnkey wholesale service offerings to other telecommunications providers
to facilitate the extension of product lines. The Company operates a national
Internet network comprised of bi-directional DS-3s and an OC-12 ring and the
world's largest dedicated server Web site management facility.
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 Intermedia 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
frame relay network, 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.
46
<PAGE>
CUSTOMER STRATEGY
Provide Single-Source Telecommunications Services. The Company's service
portfolio includes: local exchange, enhanced data (i.e., frame relay and ATM,
Internet, Intranet and Web site management), 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. Intermedia 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.
Intermedia 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). In addition, the Company was recently awarded a contract to provide
Internet services to the State of New York.
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, Intermedia has
accelerated its entry into the local exchange services market. As 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
Intermedia 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 Intermedia 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 Intermedia to achieve
greater market share and reach new market segments more rapidly than it could
otherwise. The Company 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. Intermedia has recently established a
preferred vendor relationship with Cable & Wireless, Inc., which includes the
resale of Intermedia'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 Intermedia's top 42 customers as of December 31, 1994
(representing approximately 68% of Intermedia's billings for the month of
December 1994) had increased their aggregate billings in excess of 100% for
the month of December 1996. At December 31, 1996, 37 of these 42 customers
were still customers of Intermedia and, in the aggregate, represented
approximately 17% of Intermedia'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
Intermedia'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.
47
<PAGE>
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. Since January 1, 1996, Intermedia has
increased the number of its sales offices by 20 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 Intermedia 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 Intermedia'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. Intermedia 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 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. Intermedia now provides
originating and terminating transport services in 45 states and maintains POPs
for interexchange and enhanced data services in most major cities in the
United States. As a result of the DIGEX Acquisition, the Company has peering
relationships with other ISPs at six U.S. peering points. The Company has
deployed, and continues to integrate, network monitoring and control tools to
insure high levels of service quality and reliability.
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 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 Intermedia'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
48
<PAGE>
believes will provide it with the highest revenue and cash flow potential and
the greatest long-term competitive advantage. For the 12 months ended March
31, 1997, the Company recorded $.69 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's internal revenue growth
rate for the quarter ended March 31, 1997 over the quarter ended March 31,
1996, was 81%. The Company believes that its customer and network strategies
will continue to enable Intermedia 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 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 six 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 integrated services in 23
metropolitan areas by the end of 1997.
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, Intermedia 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.
49
<PAGE>
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.
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
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 Intermedia's A business customer uses
switch, providing full, Intermedia's voicemail service to
personalized answering service avoid the cost and upkeep on an
for a business customer. answering 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. Intermedia'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>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
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 Intermedia's enhanced data finance and accounting, one for
network. 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
Intermedia'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>
50
<PAGE>
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
- ------------------ ----------- -------------------
<S> <C> <C>
ViewSPAN Allows customers to monitor Customer monitors end to end
data traffic across frame relay service data
Intermedia's network and throughput for traffic that flows
certain data networks of other through Intermedia's frame relay
carriers. network and those of a ILEC and
IXC.
</TABLE>
Internet and Intranet Services. Intermedia offers access to the Internet and
provides additional services that utilize the Internet via its frame relay
network. Examples of these services (whose scope and features will be
significantly enhanced as a result of the recent DIGEX Acquisition) are listed
below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
Business Internet Full time connection of a A business provides Internet
Connectivity business LAN to the Company's connectivity to its employees for
network. e-mail and Web access.
Web Site Management Deploy, manage, and provide A business wishes to outsource
high-speed connectivity to the connectivity and site
customer-dedicated Internet management requirements
servers containing mission- associated with a complex Web
critical Web presences. presence used to enhance and
streamline communications and
transactions with customers and
suppliers.
Intranet Service Private equivalent of the Intermedia provides a large
Internet. corporation 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 Intermedia customer of local
calls originated by Intermedia exchange services makes a "1+"
customers. call, domestic or international,
which is processed and delivered
to its destination by the
Intermedia network as part of an
integrated local/long distance
service package.
Inbound Long Distance "800" or "888" number service. An Intermedia customer receives
"toll free" calls, handled over
Intermedia-provided dedicated
lines to the customer, or over
the customer's Intermedia local
exchange service lines.
Calling Card Nationwide long distance An Intermedia customer dials a
calling without cash. nationwide 800 number, and
completes a long distance call
using the Intermedia calling
card; billing is aggregated with
the customer's other services.
</TABLE>
51
<PAGE>
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 Intermedia
connects a customer to an IXC orders a special access circuit
for the purpose of delivering to one of its customers in an
long distance calls to the Intermedia city.
IXC--does not carry local
traffic.
Interexchange Private An inter-city private line, for An Intermedia customer needs a
Line voice or data, of a fixed 1.544 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 Intermedia
office of an ILEC or CLEC. needs 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 Intermedia.
Examples are listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
- ------------------ ----------- -------------------
<S> <C> <C>
CPE Integration Provision, configuration, Intermedia designs a router-based
installation, and monitoring of data network for a customer,
specialized telecom equipment. procures, configures, installs
and maintains both hardware and
software for the customer,
packaged into a single service
invoice.
Campus LAN Construction of a private fiber Intermedia designs, constructs
network. and optionally monitors a private
fiber "loop" built on a campus of
buildings.
Design Service Provision of engineering Intermedia provides hardware and
services in support of a software engineering services to
customer application. support a customer's Internet
"web" site.
</TABLE>
52
<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(3)............................. 65,200
--------
Total Additional Services......................... 66,500
--------
Total Market Size............................... $165,000
========
</TABLE>
- --------
(1) As of July 30, 1997, the Company is permitted to offer these services in
Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland,
Massachusetts, Mississippi, Nevada, New York, North Carolina,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Wisconsin
and Washington, D.C. and had applied for certification to offer these
services in 21 additional states.
(2) Other includes revenue from pay phones, billing services and intraLATA
calling services.
(3) As of July 30, 1997, the Company is permitted to offer these services in
the District of Columbia and in all states except Minnesota.
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. As of July 30, 1997, Intermedia had obtained all
certifications necessary to permit the Company to provide local exchange
service in 27 states and the District of Columbia and is in the process of
obtaining the necessary certifications in 21 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 by the end of 1997 its addressable market,
computed under this methodology, will be approximately $34 billion. Investors
should not place undue reliance on this information in making an investment
decision with respect to the securities offered hereby.
Intermedia'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
53
<PAGE>
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 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 and in the first quarter of 1997 local network services
accounted for approximately 13% (or approximately $13.5 million) and 12% (or
approximately $5.2 million), respectively, 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 Intermedia 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 Intermedia'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 Intermedia's network, many of these
customers connect to other users or Internet hosts without ever leaving
Intermedia's network. Over 100 ISPs utilize Intermedia's network for access to
their customers and other Internet sites.
In 1996 and in the first quarter of 1997 the Company's enhanced data
services accounted for approximately 31% (or approximately $31.7 million) and
26%, (or approximately $11.3 million) respectively, 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 45 states, interstate long distance services nationwide
and international termination worldwide. In 1996 and in the first quarter of
1997 the Company's long distance services accounted for approximately 51% (or
approximately $53.1 million) and 58% (or approximately $25.5 million),
respectively, of the Company's total revenues.
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
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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.
The Company plans to continue to expand its domestic geographic reach and
geographic density 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. Intermedia
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 Intermedia'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
Intermedia's marketing efforts focus on business and government entities.
The Company's current customers include large industrial and retail firms,
financial services companies, state government agencies and departments, and
large academic and scientific organizations. The Company also serves a broad
range of small to medium sized businesses, and numerous IXCs.
Intermedia possesses a unique targeted marketing approach. As Intermedia
enters a market, the sales force has clearly defined geographic boundaries
within which it is economical to be a provider of service. Intermedia's sales
force is compensated with higher incentives when they sell within these higher
margin zones.
Intermedia's marketing is organized around its three major service
categories, local exchange, enhanced data and long distance. Integration
services are offered in support of all three categories. The Company expects
DIGEX's services to be marketed as part of and become a major component of the
Company's enhanced data services category.
The Company's marketing and sales strategy is to build long-term business
relationships with customers by providing a full range of service offerings,
leveraging one or two of the Company's three major service categories into a
broad relationship, in which Intermedia becomes the single source provider of
all the customer's telecommunications services. For example, during 1996 the
Company created approximately 2,800 new long distance customer relationships
that now are targeted for follow-on sale of local exchange, enhanced data, and
Internet services.
The Company's sales efforts utilize a broad range of strategies including
direct sales to end users and carriers, indirect sales through various channel
partners and, following the recent DIGEX acquisition, targeted telemarketing.
The Company's direct end-user sales force is composed of three major groups:
. Account Executives and Account Managers--whose focus is small to medium-
sized companies whose initial service offering is generally local and
long distance voice.
. Major Account Managers--whose focus is medium sized companies with both
voice and enhanced data service needs.
. National Account Managers--whose focus is on the largest, multi-location
companies whose interests usually begin with the Company's enhanced data
services.
In addition to the three end user sales groups, the Company has created
other specialized sales forces that focus on:
. Public sector markets, particularly state governments and their
agencies.
. Interexchanges carriers and other carriers.
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. Value-added resellers and other wholesalers.
. Internet connectivity.
All of the Company's sales groups are backed by highly experienced technical
personnel, including sales engineers and project managers, who are deployed
throughout the Company's service territory.
The Company's service delivery staff is organized around the delivery of
total solutions to each customer. This includes the proper coordination of
service components provided by supporting vendors, the preparation of the
customers' site, if needed, and the total installation, testing, and delivery
to the customer of the service solution. Thereafter, the Company monitors and
maintains the quality and integrity of the service through its customer service
and technical support staff, available 24 hours per day, 365 days per year.
Services are monitored at locations in Tampa, Florida, Albany, New York, and
suburban Washington, DC.
Information systems are vital components in Intermedia's service delivery
process. To support all its network services, the Company has implemented
automated ordering, provisioning, operations, and billing systems, as steps in
a comprehensive systems restructure that the Company believes will provide both
customers and the Company the benefits of a flexible unified information
systems structure. This structure will allow the Company to interface with both
standards-based and proprietary systems used by ILECs, IXCs, and other
providers, integrating these into a single data repository.
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
acquisitions of FiberNet, EMI, NetSolve and DIGEX and its acquisition of
certain assets from Telco.
In those markets where Intermedia 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 Intermedia 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.
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Intermedia'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.
Intermedia 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, Intermedia also utilizes
certain wireless technologies as a part of its provision of services.
Intermedia 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, Intermedia 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.
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 Intermedia'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, Intermedia's research and development expenditures
are not material.
COMPETITION
The Company faces intense competition in each of its three service
categories--local services, enhanced data 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
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position to offer single source service similar to that being offered by
Intermedia. 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 Intermedia. 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 integration services which are 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 Intermedia.
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. Intermedia 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 presently serves. At least two of these competitors,
WorldCom and Teleport, have entered or announced plans to enter a number of
Intermedia's service areas. Intermedia also understands that other entities
have indicated their desire to enter the local exchange services market within
specific metropolitan areas served or targeted by Intermedia.
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, other ISPs and others. In
particular, the market for Internet services is extremely competitive and
there are limited barriers to entry. Many of the Company's existing and
potential competitors have financial 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,
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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.
As a result of the DIGEX Acquisition, the Company will compete with other
ISPs on the basis of service quality, technical acumen, and customer-
responsiveness, facilitated by a highly-focused, business unit-based
organizational structure.
Many of the ILECs now offer services similar to Intermedia's enhanced data
services, but are allowed to offer them only on an intraLATA basis. While the
ILECs generally cannot interconnect their frame relay networks with each
other, Intermedia has interconnected its frame relay network with those of
various ILECs. As a result, Intermedia 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. Intermedia 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 Intermedia. As part of its
various interconnection agreements, Intermedia 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.
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
Intermedia. In providing interexchange services, the Company focuses on
quality service and economy to distinguish itself in a very competitive
marketplace. Intermedia 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.
Integration Services. The Company faces competition in its integration
services 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 integration services revenues and
because the Company typically provides integration services to customers who
purchase other services of the Company, Intermedia's integration services
competitors should not pose a significant threat to Intermedia'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 Intermedia is unable to predict.
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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, the
RBOCs and other ILECs 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. In October 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 Intermedia
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. The FCC also has issued an order, subject to appellate review,
which allows providers of interstate exchange access services, other than
ILECs, the option to cease filing tariffs. The FCC has tentatively concluded
that complete detariffing of exchange access services would serve the public
interest and has sought comment on the issue.
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 Intermedia 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. On July 18, 1997, the Eighth Circuit Court issued its final decision,
which vacated the FCC's pricing and "most favored nation" rules, and certain
other interconnection rules promulgated by the FCC. This decision is expected
to be appealed to the Supreme Court of the United States of America.
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
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service upon demonstrating to the FCC and state regulatory agencies that they
have adhered to the FCC's interconnection regulations. To date, ILECs in two
states have filed applications for in-region long distance authority with the
FCC--Ameritech Corporation in Michigan, and Southwestern Bell Corporation in
Oklahoma. The Southwestern Bell Corporation petition has been rejected by the
FCC and the Ameritech Corporation petition currently is pending FCC review. In
addition, ILECs in a number of other states have asked state regulatory
commissions to evaluate their petitions for in-region long distance authority,
in anticipation of filing similar applications with the FCC. 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. As
of July 30, 1997, Intermedia had obtained certification to provide local
service in 21 states and the District of Columbia and had applications pending
for local certification in 21 additional states. The Company is also
authorized to provide long distance service in the District of Columbia and 49
states. In addition, the Company has successfully negotiated interconnection
agreements that meet the interconnection provisions contained in the 1996 Act
with seven LECs. 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 applied "streamlined" tariff regulation to the ILECs, 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 response to competition. Similarly, the FCC is
expected to release an order later this year 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.
On May 8, 1997, in compliance with the requirements of the 1996 Act, the FCC
released an order establishing new Universal Service support funds, which
provide subsidies to carriers that provide service to under-served individuals
and customers in high cost areas, and to companies that provide
telecommunications services and wiring for schools and libraries. The Company
has to pay a contribution into the Universal Service fund, but may also obtain
subsidies for services that it provides. The new Universal Service rules will
be administered jointly by the FCC and state regulatory authorities, many of
which are still in the process of establishing their administrative rules. The
net revenue effect of these regulations on the Company cannot be determined at
this time.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. The Company's analysis of the FCC's order leads it to believe that
the FCC's new access charge rules do not adversely affect the Company's
business plan, and that they do in fact present significant new opportunities
for new entrants, including the Company. Aspects of the order may be changed
in the future. At least three parties have filed appeals with federal courts,
and numerous parties are expected to ask the FCC to reconsider portions of its
new rules.
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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. As of July 30, 1997, the Company was certificated (or
certification was not required) in 49 states and the District of Columbia to
provide toll services and was seeking certification in the one remaining
state. As of July 30, 1997, the Company was certified as a CLEC in 27 states
and the District of Columbia and was seeking CLEC certification in 21
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.
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 Intermedia. 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.
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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 Ameritech, BellSouth, NYNEX, SBC,
GTE, Sprint and Bell Atlantic. As of July 30, 1997, the Company is arbitrating
terms for transport and termination of frame relay services with Ameritech in
Indiana and Ohio. On July 2, 1997, the Company filed to withdraw its
arbitration petition in Illinois as a result of a settlement reached with
Ameritech, and expects to take similar action in Ohio and Indiana in the near
future. 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
relationships with its lessors are satisfactory. Certain of the Network
Agreements require Intermedia 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. Intermedia, 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.
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UniSPAN (C). In order to provide end-to-end connectivity and
interoperability throughout the United States to its enhanced data services
customers, Intermedia entered into a frame relay service agreement (the
"UniSPAN Agreement") in September 1994 with EMI (since acquired by
Intermedia), 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 March 31, 1997, Intermedia employed a total of 1,026 full-time
employees. The Company anticipates that the number of employees will increase
significantly throughout the remainder of 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. Intermedia 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 Intermedia's employees is represented by a collective
bargaining agreement. Intermedia believes that its relations with its
employees are good.
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 March 31, 1997, the Company's total telecommunications and equipment
in service consisted of fiber optic telecommunications equipment (62%), fiber
optic cable (18%), furniture and fixtures (2%), leasehold improvements (3%)
and construction in progress (15%). 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 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
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
<S> <C>
1997................................................................ 32,924
</TABLE>
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LEGAL PROCEEDINGS
Except as described below, 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.
On June 20, 1997, two purported class action complaints were filed in the
Court of Chancery of the State of Delaware in and for New Castle County
respectively by TAAM Associates, Inc. and David and Chaile Steinberg (the
"Complaints"), purported stockholders of DIGEX, on behalf of all non-
affiliated common stockholders of DIGEX, against Intermedia, DIGEX and the
directors of DIGEX (the "DIGEX Directors"). The Complaints allege that the
DIGEX Directors violated their fiduciary duties to the public stockholders of
DIGEX by agreeing to vote in favor of the Merger and that Intermedia knowingly
aided and abetted such violation by offering to retain DIGEX management in
their present positions and consenting to stock option grants to certain
executive officers of DIGEX. The Complaints seek a preliminary and permanent
injunction enjoining the Merger and cash damages from the DIGEX Directors. No
application was made for a preliminary injunction prior to the consummation of
the Merger.
These cases are in their very early stages and no assurance can be given as
to their ultimate outcome. Intermedia, after consultation with its counsel,
believes that there are meritorious factual and legal defenses to the claims
in the Complaints. Intermedia intends to defend vigorously the claims in the
Complaints.
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MANAGEMENT
The directors and executive officers of Intermedia, their respective ages,
positions and biographies, as of June 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David C. Ruberg....... 51 Chairman of the Board, President and Chief Executive
Officer
Robert A. Rouse....... 48 Executive Vice President, Operations, Engineering
and Information Systems
James F. Geiger....... 38 Senior Vice President, Sales
Robert M. Manning..... 37 Senior Vice President, Chief Financial Officer
Robert A. Ruh......... 52 Senior Vice President, Human Resources
Barbara L. Samson(1).. 35 Senior Vice President, Public Relations and Public
Affairs
Michael A. Viren...... 56 Senior Vice President, Strategic Planning,
Regulatory and Industry Relations
Patricia A. Kurlin.... 42 Vice President, Corporate Counsel
Jeanne M. Walters..... 35 Controller and Chief Accounting Officer
John C. Baker......... 47 Director
Philip A. Campbell.... 60 Director
George F. Knapp....... 65 Director
</TABLE>
- --------
(1) Commencing April 1, 1997, Ms. Samson has been on a sabbatical leave in
order to chair the Florida NetDay 2000 program.
David C. Ruberg has served as President, Chief Executive Officer and a
director of the Company since May 1993, and as Chairman of the Board since
March 1994. From September 1991 to May 1993, Mr. Ruberg was an independent
consultant to the computer and telecommunications industries. From 1989 to
September 1991, Mr. Ruberg served as Vice President and General Manager of the
Telecommunications Division and then of the Personal Computer/Systems
Integration Division of Data General Corporation, a computer manufacturer.
From 1984 to 1989, Mr. Ruberg served as a Vice President of TIE
Communications, Inc., a manufacturer of telecommunications equipment. Mr.
Ruberg received his B.A. in mathematics from Middlebury College and his M.S.
in computer science from the University of Michigan.
Robert A. Rouse has served as Executive Vice President, Operations and
Systems of the Company since October 1996. Prior to joining the Company, Mr.
Rouse was Senior Vice President of Concert, a joint venture company of British
Telecommunications and MCI where he managed the engineering and operations of
the Concert Global Networks from 1991 to 1996. Mr. Rouse held various
executive management positions at MCI from 1986 to 1991, with responsibilities
including product and network design, network and systems development, network
planning, operations, provisioning, and customer services. Prior to that, he
managed several subsidiaries of Rochester Telephone, now a part of Frontier
Corporation. Mr. Rouse received his B.A. from the University of Rochester.
James F. Geiger has served as Senior Vice President, Sales of the Company
since August 1995. Mr. Geiger served as the Vice President of Alternate
Channel Sales of Intermedia from March 1995 through August 1995. Mr. Geiger
was one of the founding principals of FiberNet, and was serving as President
of FiberNet when it was acquired by Intermedia. From April 1989 to April 1990,
Mr. Geiger served as Director of Marketing for Associated Communications, a
cellular telephone company. Mr. Geiger received his B.S. degree from Clarkson
University in accounting.
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<PAGE>
Robert M. Manning has served as Senior Vice President, Chief Financial
Officer of the Company since September 1996. Mr. Manning joined Intermedia
from DMX Inc., a Los Angeles-based cable programmer, where he was Executive
Vice President, Senior Financial Executive and a director of DMX-Europe from
October 1991 to September 1996. Prior to his tenure at DMX, Mr. Manning spent
ten years in the investment banking field in corporate finance and mergers and
acquisitions, most recently with Oppenheimer and Co., Inc. as Vice President,
Corporate Finance, managing their Entertainment/Leisure Time Group from
October 1988 to October 1991. Mr. Manning is a graduate of Williams College,
Williamstown, Massachusetts.
Robert A. Ruh has served as Senior Vice President, Human Resources of the
Company since March 1, 1996. From January 1991 through February 1996, Dr. Ruh
founded and operated his own consulting company, specializing in human
resource development. Prior to starting his own business, from 1975 to 1990,
Dr. Ruh held corporate and group executive positions in human resources with
Baxter Healthcare Corporation and American Hospital Supply Corporation. From
1973 to 1975, Dr. Ruh served as a consulting psychologist for Medina and
Thompson, Inc., providing clients with assistance on executive assessment,
selection and development. From 1970 to 1972, Dr. Ruh was on the corporate
organization development staff at Corning Glass Works. Dr. Ruh received a B.A.
in psychology from Valparaiso University in 1966. He received an M.A. (1967)
and a Ph.D. (1970) in industrial/organizational psychology from Michigan State
University. Dr. Ruh served as Assistant Professor of Psychology at Michigan
State University from 1970 to 1972.
Barbara L. Samson, a co-founder of the Company, has served as a Vice
President since June 1987, and as a Senior Vice President since October 1992.
She served as President of the Company's predecessor from September 1986 to
June 1987. Ms. Samson recently served two terms as Chairman of the Association
of Local Telecommunications Services (ALTS), a national trade association. Ms.
Samson received her B.S. degree in telecommunications from the University of
Florida and her M.B.A. degree from the University of South Florida.
Michael A. Viren has served as Senior Vice President, Strategic Planning,
Regulatory and Industry Relations of the Company since October 1996. Prior to
his present position, he was Senior Vice President, Engineering and
Information Systems of the Company from January 1996 to October 1996 and was
Vice President, Product Development of the Company from December 1992 through
January 1996. Dr. Viren joined Intermedia in February 1991 as Director of
Product Development. Dr. Viren worked for GTE from August 1986 to February
1991 as a specialist in wide and local area networking. Prior to that he
operated his own consulting firm concentrating in WAN and LAN design; was
Senior Vice President of Criterion, Inc., an economic consulting firm in
Dallas, Texas; and served as the Director of the Utility Division of the
Missouri Public Service Commission. Dr. Viren taught economics for ten years,
most recently as an Associate Professor of Economics at the University of
Missouri-Columbia and prior to that at the University of Kansas. Dr. Viren
received a Ph.D. in economics from the University of California-Santa Barbara
and a B.S. in mechanical engineering from the California State University at
Long Beach.
Patricia A. Kurlin has served as Vice President, Corporate Counsel of the
Company since June 1996. From September 1995 until June 1996, Ms. Kurlin
served as Corporate Counsel and served as Director of Governmental and Legal
Affairs for the Company from September 1993 to September 1995. Prior to
joining the Company, Ms. Kurlin served as Senior Telecommunications Attorney
at the Florida Public Service Commission from May 1990 to September 1993. Ms.
Kurlin received her J.D. from the Florida State University and a B.S. degree
from the University of South Florida.
Jeanne M. Walters has served as Controller and Chief Accounting Officer of
the Company since May 1993. From November 1992 until May 1993 she served as
Assistant Controller. From June 1988 to November 1992, Ms. Walters was an
auditor at Ernst & Young LLP, a certified public accounting firm in Tampa,
Florida. Ms. Walters received her B.S. in accounting and an M.B.A. from Wilkes
University. She is licensed in the State of Florida as a certified public
accountant.
John C. Baker has been a director of the Company since February 1988. Mr.
Baker has been the principal at Baker Capital Corp., a private equity
investment firm, since October 1995. He was a Senior Vice President of
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Patricof & Co. Ventures, Inc., a multi-national venture capital firm from 1988
until September 1995. Mr. Baker is currently a director of Xpedite Systems,
Inc., FORE Systems, Inc. and Resource Bancshares Mortgage Group, Inc., all of
which are publicly traded corporations.
Philip A. Campbell has been a director of the Company since September 1996.
Mr. Campbell retired from Bell Atlantic as director, vice chairman and chief
financial officer in 1991. Previously, he was president of New Jersey Bell,
Indiana Bell and Bell Atlantic Network Services. While at Bell Atlantic, Mr.
Campbell was the company's principal representative to Wall Street and is well
known in the domestic and international financial communities. Mr. Campbell is
currently a director of Xpedite Systems, Inc., a publicly traded corporation.
George F. Knapp has been a director of the Company since February 1988. He
has been a principal of Communications Investment Group, an investment banking
firm, since June 1990. From January 1988 until June 1989, Mr. Knapp was an
associate at MBW Management, Inc., a venture capital firm. Prior to that time,
he held various executive positions at ITT Corporation and its subsidiaries,
most recently as Corporate Vice President of ITT Corporation. Mr. Knapp is
currently a member of the Manhattan College Board of Trustees and Chairman of
its Finance Committee.
No family relationship exists between any of the directors and executive
officers of the Company.
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<PAGE>
DESCRIPTION OF OUTSTANDING INDEBTEDNESS
In addition to the Old Notes, the Company has outstanding the following
indebtedness:
13 1/2% NOTES
As of March 31, 1997, the Company had outstanding an aggregate principal
amount of $159,115,000 of 13 1/2% Series B Senior Notes due 2005. The 13 1/2%
Notes mature on June 1, 2005 and pay interest semi-annually in arrears on June
1 and December 1 of each year. The 13 1/2% Notes may be redeemed at the
Company's option at any time after June 1, 2000 upon payment of the redemption
price plus accrued and unpaid interest, if any, to the date of redemption. The
13 1/2% Notes are secured, in an amount sufficient to provide payment in full
of the scheduled interest payments on such notes through June 1, 1998, by a
pledge of United States government securities. In the event of a change of
control of the Company, holders of the 13 1/2% Notes have the right to require
the Company to purchase their 13 1/2% Notes, in whole or in part, at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
On April 26, 1996 the Company and SunTrust Bank, Central Florida, National
Association, as trustee, executed an amended and restated indenture governing
the 13 1/2% Notes. The 13 1/2% Notes Indenture contains certain covenants
that, among other things, limit the ability of the Company and its
subsidiaries to make certain restricted payments, incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase equity interests or subordinated indebtedness,
engage in sale and leaseback transactions, create certain liens, enter into
certain transactions with affiliates, sell assets of the Company or its
subsidiaries, conduct certain lines of business, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations. In addition, under certain circumstances, the Company is
required to offer to purchase 13 1/2% Notes at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, with the proceeds of certain asset sales. This description
of the 13 1/2% Notes is intended as a summary and is qualified in its entirety
by reference to the 13 1/2% Notes Indenture.
A portion of the proceeds of the Offering was used to defease or otherwise
retire the 13 1/2% Notes.
12 1/2% NOTES
The Company had outstanding an aggregate principal amount of $330,000,000 of
12 1/2% Senior Discount Notes due 2006, with an aggregate accreted value of
$200,114,000 as of March 31, 1997. The 12 1/2% Notes were issued at a
substantial discount from their principal amount and mature on May 15, 2006.
Cash interest does not accrue on the 12 1/2% Notes prior to May 15, 2001.
Commencing November 15, 2001, cash interest on the 12 1/2% Notes will be
payable semi-annually in arrears on May 15 and November 15 of each year at a
rate of 12 1/2% per annum. The 12 1/2% Notes may be redeemed at the Company's
option at any time, in whole or in part, on or after May 15, 2001 upon payment
of the redemption price plus accrued and unpaid interest, if any, to the date
of redemption. The 12 1/2% Notes are unsecured obligations of the Company
ranking pari passu in right of payment of principal and interest with all
other existing and future senior indebtedness of the Company, including the 13
1/2% Notes and the Senior Discount Notes, and rank senior to any future
subordinated indebtedness. In the event of a change of control of the Company
prior to May 15, 2001, holders of the 12 1/2% Notes have the right to require
the Company to repurchase their 12 1/2% Notes, in whole or in part, at a price
equal to 101% of the accreted value thereof or, in the case of any such
purchase on or after May 15, 2001, at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase.
The covenants in the 12 1/2% Notes are substantially similar to the
covenants in the Indenture governing the Senior Discount Notes. The 12 1/2%
Notes Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to make certain restricted
payments, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter
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<PAGE>
into certain transactions with affiliates, sell assets of the Company or its
subsidiaries, conduct certain lines of business, issue or sell equity
interests of the Company's subsidiaries or enter into certain mergers and
consolidations. In addition, under certain circumstances, the Company is
required to offer to purchase 12 1/2% Notes at a price equal to 100% of the
accreted value thereof, if such circumstances occur prior to May 15, 2001, or
at 100% of the principal amount thereof, if such circumstances occur on or
after May 15, 2001, plus accrued and unpaid interest, if any, to the date of
purchase with the proceeds of certain asset sales. This description of the 12
1/2% Notes is intended as a summary and is qualified in its entirety by
reference to the 12 1/2% Notes Indenture.
CAPITAL LEASE OBLIGATIONS
As of March 31, 1997, the Company had outstanding approximately $5 million
aggregate principal amount of capital lease obligations arising primarily from
three agreements for leases of fiber optic cable used in various of the
Company's networks. The effective interest rates under these agreements range
from 10.5% to 13.5% and expire, subject to various Intermedia renewal options,
from 2001 to 2016. In addition, as of March 31, 1997, DIGEX had outstanding
approximately $11 million aggregate principal amount of capital lease
obligations arising primarily from 16 agreements for network equipment used at
various DIGEX service locations.
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<PAGE>
DESCRIPTION OF THE SENIOR DISCOUNT NOTES
GENERAL
Set forth below is a summary of certain provisions of the Senior Discount
Notes. The Senior Discount Notes, like the Old Notes, will be issued pursuant
to the Indenture (the "Indenture") dated as of July 9, 1997 between the
Company and SunTrust Bank, Central Florida, National Association, as trustee
(the "Trustee"), a copy of the form of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part. The terms of
the Senior Discount Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Senior Discount Notes are subject to
all such terms, and holders of Senior Discount Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Indenture does not purport to be complete
and is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions." As of the date of the Indenture, none of the Company's
Subsidiaries were Unrestricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture. As
used in this section, the term "Company" refers only to Intermedia
Communications Inc. and not to its Subsidiaries. The terms of the Senior
Discount Notes are substantially identical to the Old Notes in all material
respects (including interest rate and maturity), except that (i) the Senior
Discount Notes will not be subject to the restrictions on transfer (other than
with respect to holders who are affiliates) and (ii) the Registration Rights
Agreement covenants regarding registration and the related Liquidated Damages
(other than those that have accrued and were not paid) with respect to
Registration Defaults will have been deemed satisfied.
RANKING
The Senior Discount Notes will rank senior in right of payment to all
subordinated Indebtedness of the Company. The Senior Discount Notes will rank
pari passu in right of payment with all existing and future senior borrowings,
including the Existing Senior Notes and the Old Notes and borrowings under the
Credit Facility. Holders of secured Indebtedness of the Company will, however,
have claims that are prior to the claims of the holders of the Senior Discount
Notes with respect to the assets securing such other Indebtedness.
Certain of the Company's operations are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the
Senior Discount Notes. The Senior Discount Notes will be effectively
subordinated to all indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the holders of the Senior Discount Notes to participate in
those assets) will be effectively subordinated to the claims of that
Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of March 31, 1997, on a pro forma basis after giving effect to the
Offering and the Concurrent Offering and the application of the proceeds
therefrom, the Company would have had approximately $624 million of senior
indebtedness outstanding, including trade payables, and the Company's
Subsidiaries would have had approximately $34 million of indebtedness
outstanding.
PRINCIPAL, MATURITY AND INTEREST
The Senior Discount Notes will be issued at a discount from their principal
amount and will mature on July 15, 2007. The Senior Discount Notes will
accrete at a rate of 11 1/4%, compounded semi-annually until July 15, 2002.
Interest on the Senior Discount Notes will not accrue prior to July 15, 2002.
Thereafter, interest will accrue at 11 1/4% per annum and will be payable
semi-annually on July 15 and January 15 of each year, commencing on
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<PAGE>
January 15, 2003, to holders of record on the immediately preceding July 1 and
January 1. Interest on the Senior Discount Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from July 15, 2002. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. All references to the principal amount of
the Senior Discount Notes herein are references to the principal amount at
final maturity. The Senior Discount Notes will be payable both as to
principal, premium, if any, and interest and Liquidated Damages, if any, 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 or Liquidated Damages may be made by check mailed to the holders of
the Senior Discount Notes at their respective addresses set forth in the
register of holders of the Senior Discount Notes. Until 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. The Senior Discount Notes will be
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
OPTIONAL REDEMPTION
The Senior Discount Notes will not be redeemable at the Company's option
prior to July 15, 2002. Thereafter, the Senior Discount Notes 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 July 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................................................. 105.625%
2003.............................................................. 103.750%
2004.............................................................. 101.875%
2005 and thereafter............................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event of the sale by the Company prior
to July 15, 2000 of its Capital Stock (other than Disqualified Stock) (i) 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 or (ii) in
one or more Public Offerings, up to a maximum of 25% of the aggregate
principal amount at maturity of the Senior Discount Notes originally issued
will, at the option of the Company, be redeemable from the net cash proceeds
of such sale or sales (but only to the extent such proceeds consist of cash or
readily marketable cash equivalents received in respect of the Capital Stock,
other than Disqualified Stock, so sold) at a redemption price equal to 111
1/4% of the Accreted Value thereof with respect to the Senior Discount Notes
to be redeemed on the redemption date, provided that at least 75% of the
aggregate principal amount at maturity of the Senior Discount Notes 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.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the Senior Discount Notes.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of Senior
Discount Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Senior Discount Notes at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon (or, in the case of
repurchases of Senior Discount Notes prior to July 15, 2002, at a purchase
price equal to 101% of the Accreted Value thereof), to the date of purchase
(the "Change of Control Payment"). The Change
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of Control Offer must be commenced within 30 days following a Change of
Control, must remain open for at least 30 and not more than 40 days (unless
required by applicable law) and must comply with the requirements of Rule 14e-
1 under the Exchange Act and any other applicable securities laws and
regulations.
Except as described above with respect to a Change of Control, the Indenture
will not contain provisions that permit the holders of the Senior Discount
Notes to require that the Company repurchase or redeem the Senior Discount
Notes in the event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Senior Discount Notes to secured Indebtedness of the
Company and Indebtedness of the Company's Subsidiaries, the Company may not
have sufficient funds available to purchase the Senior Discount Notes tendered
in response to a Change of Control Offer. In addition, the Existing Senior
Notes or other agreements relating to Indebtedness of the Company's
Subsidiaries may contain prohibitions or restrictions on the Company's ability
to effect a Change of Control Payment.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Discount Notes to require the Company to repurchase such
Senior Discount Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company to another
Person may be uncertain.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under
"Certain Covenants--Asset Sales") exceeds $5.0 million, the Company will make
an offer to all holders of Senior Discount Notes and Pari Passu Notes (an
"Excess Proceeds Offer"), to purchase the maximum principal amount of Senior
Discount Notes 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 Accreted
Value of the Senior Discount Notes to the date fixed for the closing (if such
offer is prior to July 15, 2002) or 100% of the outstanding principal amount
of the Senior Discount Notes (if such offer is on or after July 15, 2002) and
100% of the accreted value or 100% of the outstanding principal amount, as
applicable, of 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, in accordance with the procedures specified in the Indenture.
If the Accreted Value and/or aggregate principal amount, as the case may be,
of Senior Discount Notes and Pari Passu Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee will select the Senior
Discount Notes and Pari Passu Notes to be purchased on a pro rata basis based
upon their Accreted Value or applicable principal amount. To the extent that
the aggregate amount of Senior Discount Notes and Pari Passu Notes tendered
pursuant to an Excess Proceeds Offer is less than the amount of Excess
Proceeds, the Company may use such deficiency for general purposes. Upon
completion of an Excess Proceeds Offer, the amount of Excess Proceeds will be
reset at zero.
SELECTION OF SENIOR DISCOUNT NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Senior Discount Notes are to be redeemed or to be
purchased pursuant to any purchase offer required under the Indenture at any
time, selection of Senior Discount Notes for redemption or purchase will be
made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Senior Discount Notes are
listed, or, if the Senior Discount Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate, provided that no Senior Discount Notes with a principal amount of
$1,000 or less shall be redeemed or purchased in part. A new Senior Discount
Note in principal amount equal to the unredeemed or unpurchased portion will
be issued in the name of the holder thereof upon cancellation of the original
Senior Discount Note. On and after the redemption or
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purchase date, interest will cease to accrue on the Senior Discount Notes (and
the Accreted Value will cease to accrete if prior to July 15, 2002) or
portions of them called for redemption or purchase.
NOTICE OF REDEMPTION
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Senior Discount
Notes to be redeemed at its registered address. If any Senior Discount Note is
to be redeemed in part only, the notice of redemption that relates to such
Senior Discount Note shall state the portion of the principal amount to be
redeemed.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company and its Subsidiaries may not,
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 Senior Discount Notes or (B) any
Subsidiary, except, with respect to clause (A) or (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 described under "--Incurrence of Indebtedness and
Issuance of Disqualified Stock;" 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 June 30, 1996 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 June 30,
1996 (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
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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 do 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 the 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 Senior Discount Notes 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 Senior Discount Notes 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 the
covenant described below under the caption, "Incurrence of Indebtedness and
Issuance of Disqualified Stock" and (1) is subordinated in right of payment
to the Senior Discount Notes 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 the covenant described below
under the caption "Incurrence of Indebtedness and Issuance of Disqualified
Stock" and only to the extent that such Indebtedness (1) is not secured by
any assets of the Company or any 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 Senior Discount Notes 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 will not cause the aggregate amount of
Investments at any one time outstanding under this clause (vi) to exceed
the greater of (x) $25 million and (y) 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.
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The Indenture also provides that 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 the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified Stock," and (ii) no Default or Event of Default 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 the covenant "--Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that:
(i) the Company and its Subsidiaries may 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 may 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.
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The foregoing limitation does 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 the covenant described above
under the caption "Asset Sales;"
(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 Senior Discount Notes and has 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,
respectively, of the Senior Discount Notes, in an aggregate principal
amount not to exceed 2.0 times the net cash proceeds received by the
Company after June 30, 1996 from the issuance and sale of Equity Interests
of the Company (that are not Disqualified Stock) plus the fair market value
of Equity Interests (other than Disqualified Stock) issued after June 30,
1996 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 do 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 Senior Discount Notes, the Refinancing Indebtedness
shall be subordinated in right of payment to the Senior Discount Notes
on terms at least as favorable to the holders of Senior Discount Notes
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 the Indenture to be
outstanding.
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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
(h) 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 payment of interest or
dividends in the form or additional Indebtedness, Common Stock or Preferred
Stock will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Asset Sales
The Indenture provides that the Company and its Subsidiaries may not,
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 (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
the covenant described below under the caption "Restricted Payments" or (D)
that constitute the disposition of all or substantially all of the assets
of the Company pursuant to the covenant described below under the caption
"Merger, Consolidation or Sale of Assets" 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 Senior Discount Notes) 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) will be deemed to be cash for purposes of this clause (c).
The foregoing provisions do not apply to a sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, which
are governed by the provisions of the Indenture described below under "Merger,
Consolidation, or Sale of Assets."
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The Indenture also provides that 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 Indebtedness 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 so applied or invested will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be
required to make an Excess Proceeds Offer in accordance with the terms set
forth under "Offer to Purchase with Excess Asset Sale Proceeds."
Liens
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, create, incur, assume or suffer to exist any Lien 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.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and its Subsidiaries may 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 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 clause (a) of the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(h) the Indenture and the Senior Discount Notes; 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.
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Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may 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 assumes all the obligations of the Company under the Senior Discount
Notes and the 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) except in connection with a Merger with or into a wholly owned
Subsidiary of the Company, 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 "--Incurrence of Indebtedness and Issuance of Disqualified
Stock" 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.
Transactions with Affiliates
The Indenture provides that the Company and its Subsidiaries may 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;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company; 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 of the Company,
(b) transactions between or among the Company and its Subsidiaries,
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(c) transactions permitted by the provisions of the Indenture
described above under the covenant "--Restricted Payments," 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.
Use of Proceeds
The Indenture provides that the Company may use the gross proceeds from the
sale of the Senior Discount Notes only for the following purposes:
(i) to pay the fees and expenses of the issuance of the Senior Discount
Notes including any discount or commission to Bear, Stearns & Co. Inc. and
Salomon Brothers Inc, the initial purchasers of the Senior Discount Notes
(the "Initial Purchasers");
(ii) to be deposited into an account that complies with the provisions
for the Defeasance of the Company's 13 1/2% Notes under the indenture for
the 13 1/2% Notes; provided, that such funds, in whole or in part, may be
used to Retire 13 1/2% Notes so long as all of the 13 1/2% Notes were so
Retired, and
(iii) with respect to any funds remaining after application under clauses
(i) and (ii) above, to fund up to 80% of the cost of the acquisition or
construction of Telecommunications Related Assets, or to the repayment of
the Existing Senior Notes.
Pending application of the proceeds in accordance with clause (iii) above,
the Company will deposit such proceeds into a segregated account in the
Company's name. The Company will deliver to the Trustee an Officer's
Certificate with each annual compliance certificate certifying that the
amounts in such account were applied in accordance with this covenant.
Business Activities
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, engage in any business other than the
Telecommunications Business.
Limitations on Sale and Leaseback Transactions
The Indenture provides that the Company and its Subsidiaries may not,
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 the covenants
described above under "--Incurrence of Indebtedness and Issuance of
Disqualified Stock" and "--Liens" 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 the covenant described above
under the caption "--Asset Sales."
Reports
The Indenture provides that the Company will file with the Trustee 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) and the
Trustee. Whether or not required by the Exchange Act to file SEC Reports with
the Commission, so long as any Senior Discount Notes are outstanding, the
Company will furnish copies of the SEC Reports to the holders of Senior
Discount Notes at the time the Company is required to file the same with the
Trustee and make such information available to investors who
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request it in writing. In addition, the Company has agreed that, for so long
as any Senior Discount Notes 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.
Payments for Consent
The Indenture provides that 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 Senior
Discount Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Senior Discount Notes
unless such consideration is offered to be paid or agreed to be paid to all
holders of the Senior Discount Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest or Liquidated
Damages, if any, on the Senior Discount Notes;
(ii) default in payment when due of principal (including Accreted Value)
or premium, if any, on the Senior Discount Notes at maturity, upon
redemption or otherwise;
(iii) failure by the Company to perform or comply with the provisions of
the covenants described above under "--Offer to Purchase Upon Change of
Control," "--Asset Sales," "--Restricted Payments," "--Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "--Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company for 30 days after notice from the Trustee or
the holders of at least 25% in principal amount of the Senior Discount
Notes then outstanding to comply with its other agreements in the Indenture
or the Senior Discount Notes;
(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 Issue Date, which default (x) is caused by a failure to
pay when due 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; provided, however, that this
clause (y) shall not relate to an acceleration, if any, of the Existing
Senior Notes or the 13 1/2% Notes, which acceleration arises out of the
issuance of the Senior Discount Notes if such Indebtedness is repaid in
full within 5 business days of such acceleration;
(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 under the Indenture, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Senior Discount Notes may declare all the Senior Discount
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Notes to be due and payable immediately. Upon such declaration, the principal
of (or, if prior to July 15, 2002, the Accreted Value of), premium, if any,
and accrued and unpaid interest and Liquidated Damages, if any, on the Senior
Discount Notes 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 Significant
Subsidiaries, the foregoing amount shall ipso facto become due and payable
without further action or notice. No premium is payable upon acceleration of
the Senior Discount Notes 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 Senior Discount Notes contained in the Indenture or the
Senior Discount Notes. The amount declared due and payable will include the
premium that would have been applicable on a voluntary prepayment of the
Senior Discount Notes or, if voluntary prepayment is not then permitted, the
premium set forth in the Indenture. Holders of the Senior Discount Notes may
not enforce the Indenture or the Senior Discount Notes except as provided in
the Indenture. Subject to certain limitations, holders of a majority in
principal amount at maturity of the then outstanding Senior Discount Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Senior Discount Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payments of principal or interest) if it determines that withholding
notice is in such holders' interest.
The holders of a majority in aggregate principal amount at maturity of the
Senior Discount Notes then outstanding, by notice to the Trustee, may on
behalf of the holders of all of the Senior Discount Notes, 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
Liquidated Damages or premium on, or the principal of, the Senior Discount
Notes.
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.
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
Senior Discount Notes or the Indenture or for any claim based on, in respect
of, or by reason of such obligations or their creation. Each holder of Senior
Discount Notes by accepting a Senior Discount Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Senior Discount Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Discount Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Senior Discount Notes, except for:
(a) the rights of holders of outstanding Senior Discount Notes 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 Senior Discount Notes when such payments are due, or on the redemption
date, as the case may be;
(b) the Company's obligations with respect to the Senior Discount Notes
concerning issuing temporary Senior Discount Notes, registration of Senior
Discount Notes, mutilated, destroyed, lost or stolen Senior Discount Notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;
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(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 the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Senior Discount Notes. In the event
Covenant Defeasance occurs, certain events (not including non payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Senior Discount Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the Senior Discount Notes, cash in U.S.
dollars, non-callable U.S. government obligations, or 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 the
outstanding Senior Discount Notes, on 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 or
Liquidated Damages with respect to the outstanding Senior Discount Notes;
(ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) 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 Senior Discount
Notes 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;
(iii) in the case of Covenant Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the outstanding Senior Discount
Notes 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;
(iv) 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;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the 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;
(vi) the Company must 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;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Senior Discount Notes over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
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(viii) the Company must deliver 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.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Senior Discount Notes in accordance with
the Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any Senior Discount Note selected for redemption. Also, the Company
is not required to transfer or exchange any Senior Discount Note for a period
of 15 days before a selection of Senior Discount Notes to be redeemed.
The registered holder of a Senior Discount Note will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Senior Discount Notes may be amended or supplemented with the consent of the
holders of at least a majority in principal amount at maturity of the Senior
Discount Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Senior Discount Notes), and any
existing default or compliance with any provision of the Indenture or the
Senior Discount Notes may be waived with the consent of the holders of a
majority in principal amount at maturity of the then outstanding Senior
Discount Notes (including consents obtained in connection with a tender offer
or exchange offer for Senior Discount Notes).
Without the consent of each holder affected, however, an amendment or waiver
may not (with respect to any Senior Discount Note held by a non-consenting
holder):
(i) reduce the principal amount at maturity of Senior Discount Notes
whose holders must consent to an amendment, supplement or waiver;
(ii) reduce the principal at maturity of or change the fixed maturity of
any Senior Discount Note or alter the provisions with respect to the
redemption of the Senior Discount Notes (other than provisions relating to
the covenants described under the caption "--Offer to Purchase upon Change
of Control" and "--Offer to Purchase with Excess Asset Sale Proceeds");
(iii) reduce the rate of or change the time for payment of interest on
any Senior Discount Notes;
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Senior Discount Notes (except a
rescission of acceleration of the Senior Discount Notes by the holders of
at least a majority in aggregate principal amount at maturity of the Senior
Discount Notes and a waiver of the payment default that resulted from such
acceleration);
(v) make any Senior Discount Note payable in money other than that stated
in the Senior Discount Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Senior Discount Notes
to receive payments of principal of, premium, if any, or interest on the
Senior Discount Notes;
(vii) waive a redemption payment with respect to any Senior Discount Note
(other than a payment required by one of the covenants described above
under the captions "--Offer to Purchase upon Change of Control" and "Offer
to Purchase with Excess Asset Sale Proceeds"); or
(viii) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Discount Notes, the Company and the Trustee may amend or supplement the
Indenture or the Senior Discount Notes:
(a) to cure any ambiguity, defect or inconsistency;
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(b) to provide for uncertificated Senior Discount Notes in addition
to or in place of certificated Senior Discount Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Senior Discount Notes 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 Senior Discount Notes or that does not
adversely affect the legal rights under the Indenture of any such
holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions with the Company; however, if the Trustee
acquires any conflicting interest, it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign.
The holders of a majority in principal amount of the then outstanding Senior
Discount Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur and be continuing, the Trustee will be required, in the
exercise of its powers, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Senior Discount Notes, unless such
holder shall have offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense. No holder of any Senior Discount
Note will have any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, unless (i) such holder gives to the
Trustee written notice of a continuing Event of Default, (ii) holders of at
least 25% in principal amount at maturity of the then outstanding Senior
Discount Notes make a written request to pursue the remedy, (iii) such holders
of the Senior Discount Notes provide to the Trustee satisfactory indemnity and
(iv) the Trustee does not comply within 60 days. Otherwise, no holder of any
Senior Discount Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, except: (i) a holder of
a Senior Discount Note may institute suit for enforcement of payment of the
principal of and premium, if any, or interest on such Senior Discount Note on
or after the respective due dates expressed in such Senior Discount Note
(including upon acceleration thereof) or (ii) the institution of any
proceeding with respect to the Indenture or any remedy thereunder, including
without limitation acceleration, by the holders of a majority in principal
amount at maturity of the outstanding Senior Discount Notes, provided that,
upon institution of any proceeding or exercise of any remedy such holders
provide the Trustee with prompt notice thereof.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on July 9, 1997. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission the Registration Statement of which
this Prospectus forms a part (the "Exchange Offer Registration Statement")
with respect to the Senior Discount Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the holders
of Transfer Restricted Securities pursuant to the Exchange Offer who are able
to make certain representations the opportunity to exchange their Transfer
Restricted Securities for the Senior Discount Notes. If (i) the Company is not
required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any holder of Transfer Restricted
Securities notifies the Company within the specified time period that (A) it
is prohibited by law or Commission policy from participating in the Exchange
Offer, (B) that it may
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not resell the Senior Discount Notes 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 or (C) that it is a broker-dealer and owns Old Notes acquired directly
from the Company or an affiliate of the Company, the Company will file with
the Commission a shelf registration statement to cover resales of the Old
Notes (the "Shelf Registration Statement") by the holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its best efforts to
cause the applicable registration statement to be declared effective on or
prior to (1) in the case of a Shelf Registration Statement filed pursuant to
clause (i) above, 90 days after the date on which the Company becomes
obligated to file such Shelf Registration Statement (and in any event within
240 days after July 9, 1997), and (2) in the case of a Shelf Registration
Statement filed pursuant to clause (ii) above, 90 days after the date on which
the Company receives the notice specified in clause (ii) above. For purposes
of the foregoing, "Transfer Restricted Securities" means each Old Note until
(i) the date on which such Old Note has been exchanged by a Person other than
a broker-dealer for a Senior Discount Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of an Old Note
for a Senior Discount Note, the date on which such Senior Discount Note 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 Old Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Old Note
is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file
the Exchange Offer Registration Statement with the Commission on or prior to
60 days after July 9, 1997, (the "Closing Date"), (ii) the Company will use
its best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission at the earliest possible time, but in no event
later than 120 days after the Closing Date, and (iii) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will commence the Exchange Offer and use its best efforts to issue on
or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, Senior
Discount Notes in exchange for all Old Notes tendered prior thereto in the
Exchange Offer.
If (a) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) 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"), (c) the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (d) 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 the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Old Notes constituting Transfer Restricted Securities held
by such holder. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 principal amount constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Old Notes constituting
Transfer Restricted Securities. All accrued Liquidated Damages will be paid by
the Company on each Damages Payment Date to the Global Security Holder (as
defined herein) by wire transfer of immediately available funds or by federal
funds check and to holders of Certificated Securities (as defined herein) by
mailing checks to their registered addresses. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Notwithstanding the foregoing, the Company will have the option of suspending
the effectiveness of the Shelf Registration Statement, without becoming
obligated to pay Liquidated Damages for periods of up to a total of 60 days in
any calendar year if the Board of Directors of the Company determines that
compliance with the disclosure obligations necessary to maintain the
effectiveness of the Shelf Registration Statement at such time could
reasonably be expected to have an adverse effect on the Company or a pending
corporate transaction.
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Holders of Old Notes are required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Senior Discount Notes may be
issued in the form of one or more Global Securities (the "Global Securities").
The Global Securities will be deposited on the Exchange 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
herein as the "Global Security Holder").
Senior Discount Notes that are issued as described below under "--
Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer of Certificated
Securities, such Certificated Securities may, unless the Global Securities have
previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Securities representing the principal amount of Senior
Discount Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Securities, the Depositary will credit the
accounts of Participants designated by the Exchange Agent with portions of the
principal amount of the Global Securities and (ii) ownership of the Senior
Discount Notes evidenced by the Global Securities will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Senior Discount
Notes evidenced by the Global Securities will be limited to such extent.
So long as the Global Security Holder is the registered owner of any Senior
Discount Notes, the Global Security Holder will be considered the sole holder
under the Indenture of any Senior Discount Notes evidenced by the Global
Securities. Beneficial owners of Senior Discount Notes evidenced by the Global
Securities will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Senior Discount Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Discount Notes registered in the name
of the Global Security Holder on the applicable record date will be
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payable by the Trustee to or at the direction of the Global Security Holder in
its capacity as the registered holder under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
Senior Discount Notes, including the Global Securities, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Senior
Discount Notes. The Company believes, however, that it is currently the policy
of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Discount
Notes will be governed by standing instructions and customary practice and will
be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in the
Global Securities may, upon request to the Trustee, exchange such beneficial
interest for Senior Discount Notes in the form of Certificated Securities. Upon
any such issuance, the Trustee is required to 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). In addition, if (i) the Company
notifies the Trustee 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
Trustee in writing that it elects to cause the issuance of Senior Discount
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by the Global Security Holder of its Global Security, Senior Discount
Notes 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
Senior Discount Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Security Holder or the Depositary in identifying the beneficial owners
of Senior Discount Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Security
Holder or the Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Discount Notes
represented by the Global Securities (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Security
Holder. With respect to Certificated Securities, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available funds to the accounts specified
by the holders thereof or, if no such account is specified, by mailing a check
to each such holder's registered address. The Senior Discount Notes represented
by the Global Securities are expected to be eligible to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Senior Discount Notes will therefore be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"13 1/2% Notes" means the Company's 13 1/2% Senior Notes due 2005.
"Accreted Value" means, as of any date of determination prior to July 15,
2002, the sum of (a) the initial offering price of each Senior Discount Note
and (b) that portion of the excess of the principal amount of each Senior
Discount Note over such initial offering price as shall have been accreted
thereon through such date, such amount to be so accreted on a daily basis at
the rate of 11 1/4% per annum of the initial offering price of the Senior
Discount Notes, compounded semi-annually on each July 15, and January 15, from
the date of issuance of the Senior Discount Notes through the date of
determination computed on the basis of a 360-day year of twelve 30-day months.
The Accreted Value of any Senior Discount Note on or after July 15, 2002 shall
be 100% of the principal amount thereof.
"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.
"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
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.
"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
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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 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
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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 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" 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.
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"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 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 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.
"Damages Payment Date" means each July 15 and January 15.
"Defeasance" means the defeasance by the Company of its 13 1/2% Notes
pursuant to Article 8 of the indenture governing such notes.
"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 the date on
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which the Senior Discount Notes mature, 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 the final maturity of the Senior Discount Notes 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 Senior Discount Notes contained in the
covenant described under "Offer to Purchase Upon a Change of Control" 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 Senior Discount Notes as are required to be repurchased
pursuant to the covenant described under "Offer to Purchase Upon Change of
Control."
"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.
"Existing Indebtedness" means the Existing Senior Notes and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue
Date.
"Existing Senior Notes" means 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
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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.
"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 the Indenture.
"Issue Date" means July 9, 1997.
"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.
"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).
"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.
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"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.
"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 by the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock;" and (i) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under the covenant
entitled "Asset Sales."
"Permitted Liens" means (i) Liens securing Indebtedness (including Capital
Lease Obligations) permitted to be incurred pursuant to clauses (a) and (b) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;" (ii) Liens in favor of the 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;
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(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 Company's 13 1/2% Notes pursuant to the indenture
governing such notes or Liens arising from the Defeasance thereof; (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 by the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock," 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.
"Public Offering" means an underwritten offering of Common Stock of the
company registered under the Securities Act.
"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 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.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Retire" means, with respect to any Indebtedness, to repay, redeem, refund,
purchase or otherwise to acquire for value, such Indebtedness. The terms
"Retired" and "Retirement" shall have correlative meanings.
"S & P" means, Standard and Poor's Corporation and its successors.
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"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.
"Senior Discount Note Registration Rights Agreement" means the Registration
Rights Agreement between the Company and the Initial Purchasers in respect of
the Senior Discount Notes.
"Senior Indebtedness" means any Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to the Senior Discount Notes. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness 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 the Indenture.
"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 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
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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 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 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.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of
the Board of Directors.
"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.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Old Notes for Senior Discount Notes will not constitute a
recognition event for federal income tax purposes. Consequently, no gain or
loss will be recognized by holders upon receipt of the Senior Discount Notes.
The Senior Discount Notes will have the same issue date and issue price as the
Old Notes. A holder's initial tax basis in the Senior Discount Notes will be
the same as the holder's basis in the Old Notes exchanged therefor. Holders
will be considered to have held the Senior Discount Notes from the time of
their original acquisition of the Old Notes.
The following is a summary of the anticipated material United States federal
income tax consequences of the purchase, ownership and disposition of the
Senior Discount Notes. This summary is based upon the Internal Revenue Code of
1986, as amended (the "Code"), its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all as in
effect and existing on the date of this Prospectus and all of which are
subject to change at any time; any such change may be applied retroactively in
a manner that could adversely affect a holder. This summary applies only to
those persons who hold Senior Discount Notes as capital assets and does not
address the tax consequences to taxpayers who are subject to special rules
(such as financial institutions, tax-exempt organizations, insurance companies
and persons holding Senior Discount Notes as part of a straddle, hedge or
conversion transaction) or aspects of federal income taxation that may be
relevant to a prospective investor based upon such investor's particular tax
situation. Moreover, the effect of any applicable state, local or foreign tax
laws is not discussed. Accordingly, purchasers of Senior Discount Notes should
consult their own tax advisors with respect to the particular consequences to
them of the purchase, ownership and disposition of the Senior Discount Notes
and the applicability of any state, local or foreign tax laws, as well as with
respect to the possible effects of changes in federal and other tax laws.
ORIGINAL ISSUE DISCOUNT
General. For federal income tax purposes, the Senior Discount Notes will
have the same issue date and issue price as the Old Notes. Because the Old
Notes were issued with original issue discount ("OID") for federal income tax
purposes, holders of the Senior Discount Notes will be required to include OID
in income periodically over the term of the Senior Discount Notes before
receipt of the cash to which such income is attributable.
The amount of OID on a Senior Discount Notes will be the excess of the
stated redemption price at maturity of the Senior Discount Note over its issue
price. The issue price of a Senior Discount Note will be the first price at
which a substantial amount of Old Notes was sold to the public for money
(excluding sales to bond houses, brokers or others acting in the capacity of
underwriters, placement agents or wholesalers, etc.). The stated redemption
price at maturity of a Senior Discount Note will be the sum of all payments to
be made on such Senior Discount Note, whether denominated as principal or
interest. Accordingly, each Senior Discount Note will have a substantial
amount of OID.
In general, a holder must include in gross income for federal income tax
purposes the sum of the daily portions of OID with respect to a Senior
Discount Note for each day during the taxable year or portion of a taxable
year on which such holder holds the Senior Discount Note ("Accrued OID"). The
daily portion is determined by allocating to each day of any accrual period a
pro rata portion of the OID allocable to that accrual period. The OID
allocable to a full accrual period is an amount equal to the adjusted issue
price of the Senior Discount Note at the beginning of the accrual period
multiplied by the yield to maturity of the Senior Discount Note. For purposes
of computing OID, the Company will use six-month accrual periods that end on
the days in the calendar year corresponding to the day before the maturity
date of the Senior Discount Notes and the date six months prior to such day,
with the exception of an initial short accrual period. The adjusted issue
price of a Senior Discount Note at the beginning of any accrual period is the
issue price of the Senior Discount Note increased by the Accrued OID for all
prior accrual periods, less any cash payments on the Senior Discount Note made
on or before the first day of that accrual period. Under these rules, holders
will generally be required to include in gross income increasingly greater
amounts of OID in each successive accrual period.
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The Company is required to furnish certain information to the Internal
Revenue Service (the "IRS"), and will furnish annually to record holders of a
Senior Discount Note information with respect to OID accruing during the
calendar year. That information will be based upon the adjusted issue price of
the Senior Discount Note as if the holder purchased the Senior Discount Note
on the issue date at the issue price. Holders who did not acquire Old Notes on
their original issue at their original offering price will be required to
determine for themselves the amount of OID they are required to include in
gross income for federal income tax purposes.
ACQUISITION PREMIUM/DISCOUNT
If the purchase price of a Senior Discount Note is greater than the adjusted
issue price, the amount of Accrued OID included in the purchaser's gross
income will be reduced to take the acquisition premium into account.
If the purchase price of a Senior Discount Note is less than the adjusted
issue price, the difference will be considered "market discount" unless it is
de minimis in amount. Any gain realized on a disposition of the Senior
Discount Note will generally be treated as ordinary interest income to the
extent of the market discount that accrued while the Senior Discount Note was
held by the purchaser, and the purchaser may be required to defer the
deduction of a portion of the interest paid or accrued on debt incurred or
continued to purchase or carry the Senior Discount Note, unless the purchaser
elects to include market discount in income currently as it accrues.
A purchaser of a Senior Discount Note at a premium or discount may elect to
include all interest that accrues on the Senior Discount Note (that is,
original issue discount increased by market discount--including de minimis
market discount--or reduced by acquisition premium) in gross income on a
constant-yield basis. If a purchaser makes this election for a Senior Discount
Note with market discount, the purchaser will be deemed to have made an
election to include market discount in income currently with respect to all
other debt instruments having market discount that the purchaser acquires
during the taxable year of the election or thereafter.
DISPOSITION OF THE SENIOR DISCOUNT NOTES
Generally, any sale, redemption or other taxable disposition of a Senior
Discount Note will result in taxable gain or loss equal to the difference
between the amount of cash and the fair market value of property received in
exchange therefor and the holder's adjusted tax basis in the Senior Discount
Note. A holder's adjusted tax basis for determining gain or loss on such sale
or other disposition will equal the cost of the Senior Discount Note to such
holder, increased by any Accrued OID (and market discount) includible in such
holder's gross income and decreased by the amount of any cash payments
received by such holder (regardless of whether such payments are denominated
as principal or interest). Any gain or loss upon a sale or other disposition
of a Senior Discount Note will generally be capital gain or loss, and will be
long-term capital gain or loss if the Senior Discount Note has been held by
the holder for more than one year. (Under legislation passed by Congress on
July 31, 1997, a lower capital gains tax rate will apply to a non-corporate
holder if the Senior Discount Note has been held for more than 18 months.)
BACKUP WITHHOLDING
A holder may be subject, under certain circumstances, to backup withholding
at a 31 percent rate with respect to payments of interest and OID received on,
and proceeds from the sale (through a broker) of, a Senior Discount Note.
Backup withholding generally applies only if the holder (i) fails to furnish
his or her social security or other taxpayer identification number ("TIN") to
the Company in the required manner, (ii) furnishes an incorrect TIN and the
IRS so notifies the Company, (iii) is notified by the IRS that he or she has
failed to report properly payments of interest or dividends and the IRS has
notified the Company that he or she is subject to withholding, or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is his or her correct number and
that he or she is not subject to backup withholding. Any amount withheld from
a payment to a holder under the backup withholding rules is allowable as a
credit against such holder's federal income tax liability, provided that the
required information is furnished to the IRS. Certain holders (including,
among others, corporations) are not subject to backup withholding. Holders
should consult their tax advisors as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Senior Discount Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Senior Discount Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Senior Discount Notes received
in exchange for Old Notes acquired as a result of market-making activities or
other trading activities. The Company has agreed that 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 after the Exchange Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
The Company will not receive any proceeds from any sale of Senior Discount
Notes by broker-dealers. Senior Discount Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options of the Senior Discount Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any Senior
Discount Notes. Any broker-dealer that resells Senior Discount Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker-dealer that participates in a distribution of Senior Discount Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of Senior Discount Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Discount Notes to be received in the Exchange
Offer and to the best of the Company's information and belief, each person
participating in the Exchange Offer is acquiring the Senior Discount Notes in
its ordinary course of business and has no arrangement or understanding with
any person to participate in the distribution of the Senior Discount Notes to
be received in the Exchange Offer.
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LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas,
New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of Kronish, Lieb,
Weiner & Hellman LLP, beneficially owns 6,745 shares of the Common Stock.
EXPERTS
The consolidated financial statements and schedule of the Company appearing
in the Company's Annual Report (Form 10-K) for the year ended December 31,
1996, have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report
given the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of DIGEX appearing in DIGEX's Annual
Report (Form 10-KSB) for the year ended December 31, 1996, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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ANNEX A
INTERMEDIA COMMUNICATIONS INC.
LOGO -------------------------------------------------------------------
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.
Central Office--The switching center and/or central circuit termination
facility of a 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 certification provides a telecommunications services
provider with 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.
Communications Act of 1934--The first major federal legislation that
established rules for broadcast and non-broadcast communications, including
both wireless and wired telephone service.
- -------------------------------------------------------------------------------
A-1
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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, not shared among multiple customers, that
connects a customer to a carrier's network.
Diverse Routing--A network topology that provides reliability by providing
two distinct physical routes for network transmission (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
switching (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.
Dark Fiber--Fiber which does not have connected to it the electronics
required to transmit data on such fiber.
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 interconnection to the ILEC. Collocation 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.
Integration Services--The provision of specialized skills and equipment to
met specific customer needs.
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.
- -------------------------------------------------------------------------------
A-2
<PAGE>
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.
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.
Peering--The commercial practice under which nationwide ISPs exchange each
other's traffic without the payment of settlement charges.
Peering Points--A location at which ISPs exchange each others' traffic.
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 LECs 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.
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.
Web Site--A server connected to the Internet from which Internet users can
obtain information.
World Wide Web or Web--A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.
- -------------------------------------------------------------------------------
A-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPA-
NY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES
IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... ii
Incorporation of Certain Documents by
Reference............................................................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 15
The Exchange Offer....................................................... 23
Use of Proceeds.......................................................... 30
Capitalization........................................................... 30
Selected Financial and Other Operating Data.............................. 31
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 43
Management............................................................... 66
Description of Outstanding Indebtedness.................................. 69
Description of the Senior Discount Notes................................. 71
Certain Federal Income Tax Considerations................................ 100
Plan of Distribution..................................................... 102
Legal Matters............................................................ 103
Experts.................................................................. 103
Glossary................................................................. A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$649,000,000
[LOGO OF INTERMEDIA COMMUNICATIONS INC.]
INTERMEDIA COMMUNICATIONS INC.
11 1/4% SERIES B
SENIOR DISCOUNT NOTES
DUE 2007
----------------------------
PROSPECTUS
----------------------------
AUGUST , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation, as amended, provides
that the Company shall to the fullest extent permitted by the General
Corporation Law of the State of Delaware (the "GCL"), as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto. The
Company's Bylaws contain a similar provision requiring indemnification of the
Company's directors and officers to the fullest extent authorized by the GCL.
The GCL permits a corporation to indemnify its directors and officers (among
others) against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any action, suit or proceeding brought (or threatened to be
brought) by third parties, if such directors or officers acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In
a derivative action, i.e., one by or in the right of the corporation,
indemnification may be made for expenses (including attorneys' fees) actually
and reasonably incurred by directors and officers in connection with the
defense or settlement of such action if they had acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
liable unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses. The GCL further provides that, to the extent any
director or officer has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in this paragraph, or in defense
of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith. In addition, the Company's Restated
Certificate of Incorporation, as amended, contains a provision limiting the
personal liability of the Company's directors for monetary damages for certain
breaches of their fiduciary duty. The Company has indemnification insurance
under which directors and officers are insured against certain liability that
may occur in their capacity as such.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
II-1
<PAGE>
ITEM 21. EXHIBITS.
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 --Purchase Agreement, dated as of July 3, 1997, among the Company and
the Initial Purchasers.
2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among the
Company, Daylight Acquisition Corp. and DIGEX. Exhibit 99(c)(1) to
the Company's Schedule 14D-1 filed with the Commission on June 11,
1997 is incorporated herein by reference.
2.2 --Asset Acquisition Agreement, dated as of June 24, 1997, among the
Company, Telco Communications Group, Inc., Telco Network Service,
Inc. and Telco Switch Acquisition, Inc.
4.1 --Indenture, dated as of June 2, 1995, between the Company and SunBank
National Association, as trustee. Exhibit 4.1 to the Company's
Registration Statement on Form S-4 filed with the Commission on June
20, 1995 (No. 33-93622) is incorporated herein by reference.
4.1(a) --Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13% Series B Senior Notes due 2005, between
the Company and SunTrust Bank, Central Florida, National Association,
as trustee. Exhibit 4.1 to the Company's Current Report on Form 8-K
filed with the Commission on April 29, 1996 is incorporated herein by
reference.
4.2 --Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (Commission File No. 33-34738) filed with the
Commission on April 18, 1996 is incorporated herein by reference.
4.3 --Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed with
the Commission on July 17, 1997 is incorporated herein by reference.
4.4 --Registration Rights Agreement, dated as of July 9, 1997, among the
Company and the Initial Purchasers.
5.1 --Opinion of Kronish, Lieb, Weiner & Hellman LLP.
12.1 --Statement Re: Computation of Ratios.
23.1 --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in their
opinion filed as Exhibit 5.1 to this Registration Statement.
23.2 --Consent of Ernst & Young LLP to incorporation by reference of its
report with respect to the consolidated financial statements of the
Company.
23.3 --Consent of Ernst & Young LLP to incorporation by reference of its
report with respect to the financial statements of DIGEX.
24.1 --Power of Attorney is set forth on the signature page of this
Registration Statement.
25.1 --Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 on Form T-1.
99.1 --Form of Letter of Transmittal.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Financial Data Schedules are not required to be filed since all financial
statements have been previously included in filings with the Commission.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(5) For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report,
to security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Exchange Act; and where interim financial information
required to be presented by Article 3 of Regulation S-X is not set forth in
the prospectus, to deliver or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
II-3
<PAGE>
(7) To file an application for the purpose of determining eligibility of
the trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations prescribed by
the Commission under Section 305(b)(2) of the Trust Indenture Act."
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF TAMPA, STATE OF
FLORIDA, ON THIS 4TH DAY OF AUGUST, 1997.
INTERMEDIA COMMUNICATIONS INC.
/s/ Robert M. Manning
By___________________________________
ROBERT M. MANNING,
CHIEF FINANCIAL OFFICER
SECRETARY AND SENIOR VICE
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW AUTHORIZES DAVID C. RUBERG AND ROBERT M. MANNING, OR EITHER OF THEM, AS
ATTORNEY-IN-FACT TO SIGN AND FILE IN EACH CAPACITY STATED BELOW, ALL
AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT.
SIGNATURES TITLE Date
/s/ David C. Ruberg Chairman of the August 4, 1997
_____________________________________ Board, President
DAVID C. RUBERG and Chief
Executive Officer
Principal Financial and Accounting Officers:
/s/ Robert M. Manning Chief Financial August 4, 1997
_____________________________________ Officer,
ROBERT M. MANNING Secretary and
Senior Vice
President
/s/ Jeanne M. Walters Controller and August 4, 1997
_____________________________________ Chief Accounting
JEANNE M. WALTERS Officer
Other Directors:
/s/ John C. Baker Director August 4, 1997
_____________________________________
JOHN C. BAKER
/s/ George F. Knapp Director August 4, 1997
_____________________________________
GEORGE F. KNAPP
/s/ Philip A. Campbell Director August 4, 1997
_____________________________________
PHILIP A. CAMPBELL
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
------ ------- ----
<C> <S> <C>
1.1 --Purchase Agreement, dated as of July 3, 1997, among the
Company and the Initial Purchasers.
2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among
the Company, Daylight Acquisition Corp. and DIGEX. Exhibit
99(c)(1) to the Company's Schedule 14D-1 filed with the
Commission on June 11, 1997 is incorporated herein by
reference.
2.2 --Asset Acquisition Agreement, dated as of June 24, 1997, among
the Company, Telco Communications Group, Inc., Telco Network
Service, Inc. and Telco Switch Acquisition, Inc.
4.1 --Indenture, dated as of June 2, 1995, between the Company and
SunBank National Association, as trustee. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
Commission on June 20, 1995 (No. 33-93622) is incorporated
herein by reference.
4.1a --Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13% Series B Senior Notes due 2005,
between the Company and SunTrust Bank, Central Florida,
National Association, as trustee. Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the Commission on April
29, 1996 is incorporated herein by reference.
4.2 --Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 (Commission File No. 33-
34738) filed with the Commission on April 18, 1996 is
incorporated herein by reference.
4.3 --Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to the Company's Current Report on Form 8-
K filed with the Commission on July 17, 1997 is incorporated
herein by reference.
4.4 --Registration Rights Agreement, dated as of July 9, 1997, among
the Company and the Initial Purchasers.
5.1 --Opinion of Kronish, Lieb, Weiner & Hellman LLP.
12.1 --Statement Re: Computation of Ratios.
23.1 --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in
their opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2 --Consent of Ernst & Young LLP to incorporation by reference of
its report with respect to the consolidated financial
statements of the Company.
23.3 --Consent of Ernst & Young LLP to incorporation by reference of
its report with respect to the financial statements of DIGEX.
24.1 --Power of Attorney is set forth on the signature page of this
Registration Statement.
25.1 --Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form
T-1.
99.1 --Form of Letter of Transmittal.
</TABLE>
<PAGE>
EXHIBIT 1.1
- --------------------------------------------------------------------------------
INTERMEDIA COMMUNICATIONS INC.
$606,000,000
11 1/4% Senior Discount Notes due 2007
Purchase Agreement
July 3, 1997
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
$606,000,000
11 1/4% Senior Discount Notes due 2007
PURCHASE AGREEMENT
------------------
July 3, 1997
New York, New York
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies & Gentlemen:
Intermedia Communications Inc., a Delaware corporation (the "Company"),
-------
proposes to issue and sell to Bear, Stearns & Co. Inc. and Salomon Brothers Inc
(together, the "Initial Purchasers") $606,000,000 aggregate principal amount at
------------------
maturity of 11 1/4% Senior Discount Notes due 2007, subject to the terms and
conditions set forth herein, which will be issued pursuant to an indenture (the
"Indenture"), to be dated the Closing Date (as defined below), between the
---------
Company and SunTrust Bank, Central Florida, National Association, as trustee
(the "Trustee").
-------
1. Issuance of Securities. The Company proposes to, upon the terms and
----------------------
subject to the conditions set forth herein, issue and sell to the Initial
Purchasers $606,000,000 aggregate principal amount at maturity of 11 1/4% Senior
Discount Notes due 2007 (the "Firm Notes"). The Company also proposes to sell to
----------
the Initial Purchasers, upon the terms and conditions set forth herein, up to an
additional $43,000,000 principal amount at maturity of 11 1/4% Senior Discount
Notes due 2007 (the "Additional Notes" and together with the "Firm Notes", the
---------------- ----------
"Senior Discount Notes" or the "Securities"). The Senior Discount Notes are more
---------------------
fully described in the Offering Memorandum referred to below. For purposes of
this Purchase Agreement (this "Agreement"), the term "Subsidiaries" shall mean
--------- ------------
the entities listed on Exhibit E hereto. Capitalized terms used but not
otherwise defined herein shall have the meanings given to such terms in the
Indenture.
The proceeds to the Company from the sale to the Initial
Purchasers of the Senior Discount Notes will be used to fund: (i) the Retirement
of the 13 1/2% Senior Notes due 2005 (the "13 1/2% Notes") (as described in the
Offering Memorandum), and (ii) a portion of the cost of acquisition or
construction of Telecommunications Related Assets (as described in the Offering
Memorandum).
Upon original issuance thereof, and until such time as the
same is no longer required under the applicable requirements of the Act, the
Senior Discount Notes shall bear the following legend:
1
<PAGE>
"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."
2. Offering. The Senior Discount Notes will be offered and sold to the
--------
Initial Purchasers pursuant to an exemption from the registration requirements
under the Securities Act of 1933, as amended (the "Act"). The Company has
prepared a preliminary offering memorandum, dated June 25, 1997 (the
"Preliminary Offering Memorandum"), and a final offering memorandum, dated July
-------------------------------
3, 1997 (the "Offering Memorandum"), relating to the Company and the Senior
-------------------
Discount Notes.
The Initial Purchasers have advised the Company that the
Initial Purchasers will make offers (the "Exempt Resales") of the Senior
--------------
Discount Notes on the terms set forth in the Offering Memorandum, as amended or
supplemented, solely to persons whom any of the Initial Purchasers reasonably
believe to be "qualified institutional buyers," as defined in Rule 144A under
the Act ("QIBs"), and a limited number of persons who have represented to the
----
Company that they are institutional "Accredited Investors" referred to in Rule
501(a)(1), (2), (3) or (7) under the Act (each, an "Accredited Investor"). Such
-------------------
QIBs and Accredited Investors shall be referred to herein as the "Eligible
--------
Purchasers." The Initial Purchasers will offer the Senior Discount Notes to such
- ----------
QIBs and Accredited Investors initially at a purchase price of 57.748% of the
principal amount at maturity of such Senior Discount Notes. Such price may be
changed at any time without notice.
2
<PAGE>
Holders (including subsequent transferees) of the Senior Discount Notes
will have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration Rights Agreement") in substantially the
-----------------------------
form of Exhibit A hereto, to be dated the Closing Date for so long as such
---------
Senior Discount Notes constitute "Transfer Restricted Securities" (as defined in
such agreement). Pursuant to the Registration Rights Agreement, the Company will
agree to file with the Securities and Exchange Commission (the "Commission"),
----------
under the circumstances set forth therein, (i) a registration statement under
the Act (the "Exchange Offer Registration Statement") with respect to an offer
-------------------------------------
to exchange (the "Exchange Offer") the Senior Discount Notes for a new issue of
--------------
11 1/4% Senior Discount Notes due 2007 (the "Exchange Notes") to be offered in
--------------
exchange for the Senior Discount Notes and (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration Statement") relating
---------------------------
to the resale by certain holders of the Senior Discount Notes, and to use its
best efforts to cause such Registration Statements to be declared effective and
consummate the Exchange Offer. This Agreement, the Senior Discount Notes, the
Indenture, and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "Operative Documents."
------------------
3. Purchase, Sale and Delivery. (a) On the basis of the
---------------------------
representations, warranties and covenants contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell to
each Initial Purchaser, and each Initial Purchaser agrees severally and not
jointly to purchase from the Company, that amount of Firm Notes set forth
opposite its name on Schedule I hereto.
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Initial Purchasers, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Initial Purchasers
shall have the right to purchase from the Company, solely for the purpose of
covering over-allotments in connection with sales of the Firm Notes, at the
purchase price per note, pursuant to an option (the "over-allotment option")
---------------------
which may be exercised at any time and from time to time prior to 10:00 a.m.,
New York City time, on the 30th day after the date of the Offering Memorandum
(or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open for trading),
up to an aggregate principal amount at maturity of $43,000,000 Additional Notes.
Upon any exercise of the over-allotment option, each Initial Purchaser,
severally and not jointly, agrees to purchase from the Company the number of
Additional Notes (subject to such adjustments as the Initial Purchasers may
determine in order to avoid fractional Notes) that bears the same proportion to
the aggregate number of Additional Notes to be purchased by the Initial
Purchasers as the number of Firm Notes set forth opposite the name of such
Initial Purchaser on Schedule I hereto bears to the aggregate number of Firm
Notes.
(b) Delivery of, and payment of the purchase price for, the Senior
Discount Notes shall be made, against payment of the purchase price, at the
offices of Latham & Watkins, 885 Third Avenue, New York, NY 10022, or such other
location as may be mutually acceptable. Such delivery and payment shall be made
at 9:00 A.M. New York time, on July 9, 1997 or at such other time as shall be
agreed upon by the Initial Purchasers and the Company. The time and date of such
delivery and payment are herein called the "Closing Date."
------------
Delivery to the Initial Purchasers of any payment for any Additional
Notes to be purchased by the Initial Purchasers shall be made at the office of
Latham & Watkins, 885 Third Avenue, New York, NY 10022, or such other location
as may be mutually acceptable at such time on such date (the "Option Closing
--------------
Date"), which may be the same as the Closing Date but shall in no event be
- ----
earlier than the Closing Date nor later than ten business days after the giving
of the notice hereinafter referred to, as shall be specified in a
3
<PAGE>
written notice from Bear, Stearns & Co., Inc. on behalf of the Initial
Purchasers to purchase a number, specified in such notice, of Additional Shares.
(c) One or more Senior Discount Notes in global form, (the "Global
------
Securities"), registered in the name of Cede & Co. (such nominee the "Global
- ---------- ------
Security Holder"), as nominee of the Depository Trust Company ("DTC"), having an
- ---------------
aggregate principal amount corresponding to the aggregate principal amount of
the Firm Notes and Additional Notes (if any) sold shall be delivered by the
Company to the Initial Purchasers (or as the Initial Purchasers direct), against
payment by the Initial Purchasers of the purchase price therefor, by wire
transfer of immediately available funds to an account specified by the Company
or as the Company may direct in writing, provided that the Company shall give at
least two business days' prior written notice to the Initial Purchasers of the
information required to effect such wire transfers. The Global Securities shall
be made available to the Initial Purchasers for inspection not later than 9:30
a.m., New York City time, on the business day immediately preceding the Closing
Date.
4. Agreements of the Company. The Company covenants and agrees with
-------------------------
each of the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing,
(i) of the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of
any Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority and (ii) of the happening of
any event that, in the reasonable opinion of either counsel to the
Company or counsel to the Initial Purchasers, makes any statement of a
material fact made in the Preliminary Offering Memorandum or the
Offering Memorandum untrue or that requires the making of any additions
to or changes in the Preliminary Offering Memorandum or the Offering
Memorandum in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Company
shall use its best efforts to prevent the issuance of any stop order or
order suspending the qualification or exemption of any Securities under
any state securities or Blue Sky laws and, if at any time any state
securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of any Securities under
any 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.
(b) To furnish the Initial Purchasers and those persons
identified by the Initial Purchasers to the Company, without charge, as
many copies of the Preliminary Offering Memorandum and the Offering
Memorandum, and any amendments or supplements thereto, as the Initial
Purchasers may reasonably request. The Company consents to the use of
the Preliminary Offering Memorandum and the Offering Memorandum, and
any amendments and supplements thereto required pursuant hereto, by the
Initial Purchasers in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
the Initial Purchasers shall previously have been advised thereof and
shall not have objected thereto within a reasonable time after being
furnished a copy thereof. The Company shall promptly prepare, upon the
Initial Purchasers' request, any amendment or supplement to the
Preliminary Offering Memorandum or the Offering Memorandum that may be
necessary or advisable in connection with Exempt Resales.
4
<PAGE>
(d) If, after the date hereof and prior to consummation of any
Exempt Resale, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of either counsel
to the Company or counsel to the Initial Purchasers, it becomes
necessary or advisable to amend or supplement the Preliminary Offering
Memorandum or Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering
Memorandum is delivered to an Eligible Purchaser which is a prospective
purchaser, not misleading, or if it is necessary or advisable to amend
or supplement the Preliminary Offering Memorandum or Offering
Memorandum to comply with applicable law, (i) notify the Initial
Purchasers and (ii) forthwith to prepare an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein
as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law.
(e) To cooperate with the Initial Purchasers and counsel to
the Initial Purchasers in connection with the qualification or
registration of the Senior Discount Notes under the securities or Blue
Sky laws of such jurisdictions as the Initial Purchasers may reasonably
request and to continue such qualification in effect so long as
required for the Exempt Resales; provided, however that the Company
shall not be required in connection therewith 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 service of process in suits or
taxation, in each case, other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction where it is not now
so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, to pay all costs, expenses, fees and taxes incident to the
performance of the obligations of the Company hereunder, including in
connection with: (i) the preparation, printing, filing and distribution
of the Preliminary Offering Memorandum and the Offering Memorandum
(including, without limitation, financial statements) and all
amendments and supplements thereto required pursuant hereto, (ii) the
preparation (including, without limitation, duplication costs) and
delivery of all preliminary and final Blue Sky memoranda prepared and
delivered in connection herewith and with the Exempt Resales, (iii) the
issuance, transfer and delivery by the Company of the Securities to the
Initial Purchasers, (iv) the qualification or registration of the
Securities for offer and sale under the securities or Blue Sky laws of
the several states (including, without limitation, the cost of printing
and mailing a preliminary and final Blue Sky Memorandum and the
reasonable fees and disbursements of counsel to the Initial Purchasers
relating thereto), (v) furnishing such copies of the Preliminary
Offering Memorandum and the Offering Memorandum, and all amendments and
supplements thereto, as may be requested for use in connection with
Exempt Resales, (vi) the preparation of certificates for the Securities
(including, without limitation, printing and engraving thereof), (vii)
the fees, disbursements and expenses of the Company's counsel and
accountants, (viii) all expenses and listing fees in connection with
the application for quotation of the Securities in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (ix) all fees and expenses (including fees
and expenses of counsel to the Company) of the Company in connection
with the approval of the Securities by DTC for "book-entry" transfer,
(x) rating the Securities by rating agencies, (xi) the reasonable fees
and expenses of the Trustee and its counsel in connection with the
Indenture and the Senior Discount Notes, (xii) the performance by the
Company of its other obligations under this Agreement and the other
Operative Documents and (ix) "roadshow" travel and other expenses
incurred in connection with the marketing and sale
5
<PAGE>
of the Senior Discount Notes (other than out-of-pocket expenses
incurred by the Initial Purchasers for travel, meals and lodgings).
(g) To use the proceeds from the sale of the Senior Discount
Notes in the manner described in the Offering Memorandum under the
caption "Use of Proceeds."
(h) Not to voluntarily claim, and to resist actively any
attempts to claim, the benefit of any usury laws against the holders of
any Securities.
(i) To do and perform all things required to be done and
performed under this Agreement by it prior to or after the Closing Date
and to satisfy all conditions precedent on its part to the delivery of
the Senior Discount Notes.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Senior Discount Notes in
a manner that would require the registration under the Act of the sale
to the Initial Purchasers, the QIBs or the Accredited Investors of the
Senior Discount Notes or to take any other action that would result in
the Exempt Resales not being exempt from registration under the Act.
(k) For so long as any of the Securities remain outstanding
and during any period in which the Company is not subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to make available to any QIB or beneficial owner of
------------
Senior Discount Notes in connection with any sale thereof and any
prospective purchaser of such Senior Discount Notes from such QIB or
beneficial owner, the information required by Rule 144A(d)(4) under the
Act.
(l) To cause the Exchange Offer to be made in the appropriate
form to permit registered Senior Discount Notes to be offered in
exchange for the Senior Discount Notes and to comply with all
applicable federal and state securities laws in connection with the
Exchange Offer.
(m) To comply with all of its agreements set forth in the
Registration Rights Agreement and all agreements set forth in the
representation letters of the Company to DTC relating to the approval
of the Securities by DTC for "book-entry" transfer.
(n) To use its best efforts to effect the inclusion of the
Senior Discount Notes in PORTAL and to obtain approval of the
Securities by DTC for "book-entry" transfer.
(o) During a period of five years following the Closing Date,
to deliver without charge to each of the Initial Purchasers, as they
may reasonably request, promptly upon their becoming available, copies
of (i) all reports or other publicly available information that the
Company shall mail or otherwise make available to its stockholders and
(ii) all reports, financial statements and proxy or information
statements filed by the Company with the Commission or any national
securities exchange and such other publicly available information
concerning the Company or its Subsidiaries, including without
limitation, press releases.
(p) Prior to the Closing Date, to furnish to each of the
Initial Purchasers, as soon as they have been prepared in the ordinary
course by the Company, copies of any consolidated financial
6
<PAGE>
statements or any unaudited interim financial statements of the Company
for any period subsequent to the periods covered by the financial
statements appearing in the Offering Memorandum.
(q) Neither the Company nor any of its subsidiaries will take,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Senior Discount Notes. Except as permitted by
the Act, the Company will not distribute any preliminary offering
memorandum, offering memorandum or other offering material in
connection with the offering and sale of the Securities.
(r) To comply with the agreements in the Indenture, the
Registration Rights Agreement, and any other Operative Document;
(s) As soon as the Company has determined the principal amount
of the 13 1/2% Notes to be repurchased in connection with the
Retirement contemporaneously with the closing for the sale of the
Senior Discount Notes, and the amount of funds necessary to effect such
Retirement, the Company shall deposit with SunTrust Bank, Central
Florida, National Association, additional funds, if any, sufficient to
defease those 13 1/2% Notes which have not been so repurchased in
connection with such Retirement.
5. Representations and Warranties. (a) The Company represents and
------------------------------
warrants to each of the Initial Purchasers that:
(i) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum do not,
and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties contained in this paragraph shall
not apply to statements in or omissions from the Preliminary Offering
Memorandum and the Offering Memorandum (or any supplement or amendment
thereto) made in reliance upon and in conformity with information
relating to the Initial Purchasers furnished to the Company in writing
by the Initial Purchasers expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the
Offering Memorandum, or any amendment or supplement thereto, or any
order asserting that any of the transactions contemplated by this
Agreement are subject to the registration requirements of the Act, has
been issued.
(ii) When the Senior Discount Notes are issued and delivered
pursuant to this Agreement, no Senior Discount Note will be of the same
class (within the meaning of Rule 144A under the Act) as securities of
the Company that are listed on a national securities exchange
registered under Section 6 of the Exchange Act or that are quoted in a
United States automated inter-dealer quotation system.
(iii) Each of the Company and the Subsidiaries (A) has been
duly organized, is validly existing as a corporation in good standing
under the laws of its respective jurisdiction of incorporation, (B) has
all requisite corporate power and authority to carry on its business as
it is currently being conducted and as described in the Offering
Memorandum and to own, lease and
7
<PAGE>
operate its properties, and (C) is duly qualified and in good standing
as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of
property requires such qualification except, with respect to this
clause (C), where the failure to be so qualified or in good standing
does not and could not reasonably be expected to (x) individually or in
the aggregate, result in a material adverse effect on the properties,
business, results of operations, condition (financial or otherwise),
affairs or prospects of the Company and the Subsidiaries, taken as a
whole, (y) interfere with or adversely affect the issuance or
marketability of the Senior Discount Notes pursuant hereto or (z) in
any manner draw into question the validity of this Agreement or any
other Operative Document or the transactions described in the Offering
Memorandum under the caption "Use of Proceeds" (any of the events set
forth in clauses (x), (y) or (z), a "Material Adverse Effect"). The
-----------------------
Company has no direct or indirect subsidiaries as of the Closing Date
other than the Subsidiaries.
(iv) All of the outstanding shares of capital stock of the
Company have been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive or
similar rights. At March 31, 1997, on a combined basis, after giving
effect to the issuance and sale of the Senior Discount Notes pursuant
hereto, to the offering of 7% Series D Junior Convertible Preferred
Stock (and the related Depositary Shares) being issued concurrently
herewith, and to the retirement of the 13 1/2% Notes, the Company had
an authorized and outstanding consolidated capitalization as set forth
in the Offering Memorandum under the caption "Capitalization."
(v) All of the outstanding capital stock of the Subsidiaries
is owned by the Company, free and clear of any security interest,
claim, lien, limitation on voting rights or encumbrance. Except as
disclosed in the Offering Memorandum and in Exhibit E hereto, there are
not currently, and will not be as a result of the Offering, any
outstanding subscriptions, rights, warrants, calls, commitments of sale
or options to acquire, or instruments convertible into or exchangeable
for, any capital stock or other equity interest of the Company or any
Subsidiary.
(vi) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Indenture, the Registration Rights Agreement, and the
other Operative Documents and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the
corporate power and authority to issue, sell and deliver the Senior
Discount Notes as provided herein and therein.
(vii) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legal, valid and
binding agreement of the Company, enforceable against it in accordance
with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law or equitable principles and
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(viii) The Indenture has been duly and validly authorized by
the Company and, when duly executed and delivered by the Company, will
be the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity. The Offering Memorandum contains a fair
summary of the terms of the Indenture.
8
<PAGE>
(ix) The Senior Discount Notes have been duly and validly
authorized by the Company, and have been duly and validly authorized
for issuance and sale to the Initial Purchasers by the Company pursuant
to this Agreement and, when issued and authenticated in accordance with
the terms of the Indenture and delivered against payment therefor in
accordance with the terms hereof and thereof, will be the legal, valid
and binding obligations of the Company, enforceable against the Company
in accordance with their terms and entitled to the benefits of the
Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity. The
Offering Memorandum contains a fair summary of the terms of the Senior
Discount Notes.
(x) The Exchange Notes have been duly and validly authorized
for issuance by the Company and, when issued and authenticated in
accordance with the terms of the Exchange Offer and the Indenture, will
be the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity. The Offering Memorandum contains a fair summary
of the terms of the Exchange Notes.
(xi) The Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered
by the Company, will be the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The Offering
Memorandum contains a fair summary of the terms of the Registration
Rights Agreement.
(xii) None of the Company or any of the Subsidiaries is and,
after giving effect to the Offering, will not be (A) in violation of
its charter or bylaws, (B) in default in the performance of any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement
or instrument to which it is a party or by which it is bound or to
which any of its properties is subject, or (C) in violation of any
local, state or Federal law, statute, ordinance, rule, regulation,
requirement, judgment or court decree (including, without limitation,
the Communications Act and the rules and regulations of the FCC and
environmental laws, statutes, ordinances, rules, regulations, judgments
or court decrees) applicable to the Company or any Subsidiary or any of
their assets or properties (whether owned or leased) other than, in the
case of clauses (B) and (C), any default or violation that (i) could
not reasonably be expected to have a Material Adverse Effect or (2)
which is disclosed in the Offering Memorandum. There exists no
condition that, with notice, the passage of time or otherwise, would
constitute a default under any such document or instrument, except as
disclosed in the Offering Memorandum.
(xiii) None of (A) the execution, delivery or performance by
the Company of this Agreement and the other Operative Documents, (B)
the issuance and sale of the Securities and (C) consummation by the
Company and the Subsidiaries of the transactions described in the
Offering Memorandum under the caption "Use of Proceeds" violate,
conflict with or constitute a breach of any of the terms or provisions
of, or a default under (or an event that with notice or the lapse of
time, or both, would constitute a default), or require consent under,
or result in the imposition of a lien or encumbrance on any properties
of the Company or any Subsidiary, or an acceleration of any
indebtedness of the Company or any Subsidiary pursuant to, (i) the
charter or bylaws of the
9
<PAGE>
Company or any Subsidiary, (ii) any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party or by which any of them or their
property is or may be bound, (iii) any statute, rule or regulation
applicable to the Company or any Subsidiary or any of their respective
assets or properties or (iv) any judgment, order or decree of any court
or governmental agency or authority having jurisdiction over the
Company or the Subsidiaries or any of their assets or properties,
except in the case of clauses (ii), (iii) and (iv) for such violations
conflicts, breaches, defaults, consents, impositions of liens or
accelerations that (x) would not singly, or in the aggregate, have a
Material Adverse Effect or (y) which are disclosed in the Offering
Memorandum. Other than as described in the Offering Memorandum, no
consent, approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, (A) any court or
governmental agency, body or administrative agency (including, without
limitation, the FCC) or (B) any other person is required for (1) the
execution, delivery and performance by the Company of this Agreement
and the other Operative Documents, (2) the issuance and sale of the
Securities and the transactions contemplated hereby and thereby, except
(x) such as have been obtained and made (or, in the case of the
Registration Rights Agreement, will be obtained and made) under the
Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
---------------
Act") and state securities or Blue Sky laws and regulations or such as
---
may be required by the NASD or (y) where the failure to obtain any such
consent, approval, authorization or order of, or filing registration,
qualification, license or permit would not reasonably be expected to
result in a Material Adverse Effect.
(xiv) There is (i) no action, suit or proceeding before or by
any court, arbitrator or governmental agency, body or official,
domestic or foreign, now pending or, to the best knowledge of the
Company or any Subsidiary, threatened or contemplated to which the
Company or any of the Subsidiaries is a party or to which the business
or property of the Company or any Subsidiary is subject, (ii) no
statute, rule, regulation or order that has been enacted, adopted or
issued by any governmental agency or that has been proposed by any
governmental body or (iii) no injunction, restraining order or order of
any nature by a federal or state court or foreign court of competent
jurisdiction to which the Company or any Subsidiary is or may be
subject or to which the business, assets, or property of the Company or
any Subsidiary are or may be subject, that, in the case of clauses (i),
(ii) and (iii) above, (w) is required to be disclosed in the
Preliminary Offering Memorandum and the Offering Memorandum and that is
not so disclosed, or (x) could reasonably be expected to individually
or in the aggregate, result in a Material Adverse Effect.
(xv) No action has been taken and no statute, rule, regulation
or order has been enacted, adopted or issued by any governmental agency
that prevents the issuance of the Securities or prevents or suspends
the use of the Offering Memorandum; no injunction, restraining order or
order of any nature by a federal or state court of competent
jurisdiction has been issued that prevents the issuance of the
Securities or prevents or suspends the sale of the Securities in any
jurisdiction referred to in Section 4(e) hereof; and every request of
any securities authority or agency of any jurisdiction for additional
information has been complied with in all material respects.
(xvi) Except as set forth in the Offering Memorandum, there is
(i) no significant unfair labor practice complaint pending against the
Company or any Subsidiary nor, to the best knowledge of the Company,
10
<PAGE>
threatened against any of them, before the National Labor Relations
Board, any state or local labor relations board or any foreign labor
relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any
Subsidiary or, to the best knowledge of the Company, threatened against
any of them, (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Company or any Subsidiary nor, to the best
knowledge of the Company, threatened against the Company or any
Subsidiary and (iii) to the best knowledge of the Company, no union
representation question existing with respect to the employees of the
Company or any Subsidiary that, in the case of clauses (i), (ii) or
(iii), could reasonably be expected to result in a Material Adverse
Effect. To the best knowledge of the Company, no collective bargaining
organizing activities are taking place with respect to the Company and
the Subsidiaries. None of the Company or any Subsidiary has violated
(A) any federal, state or local law or foreign law relating to
discrimination in hiring, promotion or pay of employees (except as set
forth in the Offering Memorandum), (B) any applicable wage or hour laws
or (C) any provision of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules and regulations thereunder,
-----
which in the case of clause (A), (B) or (C) above could reasonably be
expected to result in a Material Adverse Effect.
(xvii) None of the Company or any Subsidiary has violated any
environmental, safety or similar law or regulation applicable to it or
its business or property relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), lacks any permit,
------------------
license or other approval required of it under applicable Environmental
Laws or is violating any term or condition of such permit, license or
approval which could reasonably be expected to, either individually or
in the aggregate, have a Material Adverse Effect.
(xviii) Each of the Company and the Subsidiaries has (i) good
and marketable title to all of the properties and assets described in
the Offering Memorandum as owned by it, free and clear of all liens,
charges, encumbrances and restrictions, except such as are described in
the Offering Memorandum or as would not have a Material Adverse Effect,
(ii) peaceful and undisturbed possession under all material leases to
which any of them is a party as lessee, (iii) all licenses,
certificates, permits, authorizations, approvals, franchises and other
rights from, and has made all declarations and filings with, all
federal, state and local authorities (including, without limitation,
the FCC), all self-regulatory authorities and all courts and other
tribunals (each an "Authorization") necessary to engage in the business
-------------
conducted by any of them in the manner described in the Offering
Memorandum, except as described in the Offering Memorandum or where
failure to hold such Authorizations would not, individually or in the
aggregate, have a Material Adverse Effect and (iv) no reason to believe
that any governmental body or agency is considering limiting,
suspending or revoking any such Authorization. Except where the failure
to be in full force and effect would not have a Material Adverse
Effect, all such Authorizations are valid and in full force and effect
and each of the Company and the Subsidiaries is in compliance in all
material respects with the terms and conditions of all such
Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. All material
leases to which the Company and the Subsidiaries is a party are valid
and binding and no default by the Company or any Subsidiary has
occurred and is continuing thereunder and, to the best knowledge of the
Company and the Subsidiaries no material defaults by the landlord are
existing under any such lease that could reasonably be expected to
result in a Material Adverse Effect.
(xix) Each of the Company and the Subsidiaries owns, possesses
or has the right to employ all patents, patent rights, licenses
(including all FCC, state, local or other jurisdictional regulatory
licenses), inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, software, systems or procedures), trademarks,
11
<PAGE>
service marks and trade names, inventions, computer programs, technical
data and information (collectively, the "Intellectual Property")
---------------------
presently employed by it or its subsidiaries in connection with the
businesses now operated by it or which are proposed to be operated by
it or its subsidiaries free and clear of and without violating any
right, claimed right, charge, encumbrance, pledge, security interest,
restriction or lien of any kind of any other person and none of the
Company or any Subsidiary has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing except as could not reasonably be expected to have a Material
Adverse Effect. The use of the Intellectual Property in connection with
the business and operations of the Company and the Subsidiaries does
not infringe on the rights of any person, except as could not
reasonably be expected to have a Material Adverse Effect.
(xx) None of the Company or any Subsidiary, or to the best
knowledge of the Company, any of their respective officers, directors,
partners, employees, agents or affiliates or any other person acting on
behalf of the Company or any Subsidiary has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than
legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency (domestic or
foreign), instrumentality of any government (domestic or foreign) or
any political party or candidate for office (domestic or foreign) or
other person who was, is or may be in a position to help or hinder the
business of the Company or any Subsidiary (or assist the Company or any
Subsidiary in connection with any actual or proposed transaction) which
(i) might subject the Company or any Subsidiary, or any other
individual or entity to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material adverse effect on the
assets, business or operations of the Company or any Subsidiary or
(iii) if not continued in the future, might have a Material Adverse
Effect.
(xxi) All material tax returns required to be filed by the
Company and each of the Subsidiaries in all jurisdictions have been so
filed. All taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such
entities or that are due and payable have been paid, other than those
being contested in good faith and for which adequate reserves have been
provided or those currently payable without penalty or interest. To the
knowledge of the Company, there are no material proposed additional tax
assessments against the Company, the assets or property of the Company
or any Subsidiary.
(xxii) None of the Company or the Subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), or (ii) a "holding company" or
----------------------
a "subsidiary company" or an "affiliate" of a holding company within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(xxiii) Except as disclosed in the Offering Memorandum, and
except with respect to the holders of certain shares of Common Stock
issued pursuant to an Asset Acquisition Agreement dated as of December
6, 1996 among Universal Telecom, Inc., Intermedia Communications, Inc.
and certain individuals, there are no holders of securities of the
Company or the Subsidiaries who, by reason of the execution by the
Company of this Agreement or any other Operative Document to which it
is a party or the consummation by the Company of the transactions
contemplated hereby and thereby, have the right to request or demand
that the Company or any of the Subsidiaries register under the Act or
analogous foreign laws and regulations securities held by them.
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(xxiv) Each of the Company and the Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect thereto.
(xxv) Each of the Company and the Subsidiaries maintains
insurance covering its properties, operations, personnel and
businesses. Such insurance insures against such losses and risks as are
adequate in accordance with customary industry practice to protect the
Company and the Subsidiaries and their respective businesses. None of
the Company or any Subsidiary has received notice from any insurer or
agent of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance.
All such insurance is outstanding and duly in force on the date hereof,
subject only to changes made in the ordinary course of business,
consistent with past practice, which do not, singly or in the
aggregate, materially alter the coverage thereunder or the risks
covered thereby.
(xxvi) None of the Company or any Subsidiary has (i) taken,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Senior Discount Notes or (ii) since the date
of the Preliminary Offering Memorandum (A) sold, bid for, purchased or
paid any person any compensation for soliciting purchases of, the
Senior Discount Notes or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.
(xxvii) No registration under the Act of the Senior Discount
Notes is required for the sale thereof to the Initial Purchasers as
contemplated hereby or for the Exempt Resales assuming (i) that the
purchasers who buy the Senior Discount Notes in the Exempt Resales are
either QIBs or Accredited Investors and (ii) the accuracy of the
Initial Purchasers' representations regarding the absence of general
solicitation in connection with the sale of Senior Discount Notes to
the Initial Purchasers and the Exempt Resales contained herein. No form
of general solicitation or general advertising was used by the Company
or any of its representatives (other than the Initial Purchasers, as to
which the Company makes no representation or warranty) in connection
with the offer and sale of any of the Securities in connection with
Exempt Resales, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising. No securities of the same class as the Securities
have been issued and sold by the Company within the six-month period
immediately prior to the date hereof.
(xxviii) Set forth on Exhibit B hereto is a list of each
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employee pension or benefit plan with respect to which the Company or
any corporation considered an affiliate of the Company within the
meaning of Section 407(d)(7) of ERISA (an "ERISA Affiliate") is a party
---------------
in interest or disqualified person. The execution and delivery of this
Agreement, the other Operative Documents and the sale of the Senior
Discount Notes to be purchased by the QIBs and the Accredited Investors
13
<PAGE>
will not involve any prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of
1986. The representation made by the Company in the preceding sentence
is made in reliance upon and subject to the accuracy of, and compliance
with, the representations and covenants made or deemed made by the QIBs
and the Accredited Investors as set forth in the Offering Memorandum
under the caption "Notice to Investors."
(xxix) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, and each amendment or supplement
thereto, as of its date, contains the information specified in, and
meets the requirements of, Rule 144A(d)(4) under the Act.
(xxx) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, (i) none of the
Company or any Subsidiary has incurred any liabilities or obligations,
direct or contingent, which are material, individually or in the
aggregate, to the Company and the Subsidiaries taken as a whole, nor
entered into any transaction not in the ordinary course of business,
(ii) the Seller has not incurred any liabilities or obligations, direct
or contingent, which will be material to the Company and the
Subsidiaries taken as a whole, (iii) there has not been, singly or in
the aggregate, any change or development which could reasonably be
expected to result in a Material Adverse Effect and (iv) there has been
no dividend or distribution of any kind declared, paid or made by the
Company or any of its Subsidiaries on any class of its capital stock,
except for dividends paid in respect of the Series B Preferred Stock.
(xxxi) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Securities, the application of
the proceeds from the issuance and sale of the Securities and the
consummation of the transactions contemplated thereby as set forth in
the Offering Memorandum, will violate Regulations G, T, U or X
promulgated by the Board of Governors of the Federal Reserve System or
analogous foreign laws and regulations.
(xxxii) To the best knowledge of the Company, the accountants
who have certified or will certify the financial statements included or
to be included as part of the Offering Memorandum are independent
accountants. The historical financial statements of the Company and its
Subsidiaries comply as to form in all material respects with the
requirements applicable to registration statements on Form S-1 under
the Act and present fairly in all material respects the financial
position and results of operations of the Company and its Subsidiaries
at the respective dates and for the respective periods indicated. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods presented. The pro forma financial statements included in
the Offering Memorandum have been prepared on a basis consistent with
such historical statements, except for the pro forma adjustments
specified therein, and give effect to assumptions made on a reasonable
basis and present fairly in all material respects the historical and
proposed transactions contemplated by this Agreement, the other
Operative Documents; and such pro forma financial statements comply as
to form in all material respects with the requirements applicable to
pro forma financial statements included in registration statements on
Form S-1 under the Act. The other financial and statistical information
and data included in the Offering Memorandum, historical and pro forma,
are accurately presented in all material respects and prepared on a
basis consistent with the financial statements, historical and pro
forma, included in the Offering Memorandum and the books and records of
the Company and its Subsidiaries, as applicable.
14
<PAGE>
(xxxiii) The Company does not intend to, nor does it believe
that it will, incur debts beyond its ability to pay such debts as they
mature. The present fair saleable value of the assets of the Company on
a consolidated basis exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company on a consolidated
basis as they become absolute and matured. The assets of the Company on
a consolidated basis do not constitute unreasonably small capital to
carry out the business of the Company and the Subsidiaries, taken as a
whole, as conducted or as proposed to be conducted. Upon the issuance
of the Senior Discount Notes, the present fair saleable value of the
assets of the Company on a consolidated basis will exceed the amount
that will be required to be paid on or in respect of the existing debts
and other liabilities (including contingent liabilities) of the Company
on a consolidated basis as they become absolute and matured. Upon the
issuance of the Senior Discount Notes, the assets of the Company on a
consolidated basis will not constitute unreasonably small capital to
carry out its businesses as now conducted, including the capital needs
of the Company on a consolidated basis, taking into account the
projected capital requirements and capital availability.
(xxxiv) Except pursuant to this Agreement, there are no
contracts, agreements or understandings between the Company and its
Subsidiaries and any other person that would give rise to a valid claim
against the Company or either of the Initial Purchasers for a brokerage
commission, finder's fee or like payment in connection with the
issuance, purchase and sale of the Securities.
(xxxv) Each certificate signed by any officer of the Company
and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the
Company to the Initial Purchasers as to the matters covered thereby.
The Company acknowledges that each of the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 8 hereof, counsel to the Company and counsel to the Initial Purchasers,
will rely upon the accuracy and truth of the foregoing representations and
hereby consents to such reliance.
(b) Each of the Initial Purchasers severally and not jointly
represents, warrants and covenants to the Company and agrees that:
(i) Such Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order
to evaluate the merits and risks of an investment in the Senior
Discount Notes.
(ii) Such Initial Purchaser (A) is not acquiring the Senior
Discount Notes with a view to any distribution thereof that would
violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering
and reselling the Senior Discount Notes only to QIBs in reliance on the
exemption from the registration requirements of the Act provided by
Rule 144A and to Accredited Investors in a private placement exempt
from the registration requirements of the Act.
(iii) No form of general solicitation or general advertising
has been or will be used by either of the Initial Purchasers or any of
their representatives in connection with the offer and sale of any of
the Senior Discount Notes, including, but not limited to, articles,
notices or other
15
<PAGE>
communications published in any newspaper, magazine, or similar medium
or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
(iv) Each of the Initial Purchasers agrees that, in connection
with the Exempt Resales, it will solicit offers to buy the Senior
Discount Notes only from, and will offer to sell the Senior Discount
Notes only to, QIBs and Accredited Investors. The Initial Purchasers
further agree (A) that they will offer to sell the Senior Discount
Notes only to, and will solicit offers to buy the Senior Discount Notes
only from (1) QIBs who in purchasing such Senior Discount Notes will
be deemed to have represented and agreed that they are purchasing the
Senior Discount Notes for their own accounts or accounts with respect
to which they exercise sole investment discretion and that they or such
accounts are QIBs and (2) Accredited Investors who make the
representations contained in, and execute and return to one of the
Initial Purchasers, a certificate in the form of Annex B attached to
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the Offering Memorandum and (B) that, in the case of such QIBs and
Accredited Investors, acknowledges and agrees that such Senior Discount
Notes will not have been registered under the Act and may be resold,
pledged or otherwise transferred only (x)(I) to a person who the seller
reasonably believes is a QIB in a transaction meeting the requirements
of Rule 144A, (II) in a transaction meeting the requirements of Rule
144, or (III) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of
counsel if the Company so requests), (y) to the Company, (z) pursuant
to an effective registration statement under the Act and, in each case,
in accordance with any applicable securities laws of any state of the
United States and (C) that the holder will, and each subsequent holder
is required to, notify any purchaser of the security evidenced thereby
of the resale restrictions set forth in (B) above.
(v) Each of the Initial Purchasers understands that the
Company and, for purposes of the opinions to be delivered to the
Initial Purchasers pursuant to Section 8 hereof, counsel to the Company
and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and hereby consents to such
reliance.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i)
each of the Initial Purchasers, (ii) each person, if any, who controls
either of the Initial Purchasers 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 of the Initial Purchasers 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 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 Preliminary
Offering Memorandum or the Offering Memorandum, 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
16
<PAGE>
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 the Initial Purchasers expressly for
use therein and (ii) the foregoing indemnity with respect to any untrue
statement contained in or omitted from a preliminary offering
memorandum shall not inure to the benefit of any Initial Purchaser (or
any person controlling such Initial Purchaser), from whom the person
asserting any such loss, liability, claim, damage or expense purchased
any of the Senior Discount Notes 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 Initial Purchaser
sold Senior Discount Notes 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 Offering Memorandum, as amended or supplemented, and (x) the
Company shall have previously and timely furnished sufficient copies of
the Offering Memorandum, as so amended or supplemented, to such Initial
Purchaser in accordance with this Agreement and (y) the Offering
Memorandum, 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 Initial Purchaser, 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 Preliminary
Offering Memorandum or the Offering Memorandum, 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
either Initial Purchaser expressly for use therein; provided, however,
that in no case shall either Initial Purchaser be liable or responsible
for any amount in excess of the discounts and commissions received by
such Initial Purchaser, as set forth on the cover page of the Offering
Memorandum. This indemnity will be in addition to any liability which
either Initial Purchaser may otherwise have, including under this
Agreement.
(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 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 6 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
17
<PAGE>
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.
7. Contribution. In order to provide for contribution in
------------
circumstances in which the indemnification provided for in Section 6 is for any
reason held to be unavailable from the Company or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Initial Purchasers
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 Initial Purchasers, 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 one or both of the Initial Purchasers may be subject, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Initial Purchasers from the offering of the Senior Discount
Notes 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 Section 6, 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 Initial Purchasers 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 the Initial Purchasers shall
be deemed to be in the same proportion as (x) the total proceeds from the
offering of Senior Discount Notes (net of discounts but before deducting
expenses) received by the Company and (y) the discounts received by the Initial
Purchasers, respectively, in each case as set forth in the table on the cover
page of the Offering Memorandum. The relative fault of the Company and of the
Initial Purchasers shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Initial Purchasers agree that it
would not be just and equitable if contribution pursuant to this Section 7 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 7, (i) in no case shall either of
the Initial Purchasers be required to contribute any amount in excess
18
<PAGE>
of the amount by which the discount applicable to the Senior Discount Notes
purchased by such Initial Purchaser pursuant to this Agreement exceeds the
amount of any damages which such Initial Purchaser has otherwise been required
to pay by reason of any 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 7, (A) each person, if any, who
controls either of the Initial Purchasers 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 any of the Initial
Purchasers or any controlling person shall have the same rights to contribution
as such Initial Purchaser, 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 7. 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 7, 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 7 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.
8. Conditions of Initial Purchasers' Obligations. The several
---------------------------------------------
obligations of the Initial Purchasers to purchase and pay for the Firm Notes and
the Additional Notes, if any, as provided herein, shall be subject to the
satisfaction of the following conditions, except that with respect to the
Additional Notes, references to the term Closing Date shall mean the Option
Closing Date:
(a) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on the date
hereof and on the Closing Date with the same force and effect as if
made on and as of the date hereof and the Closing Date, respectively.
The Company shall have performed or complied with all of the agreements
herein contained and required to be performed or complied with by it at
or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and
copies distributed to the Initial Purchasers not later than 10:00 a.m.,
New York City time, on the day following the date of this Agreement or
at such later date and time as to which the Initial Purchasers may
agree, and no stop order suspending the qualification or exemption from
qualification of the Senior Discount Notes in any jurisdiction referred
to in Section 4(e) shall have been issued and no proceeding for that
purpose shall have been commenced or shall be pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Senior Discount Notes; no action, suit or proceeding
shall have been commenced and be pending against or affecting or, to
the best knowledge of the Company, threatened against, the Company or
the Subsidiaries before any court or arbitrator or any governmental
body, agency or official that (1) could reasonably be expected to
result in a Material Adverse Effect or (2) has not been disclosed in
the Offering Memorandum; and no stop order shall have been issued
preventing the use of the Offering Memorandum, or any amendment or
supplement thereto, or which could reasonably be expected to have a
Material Adverse Effect.
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(d) Since the dates as of which information is given in the
Offering Memorandum and except as contemplated by the Offering
Memorandum, (i) there shall not have been any material adverse change,
or any development that is reasonably likely to result in a material
adverse change, in the capital stock or the long-term debt, or material
increase in the short-term debt, of the Company and the Subsidiaries
from that set forth in the Offering Memorandum, (ii) no dividend or
distribution of any kind shall have been declared, paid or made by the
Company or any Subsidiary on any class of its capital stock, except for
dividends paid in respect of the Series B Preferred Stock, (iii)
neither the Company nor any Subsidiary shall have incurred any
liabilities or obligations, direct or contingent, that are material,
individually or in the aggregate, to the Company and the Subsidiaries,
taken as a whole, and that are required to be disclosed on a balance
sheet or notes thereto in accordance with generally accepted accounting
principles and are not disclosed on the latest balance sheet or notes
thereto included in the Offering Memorandum. Since the date hereof and
since the dates as of which information is given in the Offering
Memorandum, there shall not have occurred any Material Adverse Effect.
(e) The Initial Purchasers shall have received a certificate,
dated the Closing Date, signed on behalf of the Company by (i) David C.
Ruberg, Chairman of the Board, President and Chief Executive Officer
and (ii) Robert Manning, Senior Vice President and Chief Financial
Officer, in form and substance reasonably satisfactory to the Initial
Purchasers, confirming, as of the Closing Date, the matters set forth
in paragraphs (a), (b), (c) and (d) of this Section 8 and that, as of
the Closing Date, the obligations of the Company to be performed
hereunder on or prior thereto have been duly performed in all material
respects.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers, of Kronish, Lieb, counsel for the Company, to the effect
set forth in Exhibit C hereto.
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(g) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, in form and substance
satisfactory to the Initial Purchasers and counsel to the Initial
Purchasers, of Kelley, Drye & Warren, special regulatory counsel to the
Company, to the effect set forth in Exhibit D hereto.
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(h) The Initial Purchasers shall have received an opinion,
dated the Closing Date, in form and substance reasonably satisfactory
to the Initial Purchasers, of Latham & Watkins, counsel to the Initial
Purchasers, covering such matters as are customarily covered in such
opinions.
(i) At the time this Agreement is executed and at the Closing
Date the Initial Purchasers shall have received from Ernst & Young LLP,
independent public accountants for the Company and its Subsidiaries,
dated as of the date of this Agreement and as of the Closing Date,
customary comfort letters addressed to the Initial Purchasers and in
form and substance satisfactory to the Initial Purchasers and counsel
to the Initial Purchasers with respect to the financial statements and
certain financial information of the Company and its Subsidiaries
contained in the Offering Memorandum.
(j) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 8 and in order to evidence the
accuracy, completeness or
20
<PAGE>
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
(k) Prior to the Closing Date, the Company and the
Subsidiaries shall have furnished to the Initial Purchasers such
further information, certificates and documents as the Initial
Purchasers may reasonably request.
(l) The Company and the Trustee shall have entered into the
Indenture and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(m) The Company shall have entered into the Registration
Rights Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(n) The Company shall have: (i) with respect to the 13 1/2%
Notes that will not be repurchased by the Company in connection with
the Retirement, deposited with SunTrust Bank, Central Florida, National
Association, as trustee, in compliance with the provisions for the
defeasance of the Company's 13 1/2% Notes under the indenture governing
such 13 1/2% Notes (the "13 1/2 Notes Indenture"), funds sufficient
----------------------
for the defeasance of such unpurchased 13 1/2% Notes, and (ii) with
respect to the 13 1/2% Notes that are to be repurchased by the Company
in connection with the Retirement, established an account with Bear,
Stearns & Co. Inc. in the name of the Company and containing funds
sufficient to Retire the 13 1/2% Notes which are not covered by clause
(i) above and which are outstanding on the date hereof.
All opinions, certificates, letters and other documents required by
this Section 8 to be delivered by the Company will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to the Initial Purchasers. The Company will furnish the Initial Purchasers with
such conformed copies of such opinions, certificates, letters and other
documents as it shall reasonably request.
9. Initial Purchasers' Information. The Company and the Initial
-------------------------------
Purchasers severally acknowledge that the statements with respect to the
offering of the Senior Discount Notes set forth in the last paragraph of the
cover page, and the fourth, fifth, seventh an eighth paragraphs under the
caption "Plan of Distribution" under the caption "Plan of Distribution" in such
Offering Memorandum constitute the only information furnished in writing by the
Initial Purchasers expressly for use in the Offering Memorandum.
10. Survival of Representations and Agreements. All representations
------------------------------------------
and warranties, covenants and agreements of the Initial Purchasers and the
Company contained in this Agreement, including the agreements contained in
Sections 4(f) and 11(d), the indemnity agreements contained in Section 6 and the
contribution agreements contained in Section 7, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Initial Purchasers any controlling person thereof or by or on behalf of the
Company or any controlling person thereof, and shall survive delivery of and
payment for the Senior Discount Notes to and by the Initial Purchasers. The
representations contained in Section 5 and the agreements contained in Sections
4(f), 6, 7 and 11(d) shall survive the termination of this Agreement, including
any termination pursuant to Section 11.
11. Effective Date of Agreement; Termination.
----------------------------------------
(d) This Agreement shall become effective upon execution and
delivery of a counterpart hereof by each of the parties hereto.
21
<PAGE>
(e) The Initial Purchasers shall have the right to terminate
this Agreement at any time prior to the Closing Date by notice to the
Company from the Initial Purchasers, without liability (other than with
respect to Sections 6 and 7) on the Initial Purchasers' part to the
Company if, on or prior to such date, (i) the Company shall have
failed, refused or been unable to perform in any material respect any
agreement on its part to be performed hereunder, (ii) any other
condition to the obligations of the Initial Purchasers hereunder as
provided in Section 8 is not fulfilled when and as required in any
material respect, (iii) in the reasonable judgment of the Initial
Purchasers any material adverse change shall have occurred since the
respective dates as of which information is given in the Offering
Memorandum in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects, net worth, results of
operations or cash flows of the Company and the Subsidiaries taken as a
whole, other than as set forth in the Offering Memorandum, or (iv)(A)
any domestic or international event or act or occurrence has materially
disrupted, or in the opinion of the Initial Purchasers will in the
immediate future materially disrupt, the market for the Company's
securities or for securities in general; or (B) trading in securities
generally on the New York or American Stock Exchanges shall have been
suspended or materially limited, or minimum or maximum prices for
trading shall have been established, or maximum ranges for prices for
securities shall have been required, on such exchange, or by such
exchange or other regulatory body or governmental authority having
jurisdiction; or (C) a banking moratorium shall have been declared by
Federal or state authorities, or a moratorium in foreign exchange
trading by major international banks or persons shall have been
declared; or (D) there is an outbreak or escalation of armed
hostilities involving the United States on or after the date hereof, or
if there has been a declaration by the United States of a national
emergency or war, the effect of which shall be, in the Initial
Purchasers' judgment, to make it inadvisable or impracticable to
proceed with the offering or delivery of the Senior Discount Notes on
the terms and in the manner contemplated in the Offering Memorandum; or
(E) there shall have been such a material adverse change in general
economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in the Initial Purchasers' judgment, makes it
inadvisable or impracticable to proceed with the delivery of the Senior
Discount Notes as contemplated hereby.
(f) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, telephonic facsimile, or telegraph,
confirmed in writing by letter.
(g) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to any of clauses (iii)
or (iv) of Section 11(b), in which case each party will be responsible
for its own expenses), or if the sale of the Senior Discount Notes
provided for herein is not consummated because any condition to the
obligations of the Initial Purchasers set forth herein is not satisfied
or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision
hereof, the Company will, subject to demand by the Initial Purchasers,
reimburse the Initial Purchasers for all out-of-pocket expenses
(including the reasonable fees and expenses of Initial Purchasers'
counsel), incurred by the Initial Purchasers in connection herewith.
12. Notice. All communications hereunder, except as may be
------
otherwise specifically provided herein, shall be in writing and, if sent to the
Initial Purchasers shall be mailed, delivered, or telexed, telegraphed or
telecopied and confirmed in writing to Bear, Stearns & Co. Inc. and Salomon
Brothers Inc, c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167, Attention: Corporate Finance Department, telecopy number: (212) 272-3092;
and if sent to the Company, shall be mailed, delivered or
22
<PAGE>
telexed, telegraphed or telecopied and confirmed in writing to Intermedia
Communications Inc., 3625 Queen Palm Drive, Tampa, Florida 33619, Attention:
Chief Financial Officer, telecopy number: (813) 744-2470, with a copy to
Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, 46th Floor,
New York, New York 10036, Attention: Ralph J. Sutcliffe; provided, however, that
any notice pursuant to Section 7 shall be mailed, delivered or telexed,
telegraphed or telecopied and confirmed in writing.
13. Parties. This Agreement shall inure solely to the benefit
-------
of, and shall be binding upon, the Initial Purchasers and the Company and the
controlling persons and agents referred to in Sections 6 and 7, and their
respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Senior Discount Notes from the Initial Purchasers.
14. Construction. This Agreement shall be construed in
------------
accordance with the internal laws of the State of New York. TIME IS OF THE
ESSENCE IN THIS AGREEMENT.
15. Captions. The captions included in this Agreement are
--------
included solely for convenience of reference and are not to be considered a part
of this Agreement.
16. Counterparts. This Agreement may be executed in various
------------
counterparts which together shall constitute one and the same instrument.
[Signature page to follow]
23
<PAGE>
If the foregoing correctly sets forth the understanding among the
Initial Purchasers and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
INTERMEDIA COMMUNICATIONS INC.
By:
-------------------------------
Name:
Title:
Accepted and agreed to as of
the date first above written:
BEAR, STEARNS & CO. INC.
By: BEAR, STEARNS & CO. INC.
By:
--------------------------------
Name:
Title:
SALOMON BROTHERS INC
By: SALOMON BROTHERS INC
By:
--------------------------------
Name:
Title:
24
<PAGE>
SCHEDULE I
Amount of
Firm
Notes to
Initial Purchaser be Purchased
- ----------------- ------------
Bear, Stearns & Co. Inc. 424,200,000
Salomon Brothers Inc 818,800,000
-----------
Total 606,000,000
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
[Filed as Exhibit 4.4 to this Registration Statement on Form S-4]
A-1
<PAGE>
EXHIBIT B
List of Employee Pension and Benefit Plans
of Intermedia Communications Inc.
and its Subsidiaries
1. Intermedia Communications Inc. 401(k) Profit Sharing Plan
B-1
<PAGE>
EXHIBIT C
Form of Opinion of Kronish, Lieb, Weiner & Hellman LLP
1. Each of the Company and the Subsidiaries is duly organized
and validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation, and has all requisite corporate
power and authority to carry on its business as it is being conducted
and as described in the Offering Memorandum and to own, lease and
operate its properties, and is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not, singly or in the aggregate, have a material
adverse effect on the business, financial condition or results of
operations of the Company and the Subsidiaries, taken as a whole.
2. All of the outstanding shares of capital stock of the
Company has been duly authorized, validly issued, and are fully paid
and nonassessable and were not issued in violation of any preemptive or
similar rights. The authorized, issued and outstanding capital stock of
the Company conforms in all respects to the description thereof set
forth in the Offering Memorandum.
3. To our knowledge, after reasonable inquiry, all of the
outstanding capital stock of the Company's Subsidiaries is owned by the
Company, free and clear of any security interest, claim, lien,
limitation on voting rights or encumbrance. Except as set forth on
Schedule A hereto, there are not, to our knowledge, currently, and will
not be following the Offering, any outstanding subscriptions, rights,
warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any capital stock or
other equity interest of the Company or any Subsidiary.
4. When the Senior Discount Notes are issued and delivered
pursuant to this Agreement, no Senior Discount Note will be of the same
class (within the meaning of Rule 144A under the Act) as securities of
the Company that are listed on a national securities exchange
registered under Section 6 of the Exchange Act or that are quoted in a
United States automated inter-dealer quotation system.
5. The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Indenture, the Registration Rights Agreement, and the
other Operative Documents, as applicable, and to consummate the
transactions contemplated thereby, including, without limitation, the
corporate power and authority to issue, sell and deliver the Securities
as provided herein and therein.
6. This Agreement has been duly and validly authorized,
executed and delivered by the Company and, assuming due execution by
the other parties hereto, is the legally valid and binding agreement of
the Company.
C-1
<PAGE>
7. Each of the Indenture and the Registration Rights
Agreement has been duly and validly authorized, executed and delivered
by the Company, and assuming due execution by the other parties
thereto, is the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
that we express no opinion as to the validity or enforceability of
rights of indemnity or contribution, or both and except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
8. The Senior Discount Notes have been duly and validly
authorized for issuance and sale to the Initial Purchasers by the
Company pursuant to this Agreement and, when issued and authenticated
in accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms of this Agreement and the
Indenture, assuming due execution by the other parties thereto, will be
the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture, except that we express no opinion as to the
validity or enforceability of rights of indemnity or contribution, or
both, and except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity.
9. The Exchange Notes have been duly and validly authorized
for issuance and sale to the Initial Purchasers by the Company pursuant
to this Agreement and, when issued and authenticated in accordance with
the terms of the Indenture and delivered against payment therefor in
accordance with the terms of this Agreement and the Indenture, assuming
due execution by the other parties thereto, will be the legal, valid
and binding obligations of the Company, enforceable against the Company
in accordance with their terms and entitled to the benefits of the
Indenture, except that we express no opinion as to the validity or
enforceability of rights of indemnity or contribution, or both, and
except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of
equity.
10. [Reserved].
11. [Reserved].
12. The Offering Memorandum contains a fair summary of each
of the Senior Discount Notes, the Indenture, and the Registration
Rights Agreement.
13. No registration under the Act of the Senior Discount
Notes is required for the sale of the Senior Discount Notes to the
Initial Purchasers as contemplated by this Agreement or for the Exempt
Resales assuming (i) that the Initial Purchasers are Qualified
Institutional Buyers, as defined in Rule 144A under the Act ("QIB"),
(ii) that the purchasers who buy the Senior Discount Notes in the
Exempt Resales are either QIBs or Accredited Investors, (iii) the
accuracy of the Initial Purchasers' representations regarding the
absence of general solicitation in connection with the sale of Senior
Discount Notes to the Initial Purchasers and the Exempt Resales
contained in this Agreement, (iv) the accuracy of the Company's
representations in Sections 5(a)(ii), (xxvi), (xxvii) (other than with
respect to the first sentence) and (xxix) of this Agreement and (v)
with respect to Accredited Investors, the accuracy of the
representations made by each Accredited Investor as set forth in the
letters of representation executed by such Accredited Investor in the
form of Annex A to the Offering Memorandum.
C-2
<PAGE>
14. The Offering Memorandum, as of its date (except for the
financial statements, including the notes thereto, and supporting
schedules and other financial, statistical and accounting data included
therein or omitted therefrom, as to which no opinion need be
expressed), and each amendment or supplement thereto, as of its date,
contains all the information specified in, and meets the requirements
of, Rule 144A(d)(4) under the Act.
15. Prior to the effectiveness of the Shelf Registration
Statement, the Indenture is not required to be qualified under the
Trust Indenture Act.
16. None of (A) the execution, delivery or performance by
the Company of this Agreement and the other Operative Documents, (B)
the issuance and sale of the Securities or (C) consummation by the
Company and the Subsidiaries of the transactions described in the
Offering Memorandum under the caption "Use of Proceeds" will violate
conflict with or constitute a breach of any of the terms or provisions
of, or a default under (or an event that with notice or the lapse of
time, or both, would constitute a default), or require consent under,
or result in the imposition of a lien or encumbrance on any properties
of the Company or any Subsidiary, or an acceleration of any
indebtedness of the Company or any Subsidiary pursuant to, (i) the
charter or bylaws of the Company or any Subsidiary, (ii) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement
or instrument to which the Company or any Subsidiary is a party or by
which it or its property is or may be bound identified to such counsel
as material (assuming all of such agreements are governed by New York
law), (iii) any judgment, order or decree of any court or governmental
agency or authority having jurisdiction over the Company or any
Subsidiary or its assets or properties known to such counsel, except
that we express no opinion as to the matters addressed by the opinion
of Kelley, Drye & Warren LLP and except in the case of clauses (ii),
(iii) and (iv) for such violations, conflicts, breaches, defaults,
consents, impositions of liens or accelerations that (x) would not,
singly or in the aggregate, have a Material Adverse Effect or (y) are
disclosed in the Offering Memorandum. Assuming compliance with
applicable state securities and Blue Sky laws, as to which such counsel
need express no opinion, and except for the filing of a registration
statement under the Act and qualification of the Indenture under the
Trust Indenture Act of 1939, as amended, in connection with the
Registration Rights Agreement, no consent, approval, authorization or
order of, or filing, registration, qualification, license or permit of
or with, any court or governmental agency, body or administrative
agency is required for (1) the execution, delivery and performance by
the Company of this Agreement and the other Operative Documents, (2)
the issuance and sale of the Securities or (3) consummation by the
Company and the Subsidiaries of the transactions described in the
Offering Memorandum under the caption "Use of Proceeds," except (i)
such as have been obtained and made or have been disclosed in the
Offering Memorandum, (ii) where the failure to obtain such consents or
waivers would not, singly or in the aggregate, have a Material Adverse
Effect, and (iii) we express no opinion as to the matters addressed by
the opinion of Kelley, Drye & Warren LLP. Except in respect to the
retirement of the 13 1/2 Notes as described in the Offering Memorandum,
to the best of such counsel's knowledge, no consents or waivers from
any other person are required for the execution, delivery and
performance by the Company of this Agreement and the other Operative
Documents, the issuance and sale of the Securities and the transactions
contemplated thereby, other than such consents and waivers as have been
obtained or are being applied for.
17. None of the Company and any of its Subsidiaries is (i)
an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, or (ii) a "holding company" or a "subsidiary
C-3
<PAGE>
company" or an "affiliate" of a holding company within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
18. Except as set forth in this Agreement or in the
Registration Rights Agreement (and if consummated, the relevant
agreements with respect to the concurrent offering of 7% Series D
Junior Convertible Preferred Stock and the related Depositary Shares
(the "Concurrent Offering")), and except with respect to the holders of
certain shares of Common Stock issued pursuant to an Asset Acquisition
Agreement dated as of December 6, 1996 among Universal Telecom, Inc.,
Intermedia Communications, Inc. and certain individuals, to the best of
such counsel's knowledge, there are no holders of securities of the
Company who, by reason of the execution by the Company of this
Agreement or any other Operative Document to which it is a party or the
consummation by the Company of the transactions contemplated thereby,
have the right to request or demand that the Company register under the
Act securities held by them.
19. None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Senior Discount Notes, the
application of the proceeds from the issuance and sale of the Senior
Discount Notes and the consummation of the transactions contemplated
thereby as set forth in the Offering Memorandum, will violate
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System.
20. To the knowledge of such counsel, no search of courts
having been made, there is (i) no action, suit, investigation or
proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending, or threatened or
contemplated to which any of the Company or any Subsidiary is or may be
a party or to which the business or property of any of the Company or
any Subsidiary is or may be subject, (ii) no statute, rule, regulation
or order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body, or (iii) no
injunction, restraining order or order of any nature by a federal or
state court of competent jurisdiction to which any of the Company or
any Subsidiary is or may be subject has been issued that, in the case
of clauses (i), (ii) and (iii) above, (w) is required to be disclosed
in the Preliminary Offering Memorandum and the Offering Memorandum and
that is not so disclosed or, (x) could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect,
except as disclosed in the Offering Memorandum; or (y) might interfere
with, adversely affect or in any manner question the validity of the
issuance and sale of the Senior Discount Notes or any of the other
transactions contemplated by this Agreement or any of the other
Operative Documents, except that such counsel shall express no opinion
as to the matters addressed in the opinion of Kelley, Drye & Warren
LLP.
21. The statements contained in the Offering Memorandum
under the caption "Certain Federal Income Tax Consequences" are a fair
and accurate summary of the matters discussed herein.
We have participated in conferences with officers and other
representatives of the Company, representatives of the independent certified
public accountants of the Company and the Initial Purchasers and its
representatives at which the contents of the Preliminary Offering Memorandum and
the Offering Memorandum and related matters were discussed and, although we have
not undertaken to investigate or verify independently, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Preliminary Offering Memorandum or the Offering Memorandum
(except as indicated above), on the basis of the foregoing, no facts have come
to our attention which led us to believe that the Preliminary Offering
Memorandum or the Offering Memorandum, as of its
C-4
<PAGE>
date or the Closing Date, contained an untrue statement of a material fact or
omitted to state any 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 (except as to financial statements and related notes, the
financial statement schedules and other financial and statistical data included
therein)
C-5
<PAGE>
EXHIBIT D
[Form of Opinion of Kelly, Drye & Warren]
July 9, 1997
Bear, Stearns & Co. Inc.
Salomon Brothers Inc
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 8(g) of the
Purchase Agreements dated July 2, 1997 and July 3, 1997, (the "Agreements")
between Intermedia Communications Inc. (the "Company") and Bear, Stearns & Co.
Inc., and Salomon Brothers Inc (together, the "Initial Purchasers"), relating to
the sale by the Company of (i) 6,000,000 depositary shares (the "Depositary
Shares") representing a one-hundredth interest in a share of the Company's 7%
Series D Junior Convertible Preferred Stock (the "Series D Preferred Stock"),
and (ii) $606,000,000 principal amount at maturity of 11 1/4% Senior Discount
Notes due 2007 (the "Notes").
This firm has acted as special telecommunications counsel for the
Company and our representation has been limited to federal and state
telecommunications regulatory matters, and this opinion is accordingly limited
to such matters.
We express no opinion as to the laws of any jurisdiction or agency
except the Telecommunications Laws of the Federal Communications Commission (the
"FCC") and State Telecommunications Agencies of those states in which the
Company is providing intrastate service. For purposes of this opinion, the term
"Stated Telecommunications Agencies" means "state commissions" as defined in
Section 3 of the Communications Act of 1934, as amended. The term
"Telecommunications Laws" means the statutes governing the FCC and State
Telecommunications Agencies and the rules and regulations promulgated by them.
D-1
<PAGE>
[KELLY DRYE & WARREN LLP LETTERHEAD]
Bear, Stearns & Co.
Solomon Brothers Inc
July 9, 1997
Page 2
To the extent this opinion concerns state Telecommunications Laws, you
are advised that the attorneys in our Firm are not admitted to practice in all
of the states covered by this opinion and, for the purpose of this opinion, we
should not be considered to be experts in the Telecommunications Laws of any
states. However, we have conducted a review of statutes and regulations relating
to state Telecommunications Laws which we have deemed relevant and as they
appear in standard compilations and, in some cases, have had direct
communications with the staff of State Telecommunications Agencies. Our opinion
as to state Telecommunications Laws is based solely upon that review and those
conversations.
In rendering this opinion, we have examined and relied upon relevant
documents in our files, certificates and other information in the publicly
available files and records of the FCC and State Telecommunications Agencies and
appropriate portions of the Offering Memorandum for the Depositary Shares (the
"Offering Memorandum") prepared in connection with this transaction. With your
permission, as to all matters of fact concerning the Company and its operations
(including factual conclusions and characterizations), we have relied entirely
upon the relevant statements contained in the Offering Memorandum and in the
certificate of David C. Ruberg, President and CEO, dated June 7, 1997, attached
hereto. We have assumed, without independent inquiry, the accuracy of the
representations in the certificate and have made no independent review of the
operations or the business of the Company for the purpose of rendering this
opinion.
We have assumed the genuineness of all signatures, the conformity to the
originals of all documents reviewed by us as copies, the authenticity and
completeness of all original documents reviewed by us in original or copy form
and the legal competence of each individual executing any document.
When an opinion set forth below is given to the best of our knowledge or
with another similar qualification, the relevant knowledge is limited to the
actual knowledge of the individual attorneys currently in the firm who have
devoted substantive legal attention to representation of the Company as its
telecommunications counsel and we have undertaken no independent inquiry or
investigation in rendering this opinion.
In reliance upon the foregoing and subject to the qualifications and
limitations set forth herein, we are of the opinion that:
<PAGE>
[LETTERHEAD OF DRYE & WARREN LLP]
Bear, Stearns & Co.
Salomon Brothers Inc.
July 9, 1997
Page 3
All of the licenses, permits and authorizations required by the FCC for
the provision of telecommunications services by the Company, as we understand
those services to be provided currently based on the attached certificate, have
been issued to and are validly held by the Company and its subsidiaries. All of
the licenses, permits and authorizations required by the State
Telecommunications Agencies for the provision of telecommunications services by
the Company, as we understand those services to be provided currently based on
the attached certificate, have been issued to and, to the best knowledge of
counsel, are validly held by the Company and its subsidiaries, where the failure
to obtain or hold such license, permit or authority would have a material
adverse effect, as defined in the attached certificate, on the Company and the
subsidiaries, taken as a whole. All such licenses, permits and authorizations
are in full force and effect.
Neither the Company nor its subsidiaries is the subject of any
proceeding (including a rulemaking proceeding), pending complaint or
investigation, or, to the best of our knowledge, any threatened complaint or
investigation, before the FCC, or, to the best of our knowledge after oral
inquiry, of any proceeding (including a rulemaking proceeding), pending
complaint or investigation, or any threatened complaint or investigation, before
State Telecommunications Agencies based, in each case, on any alleged violation
of Telecommunications Laws by the Company or any subsidiary in connection with
their provision of or failure to provide telecommunications services of a
character required to be disclosed in the Offering Memoranda which is not
disclosed in the Offering Memoranda.
The statements in the Offering Memoranda under the headings of "Offering
Memorandum Summary - The Company - Recent Developments - Regulation," "Risk
Factors - Regulatory Approval of the Offering, - Regulation," and "Business -
Government Regulation" regarding the Telecommunications Laws of the FCC or any
State Telecommunications Agencies fairly and accurately summarize the matters
therein described.
Except as discussed below, the Company and its subsidiaries have the
consents, approvals, authorizations, licenses, certificates, permits, or orders
of the FCC or any State Telecommunications Agency, if any is required, for the
consummation of the transactions contemplated in the Offering Memoranda, except
where the failure to obtain the consents, approvals, authorizations, licenses,
certificates, permits or orders would not have a Material Adverse Effect, as
defined in the attached certificate, on the Company and its subsidiaries, taken
as a whole.
<PAGE>
[LETTERHEAD OF KELLEY DRYE & WARREN LLP]
Dear, Stearns& Co.
Salomon Brothers Inc.
July 9, 1997
Page 4
In eleven states where the Company holds certificates to provide intrastate
toll service and, in some cases, local service, the applicable statute or
regulations provide for prior notification and/or approval for the issuance of
securities by certificate holders. In each of those states except West Virginia,
prior approval is also required for the issuance of notes. The Company's 1997
first quarter intrastate revenues in these eleven states exceed $2,000 only in
Georgia and Pennsylvania.
In Georgia, the Company is filing with the Public Service Commission a
request for approval of the issuance of preferred stock by the Company. It is
not expected that the Georgia Commission will have acted prior to the time the
securities have been issued. In conversations with appropriate Commission staff,
it was indicated that obtaining Commission approval after the issuance of
securities would not be likely to result in any penalty or other adverse
consequences for the issuer. In Pennsylvania, the Company has filed an
abbreviated securities certificate with the Pennsylvania Public Utility
Commission, which automatically is deemed approved ten days after filing unless
the Commission acts to stay its effectiveness. Based on our firm's experience in
other situations, we believe that it is unlikely that these states or any of the
other states, where the Company is not engaged in substantial intrastate
business, would take any action against the Company for issuing the Depositary
Shares and the related Series D Preferred Stock or the Notes prior to approval
which would have a Material Adverse Effect, as defined in the attached
certificate, on the Company and its subsidiaries, taken as a whole.
Except as discussed above, neither the execution and delivery of the Purchase
Agreements nor the sale of the securities contemplated thereby will conflict
with or result in a violation of any order or regulation of the FCC or any State
Telecommunications Agency applicable to the Company or its subsidiaries, except
where the conflict with or the violation of which would not have a Material
Adverse Effect, as defined in the attached certificate, on the Company and its
subsidiaries, taken as a whole.
The opinions stated above are limited to the matters set forth herein. No
opinion may be inferred or implied beyond the matters expressly stated in this
opinion letter, and the opinions stated above must be read in conjunction with
the assumptions, limitations, exceptions and qualifications set forth in this
opinion letter. We assume no obligation to advise you of changes of fact or law,
whether or not deemed material which may be brought to our attention after the
date hereof.
<PAGE>
[KELLY DRYE & WARREN LLP LETTERHEAD]
Bear, Stearns & Co.
Salomon Brothers Inc
July 9, 1997
Page 5
This opinion is being delivered for your use in connection with the
transactions contemplated by the Offering Memoranda pursuant to the Agreements
and may not be referred to or used for any other purpose or relied upon or
delivered to any other person without our prior written consent.
Very truly yours,
Kelly Drye & Warren LLP
<PAGE>
EXHIBIT E
Subsidiaries of Intermedia Communications Inc.
- ----------------------------------------------
Daylight Acquisition Corp.
FiberNet North Carolina, Inc./1/
FiberNet Huntsville, Inc.
FiberNet St. Louis, Inc.
FiberNet Telecommunications Cincinnati, Inc.
Phone One, Inc.
FiberNet USA, Inc.
EMI Telecommunications Inc.
Eastern Message Communications Inc.
Intermedia Licensing Company
- --------
1. AT&T Credit Corporation own warrants to purchase 10% of the outstanding
capital stock of FiberNet North Carolina, Inc.
E-1
<PAGE>
EXHIBIT 2.2
EXECUTION COPY
ASSET ACQUISITION AGREEMENT
---------------------------
ASSET ACQUISITION AGREEMENT (this "Agreement") dated as of June 24,
---------
1997, among TELCO COMMUNICATIONS GROUP, INC., a Virginia corporation ("Parent"),
------
TELCO NETWORK SERVICES, INC., a Nevada corporation and an indirect wholly owned
subsidiary of Parent ("Network"), TELCO SWITCH ACQUISITION, INC., a Nevada
-------
corporation and an indirect wholly owned subsidiary of Parent ("Switch"; Network
------
and Switch are collectively referred to as the "Sellers" and individually as a
-------
"Seller"), and INTERMEDIA COMMUNICATIONS INC., a Delaware corporation
- -------
("Purchaser").
- -----------
RECITALS:
--------
The Sellers desire to sell to Purchaser and Purchaser desires to
acquire from the Sellers, all right, title and interest of the Sellers in and to
certain assets and properties owned by the Sellers, all upon the terms and
subject to conditions contained herein.
Parent is entering into this Agreement to induce Purchaser to acquire
such assets and properties and to enter into this Agreement. In addition, on
the date hereof, Parent, Telco Holdings, Inc. ("Holdings") and Purchaser are
--------
entering into a Right to Use Agreement (the "Right to Use Agreement").
----------------------
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto hereby agree as follows:
1. ACQUISITION
-----------
1.1. ACQUIRED ASSETS.
---------------
(a) In consideration of the payment by Purchaser of the relevant
portion of the Acquisition Price (as defined in Section 3.1 below), (i) Network
hereby sells, assigns, transfers, conveys and delivers to Purchaser, and
Purchaser hereby purchases, acquires and takes assignment and delivery of, all
the right, title and interest in and to the assets and properties of Network
listed on Schedule 1.1(a)(i), (ii) Switch hereby sells, assigns, transfers,
conveys and delivers to Purchaser, and Purchaser hereby purchases, acquires and
takes assignment and delivery of, all the right, title and interest in and to
the assets and properties of Switch listed on Schedule 1.1(a)(ii) and (iii)
Parent, Holdings and Purchaser are entering into the Right to Use Agreement (all
of such assets and properties and the Right
<PAGE>
to Use Agreement being referred to herein as the "Acquired Assets").
---------------
(b) Except as set forth on Schedule 1.1(b), all of the Acquired Assets
are being sold, assigned, transferred, conveyed and delivered to Purchaser free
and clear of all encumbrances, security interests, mortgages, pledges,
restrictions, charges, or liens of any kind, including, without limitation, tax
liens ("Liens").
-----
1.2. EXCLUDED ASSETS. Notwithstanding the foregoing, the Sellers
---------------
are not selling, assigning, transferring, conveying or delivering, and Purchaser
is not purchasing pursuant to this Agreement, and the term "Acquired Assets"
does not include, any assets or properties of the Sellers not included in the
Acquired Assets (the "Excluded Assets").
---------------
2. LIMITED ASSUMPTION OF LIABILITIES
---------------------------------
2.1. ASSUMPTION OF LIABILITIES. Except as expressly provided
-------------------------
herein, Purchaser does not assume or agree to pay, perform or discharge, any
debts, liabilities, obligations, claims, expenses, taxes, contracts, accounts
payable, or commitments of any kind, character or description, whether accrued
or fixed, absolute or contingent, matured or unmatured or determined or
undetermined (collectively, "Liabilities") of any of the Sellers. Subject to
-----------
the terms, conditions, representations and warranties contained herein,
Purchaser hereby assumes and agrees to pay, perform and discharge when due all
Liabilities incurred and arising after the date hereof with respect to leases,
contracts and agreements set forth on Schedule 2.1 (the "Assumed Liabilities")
-------------------
and no other Liabilities of the Sellers.
2.2. EXCLUDED LIABILITIES. Except for the Assumed Liabilities, and
--------------------
regardless of whether any of the following may be disclosed to Purchaser
pursuant to Section 4 hereof or otherwise, or whether Purchaser has knowledge of
same, Purchaser does not assume, and shall have no liability for any Liabilities
arising out of any act or omission occurring, or any state of facts existing,
prior to the date hereof (the "Excluded Liabilities") including, without
--------------------
limitation, any Liability of any Seller relating to or arising from: (i) the
breach of any Seller's obligations under the leases, contracts and agreements
assigned to Purchaser; (ii) any infringement by any Seller on the rights of
others in connection with the business and operations of such Seller; (iii)
taxes, including, without limitation, any income, capital gains, sales, use or
transfer tax arising from the operations of any Seller through the date hereof,
including any thereof that may be due in connection with the transactions
contemplated hereby; (iv) any damages, fines, interest or
2
<PAGE>
penalties assessed by any federal, state, county, city or municipal government
or governmental agency or authority; or (v) any current or long-term debts,
payables or amounts owing to any Seller's officers, directors, shareholders or
any of their affiliates or any other third party. Each Seller retains, and
shall pay, perform and discharge when due all Excluded Liabilities.
3. ACQUISITION PRICE
-----------------
3.1. ACQUISITION PRICE; ALLOCATION OF ACQUISITION PRICE. (a) The
--------------------------------------------------
acquisition price for the Acquired Assets shall be $38,030,962 (the "Acquisition
-----------
Price"). The Acquisition Price is hereby being paid by delivery of cash by wire
- -----
transfer of immediately available funds.
(b) The sum of the Acquisition Price and the Assumed Liabilities
shall be allocated among the Acquired Assets as of the date hereof in accordance
with Exhibit A. For all tax purposes, Purchaser, Parent and the Sellers agree
to report the transactions contemplated in this Agreement in a manner consistent
with the terms of this Agreement, including the allocation under Exhibit A, and
that none of them will take any position inconsistent therewith in any tax
return, in any refund claim, in any litigation, or otherwise.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE SELLERS.
--------------------------------------------------------
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Parent and the Sellers, jointly
and severally, represent and warrant to Purchaser as follows:
4.1. ORGANIZATION AND AUTHORITY OF PARENT AND THE SELLERS. Parent and
----------------------------------------------------
each of the Sellers is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all necessary power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Parent and each of the Sellers,
the performance by Parent and each of the Sellers of its obligations hereunder
and the consummation by Parent and each of the Sellers of the transactions
contemplated hereby have been duly authorized by all requisite action on the
part of Parent and each of the Sellers. This Agreement has been duly executed
and delivered by Parent and each of the Sellers and constitutes a legal, valid
and binding obligation of Parent and each of the Sellers enforceable against
Parent and each of the Sellers in accordance with its terms.
3
<PAGE>
4.2. NO CONFLICT. Assuming all consents, approvals, authorizations
-----------
and other actions described in Section 4.3 have been obtained and all filings
and notifications listed in Schedule 4.3 have been made, and except as may
result from any facts or circumstances relating solely to Purchaser, the
execution, delivery and performance of this Agreement by Parent and the Sellers
do not and will not (a) violate or conflict with the certificate of
incorporation or By-Laws of Parent or the Sellers, (b) conflict with or violate
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to Parent or any of the Sellers, or (c) except
as set forth on Schedule 4.2, result in any breach of, or constitute a default
(or event which with the giving of notice or lapse of time, or both, would
become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Lien on any of
the Acquired Assets pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or arrangement
to which Parent or any of the Sellers is a party or by which any of the Acquired
Assets is bound or affected.
4.3. CONSENTS AND APPROVALS. The execution, delivery and performance
----------------------
of this Agreement by Parent and Sellers do not and will not require any consent,
approval, authorization or other action by, or filing with or notification to,
any governmental or regulatory authority, except (a) as described in Schedule
4.3 and (b) as may be necessary as a result of any facts or circumstances
relating solely to Purchaser.
4.4. SOLVENCY. None of Parent or any Seller is currently insolvent,
--------
as such term is defined in Title 11 of the United States Bankruptcy Code or any
state statute relating to insolvency, and none of the execution and delivery of
this Agreement by Parent and the Sellers, the performance of their obligations
hereunder or the consummation by Parent and the Sellers of the transactions
contemplated hereby will render Parent or any Seller insolvent or result in
Parent or any Seller being unable to pay its debts as they become due.
4.5. COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.5,
--------------------
none of Parent or any Seller requires any license, permit or authorization
issued by the Federal Communications Commission or any other governmental or
regulatory authority with respect to the operation of the Acquired Assets. The
Acquired Assets have been maintained in full compliance with all statutes, laws,
treaties, rules, codes, ordinances, regulations, licenses, permits, certificates
or orders of any governmental or regulatory authority and all judgments,
decrees, injunctions, writs, orders or like actions of any court or other
judicial or quasijudicial tribunal applicable to the Acquired Assets, except
where a
4
<PAGE>
failure to do so would not materially adversely effect the Acquired Assets or
the ability of Purchaser to immediately use the Acquired Assets in the manner in
which they are currently being used (a "Material Adverse Effect"); provided,
----------------------- --------
however, that none of Parent or the Sellers is making any representation or
- -------
warranties regarding Purchaser's ability to function as a common carrier.
4.6. COMPLIANCE WITH ENVIRONMENTAL LAWS. To the best knowledge of
----------------------------------
Parent and each Seller, except as would not have a Material Adverse Effect, (i)
none of Parent or any Seller is in violation of any Environmental Laws, and no
Lien has been attached to any of the Acquired Assets pursuant to any
Environmental Laws nor are there any circumstances that could reasonably give
rise to such a Lien, (ii) Parent's and each Seller's utilization of haulers and
transporters to dispose of any Hazardous Substance has been in compliance with
Environmental Laws, (iii) there has been no disposal or release of any Hazardous
Substance by any person on any property which at any time was owned, operated or
leased by Parent or any Seller except in compliance with Environmental Laws, and
(iv) there are no sites, locations or operations of Parent or any Seller or used
in connection with any of their businesses at which Parent or any Seller is
currently undertaking, or has completed, any remedial or response action
relating to any such disposal or release as required by Environmental Laws.
Except as would not have a Material Adverse Effect, Parent and each Seller has
obtained, and is in compliance with, all permits, licenses, authorizations
registrations and other consents required by Environmental Laws and no
suspension of them is, to the best knowledge of Parent and the Sellers,
threatened. Except as would not have a Material Adverse Effect, there are no
civil, criminal or administrative claims, actions, suits, hearings,
investigations or proceedings pending, or to the best knowledge of Parent and
the Sellers, threatened that are based on any Environmental Laws applicable to
the Acquired Assets. For purposes of this Agreement, "Environmental Laws" means
------------------
any federal, state, provincial, regional, territorial, municipal, local or
foreign statute, code, ordinance, rule or regulation (including the requirement
to register underground storage tanks), any permit, consent, approval or license
issued by an environmental regulatory agency, and any judgment, order, writ,
decree, injunction or other authorization, in each case relating to (i)
emissions, discharges, releases or threatened releases of Hazardous Substances
into the natural environment, including into ambient air, soil, sediments, land
surface or subsurface, buildings or facilities, surface water, groundwater,
publicly owned treatment works, septic systems or land, (ii) the generation,
treatment, storage, disposal, handling, manufacturing, transportation or
shipment of Hazardous Substances, or (iii) otherwise relating to the pollution
or protection of health or safety or the
5
<PAGE>
environment or to solid waste handling, treatment or disposal. For purposes of
this Agreement, "Hazardous Substances" means (i) petroleum and petroleum
--------------------
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain polychlorinated biphenyls, and radon gas, (ii) any other chemicals,
materials or substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar import, under any applicable
Environmental Law, and (iii) any other chemical, material or substance exposure
to which is regulated by any governmental or regulatory authority.
4.7. LITIGATION, ETC. Except as set forth on Schedule 4.7, there are
----------------
no judicial or administrative actions, suits, proceedings or investigations
pending or threatened, relating to or affecting the Acquired Assets, or which
question the validity of this Agreement or challenge any of the transactions
contemplated hereby or the use of the Acquired Assets after the date hereof by
Purchaser. To the best knowledge of Parent and each Seller, there are no facts
or circumstances that may give rise to any of the foregoing. None of the
matters disclosed in Schedule 4.7 has had or could have a Material Adverse
Effect.
4.8. OWNERSHIP AND TRANSFER OF ACQUIRED ASSETS. (a) Each Seller has
-----------------------------------------
good and marketable title to, or in the case of leased or subleased Acquired
Assets, valid and subsisting leasehold interests in, or, in the case of licensed
or sublicensed Acquired Assets, valid and subsisting licenses or sublicenses in,
all of the Acquired Assets being sold to Purchaser by such Seller, free and
clear of all Liens (other than permitted Liens set forth on Schedule 1.1(b)).
Except as contemplated by Section 7.2, each Seller has the unrestricted right to
sell, transfer, assign, convey and deliver to Purchaser all right, title and
interest in and to the Acquired Assets being sold to Purchaser by such Seller
without penalty or other adverse consequences.
(b) The Acquired Assets are in good operating condition and fit for
operation in the usual course of business, ordinary wear and tear excepted.
(c) Following the consummation of the transactions contemplated by
this Agreement, Purchaser will own, pursuant to good and marketable title, or
lease, under valid and subsisting leases, the Acquired Assets.
4.9. MATERIAL CONTRACTS. (a) True and complete copies of all
------------------
contracts, agreements, leases, subleases, licenses,
6
<PAGE>
sublicenses, commitments and arrangements (including, without limitation, oral
and informal arrangements) included in the Acquired Assets (the "Material
--------
Contracts") have been made available to Purchaser by the Sellers.
- ---------
(b) Except as disclosed in Schedule 4.9, each Material Contract: (i)
is valid and binding on the respective parties thereto and is in full force and
effect and (ii) upon consummation of the transactions contemplated by this
Agreement, except to the extent that any consents set forth in Schedules 4.2 or
4.3 are not obtained, shall continue in full force and effect without penalty or
other adverse consequence. No Seller is in breach of, or default under, any
Material Contract. Except as set forth in Schedule 4.9, none of Parent or the
Sellers has received any notice alleging a breach of, or a default under, any
Material Contract.
(c) Except as disclosed in Schedule 4.9, to the best knowledge of
Parent and the Sellers, no other party to any Material Contract is in breach
thereof or default thereunder and none of Parent or the Sellers has provided to
any other party any notice alleging a breach of, or a default under, any
Material Contract.
(d) Except as disclosed in Schedule 4.9, there is no contract,
agreement or other arrangement granting any person any preferential right to
purchase any of the Acquired Assets.
4.10. BROKERS, FINDERS, ETC. All negotiations relating to this
---------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any person or entity acting on behalf of Parent or the
Sellers in such manner as to give rise to any valid claim for any brokerage or
finder's fee, commission or similar compensation.
4.11. FULL DISCLOSURE. None of Parent or the Sellers is aware of any
---------------
facts pertaining to the Acquired Assets which affect adversely the Acquired
Assets and which have not been disclosed in this Agreement or the Schedules
hereto or otherwise disclosed to Purchaser by Parent or any Seller in writing.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
As an inducement to Parent and the Sellers to enter into this
Agreement and to consummate the transactions contemplated hereby, Purchaser
represents and warrants to Parent and the Sellers as follows:
5.1. INCORPORATION AND AUTHORITY OF PURCHASER. Purchaser is a
----------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and
7
<PAGE>
has all necessary power and authority to enter into this Agreement, to carry out
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Purchaser, the
performance by Purchaser of its obligations hereunder and the consummation by
Purchaser of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of Purchaser. This Agreement has been duly
executed and delivered by Purchaser, and constitutes a legal, valid and binding
obligation of Purchaser enforceable against Purchaser in accordance with its
terms.
5.2. NO CONFLICT. Assuming all consents, approvals, authorizations
-----------
and other actions described in Section 5.3 have been obtained and all filings
and notifications listed in Schedule 5.3 have been made, and except as may
result from any facts or circumstances relating solely to Parent and the
Sellers, the execution, delivery and performance of this Agreement by Purchaser
do not and will not (a) violate or conflict with the Certificate of
Incorporation or By-Laws of Purchaser, (b) except as would not prevent Purchaser
from performing any of its obligations under this Agreement, conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to Purchaser, or (c) except as would not
prevent Purchaser from performing any of its obligations under this Agreement,
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any Encumbrance on any of the assets or properties of
Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or arrangement to which
Purchaser is a party or by which any of such assets or properties is bound or
affected.
5.3. CONSENTS AND APPROVALS. The execution, delivery and performance
----------------------
of this Agreement by Purchaser do not and will not require any consent,
approval, authorization or other action by, or filing with or notification to,
any governmental or regulatory authority, except (a) where failure to obtain
such consent, approval, authorization or action, or to make such filing or
notification, would not prevent Purchaser from performing any of its obligations
under this Agreement and (b) as may be necessary as a result of any facts or
circumstances relating solely to Parent and the Sellers.
5.4. BROKERS. Except for Bear, Stearns & Co., Inc. ("Bear,
------- -----
Stearns"), no broker, finder or investment banker is entitled to any brokerage,
- -------
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement
8
<PAGE>
based upon arrangements made by or on behalf of Purchaser or any of its
affiliates. Purchaser shall solely be responsible for all of the fees and
expenses of Bear, Stearns.
6. INDEMNIFICATION
---------------
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
------------------------------------------
representations and warranties made by Purchaser, Parent and the Sellers shall
survive the signing and consummation of the transactions contemplated by this
Agreement for a period of 18 months, except for any such representations and
warranties relating to tax matters, which shall survive to the applicable
statute of limitations. All representations and warranties made by or on behalf
of Parent and the Sellers in this Agreement shall be deemed to have been relied
upon by Purchaser (notwithstanding any investigation by Purchaser).
6.2. INDEMNIFICATION. (a) Purchaser and its shareholders,
---------------
affiliates, officers, directors, employees, agents, successors and assigns (each
a "Purchaser Indemnified Party") shall be indemnified and held harmless by
---------------------------
Parent and the Sellers, jointly and severally, from and against any and all
Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, attorneys' and
consultants' fees and expenses incurred by the Purchaser Indemnified Party in
any action or proceeding between the Sellers and/or Parent and the Purchaser
Indemnified Party or between the Purchaser Indemnified Party and any third party
or otherwise) actually suffered or incurred by them (including, without
limitation, any action or proceeding brought or otherwise initiated by any of
them) (hereinafter a "Loss"), arising out of or resulting from:
----
(i) the breach of any representation, warranty, covenant or agreement
made by Parent or the Sellers contained in this Agreement or any related
document; or
(ii) any claim or cause of action of any third party (including,
without limitation, any federal of state government entity), whether commenced
before or after the date of this Agreement, to the extent arising out of any
action, inaction, event, condition, Liability or obligation of Parent or any
Seller occurring or existing prior to the date hereof (regardless of whether or
not referred to on a Schedule to this Agreement or otherwise disclosed or known
to Purchaser as of the date hereof); or
(iii) any fines or penalties assessed by any federal, state, county,
city or municipal government or any governmental agency or authority to the
extent arising out of any action,
9
<PAGE>
inaction, event, condition, Liability or obligation of Parent or any Seller
occurring or existing prior to the date hereof (regardless of whether or not
referred to on a Schedule to this Agreement or otherwise disclosed or known to
Purchaser as of the date hereof); or
(iv) failure to pay, perform or discharge any obligation, Liability,
agreement or commitment not assumed by Purchaser pursuant to this Agreement,
including, without limitation, the Excluded Liabilities.
(b) Parent, the Sellers and their respective shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (each a "Parent
------
Indemnified Party") shall be indemnified and held harmless by Purchaser from and
- -----------------
against any and all Losses arising out of or resulting from:
(i) the breach of any representation, warranty, covenant or agreement
made by Purchaser contained in this Agreement or any related document; or
(ii) any claim or cause of action of any third party (including,
without limitation, any federal of state government entity), commenced after the
date of this Agreement, to the extent arising out of any action, inaction,
event, condition, Liability or obligation of Purchaser arising after the date
hereof; or
(iii) any fines or penalties assessed by any federal, state, county,
city or municipal government or any governmental agency or authority to the
extent arising out of any action, inaction, event, condition, Liability or
obligation of Purchaser occurring or existing after the date hereof; or
(iv) failure to pay, perform or discharge any Assumed Liability.
6.3. NOTICE OF CLAIMS. An indemnified party shall promptly (and, in
----------------
any event, within five business days) give the indemnifying party notice of any
matter which an indemnified party has determined has given or could give rise to
a right of indemnification under Section 6.2, stating the amount of the Loss, if
known, and method of computation thereof, and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises. The obligations and liabilities of the indemnifying party
under Section 6.2 with respect to Losses arising from claims of any third party
which are subject to the indemnification provided for in Section 6.2 ("Third
-----
Party Claims") shall be governed by and contingent upon the following additional
- ------------
terms and conditions: if an indemnified party shall have received notice of any
Third
10
<PAGE>
Party Claim, the indemnified party shall promptly (and, in any event, within
five business days) give the indemnifying party notice of such Third Party
Claim; provided, however, that the failure to provide such notice shall not
-------- -------
release the indemnifying party from any of its obligations under Section 6.2
except to the extent the indemnifying party is materially prejudiced by such
failure and shall not relieve the indemnifying party from any other obligation
or liability that it may have to any indemnified party otherwise than under
Section 6.2. If the indemnifying party acknowledges in writing its obligation
to indemnify the indemnified party hereunder against any Losses that may result
from such Third Party Claim, then the indemnifying party shall be entitled to
assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice if it gives notice of its intention to do so to
the indemnified party within five days of the receipt of such notice from the
indemnified party; provided, however, that if there exists or is reasonably
-------- -------
likely to exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the indemnified party for the same counsel to represent
both the indemnified party and the indemnifying party, then the indemnified
party shall be entitled to retain its own counsel, in each jurisdiction for
which the indemnified party reasonably determines counsel is required, at the
expense of the indemnifying party. In the event the indemnifying party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the indemnified party shall cooperate with the
indemnifying party in such defense and make available to the indemnifying party,
at the indemnifying party's expense, all witnesses, pertinent records, materials
and information in the indemnified party's possession or under the indemnified
party's control relating thereto as is reasonably required by the indemnifying
party. Similarly, in the event the indemnified party is, directly or
indirectly, conducting the defense against any such Third Party Claim, the
indemnifying party shall cooperate with the indemnified party in such defense
and make available to the indemnified party, at the indemnifying party's
expense, all such witnesses, records, materials and information in the
indemnifying party's possession or under the indemnifying party's control
relating thereto as is reasonably required by the indemnified party. Such Third
Party Claim may be settled by the indemnifying party if it contains a full
release of the indemnified party and such Third Party Claim may be settled by
the indemnified party if it contains a full release of the indemnifying party.
7. ADDITIONAL AGREEMENTS
---------------------
7.1. CONFIDENTIALITY. (a) Parent and each of the Sellers agrees to,
---------------
and shall cause its agents, representatives, affiliates, employees, officers and
directors to: (i) treat and hold as confidential (and not disclose or provide
access to any
11
<PAGE>
person to) all information relating to trade secrets, processes, product
development, price, customer lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, and all other
confidential information with respect to the Acquired Assets, (ii) in the event
that Parent or any Seller or any such agent, representative, affiliate,
employee, officer or director becomes legally compelled to disclose any such
information, provide Purchaser with prompt written notice of such requirement so
that Purchaser may seek a protective order or other remedy or waive compliance
with this Section 7.1, (iii) in the event that such protective order or other
remedy is not obtained, or Purchaser waives compliance with this Section 7.1,
furnish only that portion of such confidential information which is legally
required to be provided and exercise its best efforts to obtain assurances that
confidential treatment will be accorded such information, (iv) promptly furnish
to Purchaser any and all copies (in whatever form or medium) of all such
confidential information in the possession of Parent or any Seller or any of its
agents, representatives, affiliates, employees, officers and directors and
destroy any and all additional copies then in the possession of Parent or any
Seller or any of its agents, representatives, affiliates, employees, officers
and directors of such information and of any analyses, compilations, studies or
other documents prepared, in whole or in part, on the basis thereof; provided,
--------
however, that this sentence shall not apply to any information that, at the time
- -------
of disclosure, is available publicly and was not disclosed in breach of this
Agreement by Parent, the Sellers, their agents, representatives, affiliates,
employees, officers or directors.
(b) Purchaser agrees to, and shall cause its agents, representatives,
affiliates, employees, officers and directors to: (i) treat and hold as
confidential (and not disclose or provide access to any person to) all
information relating to trade secrets, processes, product development, price,
customer lists, pricing and marketing plans, policies and strategies, details of
client and consultant contracts, operations methods, product development
techniques, business acquisition plans, and all other confidential information
with respect to Parent and the Sellers, (ii) in the event that Purchaser or any
such agent, representative, affiliate, employee, officer or director becomes
legally compelled to disclose any such information, provide Parent with prompt
written notice of such requirement so that Parent may seek a protective order or
other remedy or waive compliance with this Section 7.1, (iii) in the event that
such protective order or other remedy is not obtained, or Parent waives
compliance with this Section 7.1, furnish only that portion of such confidential
information which is legally required to be provided and exercise its best
efforts to obtain
12
<PAGE>
assurances that confidential treatment will be accorded such information, (iv)
promptly furnish to Parent any and all copies (in whatever form or medium) of
all such confidential information in the possession of Purchaser or any of its
agents, representatives, affiliates, employees, officers and directors and
destroy any and all additional copies then in the possession of Purchaser or any
of its agents, representatives, affiliates, employees, officers and directors of
such information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
-------- -------
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by Purchaser or its agents, representatives, affiliates, employees,
officers or directors.
7.2. SUBCONTRACTS. To the extent that any Material Contract is not
------------
assignable without the consent of a third party, this Agreement shall not
constitute an assignment, sublease or license or an attempted assignment,
sublease or license thereof if such assignment, sublease or license or attempted
assignment sublease or license would constitute a breach thereof. Parent and
the Sellers agree to use best efforts to obtain the consent of such third party
to the assignment of such Material Contract in all cases in which such consent
is or may be required. If any such consent shall not be obtained, Parent and
the Sellers shall cooperate fully with Purchaser in any reasonable arrangement
designed to provide to Purchaser the benefits intended to be assigned, subleases
or licensed to Purchaser under the relevant Material Contract, including,
without limitation, enforcement at the cost and for the account of Purchaser of
any rights of Parent or the Sellers against the other party thereto arising out
of the breach or cancellation thereof by such other party or otherwise. If and
to the extent such arrangement cannot be made, Purchaser shall not have any
obligation with respect to any such Material Contract and the parties shall
negotiate in good faith to determine an appropriate refund of a portion of the
Acquisition Price to cover the costs and expenses of Purchaser's replacement of
such Material Contract.
7.3. RECORDS. (a) In order to facilitate the resolution of any
-------
claims made against or incurred by Parent or the Sellers prior to the date
hereof, for a period of seven years after the date hereof, Purchaser shall (i)
retain the books and records for the Acquired Assets relating to periods prior
to the date hereof in a manner reasonably consistent with the prior practice of
the Sellers and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of Parent or the Sellers reasonable access
(including the right to make, at Parent's or the Sellers' expense, photocopies),
during normal business hours, to such books and records.
13
<PAGE>
(b) In order to facilitate the resolution of any claims made by or
against or incurred by Purchaser or for any other reasonable purpose, for a
period of seven years after the date hereof, each of Parent and the Sellers
shall (i) retain the books and records of Parent and the Sellers which relate to
the Acquired Assets for periods prior to the date hereof and which have not
otherwise been delivered to Purchaser and (ii) upon reasonable notice, afford
the officers, employees and authorized agents and representatives of Purchaser
reasonable access (including the right to make, at Purchaser's expense,
photocopies), during normal business hours, to such books and records.
7.4. EMPLOYEE MATTERS. Within 30 days after the date hereof,
----------------
Purchaser may, at its option, offer employment to any of the individuals listed
in Exhibit B. Purchaser shall not be under any obligation to offer any
employment to any employees listed on Exhibit B, but shall notify Parent
promptly upon Purchaser's making of such an offer. Purchaser and Parent shall
cooperate with each other on the employment start date for any such employee
hired by Purchaser. With respect to the employees listed on Exhibit B, the
terms of any offers will be in the sole discretion of Purchaser. Until the
expiration of the nine month period following the date hereof, none of Parent or
any Seller shall, directly or indirectly, offer employment to or employ any
person listed on Exhibit B without the prior written consent of Purchaser, which
shall not be unreasonably withheld.
7.5. ADDITIONAL SERVICES. (a) From and after the date hereof,
-------------------
Purchaser shall provide to Parent and the Sellers the services set forth in
Exhibit C at the rates specified in Exhibit C. In addition, Purchaser shall
offer such services at such rates to Advantis.
(b) From and after the date hereof, at the request of Purchaser,
Parent shall offer co-location services to Purchaser or its affiliates to the
extent space for such services is available in Parent's sole discretion.
Purchaser and Parent shall negotiate in good faith the terms and rates for such
co-location services as and when requested by Purchaser based upon the
reasonable and customary standards and rates for the industry.
7.6. FURTHER ACTION. Except as provided in Section 7.2, each of the
--------------
parties hereto shall use all reasonable efforts to do, or cause to be done, all
things necessary under applicable law to carry out the provisions of this
Agreement and shall execute and deliver such documents and other papers as may
be required to carry out the provisions of this Agreement. In addition, the
parties shall use all reasonable efforts to obtain
14
<PAGE>
any and all documentation necessary to qualify for bulk sale, casual sale,
occasional sale or resale certification.
8. GENERAL
-------
8.1. EXPENSES. All costs and expenses, including, without
--------
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
8.2. NOTICES. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or the Sellers:
TELCO COMMUNICATIONS GROUP, INC.
4219 Lafayette Center Drive
Chantilly, Virginia 20151
Attention: Bryan K. Rachlin, COO
Telecopy: (703) 631-5688
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, Suite 300
Washington, DC 20007-5116
Attention: John J. Klusaritz, Esq.
Telecopy: (202) 424-7643
(b) if to Purchaser:
INTERMEDIA COMMUNICATIONS INC.
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Robert M. Manning, CFO
Telecopy: (813) 829-2390
15
<PAGE>
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 479-6275
8.3. PUBLIC ANNOUNCEMENTS. Unless otherwise required by law, or
--------------------
the rules of the Nasdaq Stock Market, no party to this Agreement shall make any
public announcements in respect of this Agreement or the transactions
contemplated herein or otherwise communicate with any news media with respect
thereto without prior written approval of the other party, and the parties shall
cooperate as to the timing and contents of any such announcement.
8.4. HEADINGS. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.5. SEVERABILITY. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by reason of any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon the determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby be consummated as
originally contemplated to the greatest extent possible.
8.6. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
Parent, the Sellers and Purchaser with respect to the subject matter hereof.
8.7. ASSIGNMENT. This Agreement shall not be assigned by operation
----------
of law or otherwise.
8.8 NO THIRD-PARTY BENEFICIARIES. Except as provided in Section 6.2,
----------------------------
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person or entity any legal or equitable right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
16
<PAGE>
8.9 AMENDMENT; WAIVER. This Agreement may not be amended or modified
-----------------
except by an instrument in writing signed by the parties hereto. Waiver of any
term or condition of this Agreement shall only be effective if in writing and
shall not be construed as a waiver of any subsequent breach or waiver of the
same term or condition, or a waiver of any other term or condition of this
Agreement.
8.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED IN AND TO BE PERFORMED IN THAT STATE.
8.11 WAIVER OF TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY
-----------------------
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR
AGAINST IT ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS AGREEMENT.
8.12 CONSENT TO JURISDICTION. Each of Parent, the Sellers and
-----------------------
Purchaser hereby irrevocably submits to the exclusive jurisdiction of any
Delaware State or federal court sitting in Wilmington, Delaware in any action or
proceeding arising out of or relating to this Agreement, and each of Parent, the
Sellers and Purchaser hereby irrevocably agrees that all claims in respect of
such action or proceeding shall be heard and determined exclusively in such
Delaware State or federal court. Each of Parent, the Sellers and Purchaser
hereby irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. As an alternative method of service, each of Parent, the Sellers
and Purchaser also irrevocably consents to the service of any and all process in
any such action or proceeding by the mailing of copies of such process to it at
its address specified in Section 8.2. Each of Parent, the Sellers and Purchaser
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Section 8.12 shall affect
the right of Parent, the Sellers or Purchaser to serve legal process in any
other manner permitted by law or affect the right of Parent, the Sellers or
Purchaser to bring any action or proceeding not arising out of or relating to
this Agreement against the other party or its property in the courts of any
other jurisdictions. The consents to jurisdiction set forth in this Section
8.12 shall not constitute general consents to service of process in the State of
Delaware and shall have no effect for any purpose except as provided in this
Section 8.12 and shall not be deemed to confer rights on any person other than
Parent, the Sellers, Purchaser and the third party beneficiaries of this
Agreement specified in Section 8.8.
17
<PAGE>
8.13 ATTORNEYS' FEES. In any action, proceeding or counterclaim
---------------
arising out of or in any way connected with this Agreement, the prevailing
parties shall be entitled to recover reasonable attorneys' fees and
disbursements incurred in connection therewith.
8.14 COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
8.15 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
--------------------
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
[Remainder of Page Intentionally Left Blank]
18
<PAGE>
IN WITNESS WHEREOF, Purchaser, Parent and the Sellers have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
INTERMEDIA COMMUNICATIONS INC.
By:_______________________________
Name:
Title:
TELCO COMMUNICATIONS GROUP, INC.
By:_______________________________
Name:
Title:
TELCO NETWORK SERVICES, INC.
By:_______________________________
Name:
Title:
TELCO SWITCH ACQUISITION, INC.
By:_______________________________
Name:
Title:
19
<PAGE>
IN WITNESS WHEREOF, Purchaser, Parent and the Sellers have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first written above.
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
---------------------
Name: Robert M. Manning
Title: SVP & CFO
TELCO COMMUNICATIONS GROUP, INC.
By: /s/ Bryan K. Rachlin
--------------------
Name: Bryan K. Rachlin
Title: Chief Operating Officer &
Secretary
TELCO NETWORK SERVICES, INC.
By:/s/ Bryan K. Rachlin
--------------------
Name: Bryan K. Rachlin
Title: Secretary
TELCO SWITCH ACQUISITION, INC.
By:/s/ Bryan K. Rachlin
--------------------
Name: Bryan K. Rachlin
Title: Secretary
20
<PAGE>
SCHEDULE 1.1(a)(i)
Acquired Assets from Network
----------------------------
License for the Hekimian Test System Software (owned by Hekimian Laboratories,
Inc.).
License for the DSC 1/0 DACs Operating System (owned by DSC Marketing Services,
Inc.).
<PAGE>
SCHEDULE 1.1(a)(ii)
Acquired Assets from Switch
---------------------------
CITY EQUIPMENT QUANTITY
ATLANTA
DMS250 1
NORTEL 6X50 EC 108
AUSTRON CLOCK 1
HEIKIMIAN 1
SPX-30/50 1
NETWORK VRU 1
TITAN 5500 1
1/0 DACS - QWEST 1
CUS8A 1
EC2551 376
EC2551A 84
D4 CHNL - ADV 1
DSX-3 PANELS 9
DSX3-MODULES 173
DSX-1 PANELS 56
TEST GEAR 6
CHICAGO
DMS250 2
NORTEL 6X50 EC 130
AUSTRON CLOCK 1
HEIKIMIAN 1
SPX-30/50 1
NETWORK VRU 1
TITAN 5500 1
EC2551 253
EC2551A 159
D4 CHNL - ADV 1
DSX-3 PANELS 11
DSX-3 MODULES 163
DSX-1 PANELS 75
FUSE PANELS 3
TEST GEAR 6
ICRS SUN20 GATEWAY 1
<PAGE>
CITY EQUIPMENT QUANTITY
DALLAS
DMS250 2
NORTEL 6X50 EC 109
AUSTRON CLOCK 1
HEIKIMIAN 1
SPX-30/50 1
TITAN 5500 1
1/0 DACS - QWEST 1
M1/3NECRC-28D 2
EC2531-I1 58
EC2551 279
EC2551A 179
D4 CHNL - ADV 1
DSX-3 PANELS 14
DSX-3 MODULES 290
DSX-1 PANELS 43
FUSE PANELS 8
TEST GEAR 6
CDR COLLECTION SYS 1
ICRS SUN1000 GATEWAY 1
ICRS SUN20 GATEWAY 1
2
<PAGE>
CITY EQUIPMENT QUANTITY
LOS ANGELES
DMS250 1
NORTEL 6X50 EC 121
AUSTRON CLOCK 1
HEIKIMIAN 1
SPX-30/50 1
TITAN 5500 1
NECA31DACS 1
1/0 DACS - QWEST 1
M1/3NECRC-28D 4
EC2531-I2 114
EC2551 356
EC2551A 293
D4 CHNL - ADV 1
D4 CHNL - QWEST 2
DSX-3 PANELS 13
DSX-3 MODULES 425
DSX-1 PANELS 133
FUSE PANELS 1
POWER SUPPLIES 2
TEST GEAR 6
NEW YORK
DMS250 1
NORTEL 6X50EC 107
AUSTRON CLOCK 1
HEIKIMIAN 1
SPX-30/50 1
TITAN 5500 1
1/0 DACS - QWEST 1
M1/3NECRC-28D 2
EC2551 147
EC2551A 29
D4 CHNL - ADV 1
DSX-3 PANELS 12
DSX-3 MODULES 192
DSX-1 PANELS 117
FUSE PANELS 10
TEST GEAR 6
3
<PAGE>
Lease agreement, dated April 15, 1997, between Switch (as successor to Advantis)
and American National Bank and Trust Company of Chicago relating to 205 N.
Michigan Avenue, 9th Floor.
Sublease agreement, dated April 15, 1997, between Advantis and Switch relating
to 1100 Circle 75 Parkway, 16th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 2323 Bryan Street, Suite 700.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 624 S. Grand Avenue, 15th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 60 Hudson Street, 3d Floor.
License for the Tellabs 532 I/O DACs Operation System (owned by Tellabs
Operations, Inc.).
License for the Tellabs 520 Admin. System - Ver 6.0 (owned by Tellabs
Operations, Inc.).
License for the DMS 250 Operating System (owned by Northern Telecom Inc.).
License for the SS7 Protocol Stack Software - for TCAP messages (owned by
NewNet, Inc.).
License for the SS7 Protocol Stack Software - for Excel switch interface (owned
by NewNet, Inc.).
License for the Intelligent Call Routing System/Resource Allocator Version 1.2
(ICRS/RA) (owned by Advantis).
License for the Enhanced Services Platform (ESP) (owned by Advantis).
License for the Call Detail Collection System (owned by Advantis).
License for the MAXM Rules Sets (owned by Advantis).
4
<PAGE>
SCHEDULE 1.1(b)
Permitted Liens
---------------
NONE
<PAGE>
SCHEDULE 2.1
Assumed Liabilities
-------------------
Lease agreement, dated April 15, 1997, between Switch (as successor to Advantis)
and American National Bank and Trust Company of Chicago relating to 205 N.
Michigan Avenue, 9th Floor.
Sublease agreement, dated April 15, 1997, between Advantis and Switch relating
to 1100 Circle 75 Parkway, 16th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 2323 Bryan Street, Suite 700.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 624 S. Grand Avenue, 15th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 60 Hudson Street, 3d Floor.
License for the Hekimian Test System Software (owned by Hekimian Laboratories,
Inc.).
License for the DSC 1/0 DACs Operating System (owned by DSC Marketing Services,
Inc.).
License for the Tellabs 532 I/O DACs Operation System (owned by Tellabs
Operations, Inc.).
License for the Tellabs 520 Admin. System - Ver 6.0 (owned by Tellabs
Operations, Inc.).
License for the DMS 250 Operating System (owned by Northern Telecom Inc.).
License for the SS7 Protocol Stack Software - for TCAP messages (owned by
NewNet, Inc.).
License for the SS7 Protocol Stack Software - for Excel switch interface (owned
by NewNet, Inc.).
License for the Intelligent Call Routing System/Resource Allocator Version 1.2
(ICRS/RA) (owned by Advantis).
License for the Enhanced Services Platform (ESP) (owned by Advantis).
License for the Call Detail Collection System (owned by Advantis).
License for the MAXM Rules Sets (owned by Advantis).
<PAGE>
SCHEDULE 4.2
Conflicts
---------
Lease agreement, dated April 15, 1997, between Switch (as successor to Advantis)
and American National Bank and Trust Company of Chicago relating to 205 N.
Michigan Avenue, 9th Floor.
Sublease agreement, dated April 15, 1997, between Advantis and Switch relating
to 1100 Circle 75 Parkway, 16th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 2323 Bryan Street, Suite 700.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 624 S. Grand Avenue, 15th Floor.
Sublease agreement, dated April 15, 1997, between Switch and Advantis relating
to 60 Hudson Street, 3d Floor.
License for the Hekimian Test System Software (owned by Hekimian Laboratories,
Inc.).
License for the DSC 1/0 DACs Operating System (owned by DSC Marketing Services,
Inc.).
License for the Tellabs 532 I/O DACs Operation System (owned by Tellabs
Operations, Inc.).
License for the Tellabs 520 Admin. System - Ver 6.0 (owned by Tellabs
Operations, Inc.).
License for the DMS 250 Operating System (owned by Northern Telecom Inc.).
License for the SS7 Protocol Stack Software - for TCAP messages (owned by
NewNet, Inc.).
License for the SS7 Protocol Stack Software - for Excel switch interface (owned
by NewNet, Inc.).
License for the Intelligent Call Routing System/Resource Allocator Version 1.2
(ICRS/RA) (owned by Advantis).
License for the Enhanced Services Platform (ESP) (owned by Advantis).
License for the Call Detail Collection System (owned by Advantis).
License for the MAXM Rules Sets (owned by Advantis).
<PAGE>
SCHEDULE 4.3
Consents and Approvals
----------------------
NONE
<PAGE>
SCHEDULE 4.5
Compliance with Laws/ Permits
-----------------------------
NONE
<PAGE>
SCHEDULE 4.7
Litigation
----------
NONE
<PAGE>
SCHEDULE 4.9
Material Contracts
------------------
NONE
<PAGE>
SCHEDULE 5.3
No Conflict
-----------
NONE
<PAGE>
Exhibit A
Allocation of Acquisition Price
-------------------------------
The sum of the Acquisition Price and the Assumed Liabilities shall be allocated
to the Acquired Assets based upon fair market value. The excess of the sum of
the Acquisition Price and the Assumed Liabilities over the fair market value of
the Acquired Assets shall be allocated to intangible assets.
<PAGE>
Exhibit B
List of Employees
<PAGE>
Exhibit C
Services Provided by Purchaser
<PAGE>
EXHIBIT 4.4
================================================================================
REGISTRATION RIGHTS AGREEMENT
$606,000,000
11 1/4% Senior Discount Notes due 2007
Dated as of July 9, 1997
by and among
INTERMEDIA COMMUNICATIONS INC.,
BEAR, STEARNS & CO. INC.
and
SALOMON BROTHERS INC
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of July 9, 1997 by and among Intermedia Communications Inc., a
Delaware corporation (the "Company"), and Bear, Stearns & Co. Inc. and Salomon
-------
Brothers Inc (each an "Initial Purchaser" and together, the "Initial
----------------- -------
Purchasers"), each of whom have agreed to purchase the Company's 11 1/4% Senior
- ----------
Discount Notes due 2007 (the "Senior Discount Notes") pursuant to the Purchase
---------------------
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement in
respect to the Senior Discount Notes, dated July 3, 1997 (the "Purchase
--------
Agreement"), by and among the Company and the Initial Purchasers. In order to
- ---------
induce the Initial Purchasers to purchase the Senior Discount Notes, 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.
---
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.
Broker-Dealer: Any broker or dealer registered under the
-------------
Exchange Act.
Broker-Dealer Transfer Restricted Securities: New Senior
--------------------------------------------
Discount Notes that are acquired by a Broker-Dealer in the Exchange Offer in
exchange for Senior Discount Notes that such Broker-Dealer acquired for its own
account as a result of market making activities or other trading activities
(other than Senior Discount Notes acquired directly from the Company or any of
its affiliates).
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 Senior Discount Notes 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 delivery by the
Company to the Registrar under the Indenture of New Senior Discount Notes in the
same aggregate principal amount as the aggregate principal amount of Senior
Discount Notes tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Senior Discount Notes,
--------------------
each Interest Payment Date.
2
<PAGE>
Definitive Securities: As defined in the Deposit Agreement.
---------------------
Deposit Agreement: The Deposit Agreement dated the date hereof
-----------------
between the Company and Continental Stock Transfer & Trust Company.
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 Senior Discount Notes 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 Senior Discount Notes in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
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 Senior Discount Notes 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),
--------------------
(21), (3) and (7) of Regulation D under the Act.
Holders: As defined in Section 2 hereof.
-------
Indenture: The Indenture, dated the Closing Date, between the
---------
Company and SunTrust Bank, Central Florida, National Association, as trustee
(the "Trustee"), pursuant to which the Senior Notes 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
---------------------
Senior Notes.
NASD: National Association of Securities Dealers, Inc.
----
New Senior Discount Notes: The Company's 11 1/4% New Senior
-------------------------
Discount Notes due 2007 to be issued pursuant to the Indenture (i) in the
Exchange Offer or (ii) upon the request of any Holder of Senior Discount Notes
covered by a Shelf Registration Statement, in exchange for such Senior Discount
Notes.
Offering Memorandum: The final offering memorandum, dated July
-------------------
3, 1997, relating to the Company and the Senior Discount Notes.
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 June 25, 1997, relating to the Company and the Senior Discount
Notes.
3
<PAGE>
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 Senior Discount Notes 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.
Senior Notes: The Senior Discount Notes and the New Senior
------------
Discount Notes.
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 Restricted Securities: Each Senior Discount Note until
------------------------------
the earliest to occur of (i) the date on which such Senior Discount Note is
exchanged by a person other than a broker-dealer for a New Senior Discount Note
in the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of a Senior Discount Note for a New Senior Discount Note, the
date on which such New Senior Discount Note 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 Senior Discount Note is effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Senior Discount Note 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
reoffering 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 60 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,
4
<PAGE>
(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 Senior Discount Notes 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 Senior Discount Notes to be offered in exchange for the
Senior Discount Notes 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 Senior Discount Notes 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.
(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 Senior Discount
Notes 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 Senior Discount Notes (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
Senior Discount Note 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 Senior Discount Notes 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.
5
<PAGE>
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 Senior
Discount Notes 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 Senior Discount Notes
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 Senior Discount Notes 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, 60 days after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement and in any event, within 150
days after the Closing Date and (2) in the case of a Registration
Statement filed pursuant to clause (ii) above, 60 days after the date on
which the Company receives the notice specified in clause (ii) above, 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, 90 days after
the date on which the Company becomes obligated to file such Shelf
Registration Statement (and in any event, within 240 days after the
Closing Date), and (2) in the case of a Registration Statement filed
pursuant to clause (ii) above, 90 days after the date on which the
Company receives the notice specified in clause (ii) above. 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 registered such securities pursuant to
the Exchange
6
<PAGE>
Offer and (ii) 365 days from the date on which the Exchange Offer
Registration Statement is declared effective provided, that the Company will
have the option of suspending the effectiveness of the Shelf Registration
Statement for periods of up to an aggregate of 60 days in any calendar year if
the Board of Directors of the Company determines that compliance with the
disclosure obligations necessary to maintain the effectiveness of the Shelf
Registration Statement at such time could reasonably be expected to have a
material adverse effect on the Company or a pending corporate transaction of the
Company (a "Permitted Suspension").
(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 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 immediately by a post effective amendment
to such Registration Statement that cures such failure and that is itself
declared effective within such five Business Day period, provided that such
effectiveness was not suspended in connection with a Permitted Suspension (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, for the first 90-day period immediately
following the occurrence of such Registration Default, liquidated damages in an
amount equal to $.05 per week per $1,000 principal amount of Senior Discount
Notes 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 $.05 per week per $1,000 principal amount of Senior
Discount Notes 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 $.50 per week per $ 1,000 principal amount of Senior
Discount Notes constituting Transfer Restricted Securities held by such Holder.
All accrued liquidated damages shall be paid to Cede & Co., as
nominee of the Depository Trust Company (the "Global Security Holder") by wire
----------------------
transfer of immediately available funds or by federal funds check and to Holders
of Definitive Securities by mailing checks to their
7
<PAGE>
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
Senior Discount Notes. 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 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) diligently pursuing a resolution by the Commission staff of such
submission.
(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 Senior Discount Notes to be issued in the Exchange Offer and (C)
it is acquiring the New Senior Discount Notes 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 (1) 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 Senior Discount
8
<PAGE>
Notes obtained by such Holder in exchange for Senior Discount Notes
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) 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 Senior Discount
Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the New Senior Discount Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the New Senior Discount
Notes 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
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, subject to a Permitted Suspension, 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) except in the event of a Permitted Suspension 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
9
<PAGE>
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 underwriters, 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 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 underwriters 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 underwriters) 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
underwriters) 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 falls to comply with the
applicable requirements of the Act;
10
<PAGE>
(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 underwriters), 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
underwriters 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 underwriters, 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;
(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
principal amount of Senior Notes covered thereby or the underwriters, if
any;
(ix) furnish to each selling Holder and each of the
underwriters 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
underwriters, 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 underwriters, 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;
11
<PAGE>
(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
with respect to the Prospectus or any purchase or
underwriting agreement and the Transfer Restricted
Securities, 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 Senior Discount Notes and the New Senior Discount
Notes, (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 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
12
<PAGE>
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) if the registration is a registration in which
securities of the Company are sold to an underwriter for
reoffering to the public, obtain a customary comfort letter,
dated as of the date of effectiveness of the Shelf
Registration Statement, addressed to the Board of Directors
of the Company or any underwriter from the Company's
independent accountants, in the customary form and covering
matters of the type customarily covered in comfort letters
to boards of directors in underwritten offerings;
(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
underwriters), 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 underwriters, if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such Jurisdictions as the selling Holders
or underwriters, 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 Senior
Discount Notes covered by any Shelf Registration Statement contemplated
by this Agreement, New Senior Discount Notes having an aggregate
principal amount equal to the aggregate principal amount of Senior
Discount Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such New Senior Discount Notes to
be registered in the name of such Holder or in the name of the
purchasers of such New Senior Discount Notes; in return, the Senior
Discount Notes held by such Holder shall be surrendered to the Company
for cancellation;
13
<PAGE>
(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
underwriters, 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 underwriters, 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 underwriters,
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, except in the event of
a Permitted Suspension 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 Trustee
under the Indenture 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 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) cause the Indenture to be qualified under the TIA
not later than the effective date of the first Registration Statement
required by this Agreement, and, in connection therewith cooperate with
the Trustee and the Holders of Senior Notes 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
14
<PAGE>
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner;
(xxi) 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 principal amount of
Senior Discount Notes or the managing underwriters, if any;
(xxii) 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 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 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 Senior Notes 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 Senior Notes 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
15
<PAGE>
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 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 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 indemnify 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 Senior Notes 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 Senior Notes 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
16
<PAGE>
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
Senior Notes 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 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
17
<PAGE>
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 Senior Notes and any such Holder
from its sale of Senior Notes 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 of the Senior Notes (net of discounts but before deducting
expenses) received by the Company and (y) the total proceeds received by such
Holder upon its sale of Senior Notes 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 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 Senior Notes exceeds the sum of (A) the paid by
such Holder for such Senior Notes 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
18
<PAGE>
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, 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 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 ire 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 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 Senior Notes. The Company will
--------------------------------------
not take any action, or permit any change to occur, with respect to the Senior
Notes that would materially adversely affect the ability of the Holders to
Consummate any Exchange Offer.
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<PAGE>
(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
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
principal amount of Transfer Restricted Securities that are subject to such
Exchange Offer.
(e) Notices. All notices and other communications provided for
-------
or 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 Registrar under the Indenture, with a copy to the
Registrar under the Indenture; 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 Trustee at the
address specified in 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.
20
<PAGE>
(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.
(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: /s/ David C. Ruberg
------------------------------------
Name: David C. Ruberg
Title: Chairman of the Board, President and Chief
Executive Officer
BEAR, STEARNS & CO. INC.
By: BEAR, STEARNS & CO. INC.
/s/ J. Andrew Bugas
-----------------------------
Name: J. Andrew Bugas
Title: Senior Managing Director
SALOMON BROTHERS INC
By: SALOMON BROTHERS INC
/s/ Peter Westley
-----------------------------
Name: Peter Westley
Title: Vice President
22
<PAGE>
Exhibit 5.1
[Kronish, Lieb, Weiner & Hellman LLP Letterhead]
August 1, 1997
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Ladies and Gentlemen:
We have acted as counsel to Intermedia Communications Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-4 (the "Registration Statement"), filed pursuant to the Securities Act of
1933, as amended (the "Securities Act"), relating to the Company's proposed
offer to exchange (the "Exchange Offer") 11 1/4% Series B Senior Discount Notes
due 2007 of the Company (the "New Notes") for any and all outstanding 11 1/4%
Senior Discount Notes due 2007 of the Company (the "Old Notes"). The Old Notes
were issued and sold on July 9, 1997 pursuant to an indenture (the "Indenture")
between the Company and SunTrust Bank, Central Florida, National Association, as
trustee, in a transaction exempt from registration under the Securities Act in
reliance upon Rule 144A and Section 4(2) of the Securities Act. The New Notes
will also be issued pursuant to the Indenture.
In that connection, we have reviewed the Indenture, the Registration
Statement and such other documents and instruments as we have deemed
appropriate. In such review, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted as originals and the conformity to
the original documents of all documents submitted to us as copies.
On the basis of such review, and having regard to such legal consideration
as we have deemed relevant, it is our opinion that the New Notes have been duly
and validly authorized for issuance by the Company and, when issued in
accordance with the terms of the Exchange Offer and the Indenture, will be the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms and entitled to the benefits of the
Indenture, except that we express no opinion as to the validity or
enforceability of rights of indemnity or contribution, or both, and except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
<PAGE>
We are members of the Bar of the State of New York and do not purport to be
experts or give any opinion except as to matters involving the laws of such
State, the general corporation laws of the State of Delaware and the federal
laws of the Untied States.
We hereby consent to the use of our name under the caption "Legal Matters"
in the prospectus included in the Registration Statement and to the use of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ KRONISH, LIEB, WEINER & HELLMAN LLP
---------------------------------------
Kronish, Lieb, Weiner & Hellman LLP
2
<PAGE>
EXHIBIT 12.1
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Intermedia Connections
<TABLE>
<CAPTION>
PRO FORMA
YEAR QUARTER ENDED
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- DECEMBER 31, ----------------
1992 1993 1994 1995 1996 1996(3) 1996 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before extraordinary items (235) (2,074) (3,067) (19,157) (57,198) (102,008) (8,893) (27,404)
Income tax benefit 0 0 (97) 0 0
---------------------------------------------------------------------------
Loss before income taxes (235) (2,074) (3,067) (19,254) (57,198) (102,008) (8,893) (27,404)
===========================================================================
Fixed charges:
Interest expensed 1,031 844 1,219 13,355 35,123 36,779 5,382 11,089
Capitalized interest 120 213 257 677 2,780 2,780 396 778
Amortization of deferred financing costs 67 78 69 412 1,252 1,252 203 385
Estimated interest factor on opening leases 275 313 200 428 1,598 1,909 279 755
Dividends on redeemable preferred stock(1) 267 -- -- -- 40,500 -- 3,375
---------------------------------------------------------------------------
Total fixed charges 1,760 1,448 1,745 14,872 40,843 83,220 6,260 16,382
===========================================================================
Earnings:
Loss before income tax (235) (2,074) (3,067) (19,157) (57,198) (102,008) (8,893) (27,404)
Fixed charges excluding capitalized interest 1,373 1,235 1,488 14,195 38,063 39,940 5,864 12,229
---------------------------------------------------------------------------
Total earnings 1,138 (839) (1,579) (4,962) (19,135) (62,068) (3,029) (15,175)
---------------------------------------------------------------------------
Ratio of earnings to fixed charges 0.65 (0.58) (0.90) (0.33) (0.47) (0.75) (0.48) (0.93)
===========================================================================
Insufficiency of earnings to cover fixed charge 622 2,287 3,324 19,834 59,978 145,288 9,289 31,557
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
------------------------------------------------
PREFERRED STOCK(4) NOTES(5)
PRO FORMA ------------------------------------------------
QUARTER YEAR QUARTER YEAR QUARTER
ENDED ENDED ENDED ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1997(3) 1996 1997 1996 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loss before extraordinary items (43,067) (102,008) (43,067) (124,251) (48,312)
Income tax benefit
--------------------------------------------------------------
Loss before income taxes (43,067) (102,008) (43,067) (124,251) (48,312)
==============================================================
Fixed charges:
Interest expensed 11,435 36,779 11,435 58,528 16,576
Capitalized interest 778 2,780 778 2,780 778
Amortization of deferred financing costs 385 1,252 385 1,666 489
Estimated interest factor on opening leases 834 1,909 834 1,909 834
Dividends on redeemable preferred stock(1) 10,125 52,575 13,144 40,500 10,125
--------------------------------------------------------------
Total fixed charges 23,557 95,295 26,576 105,383 28,802
==============================================================
Earnings:
Loss before income tax (43,067) (102,008) (43,067) (124,251) (48,312)
Fixed charges excluding capitalized interest 12,654 39,940 12,654 62,103 17,899
--------------------------------------------------------------
Total earnings (30,413) (62,068) (30,413) (62,148) (30,413)
--------------------------------------------------------------
Ratio of earnings to fixed charges (1.29) (0.65) (1.14) (0.59) (1.06)
==============================================================
Insufficiency of earnings to cover fixed charge 53,970 157,363 56,989 167,531 59,215
==============================================================
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
AND NOTES(6)
------------------------
YEAR QUARTER
ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Loss before extraordinary items (124,251) (48,312)
Income tax benefit
-------------------------
Loss before income taxes (124,251) (48,312)
=========================
Fixed charges:
Interest expensed 58,528 16,576
Capitalized interest 2,780 778
Amortization of deferred financing costs 1,666 489
Estimated interest factor on opening leases 1,909 834
Dividends on redeemable preferred stock(1) 52,575 13,144
-------------------------
Total fixed charges 117,458 31,821
=========================
Earnings:
Loss before income tax (124,251) (48,312)
Fixed charges excluding capitalized interest 62,103 17,899
-------------------------
Total earnings (62,148) (30,413)
-------------------------
Ratio of earnings to fixed charges (0.53) (0.96)
=========================
Insufficiency of earnings to cover fixed charge 179,606 62,234
=========================
</TABLE>
(1) Dividends on preferred stock are not grossed up for the income tax effect
because the Company has not recorded income tax expense for any of the
periods presented.
(2) This column includes the historical information for the Company as well as
pro forma adjustments to reflect the acquisitions of EMI, Netsolve, UTT
and DIGEX as if they had occurred on January 1, 1996.
(3) This column includes the historical information for the Company as well as
pro forma adjustments to reflect the acquisition of DIGEX as if it had
occurred on January 1, 1997.
(4) These columns include the pro forma information described in Notes (3) and
(4) and the effects of the Company issuing $172,500 of preferred stock
with dividends at the rate of 7% at the beginning of the respective
periods.
(5) These columns include the pro forma information described in Notes (3) and
(4) and the effects of the Company issuing $374,785 of notes bearing
11-1/4% interest and defeasing the 13-1/2% notes at the beginning of the
respective periods. These columns do not reflect the extraordinary loss on
early extinguishment of debt of $46,054.
(6) These columns include the pro forma information described in Notes (3) and
(4) and the effects of the Company (i) issuing $172,500 of preferred stock
with dividends at the rate of 7%, (ii) issuing $374,785 of notes bearing
interest at 11-1/4%, and (iii) defeasing the 13-1/2% notes at the
beginning of the respective periods. These columns do not reflect the
extraordinary loss on early extinguishment of debt of $46,054.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related prospectus of Intermedia
Communications Inc. for the registration of $649,000,000 11 1/4% Series B
Senior Discount Notes due 2007 and to the incorporation by reference therein
of our report dated February 10, 1997, except for Note 13, as to which the
date is March 7, 1997, with respect to the consolidated financial statements
and schedule of Intermedia Communications Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1996, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Tampa, Florida
August 1, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related prospectus of Intermedia
Communications Inc. for the registration of $649,000,000 11 1/4% Series B
Senior Discount Notes due 2007 and to the incorporation by reference therein
of our report dated February 24, 1997, with respect to the financial
statements of DIGEX, Incorporated included in its Annual Report (Form 10-KSB)
for the year ended December 31, 1996, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Baltimore, Maryland
August 4, 1997
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
Not Applicable 59-1424500
(State of incorporation if (I.R.S. Employer
not a national bank) Identification Number)
200 South Orange Avenue
Post Office Box 3631
Orlando, Florida 32802
(Address of trustee's principal (Zip Code)
executive offices)
_____________________
INTERMEDIA COMMUNICATIONS OF FLORIDA, INC.
(Exact name of obligor as specified in its charter)
Delaware 59-2913586
(State of incorporation) (I.R.S. Employer Identification
Number)
3625 Queen Palm Drive, Tampa, FL 33619
(Address of principal executive offices) (Zip Code)
Jonathan D. Rich, Esq.
Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue, Suite 3000, Orlando, FL 32801
(407) 244-1105
(Name, address and telephone number of agent for service)
_____________________
11-1/4% Senior Discount Notes due 2007
(Title of indenture securities)
================================================================================
<PAGE>
1. General Information. Furnish the following information as to the trustee:
-------------------
(a) Name and address of each examining or supervising authority to which
it is subject.
Name Address
---- -------
Comptroller of Currency Washington, D.C. 20220
Federal Reserve Bank of
Atlanta Atlanta, Georgia 30303
Federal Deposit Insurance
Corporation Washington, D.C. 20429
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with the Obligor. If the obligor or any underwriter for the
-----------------------------
obligor is an affiliate of the trustee, describe each such affiliation.
None.
The trustee is a wholly-owned subsidiary of SunTrust Banks of Florida,
Inc., a Florida corporation, which is in turn a wholly-owned subsidiary of
SunTrust Banks, Inc., a Georgia corporation (collectively, the "Parent
Corporations"). For purposes of this Item 2 as well as Items 5, 6, 7, 8, 9,
10 and 11, the trustee's responses shall include the Parent Corporations.
3. Voting Securities of the Trustee. Furnish the following information as to
--------------------------------
each class of voting securities of the trustee.
As of June 1, 1995
Col. A Col. B
Title of Class Amount Outstanding
-------------- ------------------
Common Stock ($10 par value) ...... 509,800 shares
4. Trusteeships Under Other Indentures. If the trustee is a trustee under
-----------------------------------
another indenture under which any other securities, or certificates of
interest or participation in any other securities, of the obligor are
outstanding, furnish the following information:
<PAGE>
(a) Title of the securities outstanding under each such other indenture.
Not applicable.
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1)
of the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities
will rank as compared with the securities issued under such other
indenture.
Not applicable.
5. Interlocking Directorates and Similar Relationships with the Obligor or
-----------------------------------------------------------------------
Underwriters. If the trustee or any of the directors or executive officers
------------
of the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the nature
of each such connection.
None.
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
----------------------------------------------------------------------
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor.
As of July 9, 1997:
None.
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
-------------------------------------------------------------------------
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner and executive officer of each such underwriter.
As of July 9, 1997:
Not applicable.
- 2 -
<PAGE>
8. Securities of the Obligor Owned or Held by the Trustee. Furnish the
------------------------------------------------------
following information as to securities of the obligor owned beneficially or
held as collateral security for obligations in default by the trustee.
As of July 9, 1997:
None.
9. Securities of Underwriters Owned or Held by the Trustee. If the trustee
-------------------------------------------------------
owns beneficially or holds as collateral security for obligations in
default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter
any of which are owned or held by the trustee:
As of July 9, 1997:
Not applicable.
10. Ownership of Holdings by the Trustee of Voting Securities of Certain
--------------------------------------------------------------------
Affiliates or Security Holders of the Obligor. If the trustee owns
---------------------------------------------
beneficially or holds as collateral security for obligations in default
voting securities of a person who, to the knowledge of the trustee (1) owns
10 percent or more of the voting securities of the obligor or (2) is an
affiliate, other than a subsidiary, of the obligor, furnish the following
information as to the voting securities of such person:
As of July 9, 1997:
None.
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
-------------------------------------------------------------------------
50 Percent or More of the Voting Securities of the Obligor. If the trustee
----------------------------------------------------------
owns beneficially or holds as collateral security for obligations in
default any securities of a person who, to the knowledge of the trustee,
owns 50 percent or more of the voting securities of the obligor, furnish
the following information as to each class of securities of such person any
of which are so owned or held by the trustee.
As of July 9, 1997:
None.
12. Indebtedness of the Obligor to the Trustee. Except as noted in the
------------------------------------------
instructions, if the obligor is indebted to the trustee, furnish the
following information:
- 3 -
<PAGE>
Nature of Indebtedness Amount Outstanding Date Due
---------------------- ------------------ --------
None -------- -----
13. Defaults by the Obligor.
-----------------------
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for
more than one outstanding series of securities under the indenture,
state whether there has been a default under such indenture or series,
identify the indenture or series affected, and explain the nature of
any such default.
Not applicable.
14. Affiliations with the Underwriters. If any underwriter is an affiliate of
----------------------------------
the trustee, describe such affiliation.
None.
15. Foreign Trustee. Identify the order of rule pursuant to which the foreign
---------------
trustee is authorized to act as sole trustee under the indentures qualified
or to be qualified under the Act.
Not applicable.
16. List of Exhibits.
----------------
List below all exhibits filed as a part of this statement of eligibility.
Exhibit 1 - Copy of Articles of Association of the Trustee as now in
effect.
Exhibit 2 - Copy of the certificate of authority of the Trustee to commence
business.
Exhibit 3 - Copy of the authorization of the Trustee to exercise corporate
trust powers.
Exhibit 4 - Copy the existing bylaws of the Trustee.
Exhibit 5 - Original Indenture.
-4-
<PAGE>
Exhibit 6 - The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
Exhibit 7 - Report of Condition of SunTrust Bank, Central Florida, National
Association as of the close of business on March 31, 1997 published in
response to the requirements of the Comptroller of the Currency.
-5-
<PAGE>
NOTE
The content of this Amendment No. 1 to statement of eligibility and
qualification on Form T-1 may be considered as correct unless amended by the
trustee.
In answering any item herein which relates to matters peculiarly within the
the knowledge of the obligor, the trustee has relied upon information
furnished to it by the obligor and the trustee disclaims any responsibility for
the accuracy and completeness thereof.
-6-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, SunTrust Bank, Central Florida, National Association, a national
banking association organized and existing under the laws of the United States
of America, has duly caused this Statement of Eligibility and Qualification to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Orlando, State of Florida, on the 21st day of July, 1997.
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ Alice Springer
--------------------------
Alice Springer
Corporate Trust Officer
-7-
<PAGE>
EXHIBIT 1
---------
Copy of Articles of Association of the Trustee
<PAGE>
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
SOUTHEASTERN DISTRICT
MARQUIS ONE TOWER, SUITE 600
245 PEACHTREE CENTER AVENUE, N.E.
ATLANTA, GEORGIA 30303
September 21, 1995
Margaret U. Hodgson
Vice President/Senior Attorney
SunTrust Banks, Inc.
Post Office Box 2818
Atlanta, Georgia 30302
Dear Ms. Hodgson:
The office of the Comptroller of the Currency has received your letter
concerning the title change and the appropriate amendment to the articles
of association. The OCC has recorded that as of October 6, 1995, the
following bank changed its title to:
Re: 95-SE-04-0016 - Charter No. 16108
Old Title: Sun Bank, National Association
New Title: SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
As a result of the Garn-St Germain Depository Institutions Act of 1982,
this Office is no longer responsible for the approval of national bank name
changes nor does it maintain official records on the use of alternate
titles. The use of other titles or the retention of the rights to any
previously used title is the responsibility of the bank's board of
directors. Legal counsel should be consulted to determine whether [???] any
previously used title, could be challenged by competing institutions under
the provisions of federal or state law.
Very truly yours,
/s/ Thelma J. Hodges
Thelma J. Hodges
Applications Specialist
<PAGE>
SUN BANK, NATIONAL ASSOCIATION
CHARTER NO. 16108
ARTICLES OF ASSOCIATION
(Amended and restated as of January 5, 1993)
FIRST. The title of the association shall be Sun Bank, National Association.
SECOND. The main office of the association shall be at 200 South Orange
Avenue, in the City of Orlando in the County of Orange, State of Florida. The
general business of the association shall be conducted at its main office and
its branches.
THIRD. The general nature of the business to be transacted by the association
shall be: That of a general banking business with all the rights, powers and
privileges granted, conferred or permitted by the banking laws of the United
States and other applicable laws regulating or otherwise applicable to the
organization, rights, powers, privileges or management of national banking
associations created and existing under and by the virtue of the laws of the
United States, including, but not limited to, the right and power to exercise
trust and other fiduciary powers and privileges and conduct a general trust
business.
FOURTH. The amount of authorized capital of the association shall be
$5,098,000 divided into 509,800 shares of common of the par value of $10 each;
but said capital stock may be increased or decreased from time to time, in
accordance with the provision of the laws of the United States.
FIFTH. No holder of any of the shares of the capital stock of any class of
the association shall have any preemptive or preferential right to subscribe to
or acquire any unissued or other shares of any class of stock of the
association, whether now or thereafter authorized, or to subscribe to or acquire
any obligations or securities of the association convertible into or carrying a
right to subscribe to or acquire, any shares of stock of the association.
SIXTH. The corporate existence of this association shall continue until
terminated in accordance with the laws of the United States.
<PAGE>
SEVENTH. Section 1. The business and affairs of the association shall
be managed and conducted by its Board of Directors which shall consist of not
less than five nor more than twenty-five directors, and by its officers.
Nominations of directors shall be made, and elections of directors shall be
held, according to such lawful rules, regulations or requirements as may be
prescribed by or pursuant to the bylaws and applicable regulations of the Office
of the Comptroller of the Currency. Each Director, during the full term of his
directorship, shall own a minimum of $1,000 par, fair market or equity value of
stock of this Association or an equivalent interest, as determined by the
Comptroller of the Currency, in any company which has control over the
Association. Unless otherwise required by the laws of the United States, any
vacancy in the Board of Directors, for any reason, including an increase
thereof, may be filled by action of the Board of Directors.
Section 2. Annual meetings of the shareholders shall be held in
the State of Florida at the location of such office of the association as shall
be designated in accordance with applicable provisions of the bylaws; provided,
however, that meetings of the shareholders may be held at any other location
designated pursuant to applicable provisions of the bylaws, on the day of each
year specified therein, but if no election is held on that day, it may be held
on any subsequent day according to such lawful rules as may be prescribed by the
Board of Directors.
Section 3. The Board of Directors shall elect one of its
members President of the association, who shall be Chairman of the Board unless
the Board of Directors elects another director to be the Chairman. The Board of
Directors shall have the power also to elect one or more Vice Presidents; and to
elect a Cashier, and such other officers and employees as may be required to
transact the business of the association.
Section 4. The Board of Directors shall have the power to define
the duties of the officers, employees and agents of the association; to fix the
salaries to be paid to them; to dismiss them; to require bonds from them and to
fix the penalty thereof; to regulate the manner in which any increase of the
capital of the association shall be made but subject to the approval, when
required, of The Office of the Comptroller of the Currency; to manage and
administer the business and affairs of the association; to make all bylaws that
it may be lawful for them to make; and generally to do and perform all acts that
it may be legal for a Board of Directors of a banking association existing under
the laws of the State of Florida to do and perform.
EIGHTH. If all the issued and outstanding shares of the association are
owned and held by a single shareholder, any action required by these Articles of
Association, the bylaws of the association, or by applicable law or rule or
regulation to be taken at any annual or special meeting of shareholders, may be
taken without a meeting, without notice and without vote if a consent in
writing, setting forth the
2
<PAGE>
action so taken, shall be signed by the single holder of all the issued and
outstanding shares of the association, and such written consent shall be the
equivalent of, and shall constitute, action taken by vote of all the shares of
stock of the association entitled to vote, at a meeting of shareholders of the
association, duly called and held pursuant to due and proper notice, and at
which a proper quorum is present.
NINTH. The bylaws of the association and these Articles of Association,
may be amended at any regular or special meeting of the shareholders by the
affirmative vote of the holders of a majority of the stock of the association
unless the vote of the holders of a greater amount of stock is required by law,
and in that case, by the vote of the holders of such greater amount.
TENTH. Section 1. INDEMNIFIED PARTIES; RELIANCE. Every person and the
heirs and personal representatives of such person who is or was a director,
officer or employee of the corporation, or of any other entity in which he
served as such at the written request of the corporation, may be indemnified
against liability incurred in connection with such proceeding, including any
appeal thereof, in which he is or was a party thereof, by reason of the fact
that he is or was a director, officer or employee of the corporation or such
other entity, or by reason of any action taken or omitted by him in his capacity
as such director, officer, or employee, whether or not he continues to be
such at the time such liability shall have been incurred. Each person who shall
act or has acted as a director, officer or employee of the corporation, or of
any other entity referred to in this Section, shall be deemed to be doing so or
have done so in reliance upon the right of indemnification provided for in this
Tenth Article.
Section 2. INDEMNIFICATION AS OF RIGHT. Every person (and the
heirs and personal representatives of such person) referred to in Section 1 of
this Article Tenth who has been wholly successful on the merits with respect to
any proceeding described in Section 1 of this Article or in defense of any
claim, issue, or matter therein, shall be entitled to indemnification as of
right.
Section 3. INDEMNIFICATION BASED ON REVIEW. Except as provided
in Section 2 of this Article Tenth, any indemnification under this Article Tenth
shall be made:
(A) In case of a proceeding (other than by, or in the right
of, the association) to procure a judgment in its favor, only if the Board of
Directors or the Executive Committee of such board, acting by quorum consisting
of directors who are not parties to such proceeding, shall find, or independent
legal counsel (who may be the regular outside legal counsel of the association)
shall render an opinion, or the shareholder by affirmative vote of a majority of
the shares entitled to vote thereon shall determine, that the director, officer
or employee acted in good faith in what he reasonably believed to be the best
interests of the association or such
3
<PAGE>
other entity, as the case may be, and in addition, in any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful; or
(B) In the case of a proceeding by or in the right of the corporation
to procure a judgment in its favor, only if the Board of Directors or the
Executive Committee of such board, acting by a quorum consisting of directors
who are not parties to such proceeding shall find, or independent legal counsel
(who may be the regular outside legal counsel of the corporation) shall render
an opinion, or the shareholders by the affirmative vote of the majority of the
shares entitled to vote thereon shall determine, that the director, officer or
employee acted in good faith in what he reasonably believed to be the best
interests of the corporation or such other entity, as the case may be; provided,
however, that no indemnification under this Subsection (B) shall be made with
regard to any claim, issue or matter as to which such director, officer or
employee shall have been adjudged to be liable only to the extent that the court
in which such proceeding was brought or any other court of competent
jurisdiction shall determine that, despite the adjudication of liability but in
view of all the circumstances of the case, such director, officer or employee is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
For the purpose of Subsection (A) only, the termination of any
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent, shall not create a presumption that a director,
officer or employee did not meet the standards of conduct set forth in such
subsection.
For the purpose of Subsection (B) only, the corporation may
advance amounts paid in settlement which, in the opinion of the Board of
Directors or the Executive Committee of such board, do not exceed the estimated
expense of litigating the proceeding to a conclusion.
Notwithstanding the above, no indemnification under this Section 3
shall be made in the case of an administrative proceeding or action instituted
by an appropriate bank regulatory agency [if such] proceeding or action results
in a final order assessing civil money [?against] a director, officer or
employee of the corporation.
Section 4. [Administrative?] expenses incurred by a director or
officer with respect to any proceeding of the character described in this
Article Tenth may be advanced by the corporation prior to the final disposition
thereof upon receipt of any undertaking by or on behalf of the recipient to
repay such amount unless it shall be ultimately determined that he is entitled
to indemnification under this Tenth Article. Expenses incurred by other
employees may be advanced by the corporation upon such terms as the Board of
Directors deems appropriate. Any advancement of expenses under this Article
Tenth shall be made in accordance with Florida Statutes (S)607.0850 or any
successor law or laws.
4
<PAGE>
Section 5. INDEMNIFICATION NOT EXCLUSIVE. The rights of
indemnification provided in this Article Tenth shall be in addition to any
rights to which any such director, officer, employee or other person may
otherwise be entitled by contract or as a matter of law. Any indemnification
under this Article Tenth shall be made in accordance with Chapter 607 of the
Florida Statutes or any successor law or laws.
Section 6. INSURANCE. The corporation may purchase insurance to
indemnify its directors, officers and employees to the maximum extent permitted
by the laws of the State of Florida.
Section 7. DEFINITION. For purposes of this Article Tenth,
the terms - "expenses", "liability", "proceeding" and "not opposed to the best
interest of the Corporation" - shall have the same meaning as set forth in
Florida Statutes (S)607.0850(11) or any successor law or laws.
ELEVENTH. Section 1. No director of the association shall be personally
liable to the association or any other person for monetary damages for breach of
his fiduciary duty as a director, provided that this provision shall eliminate
or limit the liability of a director only to the maximum extent permitted from
time to time by the Florida Statutes and related regulations or any successor
law or laws.
Section 2. Any repeal or modification of Article Eleventh,
Section 1 by the shareholders of the association shall not adversely affect any
right or protection of a director of the association existing at the time of
such repeal or modification.
5
<PAGE>
EXHIBIT 2
---------
Copy of the Certificate of Authority of the Trustee
to Commence Business
<PAGE>
No. 140005
Treasury Department
Office of Comptroller of the Currency
Washington: D.C. February 14, 1934. Whereas, by satisfactory evidence
presented to the undersigned, it has been made to appear that "THE FIRST
NATIONAL BANK AT ORLANDO" in the CITY of ORLANDO in the County of ORANGE and
State of FLORIDA has complied with all the provisions of the Statutes of the
United States, required to be complied with before an association shall be
authorized to announce the business of Banking.
Now therefore I, J.F.T.O'CONNOR, Comptroller of the Currency, do hereby
certify that "THE FIRST NATIONAL BANK AT ORLANDO" in the County of ORANGE and
State of FLORIDA is authorized to commence the business of Banking, as provided
in Section Fifty one hundred and sixty nine of the Revised Statutes of the
United States.
SEAL In testimony whereof witness my hand and seal of
office this 14th day of FEBRUARY, 1934.
/s/ J.F.T.O'Connor
--------------------------------
Comptroller of the Currency
<PAGE>
Comptroller of the Currency
Treasury Department of the United States
Washington, D.C.
WHEREAS, satisfactory notice has been transmitted to the Comptroller of the
Currency evidencing that all requisite loyal and corporate action has been taken
by
THE FIRST NATIONAL BANK AT ORLANDO,
located in ORLANDO, State of FLORIDA, in accordance with the statutes of the
United States, to authorize a change of the name of that association to
SUN FIRST NATIONAL BANK OF ORLANDO;
NOW, THEREFORE, it is hereby certified that such change of name of said
association is approved effective March 1, 1973.
IN TESTIMONY WHEREOF, witness my signature and seal of office this
twenty-first day of February, 197?
Comptroller of the Currency
Charter No. 14003
<PAGE>
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES
Washington, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller of the
Currency that all requisite legal and corporate action has been taken, in
accordance with the statutes of the United States, to merger Sun First National
Bank of Orlando, Orlando, Florida and Sun Bank of Osceola County, St. Cloud,
Florida into Sun Bank of Seminole, National Association, Fern Park, Florida
under the charter of Sun Bank of Seminole, National Association and under the
title "Sun Bank, N.A.";
NOW, THEREFORE, it is hereby certified that such merger was approved
September 10, 1980, and is effective as of the opening of business November 14,
1980.
IN TESTIMONY WHEREOF, witness my signature and
seal of office this 14th day of November, 1980.
John G. Heimann
Comptroller of the Currency
Charter No. 16108
Merger No. 1573
________________________________________________________________________________
CERTIFICATE FOR CERTIFIED COPY
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES ) SS
Washington, D.C.
I hereby certify that the foregoing is a true and complete copy of the
certificate recorded in this office, dated the 14th day of November, 1980,
merging the banks mentioned therein.
IN WITNESS WHEREOF, I have on NOV 14, 1980 hereunto set my hand and caused
------------
the seal of the Comptroller of the Currency to be affixed to these presents.
/s/ John G. Heimann
Comptroller of the Currency
<PAGE>
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES
Washington, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller
of the Currency that all requisite legal and corporate action has been taken, in
accordance with the statutes of the United States, to merge Sun First National
Bank of Lake County, Leesburg, Florida and Sun First National Bank of Brevard
County, Melbourne, Florida into Sun Bank, N.A., Orlando, Florida under the
charter of Sun Bank, N.A. and under the title "Sun Bank, National Association";
NOW, THEREFORE, it is hereby certified that such merger was approved
October 18, 1982, and is effective as of December 17, 1982.
IN TESTIMONY WHEREOF, witness my
signature and seal of office this
7th day of January, 1983.
C. T. Conover
Comptroller of the Currency
Charter No. 16108
Merger No. 2004
________________________________________________________________________________
CERTIFICATE FOR CERTIFIED COPY
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES ) SS
Washington, D.C.
I hereby certify that the foregoing is a true and complete copy of the
certificate recorded in this office, dated the 7th day of January, 1983, merging
the banks mentioned therein.
IN WITNESS WHEREOF, I have on FEB 07 1983 hereunto set my hand and
-----------
caused the seal of the Comptroller of the Currency to be affixed to these
presents.
/S/ C.T. Conover
Comptroller of the Currency
<PAGE>
EXHIBIT 3
---------
Copy of the Authorization of the Trustee
to Exercise Corporate Trust Powers
<PAGE>
EXHIBIT "A"
[PICTURE OF TREASURY BUILDING OF UNITED STATES APPEARS HERE]
Comptroller of the Currency
Treasury Department of the United States
Washington, D.C.
WHEREAS, SUN, BANK, NATIONAL ASSOCIATION, LOCATED IN ORLANDO, STATE OF
FLORIDA, BEING A NATIONAL BANKING ASSOCIATION, ORGANIZED UNDER THE STATUTES OF
THE UNITED STATES, HAS MADE APPLICATION FOR AUTHORITY TO ACT AS FIDUCIARY
AND WHEREAS, APPLICABLE PROVISIONS OF THE STATUTES OF THE UNITED STATES
AUTHORIZE THE GRANT OF SUCH AUTHORITY,
NOW THEREFORE, I HEREBY CERTIFY THAT THE NECESSARY APPROVAL HAS BEEN GIVEN
AND THAT THE SAID ASSOCIATION IS AUTHORIZED TO ACT IN ALL FIDUCIARY CAPACITIES
PERMITTED BY SUCH STATUTES.
IN TESTIMONY WHEREOF, WITNESS MY
[SEAL APPEARS HERE] SIGNATURE AND SEAL OF OFFICE THIS
SEVENTH DAY OF DECEMBER, 1982.
\S\ C.T. CONOVER
COMPTHOLDER OF THE CURRENCY
<PAGE>
EXHIBIT 4
---------
Copy of the Existing Bylaws of the Trustee
<PAGE>
SUN BANK, NATIONAL ASSOCIATION
BY-LAWS
-------
ARTICLE I
---------
Meeting of Shareholders
-----------------------
Section 1.1. Annual Meeting. The regular annual meeting of the shareholders
--------------
for the election of directors and the transaction of whatever other business may
properly come before the meeting, shall be held at the main office of the bank,
200 S. Orange Avenue, City of Orlando, County of Orange, State of Florida, or
such other places as the Board of Directors may designate on the third Monday of
January. Notice of such meeting shall be mailed, postage prepaid, at least ten
(10) days prior to the date thereof, addressed to each shareholder at his
address appearing on the books of the bank. If, from any cause, an election of
directors is not made on the said day, the Board of Directors shall order the
election to be held on the next following banking day, or if not held on the
next following banking day, as soon thereafter as practicable, according to the
provisions of law; and notice thereof shall be given in the manner herein
provided for the annual meeting. In any event said election of directors shall
be held within sixty (60) days of the day fixed for the annual meeting.
<PAGE>
Section 1.2. Special Meetings. Except as otherwise specifically provided
----------------
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board of Directors or by any shareholder owning not less than
twenty-five (25) percent of the stock of the bank. Every such special meeting,
unless otherwise provided by law, shall be called by mailing, postage prepaid,
not less than ten (10) days prior to the date fixed for such meeting, to each
shareholder at his address appearing on the books of the bank, a notice stating
the purpose of the meeting.
Section 1.3. Nominations for Directors. Nominations for election to the
-------------------------
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the existing management of the Association, shall be made in writing and shall
be delivered or mailed to the President of the Bank and to the Comptroller of
the Currency, Washington, D.C., not less than fourteen (14) days nor more than
fifty (50) days prior to any meeting of shareholders called for the election of
directors, provided however, that if less than twenty-one (21) days notice of
the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Bank and to the Comptroller of the Currency
not later than the close of business on the seventh (7th) day following the day
on which the notice of meeting was mailed. Such noticication shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the bank
that will be voted for each proposed nominee; (d) the name and residence address
of the notifying shareholder; (e) the number of shares of capital stock of the
bank owned by the notifying stockholder; and (f) the consent of the proposed
nominee to serve, if elected. Nominations not made in accordance herewith may,
in his discretion, be disgregarded by the Chairman of the meeting, and upon his
instructions, the vote tellers may disregard all votes cast for each such
nominee.
Section 1.4. Judges of Elections. Every election of directors shall be
-------------------
managed by three judges, who shall be appointed by the Board of Directors. The
judges of election shall hold and
2
<PAGE>
conduct the election at which they are appointed to serve; and all questions
respecting the qualification of votes, the validity of the proxies and the
acceptance or rejection of votes, shall be decided by such judges; and, after
the election, they shall file with the Cashier or officer appointed pursuant to
(S)4.5 of the Bylaws, a certificate under their hands, certifying the result
thereof and the names of the directors elected. The judges of election, at the
request of the Chairman of the meeting, shall act as tellers of any other vote
by ballot taken at such meeting, and shall certify the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
-------
shareholders by proxies duly authorized in writing, but no officer or employee
of this bank shall act as proxy. Proxies shall be valid only for one meeting, to
be specified therein, and any adjournments of such meeting. Proxies shall be
dated and shall be filed with the records of the meeting.
Section 1.6 Quorum. A majority of the outstanding capital stock,
------
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but in the event that there is
less than a quorum, a majority of the outstanding capital stock, represented in
person or by proxy, may adjourn any meeting, from time to time, and the meeting
may be held, as adjourned, without further notice. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
ARTICLE II
----------
Directors
---------
Section 2.1. Board of Directors. The Board of Directors (hereinafter
------------------
sometimes referred to as the "Board"), shall have power to manage and administer
the business and affairs of the bank. Except as expressly limited by law, all
corporate powers of the bank shall be vested in and may be exercised by said
Board.
3
<PAGE>
Section 2.2 Number. The Board of Directors shall consists of not less than
------
five directors, the exact number within such minimum and maximum limits to be
fixed and determined from time to time by resolution of a majority of the full
Board or by resolution of the shareholders at any meeting thereof; provided,
however, that a majority of the full Board of Directors may not increase the
number of directors to a number which: (i) exceeds by more than two (2) the
number of directors last elected by shareholders where such number was fifteen
(15) or less: and (ii) to a number which exceeds by more than four (4) the
number of directors last elected by shareholders where such number was sixteen
(16) or more, but in no event shall the number of directors exceed twenty-five
(25). The President of the Association shall be a member of the Board.
Section 2.3. Citizenship. All directors must, during their whole term of
-----------
service, be citizens of the United States, and of federal voting age.
Section 2.4 Organization Meeting. The Chairman of the meeting, upon
--------------------
receiving the certificate of the judges, of the result of any election, shall
notify the directors-elect of their election and of the time at which they are
required to meet at the main office of the bank for the purpose of organizing
the new Board and electing and appointing officers of the bank for the
succeeding year. Such meeting shall be held on the day of the election or as
soon thereafter as practicable, and, in any event, within thirty (30) days
thereof. If, at the time fixed for such meeting, there shall not be a quorum
present, the directors present may adjourn the meeting, from time to time, until
a quorum is obtained.
Section 2.5. Regular Meetings. The regular meetings of the Board of
----------------
Directors shall be held, without notice, at the main office of the bank at such
time and day of such months as shall be designated by the Board from time to
time. Regular meetings of the Board of Directors may be held at other banking
offices of the bank if the President calls for such location and causes notice
thereof to be given to each director either by personal delivery or by mail,
telegram, facsimile transmission or cablegram at least two (2) days before
the meeting. The annual
4
<PAGE>
organization meeting of the Board shall be deemed and considered as the regular
meeting of the Board for the month in which the annual organizational meeting is
held.
Section 2.6. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the President of the bank, or at the request of three (3) or
more directors. Each member of the Board shall be given notice stating the time
and place, by telegram, cablegram, letter, facsimile transmission or in person,
or each such special meeting. Notice of any meeting of the Board need not,
however, be given to any director, if waived by him in writing (including
telegram, cablegram or facsimile transmission) or if he shall be present at the
meeting; and any meeting of the Board shall be a legal meeting without any
notice thereof having been given, if all the members shall be present thereat.
Except as otherwise provided in the bylaws or as may be indicated in the notice
thereof, any and all business may be transacted at any special meeting.
Section 2.7. Meetings by Conference Communication Devices. Regular or
--------------------------------------------
special meetings of the Board may be held by means of conference telephone or
similar communication equipment whereby all persons participating in the meeting
can hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
Section 2.8. Quorum. A majority of the directors shall constitute a quorum
------
at any meeting, except when otherwise provided by law; but in the event less
than a majority remains at any meeting, the remaining directors may adjourn any
meeting, from time to time, and the meeting may be held, adjourned without
further notice.
Section 2.9. Resignation. No director shall remain or stand for re-election
-----------
as a member of the Board of Directors who has attained the age of seventy (70)
years or who by virtue of retirement or otherwise has ceased to be active in the
profession or business in which such director was originally involved at the
time of his nomination to the Board.
5
<PAGE>
Section 2.10. Vacancies. When any vacancy occurs among the directors, a
---------
majority of the remaining directors may appoint a director to fill such vacancy
at any regular meeting of the Board, or at a special meeting called for that
purpose.
Section 2.11. Secretary to the Board. The Board may appoint a Secretary
----------------------
to the Board who shall, if appointed, keep accurate minutes of all meetings and
provide for the giving of all notices required to be given to the Board.
ARTICLE III
-----------
Committees of the Board
-----------------------
Section 3.1. Examining Committee. There shall be an Examining Committee
-------------------
composed of not less than three (3) directors, exclusive of any active officers,
appointed by the Board annually or more often, which shall at least once during
each calendar year, and within fifteen (15) months of the last such audit, make
suitable audits of the bank or cause suitable audits to be made by auditors
responsible only to the Board and at such time shall ascertain whether the
affairs of the bank have been properly administered.
Section 3.2. Executive Committee. There shall be an Executive Committee,
-------------------
which shall consist of the Chairman of the Board, the President, and one or more
other directors of the bank appointed by resolution or resolutions passed by a
majority of the full Board. The Executive Committee shall have and may exercise,
when the Board is not in session, all the powers of the Board in the management
of the business and affairs of the bank, provided, that the foregoing shall not
be construed as authorizing action by the Executive Committee with respect to
any action which by these bylaws is required to be taken by a vote of a
specified proportion of the full Board, or any other action required by the
Bylaws or Articles of Association or any amendment thereto, or by statute, to be
taken by the Board or the shareholders as such.
The Executive Committee shall have: (i) the duty to consider and approve
actions to be taken in the various departments of the bank covering loans,
operations, credit cards, marketing and public relations, which are not covered
by existing policies and guidelines that require an
6
<PAGE>
immediate decision to effectively operate the bank; and (ii) the power to
discount and purchase bills, notes and other evidences of debt, to buy and sell
bills exchange, to examine and approve loans and discounts, to exercise
authority regarding loans and discounts.
Stated meetings of the Executive Committee, of which no notice shall be
necessary, shall be held at such times and at such places as shall be fixed from
time to time by resolution adopted by the Executive Committee. Special meetings
of the Executive Committee may be called by the Chairman of the Board or the
President or by any other two (2) members of the Executive Committee, at any
time. Notice of any special meeting of the Executive Committee may be given in
the manner provided in the bylaws for giving of notice of a special meeting of
the Board. A majority of the Executive Committee shall constitute a quorum for
the transaction of business; and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the Executive
Committee.
The Executive Committee shall keep a written record of its acts and
proceedings and shall report the same to the Board at the next regular meeting
of the Board at which a quorum is present, and the original minutes shall be
maintained by the Secretary to the Board. A secretary appointed by the
Committee shall act as secretary to the Executive Committee.
Section 3.3. Other Committees. The Board may appoint, from time to time,
----------------
from its own members, other committees of one or more persons, for such purposes
and with such powers as the Board may determine.
ARTICLE IV
----------
Officers and Employees
----------------------
Section 4.1. Chairman of the Board. The Board of Directors shall elect
---------------------
one of its members to be Chairman of the Board, such individual to serve at the
pleasure of the Board. Subject to the supervision and direction of, and any
limitations imposed by the Board, the Chairman shall have general executive
powers as well as the specific duties and powers conferred by these bylaws or
the by the Board including, without limiting the foregoing, during such periods
7
<PAGE>
of time as the Chairman is designated by the Board as the chief executive
officer or as the chief administrative officer, or both, the duties,
responsibilities and powers specified in these bylaws with respect to such
designation or designations. The Chairman shall preside, when present, at all
meetings of the shareholders, the Board and, if a Chairman of the Executive
Committee has not been appointed by the Board, the Executive Committee, unless
for the purposes of any such meeting, he shall delegate all or some of those
duties to the President of the bank of Executive Vice President.
Section 4.2 President. The Board shall appoint one of its members to be
---------
President of the bank. The President shall have all duties and powers required
by law to be exercised by a president of bank as such, and, subject to the
supervision and direction of, and any limitations imposed by the board, he shall
have general executive powers as well as the specific duties and powers
conferred by these bylaws or by the Board including, without limiting the
foregoing, during such periods of time as the President is designated by the
Board as the chief executive officer or as the chief administrative officer, or
both, the duties, responsibilities and powers specified in these bylaws with
respect to such designation or designations. In the absence of the Chairman the
President shall preside at all meetings of the shareholders, and, if a Chairman
of the Executive Committee has not been appointed by the Board, the Executive
Committee.
Section 4.3 Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
by virtue of such designation by the Board be the most senior officer of the
bank, and all other officers and agents of the bank shall be subject to his
direction. He shall be accountable to the Board for the fulfillment of his
duties and responsibilities and, in the performance and exercise of all his
duties, responsibilities and powers, he shall be subject to the supervision and
direction of, and any limitations imposed by the Board. The Chief Executive
Officer shall be responsible for interpretation and required implementation of
the policies of the bank as determined and specified from time to time by the
Board and he shall be responsible for the general management and direction of
the business and affairs of the bank. For the purpose of fulfilling his duties
and responsibilities, the Chief Executive Officer shall have, subject to these
bylaws and the Board plenary authorities and powers, including general executive
powers, the authority to delegate and
8
<PAGE>
assign duties, responsibilities and authorities, and, in the name of the bank
and on its behalf, to negotiate and make any agreements, waivers or commitments
which do not require the express approval of the Board provided, however, that
if at any time the Chief Executive Officer is not also the President of the
bank, he shall not have or exercise any of the powers which are expressly
required by law to be exercised by a President of an bank as such.
Section 4.4. Executive Vice President, Senior Vice President, First Vice
-----------------------------------------------------------
President or Vice President. The Board of Directors may appoint one or more
- ---------------------------
Executive Vice Presidents, Senior Vice Presidents, First Vice Presidents or Vice
Presidents. Each Executive Vice President, Senior Vice President, First Vice
President or Vice President shall have such powers and duties as may be assigned
by the Board. In the absence of the President, the Board shall designate one
Executive Vice President, or Senior Vice President, to perform all the duties of
the President.
Section 4.5. Cashier. The Board shall appoint a Cashier, or other
-------
designated officer who shall be custodian of the seal of the bank, records,
documents and papers of the bank; assure the keeping of proper records of all
transactions of the bank; assure the giving of notices required by these bylaws
to be given, such notices not otherwise delegated to the Secretary to the Board;
have and may exercise any and all other powers and duties pertaining by law,
regulation or practice, to the Office of Cashier, or imposed by these bylaws;
and also perform such other duties as may be assigned from time to time, by the
Board. The Board may assign all of the above-referenced duties without
conferring the formal title of "Cashier."
Section 4.6 Other Officers. The Board of Directors may appoint one or
--------------
more Assistant Vice Presidents, one or more Trust Officers, one or more
Assistant Cashiers, one or more Managers and Assistant Managers of branches and
such other officers and attorneys-in-fact as from time to time may appear to the
Board to be required or desirable to transact the business of the bank. Such
officers shall respectively exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon, or assigned to
them by the Board, the Chairman of the Board or the President.
9
<PAGE>
Section 4.7 Tenure of Office. The President and other officers shall
----------------
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed; any vacancy occurring in the
Office of President shall be filled promptly by the Board.
ARTICLE V
---------
Trust Department
----------------
Section 5.1. Trust Department. There shall be a department of the bank
----------------
which shall be designed and known as the Trust Department which shall exercise
the trust powers and perform the fiduciary functions and responsibilities of the
bank, subject to the control, direction and supervision of the Board. All
committees and officers of the Trust Department shall be subject to the
authority and direction of, and control and general supervision by the Board;
any of the authorities, powers, duties or other functions in this Article
delegated to, or otherwise prescribed with respect to, any committee (except the
Trust Audit Committee) or officer of the Trust Department may, by appropriate
action of the Board recorded in its minutes, be reserved unto the Board or
delegated or otherwise assigned to some other committee or officer appointed by
the Board. The Trust Department shall be operated separately and apart from
every other department of the bank, and the assets held by the bank in its
fiduciary capacity shall be kept separate from other assets owned by the bank.
Section 5.2. Trust Committee. Unless the Board elects to act in such
---------------
capacity, there shall be a Trust Committee composed of five (5) or more capable
and experienced persons, who may or may not be Directors of the bank, as may be
appointed annually or more often by vote of a majority of the full Board.
Subject to the authority of the Board, the Trust Committee shall have general
responsibility for the supervision of the Trust Department and its activities
and the authority to appoint one or more committees, which shall report to the
Trust Committee, including but not limited to a Personal Trust Administration
and Acceptance Committee, and a Corporate Trust Administration and Acceptance
Committee; from time to time, and not less often than annually, shall reassess
the organization and administration of the Trust Department to ensure the
10
<PAGE>
proper exercise of fiduciary powers; shall establish and from time to time,
modify, as it may deem appropriate, written general policies and operating
procedures for the conduct of the business and affairs of the Trust Department
and to approve or disapprove any proposed deviations therefrom; shall review the
minutes and recommendations of any committee which is required to report to the
Trust Committee, and to take any action with respect thereto deemed by the Trust
Committee to be needful or appropriate and note such action in its minutes; and
to review in summary form the activities or personnel of the Trust Department.
Except as, and to the extent otherwise prescribed by the provisions of these
bylaws or action of the Board not inconsistent with these bylaws, the Trust
Committee shall have and exercise general authority over and supervision of all
officers and committees of the Trust Department. The committee(s) or officer(s)
so appointed by the Trust Committee shall do or cause to be done all things
necessary or proper in carrying on the business and affairs of the Trust
Department in accordance with applicable provisions of law, rules and
regulations and sound fiduciary principles.
Section 5.3. Trust Audit Committee. The Examining Committee established
---------------------
under Article III, Section 3.1, of the bylaws, shall perform the
responsibilities of and serve as the Trust Audit Committee. At least once during
each calendar year and within fifteen (15) months of the last such examination
and audit, the Examining Committee shall make an appropriate examination and
audit of the Trust Department or cause an appropriate examination and audit of
the Trust Department to be made by auditors responsible only to the Board. Such
examinations and audits shall be made in compliance with applicable law, rules
and regulations and in such manner and to such extent as shall enable the
Committe to evaluate the condition of the Trust Department; to evaluate the
effectiveness of the policies, practices and controls employed by the Trust
Department to effect compliance and enforce correction of any violations,
deficiencies or weaknesses; and to ascertain whether the Trust Department has
been administered in accordance with applicable law, rules and regulations, and
sound fiduciary principles. The Examination Committee shall make its formal
written report to the Board promptly after receipt of the report of examination.
Such report shall state whether the Trust Department has been administered in
accordance with applicable law, rules and regulations, and sound fiduciary
principles, whether adequate internal audit controls and procedures are being
maintained, and shall recommend to the
11
<PAGE>
Board such changes in the manner of doing business or conducting the affairs of
the Trust Department as shall be deemed advisable. If additional examinations
and audits are performed, the Examining Committee shall make a written report to
the Board of the results of each such audit and examination at the next regular
meeting of the Board at which a quorum is present. All reports of the Examining
Committee, together with any action taken thereon, shall be noted in the
minutes of the Board.
Section 5.4. Trust Executive Officer. There shall be an officer who
-----------------------
shall be a qualified and competent person elected or appointed by the Board and
who shall be designated by the Board as the officer having executive management,
supervision and direction of all Trust Department activities, subject to the
authority, direction and control of the Board and the Trust Committee. Such
person shall do or cause to be done all things necessary or proper in carrying
on the fiduciary business in accordance with applicable provisions of law, rules
and regulations, and shall be responsible for all assets and documents held by
the bank in connection with fiduciary matters.
Section 5.5. Trust Department Files. There shall be maintained in the
----------------------
Trust Department files containing all fiduciary records necessary to assure that
the fiduciary responsibilities of the bank have been properly undertaken and
discharged.
Section 5.6. Trust Investments. Funds held in a fiduciary ????? shall be
-----------------
invested in accordance with the instrument establishing the fiduciary ?????
applicable law. If such instrument does not specify the character and class of
investment to be made and does not vest in the bank a discretion in the matter,
funds held pursuant to such instruments shall be invested in investments in
which corporate fiduciaries may invest under applicable law.
ARTICLE VI
----------
Stock and Stock Certificates
----------------------------
Section 6.1. Transfers. Shares of stock shall be transferable on the
---------
books of the bank, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person
12
<PAGE>
becoming a shareholder by such transfer shall, in proportion to this shares,
succeed to all rights of the prior holder of such shares.
Section 6.2. Stock Certificates. Certificates of stock shall bear the
------------------
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Cashier, Assistant
Cashier, or any other officer appointed by the Board for that purpose, to be
known as an Authorized Officer, and the seal of the bank shall be engraved
thereon. Each certificate shall recite on its face that the stock represented
thereby is transferable only upon the books of the bank properly endorsed.
ARTICLE VII
-----------
Seal of the Bank
----------------
Section 7.1. Seal. The seal of the bank shall be in such form as the
----
Board of Directors may from time to time direct and adopt by resolution of the
Board. The Chairman, President, any Executive Vice President, Senior Vice
President, First Vice President, Vice President, Cashier, Assistant Cashier, or
other officer thereunto designated and authorized by the Board of Directors,
shall have authority to affix the seal of the bank to any document requiring
such seal, and to attest the same.
ARTICLE VIII
------------
Miscellaneous Provisions
------------------------
Section 8.1. Fiscal Year. The fiscal year of the bank shall be the
-----------
calendar year.
Section 8.2. Execution of Instruments. All agreements, indentures,
------------------------
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
on behalf of the bank by the Chairman of the Board, the President, or any
Executive Vice
13
<PAGE>
President, Senior Vice President, First Vice President, Vice President, or other
officer appointed to function pursuant to Section 4.5, or, if in connection with
the exercise of fiduciary powers of the bank, by any of said officers or by any
Trust Officer. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted on behalf of the bank in such other manner and
by such other officers as the Board may from time to time direct. The provisions
of this Section 8.2. are supplementary to any other provision of these bylaws.
Section 8.3. Records. The Articles of Association, the Bylaws and the
-------
proceedings of all meetings of the shareholders, the Board of Directors, and
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Cashier, or other officer appointed to act as Secretary of the meeting.
ARTICLE IX
----------
Inspection and Amendments
-------------------------
Section 9.1. Inspection. A copy of the bylaws, with all amendments
----------
thereto, shall at all times be kept in a convenient place at the main office of
the bank, and shall be open for inspection to all shareholders during banking
hours.
Section 9.2. Amendments. The bylaws may be amended, altered or repealed,
----------
at any regular meeting of the Board of Directors or at any special meeting
called for that purpose of the Board of Directors, by the affirmative vote of a
majority of the full Board of the Directors or at any regular or special meeting
of the shareholder by the affirmative vote of the holders of a majority of the
stock of the association.
14
<PAGE>
EXHIBIT 5
---------
Original Indenture
<PAGE>
EXHIBIT 6
---------
The Consent of the Trustee required by
Section 321(b) of the Trust Indenture Act of 1939
SunTrust Bank, Central Florida, National Association hereby consents, in
accordance with the provisions of Section 321(b) of the Trust Indenture Act of
1939, that reports of examination by federal, state, territorial and district
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By: /s/ Alice Springer
------------------------------------
Alice Springer
Corporate Trust Officer
<PAGE>
EXHIBIT 7
---------
Report of Condition of
SunTrust Bank, Central Florida, National Association
<PAGE>
[LETTERHEAD OF FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL APPEARS HERE]
_______________________________________________________________________________
[LOGO APPEARS HERE] Please refer to page i [1]
Table of Contents, for
the required disclosure
of estimated burden.
_______________________________________________________________________________
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC OFFICES ONLY AND
TOTAL ASSETS OF $300 MILLION OF MORE -- FFIEC 032
(970331)
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1997 ----------
(RCR:9999)
This report is required by law: 12 U.S.C. (S)324 (State member banks); 12
U.S.C. (S)1817 (State nonmember banks); and 12 U.S.C. (S)161 (National banks).
- -------------------------------------------------------------------------------
Note: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks
I, R. Todd Bowers/Senior Vice President & CFO
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and belief.
/s/ R. Todd Bowers R. Todd Bowers
- -------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report
April 24, 1997
- -------------------------------------------------------------------------------
Date of Signature
_______________________________________________________________________________
For Banks Submitting Hard Copy Report Forms:
State Member Banks: Return the original and one copy to the appropriate Federal
Reserve District Bank.
State Member Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
_______________________________________________________________________________
This report form is to be filed by banks with domestic offices only. Banks with
branches and consolidated subsidiaries in U.S. territories and possessions, Edge
or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries,
or International Banking Facilities must file FFIEC 031.
_______________________________________________________________________________
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate federal
regulation authority and is true and correct.
/s/ George W. Koehm
- -------------------------------------------------------------------------------
Director (Trustee) George W. Koehm
/s/ William B. Wils
- -------------------------------------------------------------------------------
Director (Trustee)
/s/ Robert L. Mellen, III.
- -------------------------------------------------------------------------------
Director (Trustee) Robert L. Mellen, III.
- -------------------------------------------------------------------------------
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
_______________________________________________________________________________
FDIC Certificate Number __________
RCN 8080
CALL NO. 199 32 03-31-97
STBR: 12-1159 08514 STCERT: 12-21043
SUNTRUST BANK, CENTRAL FLORIDA, NATI
P.O. BOX 3833
ORLANDO, FL 32302
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEMS FEDERAL DEPOSIT INSURANCE
CORPORATION, OFFICE OF THE COMPTROLLER OF THE CURRENCY
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Data : 03/31 97 State# : 12-1158 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID : D Cent # : 21043 RI-1
ATLANTA, GA 30302 Transit # : 06310216
--------------
3
--------------
CONSOLIDATED REPORT OF INCOME
FOR THE PERIOD JANUARY 1, 1997 - MARCH 31, 1997
All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.
SCHEDULE RI - INCOME STATEMENT
1380
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest Income:
a. Interest and fee income on loans: RIAD
---- ------------
(1) Loans secured by real estate_________________________________________________________ 4011 34,807 1.a.1
------------
(2) Loans to finance agricultural production and other loans to farmers__________________ 4024 676 1.a.2
------------
(3) Commercial and industrial loans______________________________________________________ 4012 29,185 1.a.3
------------
(4) Loans to individuals for household, family, and other personal expenditures:
------------
(a) Credit cards and related plans__________________________________________________ 4054 834 1.a.4.a
------------
(b) Other___________________________________________________________________________ 4055 9,552 1.a.4.b
------------
(5) Loans to foreign governments and official institutions_______________________________ 4068 0 1.a.5
------------
(6) Obligations (other than securities and leases) of state and political subdivisions
in the U.S.:
------------
(a) Taxable obligations_____________________________________________________________ 4503 59 1.a.6.a
------------
(b) Tax-exempt obligations__________________________________________________________ 4504 2,369 1.a.6.b
------------
(7) All other loans______________________________________________________________________ 4058 5,537 1.a.7
------------
b. Income from lease financing receivables:
------------
(1) Taxable leases_______________________________________________________________________ 4506 1,980 1.b.1
------------
(2) Tax-exempt leases____________________________________________________________________ 4307 58 1.b.2
------------
c. Interest income on balances due from depository institutions (1)__________________________ 4115 264 1.c
------------
d. Interest and dividend income on securities:
------------
(1) U.S. Treasury securities and U.S. Government agency obligations______________________ 4027 13,918 1.d.1
------------
(2) Securities issued by states and political subdivisions in the U.S.:
------------
(a) Taxable securities______________________________________________________________ 4508 0 1.d.2.a
------------
(b) Tax-exempt securities___________________________________________________________ 4807 560 1.d.2.b
------------
(3) Other domestic debt securities_______________________________________________________ 3867 1 1.d.3
------------
(4) Foreign debt securities______________________________________________________________ 3658 4 1.d.4
------------
(5) Equity securities (including investments in mutual funds)____________________________ 3659 58 1.d.5
------------
e. Interest income from trading assets_______________________________________________________ 4059 0 1.e
------------
f. Interest income on federal funds sold and securities purchased under agreements to resell_ 4020 7,765 1.f
------------
g. Total interest income (sum of items 1.a through 1.f)______________________________________ 4107 107,628 1.g
------------
</TABLE>
___________
(1) Includes interest income on time certificates of deposits not held for
trading.
<PAGE>
<TABLE>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RI-2
ATLANTA, GA 30302 Transit #: 06310215
------------
4
------------
SCHEDULE RI - CONTINUED
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2. Interest expense:
a. Interest on deposits:
(1) Transaction accounts (NOW accounts, ATS accounts, and RIAD YEAR-TO-DATE
---- ------------
telephone and preauthorized transfer accounts)________________________ 4508 445 2.a.1
------------
(2) Nontransaction accounts:
------------
(a) Money market deposit accounts (MMDAs)______________________________ 4509 3,373 2.a.2a
------------
(b) Other savings deposits_____________________________________________ 4511 9,215 2.a.2b
------------
(c) Time deposits of $100,000 or more__________________________________ A517 2,908 2.a.2c
------------
(d) Time deposits of less than $100,000________________________________ A518 8,864 2.a.2d
------------
b. Expense of federal funds purchased and securities sold under
------------
agreements to repurchase__________________________________________________ 4180 26,825 2.b
------------
c. Interest on demand notes issued to the U.S. Treasury, trading liabilities,
------------
and on other borrowed money_______________________________________________ 4185 1 2.c
------------
d. Not applicable
------------
e. Interest on subordinated notes and debentures______________________________ 4200 0 2.e
------------
f. Total interest expense (sum of items 2.a through 2.e)______________________ 4073 51,629 RIAD 2.f
------------ ---- ----------
3. Net interest income (item 1.g minus 2.f)___________________________________________________________ 4074 55,999 3.
----------
4. Provisions:
----------
a. Provision for loan and lease losses_____________________________________________________________ 4230 1,749 4.a
----------
b. Provision for allocated transfer risk___________________________________________________________ 4243 0 4.b
----------
5. Noninterest income: RIAD
---- ------------
a. Income from fiduciary activities____________________________________________ 4070 6,272 5.a
------------
b. Service charges on deposit accounts_________________________________________ 4080 9,324 5.b
------------
c. Trading revenue (must equal Schedule RI, sum of
------------
Memorandum items 8.a through 8.d)__________________________________________ A220 0 5.c
------------
d. - e. Not applicable
f. Other noninterest income:
------------
(1) Other fee income_______________________________________________________ 5407 17,747 5.f.1
------------
(2) All other noninterest income* _________________________________________ 5408 2,533 RIAD 5.f.2
------------ ---- ----------
g. Total noninterest income (sum of items 5.a through 5.f)__________________________________________ 4079 35,876 5.g
----------
6. a. Realized gains (losses) on held-to-maturity securities___________________________________________ 3521 0 6.a
----------
b. Realized gains (losses) on available-for-sale securities_________________________________________ 3198 (216) 6.b
----------
7. Noninterest expense:
a. Salaries and employee benefits______________________________________________ RIAD
---- ------------
4135 16,654 7.a
------------
b. Expenses of premises and fixed assets (net of rental income)
------------
(excluding salaries and employee benefits and mortgage interest)___________ 4217 6,224 7.b
------------
c. Other noninterest expense*__________________________________________________ 4092 32,141 RIAD 7.c
------------ ---- ----------
d. Total noninterest expense (sum of items 7.a through 7.c)_________________________________________ 4093 55,019 7.d
----------
8. Income (loss) before income taxes and extraordinary items and other
----------
adjustments (item 3 plus or minus items 4.a, 4.b. 5.g, 6.a, 6.b, and 7.d)__________________________ 4301 34,891 8.
----------
9. Applicable income taxes (on item 8)_________________________________________________________________ 4302 12,665 9.
----------
10. Income (loss) before extraordinary items and other adjustments (item 8 minus 9)_____________________ 4300 22,228 10.
----------
11. Extraordinary items and other adjustments, net of income taxes*_____________________________________ 4320 0 11.
----------
12. Net income (loss) (sum of items 10 and 11)__________________________________________________________ 4340 22,226 12.
</TABLE>
______
* Describe on Schedule RI-E - Explanations.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cart #: 21043 RI-3
ATLANTA, GA 30302 Transit#: 06310215
---------
5
---------
SCHEDULE RI - CONTINUED
1381 -
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Memoranda
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after RIAD Year to Date
---- ------------
August 7, 1986, that is not deductible for federal income tax purposes _________________________ 4513 481 M.1
------------
2. Income from the sale and servicing of mutual funds and annuities (included in
------------
Schedule RI, item 8) ___________________________________________________________________________ 8431 1,358 M.2
------------
3. Not applicable
4. Number of full-time equivalent employees on payroll at end of current period (round to Number
------------
nearest whole number ___________________________________________________________________________ 4150 1,593 M.4
------------
5-6. Not applicable
7. If the reporting bank has restated its balance sheet as a result of applying push down MM/DD/YY
------------
accounting this calendar year, report the date of the bank's acquisition _______________________ 9106 N/A M.7
------------
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments)
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c):
------------
a. Interest rate exposures _____________________________________________________________________ 8757 0 M.8.a
------------
b. Foreign exchange exposures __________________________________________________________________ 8758 0 M.8.b
------------
c. Equity security and index exposures _________________________________________________________ 8759 0 M.8.c
------------
d. Commodity and other exposures _______________________________________________________________ 8760 0 M.8.d
------------
9. Impact of income of off-balance sheet derivatives held for purposes other than trading:
------------
a. Net increase (decrease) to interest income __________________________________________________ 8761 0 M.9.a
------------
b. Net (increase) decrease to interest expense _________________________________________________ 8762 12 M.9.b
------------
c. Other (noninterest) allocations _____________________________________________________________ 8763 0 M.9.c
------------
10. Credit losses on off-balance sheet derivatives (see instructions) ______________________________ A251 0 M.10
------------
11. Does the reporting bank have a Subchapter S election in effect for Yes/No
------------
federal income tax purposes for the current tax year? __________________________________________ A530 NO M.11
------------
12. Deferred portion of total applicable income taxes included in Schedule RI,
------------
items 9 and 11 (to be reported with the December Report of Income)______________________________ 4772 0 M.12
------------
SCHEDULE RI-A - CHANGES IN EQUITY CAPITAL
Indicate decreases and losses in parentheses. 1383 -
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
RIAD
---- ------------
1. Total equity capital originally reported in the December 31, 1996, Reports of Condition and
Income _________________________________________________________________________________________ 3215 477,333 1
------------
2. Equity capital adjustments from amended Reports of Income, net* ________________________________ 3218 0 2.
------------
3. Amended balance end of previous calendar year (sum of items 1 and 2) ___________________________ 3217 477,333 3.
------------
4. Net income (loss) (must equal Schedule RI, item 12) ____________________________________________ 4340 22,226 4.
------------
5. Sale, conversion, acquisition, or retirement of capital stock, net _____________________________ 4346 0 5.
------------
6. Changes incident to business combinations, net _________________________________________________ 4350 0 6.
------------
7. LESS: Cash dividends declared on preferred stock _______________________________________________ 4470 0 7.
------------
8. LESS: Cash dividends declared on common stock __________________________________________________ 4450 0 8.
------------
9. Cumulative effect of changes in accounting principles from prior years *(see instructions for
------------
this schedule) _________________________________________________________________________________ 4411 0 9.
------------
10. Corrections of material accounting errors from prior years *(see instructions for this schedule) 4412 0 10.
------------
11. Change in net unrealized holding gains (losses) on available-for-sale securities _______________ 8433 (3,642) 11.
------------
12. Other transactions with parent holding company *(not included in item 5, 7, or 8 above) ________ 4415 0 12.
------------
13. Total equity capital end of current period (sum of items 3 through 12) (must equal
Schedule RC item 28) ___________________________________________________________________________ 8210 495,917 13.
</TABLE>
_________
* Describe on Schedule RI-E - Explanations
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RI-4
ATLANTA, GA 30302 Transit #: 06310215
---------
6
---------
SCHEDULE RI-B - CHARGE-OFFS AND RECOVERIES AND CHANGES
IN ALLOWANCE FOR LOAN AND LEASE LOSSES
PART I. CHARGE-OFFS AND RECOVERIES ON LOAN AND LEASES (1)
Part I excludes charge-offs and recoveries through the
allocated transfer risk reserve. 1386 -
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
---Calendar year-to-date---
(Column A) (Column B)
1. Loans secured by real estate: RIAD Charge-offs RIAD Recoveries
---- ------------- ---- ------------
a. To U.S. addressees (domicile) _________________________________________ 4651 690 4661 241 1.a
------------- ------------
b. To non-U.S. addressees (domicile) _____________________________________ 4652 0 4662 0 1.b
------------- ------------
2. Loans to depository institutions and acceptances of other banks:
------------- ------------
a. To U.S. banks and other U.S. depository institutions __________________ 4653 0 4663 0 2.a
------------- ------------
b. To foreign banks ______________________________________________________ 4654 0 4664 0 2.b
------------- ------------
3. Loans to finance agricultural production and other loans to farmers ______ 4655 0 4665 0 3
------------- ------------
4. Commercial and industrial loans:
------------- ------------
a. To U.S. addressees (domicile) _________________________________________ 4645 60 4617 26 4.a
------------- ------------
b. To non-U.S. addressees (domicile) _____________________________________ 4646 0 4618 0 4.b
------------- ------------
5. Loans to individuals for household, family, and other personal
expenditures:
------------- ------------
a. Credit cards and related plans ________________________________________ 4656 152 4666 68 5.a
------------- ------------
------------- ------------
b. Other (includes single payment, installment, and all student
loans) ________________________________________________________________ 4657 628 4667 181 5.b
------------- ------------
6. Loans to foreign governments and official institutions ___________________ 4643 0 4627 0 6
------------- ------------
7. All other loans __________________________________________________________ 4644 90 4628 38 7
------------- ------------
8. Lease financing receivables:
------------- ------------
a. Of U.S. addressees (domicile) _________________________________________ 4658 0 4668 3 8.a
------------- ------------
b. Of non-U.S. addressees (domicile) _____________________________________ 4659 0 4669 0 8.b
------------- ------------
9. Total (sum of items 1 through 8) 4635 1,620 4605 557 9
------------- ------------
MEMORANDA
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
1 - 3. Not applicable. ---Calendar year-to-date---
4. Loans to finance commercial real estate, construction, and land (Column A) (Column B)
development activities (not secured by real estate) included in RIAD Charge-offs RIAD Recoveries
---- ------------- ---- ------------
Schedule RI-B, part 1, items 4 and 7, above ______________________________ 5409 0 5410 0 M.4
------------- ------------
5. Loans secured by real estate (sum of Memorandum items 5.a
through 5.e must equal sum of Schedule RI-B, part 1, item 1.a
and 1.b, above):
------------- ------------
a. Construction and land development _____________________________________ 3582 0 3583 0 M.5.a
------------- ------------
b. Secured by farmland ___________________________________________________ 3584 0 3585 0 M.5.b
------------- ------------
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family residential
------------- ------------
properties and extended under lines of credit____________________ 5411 0 5412 0 M.5.c1
------------- ------------
(2) All other loans secured by 1-4 family residential properties ____ 5413 138 5414 2 M.5.c2
------------- ------------
d. Secured by multifamily (5 or more) residential properties _____________ 3588 0 3589 0 M.5.d
------------- ------------
e. Secured by nonfarm nonresidential properties __________________________ 3590 552 3681 239 M.5.e
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-11-89 FFIEC O32
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 R1-5
ATLANTA, GA 30302 Transit #: 06310215
------------
7
------------
SCHEDULE RI-B - CONTINUED
Part 11. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RIAD
---- -------------
1. Balance originally reported in the December 31, 1996. Reports of Condition and Income__________ 3124 87.104 1.
-------------
2. Recoveries (must equal part 1, item 9, column B above)_________________________________________ 4605 557 2.
-------------
3. LESS: Charge-offs (must equal part 1, item 9, column A above)__________________________________ 4635 1,620 3.
-------------
4. Provision for loan and lease losses (must equal Schedule R1, item 4.a)_________________________ 4230 1,749 4.
-------------
5. Adjustments* (see instructions for this schedule)______________________________________________ 4615 0 5.
-------------
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC,
-------------
item 4.b)______________________________________________________________________________________ 3123 87,790 6.
-------------
* Describe on Schedule RI-E - Explanations:
SCHEDULE RI-E - EXPLANATIONS
SCHEDULE RI-E IS TO BE COMPLETED EACH QUARTER ON A CALENDAR YEAR-TO-DATE BASIS.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule
RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI.
(See instructions for details)
1395 -
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
1. All other noninterest income (from Schedule RI, item 5.f.(2))
Report amounts that exceed 10% of Schedule RI. item 5.f.(2): RIAD Year to Date
---- -------------
a. Net gains (losses) on other real estate owned ______________________________________________ 5415 0 1.a
-------------
b. Net gains (losses) on sales of loans _______________________________________________________ 5416 457 1.b
-------------
c. Net gains (losses) on sales of premises and fixed assets ___________________________________ 5417 0 1.c
-------------
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI,
item 5.f.(2):
TEXT
----------------------------------------------------------------------------- -------------
d. 4461 Sale of Customer Checks 4461 441 1.d
----------------------------------------------------------------------------- -------------
e. 4462 4462 0 1.e
-------------
f. 4463 4463 0 1.f
-------------
2. Other noninterest expense (from Schedule RI, item 7.c): RIAD Year to Date
---- -------------
a. Amortization expense of intangible assets ____________________________________________ 4531 0 2.a
-------------
Report amounts that exceed 10% of Schedule RI, item 7.c
-------------
b. Net (gains) losses on other real estate owned ________________________________________ 5418 0 2.b
-------------
c. Net (gains) losses on sales of loans__________________________________________________ 5419 0 2.c
-------------
d. Net (gains) losses on sales of premises and fixed assets______________________________ 5420 0 2.d
Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, -------------
item 7.c:
TEXT RAID
------------------------------------------------------------------------------ ---- -------------
e. 4464 I/C Data Processing Fee 4464 10,474 2.e
------------------------------------------------------------------------------ -------------
f. 4467 Credit/Debit Card 4467 7,188 2.f
------------------------------------------------------------------------------ -------------
g. 4468 4468 0 2.g
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RI-6
ATLANTA, GA 30302 Transit: 06310215
<S> <C>
-----------
8
-----------
</TABLE>
SCHEDULE RI-E - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a)
and applicable income tax effect (from Schedule RI, item 11.b) (itemize
and describe all extraordinary items and other adjustments): Year-to-Date
TEXT RIAD
---- --------------
RIAD 4469 0 3.a.1
a. (1) 4469 ---- --------------- --------------
(2) Applicable income tax effect ___________________________________________ 4486 0 3.a.2
--------------- --------------
4487 0 3.b.1
b. (1) 4487 --------------- --------------
(2) Applicable income tax effect ___________________________________________ 4488 0 3.b.2
--------------- --------------
4489 0 3.c.1
c. (1) 4489 --------------- --------------
(2) Applicable income tax effect ___________________________________________ 4491 0 3.c.2
---------------
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2)
(itemize and describe all adjustments):
TEXT RIAD
---- --------------
a. 4492 4492 0 4.a
--------------
b. 4493 4493 0 4.b
--------------
5. Cumulative effect of changes in accounting principles from prior years
(from Schedule RI-A, item 9) (itemize and describe all changes in accounting principles):
TEXT RIAD
---- --------------
a. A546 Effect of change to GAAP from previous non-GAAP instructions A546 0 5.a
--------------
b. 4495 4495 0 5.b
--------------
6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10)
(itemize and describe all corrections):
TEXT RIAD
---- --------------
a. 4496 4496 0 6.a
--------------
b. 4497 4497 0 6.b
--------------
7. Other transactions with parent holding company (from Schedule RI-A, item 12)
(itemize and describe all such transactions):
TEXT RIAD
---- --------------
a. 4498 4498 0 7.a
--------------
b. 4499 4499 0 7.b
--------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5)
(itemize and describe all adjustments):
TEXT RIAD
---- --------------
a. 4521 4521 0 8.a
--------------
b. 4522 4522 0 8.b
--------------
1398 1399
9. Other explanations (the space below is provided for bank to briefly describe, at its option,
any other significant items affecting the Report of in RIAD
--------------------
X = NO COMMENT - Y = COMMENT ______________ 4769 X
--------------------
Other explanations (please type or print clearly):
TEXT 4769 (70 characters per line)
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
____________________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1168 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-1
ATLANTA, GA 30302 Transit #: 06310215
<S> <C>
-----------
9
-----------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVING BANKS FOR MARCH 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, reported from the amount outstanding as of the last business of the quarter.
SCHEDULE RC - BALANCE SHEET
C300
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balance due from depository institutions(from Schedule RC-A): RCON
---- ------------
a. Noninterest-bearing balances and currency and cash (1)_____________________________________ 0081 733,165 1.a
------------
b. Interest-bearing balances (2)______________________________________________________________ 0071 4,167 1.b
------------
2. Securities:
------------
a. Held-to-maturity securities (from Schedule RC-B column A)__________________________________ 1754 0 2.a
------------
b. Available-for-sale securities (from Schedule RC-B, column D)_______________________________ 1773 952,838 2.b
------------
3. Federal funds sold and securities purchased under agreements to resell________________________ 1350 515,262 3
------------
4. Loans and lease financial receivables: RCON
---- -------------
a. Loans and leases, net of unearned income (from Schedule RC-C)__________ 2122 4,491,900 4.a
-------------
b. LESS: Allowance for loan and lease losses______________________________ 3123 87,790 4.b
-------------
c. LESS: Allocated transfer risk reserve__________________________________ 3128 0 4.c
-------------
d. Loans and leases, net of unearned income, RCON
---- -------------
allowance and reserve (item 4.a minus 4.b and 4.c)______________________________________ 2125 4,404,110 4.d
-------------
5. Trading assets (from Schedule RC-D)________________________________________________________ 3545 0 5.
-------------
6. Premises and fixed assets (including capitalized leases)___________________________________ 2145 57,540 6.
-------------
7. Other real estate owned (from Schedule RC-M)_______________________________________________ 2150 5,306 7.
-------------
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)___ 2130 7,804 8.
-------------
9. Customers' liability to this bank on acceptances outstanding_______________________________ 2155 2,944 9.
-------------
10. Intangible assets (from Schedule RC-M)_____________________________________________________ 2143 0 10.
-------------
11. Other assets (from Schedule RC-F)__________________________________________________________ 2160 98,845 11.
-------------
12. Total assets (sum of items 1 through 11)____________________________________________________ 2170 8,781,981 12.
-------------
</TABLE>
__________________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Data: 03/31/97 State#: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert# : 21043 RC-2
ATLANTA, GA 30302 Transit# : 06310215
--------------
10
--------------
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
13. Deposits: RCON
---- ------------
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E)_______ RCON 2200 4,042,267 13.a
----- ------------ ------------
(1) Noninterest-bearing (1)_____________________________________________________ 8831 1,268,212 13.a.1
------------
(2) Interest-bearing____________________________________________________________ 8836 2,774,055 13.a.2
------------
b. In foreign offices. Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing____________________________________________________________________________
(2) Interest-bearing_______________________________________________________________________________
------------
14. Federal funds purchased and securities sold under agreements to repurchase____________________________ 2800 2,183,624 14
------------
15. a. Demand notes issued to the U.S. Treasury___________________________________________________________ 2840 0 15.a
------------
b. Trading liabilities (from Schedule RC-D)___________________________________________________________ 3548 0 15.b
16. Other borrowed money (includes mortgage indebetedness and obligations under capitalized leases):
------------
a. With a remaining maturity of one year or less______________________________________________________ 2332 22,378 16.a
------------
b. With a remaining maturity of more than one year____________________________________________________ 2333 0 16.b
17. Not applicable
------------
18. Bank's liability on acceptances executed and outstanding______________________________________________ 2920 2,944 18
------------
19. Subordinated notes and debentures_____________________________________________________________________ 3200 0 19
------------
20. Other liabilities (from Schedule RC-G)________________________________________________________________ 2930 34,851 20
------------
21. Total liabilities (sum of items 13 through 20)________________________________________________________ 2948 6,286,064 21
------------
22. Not applicable
EQUITY CAPITAL
------------
23. Perpetual preferred stock and related surplus_________________________________________________________ 3838 0 23
------------
24. Common stock__________________________________________________________________________________________ 3230 5,098 24
------------
25. Surplus (exclude all surplus related to preferred stock)______________________________________________ 3839 124,125 25
------------
26. a. Undivided profits and capital reserves_____________________________________________________________ 3632 367,961 26.a
------------
b. Net unrealized holding gains (losses) on available-for-sale securities_____________________________ 8434 (1,267) 26.b
------------
27. Cumulative foreign currency translation adjustments___________________________________________________ 27
------------
28. Total equity capital (sum of items 23 through 27)_____________________________________________________ 3210 495,917 28
------------
29. Total liabilities, limited-life preferred stock, and equity capital
------------
(sum of items 21 and 28)______________________________________________________________________________ 3300 6,781,981 29
------------
MEMORANDUM
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external
------------
auditors as of any date during 1996___________________________________________________________________ 6724 2 M.1
------------
</TABLE>
1 = Independent audit of the bank conducted in accordances with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independant audit of the bank's parant holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Data: 03/31/97 State # 12-1159 FFIEC 032
P.O.BOX 4418 CENTER 632 Vendor ID: D Cert # 21043 RC-23
ATLANTA, GA 30302 Transit #: 06310215
<S> <C>
---------
11
---------
SCHEDULE RC-A - CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading C305 -
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
1. Cash items in process of collection, unposted debits, and currency and coin: RCON
---- -----------
a. Cash items in process of collection and unposted debits ____________________________ 0020 362,820 1.a
-----------
b. Currency and coin _________________________________________________________________ 0080 114,177 1.b
-----------
2. Balance due from depository institutions in the U.S.:
-----------
a. U.S. branches and agencies of foreign banks ________________________________________ 0083 0 2.a
-----------
b. Other commercial banks in the U.S. and other depository institutions in the U.S. ___ 0085 30,657 2.b
-----------
3. Balances due from banks in foreign countries and foreign central banks:
-----------
a. Foreign branches of other U.S. banks _______________________________________________ 0073 0 3.a
-----------
b. Other banks in foreign countries and foreign central banks _________________________ 0074 150 3.b
-----------
4. Balances due from Federal Reserve Banks _______________________________________________ 0090 229,528 4
-----------
5. Total (sum of items 1 through 4) (must equal Schedule RC, sum of items 1.a and 1.b) ___ 0010 737,332 5
-----------
MEMORANDUM
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in 2.a and RCON
---- -----------
2.b above) ____________________________________________________________________________ 0050 26,490 M.1
-----------
SCHEDULE RC-B - SECURITIES
Exclude assets held for trading. C310 -
</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------
----Held-to-maturity---- ----Available-for-sale----
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
<S> <C> <C> <C> <C>
RCON RCON RCON RCON
---- ----------- ---- ---------- ---- ---------- ---- ----------
1. U.S. Treasury securities _______________ 0211 0 0213 0 1286 532,895 1287 532,009 1
----------- ---------- ---------- ----------
2. U.S. Government agency obligations
(exclude mortgage-backed
securities):
a. Issued by U.S. Government ----------- ---------- ---------- ----------
agencies (2)_________________________ 1289 0 1290 0 1291 0 1293 0 2.a
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
b. Issued by U.S. Government 1294 0 1295 0 1297 74.101 1298 74,772 2.b
agencies (3)_________________________ ----------- ---------- ---------- ----------
</TABLE>
________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b, column D.
(2) Includes Small Business Administration 'Guaranteed Loan Pool Certificates,'
U.S. Maritime Administration obligations, and Export - Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, The Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, the Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
<PAGE>
<TABLE>
BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-4
ATLANTA, GA 30302 Transit #: 06310215
-----------
12
-----------
SCHEDULE RC-B CONTINUED
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
------Held-to-maturity------ ------Avaliable-for-sale------
(Column A) (Column B) (Column C) (Column D)
<S> <C> <C> <C> <C>
3. Securities issued by states and political Amortized Cost Fair Value Amortized Cost Fair Value (1)
subdivisions in the U.S.: RCON RCON RCON RCON
---- ------------ ---- ---------- ---- ------------ ---- -------------
a. General obligations___________________ 1676 0 1677 0 1678 35,343 1679 35,830 3.a
------------ ---------- ------------ -------------
b. Revenue obligations___________________ 1681 0 1686 0 1690 5,282 1691 5,583 3.b
------------ ---------- ------------ -------------
c. Industrial development
------------ ---------- ------------ -------------
and similar obligations______________ 1694 0 1695 0 1698 0 1697 0 3.c
------------ ---------- ------------ -------------
4. Mortgage-backed securities (MBS):
a. Pass-through securities:
------------ ---------- ------------ -------------
(1) Guaranteed by GNMA________________ 1698 0 1699 0 1701 64,255 1702 64,443 4.a.(1)
------------ ---------- ------------ -------------
(2) Issued by FNMA and FHLMC__________ 1703 0 1705 0 1706 98,522 1707 97,121 4.a.(2)
------------ ---------- ------------ -------------
(3) Other pass-through securities_____ 1709 0 1710 0 1711 0 1713 0 4.a.(3)
------------ ---------- ------------ -------------
b. Other mortgage-backed securities (include
(CMOs. REMICs and stripped MBS):
(1) Issued or guaranteed by FNMA, RCON RCON RCON RCON
---- ------------ ---- ---------- ---- ------------ ---- -------------
FHLMC, OR GNMA____________________ 1714 0 1715 0 1716 137,356 1717 135,919 4.b.(1)
------------ ---------- ------------ -------------
(2) Collateralized by MBS issued or
guaranteed by FNMA, FHLMC, or
------------ ---------- ------------ -------------
GNMA_____________________________ 1718 0 1719 0 1731 0 1732 0 4.b.(2)
------------ ---------- ------------ -------------
(3) All other mortgage-backed
securities_______________________ 1733 0 1734 0 1735 0 1738 0 4.b.(3)
------------ ---------- ------------ -------------
5. Other debt securities:
------------ ---------- ------------ -------------
a. Other domestic debt securities________ 1737 0 1738 0 1739 0 1741 0 5.a
------------ ---------- ------------ -------------
b. Foreign debt securities_______________ 1742 0 1743 0 1744 250 1746 250 5.b
------------ ---------- ------------ -------------
6. Equity securities:
a. Investments in mutual funds and other
equity securities with readily
------------ -------------
determinable fair values___________________________________________________ A510 3,034 A511 3,034 6.a
------------ -------------
b. All other equity securities(1)______________________________________________ 1732 3,877 1755 3,877 6.b
------------ -------------
7. Total (sum of items 1 through 6) (total of
Column A must equal Schedule RC item 2.a)
(total of column D must equal Schedule RCON RCON RCON RCON
---- ------------ ---- ---------- ---- ------------ ---- -------------
RC. item 2.b)___________________________ 1754 0 1771 0 1772 954,915 1773 952,838 7
------------ ---------- ------------ -------------
</TABLE>
________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b column D.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert # : 21043 RC-5
ATLANTA, GA 30302 Transit# : 06310215
--------------
13
--------------
SCHEDULE RC-B- CONTINUED
C312
Memoranda Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
RCON
---- -----------
1. Pledged securities (2)________________________________________________________________________________ 0416 801,153 M.1
-----------
2. Maturity and repricing data for debt securities (2,3,4) (excluding those in nonaccrual status):
a. Fixed rate debt securities with a remaining maturity of:
-----------
(1) Three months of less___________________________________________________________________________ 0343 55,519 M.2.a1
-----------
(2) Over three months through 12 months____________________________________________________________ 0344 119,268 M.2.a2
-----------
(3) Over one year through five years_______________________________________________________________ 0345 533,190 M.2.a3
-----------
(4) Over five years________________________________________________________________________________ 0346 150,094 M.2.a4
-----------
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4))_____________ 0347 858,071 M.2.a5
-----------
b. Floating rate debt securities with a repricing frequency of:
-----------
(1) Quarterly or more frequently___________________________________________________________________ 4544 18,788 M.2.b1
-----------
(2) Annually or more frequently, but less frequently than quarterly________________________________ 4545 69,068 M.2.b2
-----------
(3) Every five years or more frequently, but less frequently than annually_________________________ 4551 0 M.2.b3
-----------
(4) Less frequently than every five years__________________________________________________________ 4552 0 M.2.b4
-----------
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4))__________ 4553 87,856 M.2.b5
-----------
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total
debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus
-----------
nonaccrual debt securities included in Schedule RC-N, item 9, column C)____________________________ 0393 945,927 M.2.c
-----------
3.- 5. Not applicable
6. Floating rate debt securities with a remaining maturity of one year or less (2)(4)
-----------
(Included in Memorandum items 2.b.(1) through 2.b.(4) above)__________________________________________ 5519 0 M.6
-----------
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or
trading securities during the calendar year-to-date (report the amortized cost at date
-----------
of sale or transfer)__________________________________________________________________________________ 1778 0 M.7
-----------
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, item 4.b):
-----------
a. Amortized cost_____________________________________________________________________________________ 8780 0 M.8.a
-----------
b. Fair value_________________________________________________________________________________________ 8781 0 M.8.b
-----------
9. Structured notes (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, items 2, 3, and 5):
-----------
a. Amortized cost_____________________________________________________________________________________ 8782 0 M.9.a
-----------
b. Fair value_________________________________________________________________________________________ 8783 0 M.9.b
-----------
</TABLE>
________
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State# 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert# 21043 RC-5
ATLANTA, GA 30302 Transit# 06310215
<S> <C>
-------
14
-------
</TABLE>
Schedule RC-C Loans and lease Financing Receivables
Part 1. Loans and Leases
Do not deduct the allowance for loan and losses from amounts
reported in this schedule. Report total loans and leases, net of unearned
income. Exclude assets held for trading commercial paper. C315
<TABLE>
<CAPTION>
Dollars Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Loans secured by real estate: Rcon
----
-------------
a. Construction and land development______________________________________________________ 1415 150,894 1.a
-------------
b. Secured by farmland (including farm residential and other improvements)________________ 1420 30,801 1.b
-------------
c. Secured by 1-4 family residential properties
(1) Revolving, open-end loans secured by 1-4 family residential properties and
extended under lines of credit______________________________________________________ 1797 95,598 1.c.1
(2) All other loans secured by 1-4 family residential properties: -------------
873,545 1.c.2a
(a) Secured by first liens__________________________________________________________ 5367 -------------
81,539 1.c.2b
(b) Secured by junior liens_________________________________________________________ 5368 -------------
31,842 1.d
d. Secured by multifamily (5 or more) residential properties______________________________ 1460 -------------
436,477 1.e
e. Secured by nonfarm nonresidential properties___________________________________________ 1480 -------------
2. Loans to depository institutions:
a. To commercial banks in the U.S.:
(1) To U.S. branches and agencies of foreign banks_____________________________________ 1506 0 2.a1
-------------
(2) To other commercial banks in the U.S.______________________________________________ 1507 217,728 2.a2
-------------
b. To other depository institutions in the U.S.___________________________________________ 1517 0 2.b
-------------
c. To banks in foreign countries:
(1) To foreign branches of other U.S.banks_____________________________________________ 1513 0 2.c1
-------------
(2) To other banks in foreign countries________________________________________________ 1516 0 2.c2
-------------
3. Loans to finance agricultural production and other loans to farmers_______________________ 1590 32,845 3
-------------
4. Commercial and industrial loans:
a. To U.S. addressees (domicile)__________________________________________________________ 1763 1,618,527 4.a
-------------
b. To non-U.S. addressees (domicile)______________________________________________________ 1764 0 4.b
-------------
5. Acceptances of other banks:
a. Of U.S. banks__________________________________________________________________________ 1756 357 5.a
-------------
b. Of foreign banks_______________________________________________________________________ 1757 288 5.b
-------------
6. Loans to individuals for household, family, and other personal expenditures
(i.e. consumer loans) (includes purchased paper):
a. Credit cards and related plans (includes check credit and other revolving
credit plans)__________________________________________________________________________ 2008 28,662 6.a
-------------
b. Other (includes single payment, installment, and all student loans)____________________ 2011 485,931 6.b
-------------
7. Loans to foreign government and official institutions (including foreign
central banks)____________________________________________________________________________ 2081 0 7
8. Obligations (other than securities and leases) of states and political -------------
subdivisions in the U.S. (includes nonrated industrial development
obligations)______________________________________________________________________________ 2107 192,468 8
9. Other Loans: -------------
a. Loans for purchasing or carrying securities (secured and unsecured)____________________ 1545 31,942 9.a
-------------
b. All other loans (exclude consumer loans)_______________________________________________ 1584 97,151 9.b
-------------
10.Lease financing receivables (net of unearned income):
a. Of U.S. addressees (domicile)___________________________________________________________ 2182 105,305 10.a
-------------
b. Of non-addressees (domicile)___________________________________________________________ 2183 0 10.b
-------------
11.LESS: Any unearned income on loans reflected items 1-9 above______________________________ 2123 0 11.
12.Total loans and leases, net of unearned income (sum of items 1 through 10 -------------
minus item 11) (must equal Schedule RC, item 4.a)_________________________________________ 2122 4,491,900 12
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O BOX 4418 CENTER 632 Vendor ID: D Cert#: 21043 RC-7
ATLANTA, GA 30302 Transit #: 06310215
---------------
15
---------------
SCHEDULE RC-C-CONTINUED
PART 1. CONTINUED
MEMORANDA DOLLAR AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
1. Not Applicable
2. Loans and Leases restructured and in compliance with modified terms (included in
Schedule RC-C, part 1, above, and not reported as past due or nonaccrual in Schedule RC-N.
Memorandum item1):
a. Loans secured by real estate: RCON
----
-------------
(1) To U.S. addressees (domicile)______________________________________________________________ 1687 0 M.2.a.1
-------------
(2) To non-U.S. addresses (domicile)___________________________________________________________ 1689 0 M.2.a.2
-------------
b. All other loans and lease financing receivables (exclude loans to individuals for
-------------
household, family, and other personal expenditures)_____________________________________________ 8691 0 M.2.b
-------------
c. Commercial and industrial loans to and lease financing receivables of
-------------
non-U.S. addressees (domicile) included in Memorandum item 2.b above____________________________ 8692 0 M.2.c
-------------
3. Maturity and repricing data for loans and leases (1) (excluding those in nonaccrual statue):
a. Fixed rate loans and leases with a remaining maturity of:
-------------
(1) Three months or less________________________________________________________________________ 0348 107,256 M.3.a1
-------------
(2) Over three months through 12 months_________________________________________________________ 0349 86,117 M.3.a2
-------------
(3) Over one year through five years____________________________________________________________ 0356 656,237 M.3.a3
-------------
(4) Over five years_____________________________________________________________________________ 0357 475,873 M.3.a4
-------------
(5) Total fixed rate loans and leases (sum of Memorandum items 3.a.(1)
-------------
through 3.a.(4))____________________________________________________________________________ 0358 1,325,483 M.3.a5
-------------
b. Floating rate loans with a repricing frequency of:
-------------
(1) Quarterly or more frequently_________________________________________________________________ 4554 1,143,133 M.3.b1
-------------
(2) Annually or more frequently, but less frequently than quarterly_____________________________ 4555 2,008,673 M.3.b2
-------------
(3) Every five years or more frequently, but less frequently than annually______________________ 4561 1,010 M.3.b3
-------------
(4) Less frequently than every five years_______________________________________________________ 4564 247 M.3.b4
-------------
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) through 3.b.(4))_________________ -------------
4567 3,153,063 M.3.b5
-------------
c. Total loans and leases (sum of Memorandum items 3.a. (5) and 3.b.(5))
(must equal the sum of total loans and leases, net, from Schedule RC-C, part 1, item 12.
plus unearned income from Schedule RC-C, part 1 item 11, minus total nonaccrual
-------------
loans and leases from Schedule RC-N sum of items 1 through 5. column C)________________________ 1479 4,478,546 M.3.c
-------------
d. Floating rate loans with a remaining maturity of one year or less (included
-------------
in Memorandum items 3.b.(1) through 3.b.(4) above)_____________________________________________ A248 926,598 M.3.d
-------------
4. Loans to finance commercial real estate, construction, and land development activities
(not secured by real estate) included in schedule RC-C, part 1, items 4 and 9.b
-------------
page RC-6 (2)_____________________________________________________________________________________ 2746 34,012 M.4
-------------
5. Loans and leases held for sale (included in Schedule RC-C part 1, above)__________________________ 5369 6,397 M.5
-------------
6. Adjustable rate closed-end loans secured by first liens on 1-4 family residential properties
-------------
(included in Schedule RC-C, part 1, item 1.c.(2)(a), RC-6)________________________________________ 5370 713,664 M.6
-------------
</TABLE>
_________________
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part 1. items 1.a through 1.e.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1168 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-8
ATLANTA, GA 30302 Transit #: 06310215
<S> <C>
-----------
16
-----------
SCHEDULE RC-D TRADING ASSETS AND LIABILITIES
Schedule RC-D is to be complete by banks with $1 billion or more in total assets
or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, item 14.a through 14.e.
columns A through D).
C320
Dollars Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS RCON
---- ----------
1. U.S. Treasury securities_______________________________________________________________________________ 3531 0 1
----------
2. U.S. Government agency obligations (exclude mortgage-backed securities)________________________________ 3532 0 2
----------
3. Securities issued by states and political subdivisions in the U.S._____________________________________ 3533 0 3
----------
4. Mortgage-backed securities (MBS):
----------
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA________________________________ 3534 0 4.a
----------
b. Other mortgage-backed securities issued as guaranteed by FNMA, FHLMC, or GNMA
(include CMOs, REMICs, and stripped MBS)___________________________________________________________ 3535 0 4.b
----------
c. All other mortgage-backed securities________________________________________________________________ 3536 0 4.c
----------
5. Other debt securities__________________________________________________________________________________ 3537 0 5
----------
6. Certificates of deposit________________________________________________________________________________ 0 6
----------
7. Commercial paper_______________________________________________________________________________________ 3538 0 7
----------
8. Bankers acceptances____________________________________________________________________________________ 3540 0 8
----------
9. Other trading assets___________________________________________________________________________________ 3541 0 9
----------
10. Not applicable
----------
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity contracts____ 3543 0 11
----------
12. Total trading assets (sum of items 1 through 11)(must equal Schedule RC, item 5)________________________ 3545 0 12
LIABILITIES
----------
13. Liability for short positions__________________________________________________________________________ 3546 0 13
----------
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity contracts___ 3547 0 14
----------
15. Total trading liabilities (sum of items 13 and 14)(must equal Schedule RC, item 15.b)__________________ 3548 0 15
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-9
ATLANTA. GA 30302 Transit #: 06310215
-------------
17
-------------
SCHEDULE RC-E - DEPOSIT LIABILITIES
C325
---Transaction Accounts--- -Nontransaction-
Accounts
(Column A) (Column B) (Column C)
Total Memo: Total Total
Transaction Demand nontransaction
Dollar Amounts in Thousands accounts Deposits Accounts
- -------------------------------------------------------
(including total (included in (including
demand deposits) column A) MMDAs)
<S> <C> <C> <C>
DEPOSITS OF: RCON RCON RCON
---- ---------------- ---- -------------- ---- ---------------
1. Individuals, partnerships and corporations__________ 2201 1,094,813 2240 931,689 2346 2,708,809 1
---------------- -------------- ---------------
2. U.S. Government_____________________________________ 2202 4,522 2280 4,522 2520 0 2
---------------- -------------- ---------------
3. States and political subdivisions in the U.S._______ 2203 25,137 2290 22,673 2530 9,714 3
---------------- -------------- ---------------
4. Commercial banks in the U.S.________________________ 2206 161,734 2310 161,734 2550 0 4
---------------- -------------- ---------------
5. Other depository institutions in the U.S.___________ 2207 5,532 2312 5,532 2349 0 5
---------------- -------------- ---------------
6. Banks in foreign countries__________________________ 2213 590 2320 590 2236 0 6
---------------- -------------- ---------------
7. Foreign governments, and official institutions ---------------- -------------- ---------------
(including foreign central banks)___________________ 2215 0 2300 0 2377 0 7
---------------- -------------- ---------------
8. Certified and official checks_______________________ 2330 31,416 2330 31,416 8
---------------- --------------
9. Total (sum of items 1 through 8) (sum of columns A ---------------- -------------- ---------------
and C must equal Schedule RC. item 13.a)____________ 2215 1,323,744 2210 1,158,156 2385 2,718,523 9
---------------- -------------- ---------------
MEMORANDA Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): RCON
---- ---------------
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan Accounts________________________ 6835 145,269 M.1.a
---------------
b. Total brokered deposits____________________________________________________________________ 2365 4,000 M.1.b
---------------
c. Fully insured brokered deposits (included in Memorandum item 1.b above): ---------------
(1) Issued in denominations of less than $100,000__________________________________________ 2343 0 M.1.c1
---------------
(2) Issued either in denominations of $100,000 or in denominations greater than ---------------
$100,000 and participated out by the broker in shares of $100,000 or less______________ 2344 0 M.1.c2
---------------
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining ---------------
maturity of one year or less (included in Memorandum item 1.c. (1) above_______________ A243 0 M.1.d1
---------------
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining ---------------
maturity of one year or less (included in Memorandum item 1.b above)___________________ A244 0 M.1.d2
---------------
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. ---------------
reported in item 3 above which are secured or collateralized as required under state law)__ 5590 6,816 M.1.e
---------------
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d
must equal item 9. column C. above):
a. Savings deposits: ---------------
(1) Money market deposit accounts (MMDAs)__________________________________________________ 6810 805,865 M.2.a1
---------------
(2) Other savings deposits (excludes MMDAs)________________________________________________ 0352 998,910 M.2.a2
---------------
b. Total time deposits of less than $100,000__________________________________________________ 6648 698,483 M.2.b
---------------
c. Total time deposits of $100,000 or more____________________________________________________ 2604 214,265 M.2.c
---------------
3. All NOW accounts (included in column A above)_________________________________________________ 2398 165,588 M.3
---------------
4. Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O.BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-10
ATLANTA, GA 30302 Transit #: 06310215
-----------
18
-----------
SCHEDULE RC-E- CONTINUED
MEMORANDA (CONTINUED) Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
5. Maturity and repricing data for time deposits of less than $100,000
(Sum of memorandum items 5.a. (1) through 5.b. (3) must equal Memorandum item 2.b above): (1)
a. Fixed rate time deposits of less than $100,000 with remaining maturity of:
RCON
---- -------
(1) Three months or less__________________________________________________________________ A225 168,837 M.5.a1
-------
(2) Over three months through 12 months___________________________________________________ A226 302,243 M.5.a2
-------
(3) Over one year_________________________________________________________________________ A227 212,095 M.5.a3
-------
b. Floating rate time deposits of less than $100,000 with a repricing frequency of:
-------
(1) Quarterly or more frequently__________________________________________________________ A228 15,308 M.5.b1
-------
(2) Annually or more frequently, but less frequently than quarterly_______________________ A229 0 M.5.b2
-------
(3) Less frequently than annually_________________________________________________________ A230 0 M.5.b3
-------
c. Floating rate time deposits of less than $100,000 with a remaining maturity of one
-------
year or less (included in Memorandum items 5.b. (1) through 5.b. (3) above)_______________ A231 10,046 M.5.c
-------
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time
certificates of deposit of $100,000 or more and open-account time deposits of $100,000
or more) (sum of Memorandum items 6.a. (1) through 6.b. (4) must equal
Memorandum item 2.c above): (1)
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of:
RCON
---- -------
(1) Three months or less__________________________________________________________________ A232 63,249 M.6.a1
-------
(2) Over three months through 12 months___________________________________________________ A233 91,083 M.6.a2
-------
(3) Over one year through five years______________________________________________________ A234 54,850 M.6.a3
-------
(4) Over five years_______________________________________________________________________ A235 4,659 M.6.a4
-------
b. Floating rate time deposits of $100,000 or more with a repricing frequency of
-------
(1) Quarterly or more frequently__________________________________________________________ A236 424 M.6.b1
-------
(2) Annually or more frequently, but less frequently than quarterly_______________________ A237 0 M.6.b2
-------
(3) Every five years or more frequently, but less frequently than annually________________ A238 0 M.6.b3
-------
(4) Less frequently than every five years_________________________________________________ A239 0 M.6.b4
-------
c. Floating rate time deposits of $100,000 or more with a remaining maturity of one year
-------
or less (included in Memorandum items 6.b. (1) through 6.b. (4) above)____________________ A240 424 M.6.c
-------
</TABLE>
___________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-11
ATLANTA, GA 30302 Transit #: 06310215
---------
19
---------
SCHEDULE RC-F - OTHER ASSETS
C330
Dollar Amounts in Thousand
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
---- ------------
1. Income earned, not collected on loans_________________________________________________________________ 2184 25,277 1.
------------
2. Net deferred tax assets (1)___________________________________________________________________________ 2148 32,526 2.
------------
3. Interest-only strips receivable (not in the form of a security)(2) on:
------------
a. Mortgage loans_____________________________________________________________________________________ A519 0 3.a
------------
b. Other financial assets_____________________________________________________________________________ A620 0 3.b
------------
4. Other (itemize and describe amounts that exceed 25% of this item)_____________________________________ 2168 41,042 4.
------------
TEXT RCON
----------------------------------------------------------------------- ---- ------------
a. 3549 Credit/Debit Card 3549 11,908 4.a
----------------------------------------------------------------------- ------------
b. 3550 3550 0 4.b
------------
c. 3551 3551 0 RCON 4.c
------------ ---- ------------
5. Total (sum of items 1 through 4) (must equal Schedule RC. item 11)____________________________________ 2160 98,845 5.
------------
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------
MEMORANDUM RCON
---- ------------
1. Deferred tax assets disallowed for regulatory capital purposes________________________________________ 5810 0 M.1
SCHEDULE RC-G - OTHER LIABILITIES C335
Dollar Amount in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
RCON
---- ------------
1. a. Interest accrued and unpaid on deposits (3)________________________________________________________ 3645 9,950 1.a
------------
b. Other expenses accrued and unpaid (includes accrued income taxes payable)_________________________ 3646 19,675 1.b
------------
2. Net deferred tax liabilities (1)______________________________________________________________________ 3049 0 2.
------------
3. Minority interest in consolidated subsidiaries_________________________________________________________ 3000 0 3.
------------
4. Other (itemize and describe amounts that exceed 25% of this item)_____________________________________ 2838 5,226 4.
-----------
TEXT RCON
----------------------------------------------------------------------- ---- -------------
a. 3552 Misc. Unearned Income 3552 1,468 4.a
----------------------------------------------------------------------- -------------
b. 3553 Unearned I/C Insurance 3553 1,336 4.b
----------------------------------------------------------------------- -------------
c. 3554 3554 0 RCON 4.c
------------- ---- ------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20)_____________________________________ 2930 34,851 5.
------------
</TABLE>
______
(1) See discussion of deferred income taxes in Glossary entry on 'Income
taxes.'
(2) Report interest-only strips receivable in the form of a security as
available-for sale securities in Schedule RC, item 2.b, or as trading
assets in Schedule RC, item 5, as appropriate.
(3) For savings banks, includes 'dividends' accrued and unpaid on deposits.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O.BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-12
ATLANTA, GA 30302 Transit #: 06310215
---------
20
---------
SCHEDULE RC-K - QUARTERLY AVERAGES (1)
Dollar Amounts in Thousands C355 -
- --------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS RCON
---- -----------
1. Interest-bearing balances due from depository institutions _______________________ 3381 4,168 1.
-----------
2. U.S. Treasury securities, U.S. Government agency obligations (2) _________________ 3382 903,602 2.
-----------
3. Securities issued by states and political subdivisions in the U.S. (2)____________ 3383 41,326 3.
-----------
4. a. Other debt securities (2) _____________________________________________________ 3647 250 4.a
-----------
b. Equity securities (3) includes investments in mutual funds and Federal Reserve
stock)_________________________________________________________________________ 3648 17,726 4.b
-----------
5. Federal funds sold and securities purchased under agreements to resell ___________ 3365 594,753 5
-----------
6. Loans:
-----------
a. Total loans ___________________________________________________________________ 3360 4,378,538 6.a
-----------
b. Loans secured by real estate __________________________________________________ 3385 1,695,245 6.b
-----------
c. Loans to finance agricultural production and other loans to farmers ___________ 3386 38,890 6.c
-----------
d. Commercial and industrial loans _______________________________________________ 3387 1,727,545 6.d
-----------
e. Loans to individuals for household, family, and other personal expenditures____ 3388 489,051 6.e
-----------
7. Trading assets ___________________________________________________________________ 3401 0 7.
-----------
8. Lease financing receivables (net of unearned income) _____________________________ 3484 107,029 8.
-----------
9. Total assets(4) __________________________________________________________________ 3368 6,560,618 9.
-----------
LIABILITIES
10. Interest-bearing transaction accounts (NOW accounts, ATS accounts, and
-----------
telephone and preauthorized transfer accounts) (exclude demand deposits) _________ 3485 165,355 10
-----------
11. Nontransaction accounts:
-----------
a. Money market deposit accounts (MMDAs) _________________________________________ 3486 783,697 11.a
-----------
b. Other savings deposits ________________________________________________________ 3487 987,781 11.b
-----------
c. Time deposits of $100,000 or more _____________________________________________ A514 215,378 11.c
-----------
d. Time deposits of less than $100,000 ___________________________________________ A529 696,107 11.d
-----------
12. Federal funds purchased and securities sold under agreements to repurchase _______ 3353 2,082,889 12
-----------
13. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases) ______________________________________________________________ 3355 185 13
-----------
</TABLE>
_________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly averages for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-13
ATLANTA, GA 30302 Transit #: 06310215
------------
21
------------
SCHEDULE RC-L- OFF-BALANCE SHEET ITEMS
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk.
C360
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Unused commitments:
a. Revolving, open-end lines secured by 1-4 family residential properties, RCON
----
----------
e.g., home equity lines________________________________________________________________ 3814 142,398 1.a
----------
b. Credit card lines______________________________________________________________________ 3815 0 1.b
----------
c. Commercial real estate, construction, and land development:
----------
(1) Commitments to fund loans secured by real estate___________________________________ 3816 151,125 1.c.1
----------
(2) Commitments to fund loans not secured by real estate_______________________________ 6550 18,405 1.c.2
----------
d. Securities underwriting________________________________________________________________ 3817 0 1.d
----------
e. Other unused commitments_______________________________________________________________ 3818 4,517,949 1.e
----------
2. Financial standby letters of credit____________________________________ RCON ------------- 3819 609,975 2.
----------
---- 273.668 2.a
a. Amount of financial standby letters of credit conveyed to others____ 3820 -------------
----------
3. Performance standby letters of credit_____________________________________________________ 3821 27,414 3.
------------- ----------
a. Amount of performance standby letters of credit conveyed to others___3822 8,183 3.a
------------- ----------
4. Commercial and similar letters of credit__________________________________________________ 3411 14,286 4.
5. Participations in acceptances (as described in the instructions) ----------
conveyed to others by the reporting bank__________________________________________________ 3428 990 5.
----------
6. Participations in acceptances (as described in the instructions) ----------
acquired by the reporting (nonaccepting) bank_____________________________________________ 3429 0 6.
----------
7. Securities borrowed_______________________________________________________________________ 3432 0 7.
----------
8. Securities lent (including customers' securities lent where the customer ----------
is indemnified against loss by the reporting bank)________________________________________ 3433 0 8.
----------
9. Financial assets transferred with recourse that have been treated as
sold for Call Report purposes:
a. First lien 1-to-4 family residential mortgage loans:
(1) Outstanding principal balance of mortgages transferred RCON
---- ----------
as of the report date______________________________________________________________ A521 0 9.a.1
----------
(2) Amount of recourse exposure on these mortgages ----------
as of the report date_______________________________________________________________ A522 0 9.a.2
----------
b. Other financial assets (excluding small business obligations
reported in item 9.c):
(1) Outstanding principal balance of assets transferred ----------
as of the report date______________________________________________________________ A523 0 9.b.1
----------
(2) Amount of recourse exposure on these assets ----------
as of the report date______________________________________________________________ A524 0 9.b.2
----------
c. Small business obligations transferred with recourse under Section 208 of the
Riegle Community Development and Regulatory Improvement Act of 1994:
(1) Outstanding principal balance of small business obligations
(1) Outstanding principal balance of small business obligations transferred as ----------
of the report date_________________________________________________________________ A524 0 9.c.1
----------
(2) Amount of retained recourse on these obligations as of the report date_____________ A250 0 9.c.2
----------
10. Notional amount of credit derivatives: ----------
a. Credit derivatives on which the reporting bank is the guarantor________________________ A534 0 10.a
----------
b. Credit derivatives on which the reporting bank is the beneficiary______________________ A535 0 10.b
----------
11. Spot foreign exchange contracts___________________________________________________________ 8765 0 11
----------
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC. item 28, ----------
'Total equity capital')___________________________________________________________________ 3430 0 12
----------
TEXT RCON
---- -----------
a. 3555 3555 0 12.a
-----------
b. 3558 3558 0 12.b
-----------
c. 3557 3557 0 12.c
-----------
d. 3558 3558 0 12.d
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-14
ATLANTA, GA 30302 Transit #: 06310215
<S> <C>
-----------
22
-----------
SCHEDULE RC-L CONTINUED
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
13. All other off-balance sheet assets (exclude off-balance sheet derivatives)(itemize and describe RCON
---- --------
each component of this over 25% Schedule RC, item 28. 'Total equity capital') _______________________ 5591 0 13
--------
TEXT RCON
---- --------
a. 5592 5592 0 13.a
--------
b. 5593 5593 0 13.b
--------
c. 5594 5594 0 13.c
--------
d. 5596 5596 0 13.d
--------
C361
(Column A) (Column B) (Column C) (Column D)
OFF-BALANCE SHEET DERIVATIVES interest Foreign Equity Commodity
POSITION INDICATORS Rate Exchange Derivative and other
<S> <C> <C> <C> <C>
14. Gross amounts (e.g. notional amounts)(for each Contracts Contracts Contracts Contracts
column, sum of items 14. a through 14.a
must equal sum of items 15, 16.a and 16.b): RCON RCON RCON RCON
---- -------- ---- -------- ---- -------- ---- --------
a. Futures contracts______________________________ 8693 0 8694 0 8695 0 8696 0 14.a
-------- -------- -------- --------
b. Forward contracts______________________________ 8697 0 8698 0 8699 0 8700 0 14.b
-------- -------- -------- --------
c. Exchange-traded option contracts:
-------- -------- -------- --------
(1) Written Options___________________________ 8701 0 8702 0 8703 0 8704 0 14.c1
-------- -------- -------- --------
(2) Purchased Options_________________________ 8705 0 8706 0 8707 0 8708 0 14.c2
-------- -------- -------- --------
d. Over-the-counter options contracts:
-------- -------- -------- --------
(1) Written Options___________________________ 8709 0 8710 0 8711 0 8712 0 14.d1
-------- -------- -------- --------
(2) Purchased Options_________________________ 8713 0 8714 0 8715 0 8716 0 14.d2
-------- -------- -------- --------
e. Swaps__________________________________________ 3450 23,572 3836 0 8719 0 8720 0 14.e
-------- -------- -------- --------
15. Total gross notional amount of
-------- -------- -------- --------
derivative contracts held for trading______________ A126 0 A127 0 8723 0 8724 0 15
-------- -------- -------- --------
16. Total gross notional amount of
derivative contracts held for
purposes other than trading:
-------- -------- -------- --------
a. Contracts marked to market_____________________ 8725 0 8726 0 8727 0 8728 0 16.a
-------- -------- -------- --------
b. Contracts not marked to market_________________ 8729 23,572 8730 0 8731 0 8732 0 16.b
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-15
ATLANTA, GA 30302 Transit#: 06310215
---------
23
---------
SCHEDULE RC-L CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Off-Balance Sheet Derivatives (Column A) (Column B) (Column C) (Column D)
Position Indicators Interest Foreign Equity Commodity
Rate Exchange Derivative and other
17. Total gross fair value of derivative contracts: Contracts Contracts Contracts Contracts
a. Contracts held for trading: RCON RCON RCON RCON
---- ---------- ---- ---------- ---- ---------- ---- ----------
(1) Gross positive fair value____________________ 8733 0 8734 0 8735 0 8738 0 17.a1
---------- ---------- ---------- ----------
(2) Gross negative fair value____________________ 8737 0 8738 0 8739 0 8740 0 17.a2
---------- ---------- ---------- ----------
b. Contracts held for purposes other than
trading that are marked to market: RCON RCON RCON RCON
---- ---------- ---- ---------- ---- ---------- ---- ----------
(1) Gross positive fair value____________________ 8741 0 8742 0 8743 0 8744 0 17.b1
---------- ---------- ---------- ----------
(2) Gross negative fair value____________________ 8749 0 8746 0 8747 0 8748 0 17.b2
---------- ---------- ---------- ----------
c. Contracts held for purposes other than
trading that are not marked to market
to market: RCON RCON RCON RCON
---- ---------- ---- ---------- ---- ---------- ---- ----------
(1) Gross positive fair value____________________ 8749 782 8750 0 8751 0 8752 0 17.c1
---------- ---------- ---------- ----------
(2) Gross negative fair value____________________ 8753 0 8754 0 8755 0 8756 0 17.c2
---------- ---------- ---------- ----------
MEMORANDA Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
1. -2 Not applicable
3. Unused commitments with an original maturity exceeding one year that are reported in
Schedule RC-L, items 1. a through 1. e, above (report only the unused portions of RCON
---- ----------
commitments that are fee paid or otherwise legally binding)_____________________________________________ 3833 3,396,228 M.3
----------
a. Participations in commitments with an original maturity RCON
---- ----------
exceeding one year conveyed to others________________________________________________ 3834 859,496 M.3.a
----------
4. To be completed only by bank with $ 1 billion or more in total assets:
Standby letters of credit (both financial and performance) issued to non-U.S. addressees RCON
---- ----------
(domicile) included in Schedule RC-L, items 2 and 3, above______________________________________________ 3377 1,653 M.4
----------
5. Installment loans to individuals for household, family, and other personal expenditures that
have been securitized and sold without recourse (with servicing retained), amounts
outstanding by type of loan:
a. Loans to purchase private passenger automobiles RCON
---- ----------
(to be completed for the September report only)______________________________________________________ 2741 N/A M.5.a
----------
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)___________________________________________ 2742 0 M.5.b
----------
c. All other consumer installment credit (Including mobile home loans)
----------
(to be completed for the September report only)______________________________________________________ 2743 N/A M.5.c
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Data: 03/24/97 State #: 12-1169 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-16
ATLANTA, GA 30302 Transit #: 06310216
-----------
24
-----------
Schedule RC-M-Memoranda
C365
Dollars Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Extensions of credit by the reporting bank to its executive officers,
directors, principal shareholders, and their related interests as of the
report date:
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal RCON
---- -----------
shareholders, and their related interests__________________________________________________________ 6164 231,058 1.a
-----------
b. Number of executive officers, directors, and principal shareholders to whom the amount of
all extensions of credit by the reporting bank (including extensions of credit to related
interests) equals or exceeds the lesser of $500,000 or 5 percent RCON Number
---- ----------
of total capital as defined for this purpose in agency regulations____________ 6165 15 1.b
----------
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches
RCON
---- -----------
and agencies of foreign banks (1) (included in schedule RC, item 3)___________________________________ 3405 0 2
-----------
3. Not applicable.
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others
(include both retained servicing and purchased servicing):
-----------
a. Mortgages serviced under a GNMA contract___________________________________________________________ 5500 0 4.a
-----------
b. Mortgages serviced under a FHLMC contract
-----------
(1) Serviced with recourse to servicer_____________________________________________________________ 5501 0 4.b.1
-----------
(2) Serviced without recourse to servicer__________________________________________________________ 5502 0 4.b.2
-----------
c. Mortgages serviced under a FNMA contract
-----------
(1) Serviced under a regular option contract_______________________________________________________ 5503 0 4.c.1
-----------
(2) Serviced under a special option contract_______________________________________________________ 5504 0 4.c.2
-----------
d. Mortgages serviced under other servicing contracts_________________________________________________ 5505 0 4.d
-----------
5. To be complete only by banks with $ 1 billion or more in total assets:
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must
equal Schedule RC item 9):
-----------
a. U.S. addressees (domicile)_________________________________________________________________________ 2103 2.944 5.a
-----------
b. Non-U.S. addressees (domicile)_____________________________________________________________________ 2104 0 5.b
-----------
6. Intangible assets:
a. Mortgage servicing rights__________________________________________________________________________ 3164 -----------
0 6.a
-----------
b. Other identifiable intangible assets:
(1) Purchased credit card relationships____________________________________________________________ 5506 -----------
0 6.b.1
-----------
(2) All other identifiable intangible assets_______________________________________________________ 5507 0 6.b.2
-----------
c. Goodwill__________________________________________________________________________________________ 3163 0 6.c
-----------
d. Total (sum of items 6.a through 6.c) (must equal schedule RC, item 10)____________________________ 2143 0 6.d
-----------
e. Amount of intangible assets (included in item 6.b.(2) above that have been
-----------
grandfathered or are otherwise qualifying for regulatory capital purposes_________________________ 6442 0 6.e
-----------
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated
to redeem the debt____________________________________________________________________________________ 3295 -----------
0 7
-----------
</TABLE>
___________
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC O32
P.O BOX 4428 CENTER 632 Vendor ID: D Cert #: 21043 RC-17
ATLANTA, GA 30302 Transit #: 06310215
-------------
25
-------------
SCHEDULE RC-M - CONTINUED
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
8. a. Other real estate owned: RCON
----
-------------
(1) Direct and indirect investments in real estate ventures____________________________ 5372 0 8.a.1
(2) All other real estate owned: -------------
-------------
(a) Construction and land development______________________________________________ 5508 3,746 8.a.2a
-------------
(b) Farmland_______________________________________________________________________ 5509 0 8.a.2b
-------------
(c) 1-4 family residential properties______________________________________________ 5510 1,560 8.a.2c
-------------
(d) Multifamily (5 or more) residential properties_________________________________ 5511 0 8.a.2d
-------------
(e) Nonfarm nonresidential properties______________________________________________ 5512 0 8.a.2e
-------------
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7)__________ 2150 5,306 8.a.3
-------------
b. Investments in unconsolidated subsidiaries and associated companies:
-------------
(1) Direct and indirect investments in real estate ventures____________________________ 5374 0 8.b.1
-------------
(2) All other investments in unconsolidated subsidiaries and associated companies______ 5375 7,804 8.b.2
-------------
(3) Total (sum of items 8.b.(1) and 8.b.(2)) )must equal Schedule RC. item 8)__________ 2130 7,804 8.b3
-------------
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC.
-------------
item 23, "Perpetual preferred stock and related surplus"__________________________________ 3778 0 9
-------------
10. Mutual fund and annuity sales during the quarter (including proprietary, private label,
and third party products): -------------
a. Money market funds____________________________________________________________________ 6441 105,979 10.a
-------------
b. Equity securities funds_______________________________________________________________ 8427 7,516 10.b
-------------
c. Debt securities funds_________________________________________________________________ 8428 1,960 10.c
-------------
d. Other mutual funds____________________________________________________________________ 8429 5,568 10.d
-------------
e. Annuities_____________________________________________________________________________ 8430 5,902 10.e
-------------
f. Sales of proprietary mutual funds and annuities (included in items 10.a through
-------------
10.e above)___________________________________________________________________________ 8784 113,668 10.f
-------------
11. Net unamortized realized deferred gains (losses)
on off-balance sheet derivative contracts included
-------------
in assets and liabilities reported in Schedule RC________________________________________ A525 0 11
-------------
12. Amount of assets netted against nondeposit
liabilities on the balance sheet (Schedule RC)
-------------
in accordance with generally accepted accounting principles(1)___________________________ A526 0 12
-------------
- ---------------------------------------------------------------------------------------------------------------------------
MEMORANDUM DOLLAR AMOUNTS IN THOUSANDS
- -------------------------------------------------------------------------------------------------------------------
1. Reciprocal holdings of banking organizations' capital instruments
-------------
(to be completed for the December report only)___________________________________________ 3836 0 M.1
-------------
- ---------------------------------------------------------------------------------------------------------------------------
(1) Exclude netted on-balance sheet amounts associated with off-balance sheet
derivative contracts, deferred tax assets netted against deferred tax
liabilities, and assets netted in accounting for pensions.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State#: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert#: 21043 RC-18
ATLANTA, GA 30302 Transit #: 06310215
------------
26
------------
SCHEDULE RC-N-PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS
The FFIEC regards the information reported in all of Memorandum item 1, in items 1 through 10
column A, and in Memorandum items 2 through 4, column A, as confidential.
C370
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-(Column A)- -(Column B)- _(Column c)-
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
1. Loans secured by real estate: RCON RCON RCON
---- ----------- ---- -------- ---- ---------
a. To U.S. addressees (domicile)_____________ 1245 4,706 1246 214 1247 8,699 1.a
----------- -------- ---------
b. To non-U.S. addressees (domicile)_________ 1248 0 1249 0 1250 0 1.b
----------- -------- ---------
2. Loans to depository institutions and
acceptances of other banks:
a. To U.S. banks and other U.S. depository ----------- -------- ---------
institutions_______________________________ 5377 0 5378 0 5379 0 2.a
----------- -------- ---------
b. To foreign banks___________________________ 5380 0 5381 0 5382 0 2.b
----------- -------- ---------
3. Loans to finance agricultural production
----------- -------- ---------
and other loans to farmers____________________ 1594 0 1597 0 1583 22 3.
----------- -------- ---------
4. Commercial and Industrial loans:
----------- -------- ---------
a. To U.S. addressees (domicile)______________ 1251 1.124 1252 152 1253 4,033 4.a
----------- -------- ---------
b. To non-U.S. addressees (domicile)__________ 1254 0 1255 0 1268 0 4.b
----------- -------- ---------
5. Loans to individuals for household, family,
and other personal expenditures:
----------- -------- ---------
a. Credit cards and related plans_____________ 5383 148 5384 5 5386 4 5.a
----------- -------- ---------
b. Other (includes single payment, installment,
----------- -------- ---------
and all student loans)_____________________ 5386 2,281 5387 124 5380 421 5.b
----------- -------- ---------
6. Loans to foreign governments and official
----------- -------- ---------
institutions__________________________________ 5389 0 5390 0 5391 0 6
----------- -------- ---------
7. All other loans_______________________________ 5459 18 5460 0 5461 175 7
----------- -------- ---------
8. Lease financing receivables:
----------- -------- ---------
a. Of U.S. addressees (domicile)______________ 1257 34 1258 0 1259 0 8.a
----------- -------- ---------
b. Of non-U.S. addressees (domicile)__________ 1271 0 1272 0 1791 0 8.b
----------- -------- ---------
9. Debt securities and other assets (exclude
other real estate owned and other ----------- -------- ---------
repossessed assets)___________________________ 3505 0 3506 0 3507 0 9
----------- -------- ---------
=======================================================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual
loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in
the amounts reported in items 1 through 8.
10. Loans and leases reported in items 1 RCON RCON RCON
through 8 above which are wholly or partially ---- ----------- ---- -------- ---- ---------
guaranteed by the U.S. Government____________ 5812 85 5813 9 5814 638 10
----------- -------- ---------
a. Guaranteed portion of loans and leases
----------- -------- ---------
included in item 10 above________________ 5815 75 5816 8 5817 517 10.a
----------- -------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-11-59 FFIEC O32
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-19
ATLANTA, GA 30302 Transit #: 06310215
-------------
27
-------------
SCHEDULE RC-N CONTINUED
C373
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--(Column A)-- --Column B)-- --(Column C)--
Memoranda Past due Past due 90 Nonaccrual
30 through 89 days or more
1. Restructured loans and leases included in days and still and still
Schedule RC-N, items 1 through 8 above accruing accruing
(and not reported in Schedule RC-C, RCON RCON RCON
---- -------------- ---- ------------- ----- -------------
Memorandum item 2)_______________________________ 1658 0 1659 0 1661 0 M.1
-------------- -------------- -------------
2. Loans to finance commercial real estate,
construction, and land development activities
(not secured by real estate) included in -------------- ---- ------------- ----- -------------
Schedule RC-N, items 4 and 7, above______________ 6558 0 6559 0 6560 0 M.2
-------------- -------------- -------------
3. Loans secured by real estate (sum of
Memorandum items 3.a through 3.e must
equal sum of Schedule RC-N items 1.a and
1.b above): -------------- -------------- -------------
a. Construction and land development_____________ 2759 0 2769 0 3492 21 M.3a
-------------- -------------- -------------
b. Secured by farmland___________________________ 3493 0 3494 0 3495 2,607 M.3b
-------------- -------------- -------------
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by
1-4 family residential properties and
-------------- -------------- -------------
extended under lines of credit________________ 5398 99 5399 0 5400 354 M.3c1
-------------- -------------- -------------
(2) All other loans secured by 1-4 family
-------------- -------------- -------------
residential properties____________________ 5401 2,015 5402 86 5403 3,952 M.3c2
-------------- -------------- -------------
d. Secured by multifamily (5 or more) residential
-------------- -------------- -------------
Properties____________________________________ 3499 0 3500 128 3501 0 M.3d
-------------- -------------- -------------
e. Secured by nonfarm nonresidential properties__ 3502 2,592 3603 0 3504 1,765 M.3e
-------------- -------------- -------------
--(Column A)-- --(Column B)--
Past due Past due 90
30 through 89 days or more
days and still and still
4. Interest rate, foreign exchange rate, and other accruing accruing
commodity and equity contracts: RCON RCON
---- -------------- ---- -------------
a. Book value of amounts carried as assets______ 3522 0 3528 0 M.4.a
-------------- --------------
b. Replacement cost of contracts with a
---- -------------- ---- -------------
positive replacement cost____________________ 3629 0 3503 0 M.4.b
-------------- --------------
__________________________________________________________________________________________________________________________________
Person to whom question about the Reports of Condition and Income should be
directed:
C377
Name Title Area Code/Phone Number/Extension
--------------------------------- ------------------------------ ----------------------------
8901 Bob DeFranco 8901 Vice President 8902 (404) 724-3835
--------------------------------- ------------------------------ ----------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Data : 03/31/97 State# : 12-1158 FFIEC 032
P.O. BOX 4418 CENTER 632 Vender ID : D Cert# : 21043 RC-20
ATLANTA, GA 30302 Transit # : 06310215
------------
28
------------
SCHEDULE RC-O- OTHER DATA FOR DEPOSIT INSURANCE AND FICO ASSESSMENTS
C375
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Unposted debits (see instructions): RCON
---- ----------
a. Actual amount of all unposted debits_______________________________________________________________ 0030 1,579 1.a
----------
OR
b. Separate amount of unposted debits:
----------
(1) Actual amount of unposted debits to demand deposits____________________________________________ 0031 0 1.b.1
----------
(2) Actual amount of unposted debits to time and savings deposits (1)______________________________ 0032 0 1.b.2
----------
2. Unposted credits (see instructions):
----------
a. Actual amount of all unposted credits______________________________________________________________ 3510 0 2.a
----------
OR
b. Separate amount of unposted credits:
----------
(1) Actual amount of unposted credits to demand deposits___________________________________________ 3512 21,625 2.b.1
----------
(2) Actual amount of unposted credits to time and savings deposits (1)_____________________________ 3514 0 2.b.2
----------
3. Uninvested trust funds (cash) held in bank's own trust department (not included
----------
in total deposits)____________________________________________________________________________________ 3520 0 3.
----------
4. Deposits of consolidated subsidiaries (not included in total deposits):
----------
a. Demand deposits of consolidated subsidiaries_______________________________________________________ 2211 0 4.a
----------
b. Time and savings deposits (1) of consolidated subsidiaries_________________________________________ 2351 0 4.b
----------
c. Interest accrued and unpaid on deposits of consolidated subsidiaries_______________________________ 5514 0 4.c
----------
5. Not applicable.
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on
behalf of its respondent depository institutions that are also reflected as deposit liabilities
of the reporting bank:
a. Amount reflected in demand deposits (included in Schedule RC-E. RCON
---- ----------
Memorandum item 4.a)_______________________________________________________________________________ 2314 244 6.a
----------
b. Amount reflected in time and savings deposits (1) (included in Schedule RC-E,
----------
Memorandum item 4.b)_______________________________________________________________________________ 2315 0 6.b
----------
7. Unamortized premiums and discounts on time and savings deposits:(1)(2)
----------
a. Unamortized premiums_______________________________________________________________________________ 5516 0 7.a
----------
b. Unamortized discounts______________________________________________________________________________ 5517 0 7.b
----------
8. To be completed by bank with "Oakar deposits".
a. Deposits purchased or acquired from other FDIC-Insured
institutions during the quarter:
(1) Total deposits purchased or acquired from other
----------
FDIC-Insured Institutions during the quarter____________________________________________________ A531 0 8.a.1
----------
(2) Amount of purchased or acquired deposits reported
in item 8.a.(1) above attributable to a secondary
fund (i.e., BIF members report deposits attributable
----------
to SAIF; SAIF members report deposits attributable to BIF)______________________________________ A532 0 8.a.2
----------
b. Total deposits sold or transferred to other FDIC-Insured Institutions during the quarter___________ A533 0 8.b
----------
9. Deposits in lifeline accounts_________________________________________________________________________ 5596 9
10. Benefit-responsive 'Depository Institution Investment Contracts' (included in total
----------
deposits)_____________________________________________________________________________________________ 5432 0 10.
----------
</TABLE>
_________
(1) For FDIC Insurance and FICO assessment purposes, time and savings deposits'
consists of nontransaction accounts and nontransaction accounts and all
transaction accounts other than demand deposits.
(2) Exclude core deposit intangibles.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-21
ATLANTA, GA 30302 Transit #: 06310215
----------
29
----------
SCHEDULE RC-O - CONTINUED
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
11. Adjustments to demand deposits reported
in Schedule RC-E for certain reciprocal demand balances:
a. Amount by which demand deposits would be reduced if the reporting bank's
reciprocal demand balances with the domestic offices of U.S. banks and
savings associations and insured branches in Puerto Rico and U.S.
territories and possessions that were reported on a gross basis in RCON
---- ------------
Schedule RC-E had been reported on a net basis __________________________________ 8785 0 11.a
------------
b. Amount by which demand deposits would be increased if the reporting bank's
reciprocal demand balances with foreign banks and foreign offices of other
U.S. banks (other than insured branches in Puerto Rico and U.S.
territories and possessions) that were reported on a net basis in
------------
Schedule RC-E had been reported on a gross basis ________________________________ A181 0 11.b
------------
c. Amount by which demand deposits would be reduced if cash items in process
of collection were included in the calculation of the reporting bank's net
reciprocal demand balances with the domestic offices of U.S. banks and
savings associations and insured branches in Puerto Rico and U.S.
------------
territories and possessions in Schedule RC-E ____________________________________ A182 0 11.c
------------
12. Amount of assets netted against deposit liabilities
on the balance sheet (Schedule RC) in accordance with generally accepted
accounting principles (exclude amounts related to reciprocal demand balances):
------------
a. Amount of assets netted against demand deposits _________________________________ A527 0 12.a
------------
b. Amount of assets netted against time and savings deposits _______________________ A528 0 12.b
------------
MEMORANDA (TO BE COMPLETED EACH QUARTER EXCEPT AS NOTED) DOLLAR AMOUNTS IN THOUSANDS
- ---------------------------------------------------------------------------------------------------------------
1. Total deposits of the bank (sum of Memorandum items 1.a(1) and 1.b(1)
must equal Schedule RC, item 13.a):
a. Deposit accounts of $100,000 or less: RCON
---- ------------
(1) Amount of deposit accounts of $100,0000 or less _____________________________ 2702 2,621,251 M.1.a1
------------
(2) Number of deposit accounts of $100,000 or less RCON Number
---- ----------
(to be completed for the June report only) _______________ 3779 N/A M.1.a2
----------
b. Deposit accounts of more than $100,000: RCON
---- ------------
(1) Amount of deposit accounts of more than $100,000 ____________________________ 2710 1,421,016 M.1.b1
------------
(2) Number of deposit accounts of more than $100,000 _________ 2722 4,549 M.1.b2
----------
2. Estimated amount of uninsured deposits of the bank:
a. An estimate of your bank's uninsured deposits can be determined
by multiplying the number of deposit accounts of more than
$100,000 reported in Memorandum item 1.b.(2) above by $100,000
and subtracting the result from the amount of deposit accounts
of more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at right whether your bank has a
method or procedure for determining a better estimate of RCON YES/NO
---- ------------
uninsured deposits than the estimate described above ____________________________ 6861 NO M.2.a
------------
b. If the box marked YES has been checked, report the estimate of uninsured
------------
deposits determined by using your bank's method or procedure ____________________ 5597 N/A M.2.b
------------
3. Has the reporting institution been consolidated with a parent bank
or savings association in that parent bank's or parent savings association's
Call Report or Thrift Financial Report?
If so, report the legal title and FDIC Certificate Number of the
parent bank or parent savings association:
Text RCON FDIC Cert No.
---- ------------
A546 A546 N/A M.3
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-22
ATLANTA, GA 30302 Transit #: 06310215
----------
30
----------
<S> <C>
SCHEDULE RC-R - REGULATORY CAPITAL
This schedule must be completed by all banks as follows: Banks that reported total assets
of $1 billion or more in Schedule RC item 12, for June 30, 1996, must complete items 2
through 9 and Memoranda items 1 and 2. BANKS WITH ASSETS OF LESS THAN $1 BILLION MUST
COMPLETE ITEMS 1 THROUGH 3 BELOW OR SCHEDULE RCR IN ITS ENTIRETY, DEPENDING ON THEIR
RESPONSE TO ITEM 1 BELOW.
1. Test for determining the extent to which Schedule RC-R must be completed.
To be completed only by banks with total assets of less than $1 billion. RCON YES/NO
Indicate in the appropriate box at the right whether the bank has total capital ---- -----------
greater than or equal to eight percent of adjusted total assets _____________________________ 6056 N/A 1.
-----------
For purposes of this test, adjusted total assets equals total assets less cash,
U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S.
Government-sponsored agency obligations plus the allowance for loan and lease
losses and selected off-balance sheet items as reported on Schedule RC-L
(see instructions).
If the box marked YES has been checked, then, the bank only has to complete
items 2 and 3 below. If the box marked NO has been checked, the bank must complete
the remainder of this schedule. A NO response to item 1 does not necessarily mean
that the bank's actual risk-based capital ratio is less than eight percent or that
the bank is not in compliance with the risk-based capital guidelines.
NOTE: All Banks are required to complete
items 2 and 3 below.
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------
2. Portion of qualifying limited-life capital instruments (original weighted
average maturity of at least five years) that is includible in Tier 2
capital: RCON
---- ------------
a. Subordinated debt (1) and intermediate term preferred stock ______________________ A515 0 2.a
------------
b. Other limited-life capital instruments ___________________________________________ A516 0 2.b
------------
3. Amounts used in calculating regulatory capital ratios (report amounts determined by
the bank for its own internal regulatory capital analysis consistent with applicable
capital standards):
------------
a. Tier 1 capital ___________________________________________________________________ 8274 497,184 3.a
------------
b. Tier 2 capital ___________________________________________________________________ 8275 71,233 3.b
------------
c. Total risk-based capital _________________________________________________________ 3792 568,417 3.c
------------
d. Excess allowance for loan and lease losses
------------
(amount that exceeds 1.25% of gross risk-weighted assets) ________________________ A222 16,557 3.d
------------
e. Net risk-weighted assets (gross risk-weighted assets less excess
------------
allowance reported in item 3.d above and all other deductions) ___________________ A223 5,682,108 3.e
------------
f. "Average total assets" (quarterly average reported in Schedule RC-K.
------------
item 9, less all assets deducted from Tier 1 capital)(2) ________________________ A224 6,580,618 3.f
------------
Items 4-9 and Memoranda items 1 and 2 are to be completed
by banks that answered NO to item 1 above and
by banks with total assets of $1 billion or more. -(Column A)- -(Column B)-
Assets Credit Equiv-
Recorded valent Amount
on the of Off- Balance
Dollar Amounts in Thousands Balance Sheet Sheet Items (3)
- ----------------------------------------------------------------------------------------------------------------
4. Assets and credit equivalent amount of off-balance sheet
items assigned to the Zero percent risk category: RCON
---- ------------
a. Assets recorded on the balance sheet ____________________ 5163 1,413,715 RCON 4.a
------------ ---- ------------
b. Credit equivalent amount of off-balance sheet items _____________________________ 3796 0 4.b
------------
</TABLE>
________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State #: 12-1159 FFIEC 032
PO.BOX 4418 CENTER 632 Vendor ID: D Cert #: 21043 RC-23
ATLANTA, GA 30302 Transit #: 06310215
---------
31
---------
SCHEDULE RC-R-CONTINUED
--(Column A) --(Column B)--
Assets Credit Equi-
Recorded valent Amount
on the of Off-Balance
Dollar Amounts in Thousands Balance Sheet Sheet Items(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
5. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 20 percent risk category: RCON
---- -----------
a. Assets recorded on the balance sheet _______________________________ 5185 1,005,790 RCON 5.a
----------- ---- -----------
b. Credit equivalent amount of off-balance sheet items ______________________________________ 3801 718,399 5.b
-----------
6. Assets and credit equivalent amount of off-balance sheet items
assigned to the 50 percent risk category:
-----------
a. Assets recorded on the balance sheet _______________________________ 3802 1,155,658 6.a
----------- -----------
b. Credit equivalent amount of off-balance sheet items ______________________________________ 3803 206,064 6.b
-----------
7. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 100 percent risk category:
-----------
a. Assets recorded on the balance sheet _______________________________ 3804 3,271,875 7.a
----------- -----------
b. Credit equivalent amount of off-balance sheet items ______________________________________ 3805 1,401,091 7.b
-----------
8. On balance sheet asset values excluded from and deducted in
-----------
the calculation of the risk-based capital ratio(2) ____________________ 3806 (1,267) 8.
-----------
9. Total assets recorded on the balance sheet (sum of
items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal Schedule RC.
-----------
item 12.c plus items 4.b and 4.c) _____________________________________ 3807 6,869,771 9.
-----------
MEMORANDA Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------
1. Current credit exposure across all off-balance sheet derivative contracts covered
-----------
by the risk-based capital standards _________________________________________________________ 8764 782 M.1
-----------
-----With a remaining maturity of-----
--(Column A)-- --(Column B)-- --(Column C)--
One Year Over Over
or less one year five years
thru five years
2. Notional principal amounts of off-balance
sheet derivative contracts:(3) RCON RCON RCON
---- ----------- ---- ----------- ---- -----------
a. Interest rate contracts __________________________ 3809 0 8766 23,572 8767 0 M.2.a
----------- ----------- -----------
b. Foreign exchange contracts _______________________ 3812 0 8769 0 8770 0 M.2.b
----------- ----------- -----------
c. Gold contracts ___________________________________ 8771 0 8772 0 8773 0 M.2.c
----------- ----------- -----------
d. Other precious metals contracts __________________ 8774 0 8775 0 8776 0 M.2.d
----------- ----------- -----------
e. Other commodity contracts ________________________ 8777 0 8778 0 8779 0 M.2.e
----------- ----------- -----------
f. Equity derivatives contracts _____________________ A000 0 A001 0 A002 0 M.2.f
----------- ----------- -----------
</TABLE>
________
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of its
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes on-
balance sheet asset values (or portions thereof) of off-balance sheet
interest rate, foreign exchange rate, and commodity contracts and those
contracts (e.g. future contracts) not subject to risk-based capital. Item 8
margin accounts and accrued receivables not included in the calculation of
credit equivalent amounts of off-balance sheet derivatives as well as any
portion of the allowance for loan and lease losses in excess of the amount
that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
<PAGE>
<TABLE>
<CAPTION>
SUNTRUST BANK, CENTRAL FLORIDA N.A. Call Date: 03/31/97 State#: 12-1158 FFIEC 032
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert#: 21043 RC-24
ATLANTA, GA 30302 Transit #: 06310215 -----------
<S> <C>
-----------
32
-----------
</TABLE>
OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS
REPORTED IN THE REPORTS OF CONDITION AND INCOME
at close of business on March 31, 1997
SUNTRUST BANK, CENTRAL FLORIDA N.A. ATLANTA GA
----------------------------------- ------- --
LEGAL TITLE OF BANK CITY STATE
The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the Reports of Condition and Income. This
optional statement will be made available to the public, along with the
publicly available data in the Reports of Condition and Income, in response to
any request for individual bank report data. However the information reported in
column A and in all of Memorandum item 1 of Schedule RC-N is regarded as
confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK
CUSTOMERS. REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN
SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE
PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing narrative
statement will be deleted from the files, and from disclosure: the bank at its
option, may replace it with a statement appropriate to the amended areas.
The optional narrative statement will appear in agency records and in release to
the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank.
THE STATEMENT WILL NOT EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES
FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT
ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
<TABLE>
- --------------------------------------------------------------------------------
C371 C372
RCON
---- -------
<S> <C>
No comment:----------------------------------------------------------- 6979 X
-------
BANK MANAGEMENT STATEMENT (please type or print clearly):
TEXT 6980 (70 characters per line)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
-----------------------------------------------------------
Signature of Executive Officer of Bank Date of Signature
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- --------------------------------------------------------------------------------
<PAGE>
--------
33
--------
SUNTRUST BANK, CENTRAL FLORIDA N.A. OMB No. For FDIC: 1557-0081
P.O. BOX 4418 CENTER 632 OMB No. For FDIC: 3064-0052
ATLANTA, GA 30302 OMB No. For Federal Reserve: 7100-0036
Expiration Date: 3/31/99
SPECIAL REPORT
C700
<TABLE>
<CAPTION>
Dollar Amount in Thousands
- --------------------------------------------------------------------------------
Close of Busi-
ness Date: FDIC Cert #
<S> <C> <C>
----------------- -------------
03/31/97 21043
----------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- --------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does
not constitute a part of the Report of Condition. With each Report of Condition,
these Laws require all banks to furnish a report of all loans or other
extensions of credit to their executive officers made since the date of the
previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of
credit were made during the period, insert "none" against subitem (a). (Exclude
the first $15,000 of indebtedness of each executive officer under bank credit
card plan.) See Section 215.2 and 215.3 of Title 12 of the Code of Federal
Regulations. (Federal Reserve Board Regulation O) for the definitions of
"executive officer" and "extension of credit", respectively. Exclude loans and
other extensions of credit to directors and principal shareholders who are not
executive officers.
The following information is required by Public Laws 90-44 and 102-242, but
does not constitute a part of the report of
<TABLE>
<CAPTION>
RCON
---- -------
<S> <C>
a. Number of loans made to executive officers since the previous Call Report date___________________ 3561 0 a.
-------
b. Total dollar amount of above loans (in thousands of dollars)_____________________________________ 3562 0 b.
-------
c. Range of interest charged on above loans RCON FROM TO
---- -------------- -------
0.00% 7702 0.00%
(example: 9-3/4% = 9.75) _________________________________________________ 7701 -------------- -------
</TABLE>
/s/ R. Todd Bowers 4/24/97
- --------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT: DATE (Month, Day,
Year):
NAME AND TITLE OF PERSON TO AREA CODE/PHONE
WHOM INQUIRIES MAY BE DIRECTED: (TEXT) NUMBER/EXTENSION: (TEXT
----------------------------- -------------------------
8903 8904
----------------------------- -------------------------
8903
-----------------------------
- --------------------------------------------------------------------------------
FDIC 8040/53 (6-95)
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
11 1/4% SENIOR DISCOUNT NOTES DUE 2007
OF
INTERMEDIA COMMUNICATIONS INC.
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OF THEIR OUTSTANDING 11 1/4% SENIOR DISCOUNT NOTES DUE 2007
FOR
11 1/4% SERIES B SENIOR DISCOUNT NOTES DUE 2007
PURSUANT TO THE PROSPECTUS DATED AUGUST , 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS EXTENDED. TENDERS OF OLD NOTES MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
TO: SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, EXCHANGE AGENT
By Mail, Hand or Overnight Courier: By Facsimile:
SunTrust Bank, Central Florida, National Association
(407) 237-5299
225 East Robinson Street, Suite 350
Orlando, Florida 32801 Confirm by Telephone:
Attention: Alice L. Springer (407) 237-5179
Delivery of this Letter of Transmittal to an address, or transmission via
telegram, telex or facsimile, other than as set forth above will not
constitute a valid delivery. The instructions contained herein should be read
carefully before this Letter of Transmittal is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR
OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
(the "Prospectus"), dated August , 1997, of Intermedia Communications Inc.
(the "Issuer"), which, together with this Letter of Transmittal and the
Instructions hereto (the "Letter of Transmittal"), constitute the Issuer's
offer (the "Exchange Offer") to exchange $1,000 principal amount at maturity
of its 11 1/4% Series B Discount Senior Notes due 2007(the "New Notes") that
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the
Prospectus constitutes a part, for each $1,000 principal amount at maturity of
its outstanding 11 1/4% Senior Notes due 2007 (the "Old Notes"), upon the
terms and subject to the conditions set forth in the Prospectus.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer and to
the best of the Company's information and belief, each person participating in
the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to
participate in the distribution of the New Notes to be received in the
Exchange Offer.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Old Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company
("DTC") pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer--Procedures for Tendering Old Notes" by any financial
institution that is a participant in DTC and whose name appears on a security
position listing as the owner of Old Notes (such participants, acting on
behalf of Holders, are referred to herein, together with such Holders, as
"Acting Holders"); or (iii) tender of Old Notes is to be made according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer--Procedures for Tendering Old Notes." Delivery of documents to DTC does
not constitute delivery to the Exchange Agent.
1
<PAGE>
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Notes are registered on the books of the Issuer or any other
person who has obtained a properly completed bond power from the registered
Holder or (ii) whose Old Notes are held of record by DTC who desires to
deliver such Old Notes by book entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, list the certificate numbers and principal
amounts on a separately executed schedule and affix the schedule to this
Letter of Transmittal. Tenders of Old Notes will be accepted only in principal
amounts equal to $1,000 or integral multiples thereof.
DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------
CERTIFICATE AGGREGATE
NUMBER(S)* PRINCIPAL
(ATTACH SIGNED AMOUNT
NAME(S) AND ADDRESS(ES) OF HOLDER(S) LIST IF TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NECESSARY) THAN ALL)**
- ----------------------------------------------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
- ----------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all
Old Notes listed. See Instruction 2.
2
<PAGE>
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
DTC Book-Entry Account No.: ________________________________________________
Transaction Code No.: ______________________________________________________
If Holders desire to tender Old Notes pursuant to the Exchange Offer and (i)
certificates representing such Old Notes are not lost but are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Old Notes or other required documents to reach the Exchange
Agent prior to the Expiration Date or (iii) the procedures for book-entry
transfer cannot be completed prior to the Expiration Date, such Holders may
effect a tender of such Old Notes in accordance with the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer--Procedures
for Tendering Old Notes."
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Old Notes: _________________________________________
Window Ticket No. (if any): ________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
DTC Book-Entry Account No.: ________________________________________________
If Delivered by Book-Entry Transfer,
Name of Tendering Institution: _____________________________________________
Transaction Code No.: ______________________________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
LADIES AND GENTLEMEN:
Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to the Issuer the principal amount of Old Notes indicated above. Subject to
and effective upon the acceptance for exchange of the principal amount of Old
Notes tendered in accordance with this Letter of Transmittal, the undersigned
sells, assigns and transfers to, or upon the order of, the Issuer all right,
title and interest in and to the Old Notes tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Issuer and as Trustee under the Indenture for the Old Notes and
the New Notes) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes to the Issuer, or
transfer ownership of such Old Notes on the account books maintained by DTC,
together, in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Issuer and (ii) present such Old
Notes for transfer on the books of the Issuer and receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all
in accordance with the terms of the Exchange Offer. The power of attorney
granted in this paragraph shall be deemed irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Issuer. The
undersigned also acknowledges that this Exchange Offer is being made in
reliance upon an interpretation by the staff of the Securities and Exchange
Commission that the New
3
<PAGE>
Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may
be offered for resale, resold and otherwise transferred by holders thereof
(other than any such holder that is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such New Notes. The undersigned
acknowledges that if he or she is participating in the Exchange Offer for the
purpose of distributing the New Notes, the undersigned must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of the New Notes. If the undersigned
is a broker-dealer that will receive New Notes for its own account in exchange
for Old Notes, the undersigned represents that such Old Notes were acquired as
a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale
of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such Holder's
business, (ii) such Holder has no arrangements with any person to participate
in the distribution of such New Notes and (iii) such Holder is not an
"affiliate," as defined under Rule 405 of the Securities Act, of the Issuer
or, if such Holder is an affiliate, that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered
hereby.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuer has given oral
or written notice thereof to the Exchange Agent. If any tendered Old Notes are
not accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Old Notes will be returned (except as
noted below with respect to tenders through DTC), without expense, to the
undersigned at the address shown below or at a different address shown below
or at a different address as may be indicated under "Special Issuance
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Issuer upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the
Old Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the account at DTC).
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please send the certificates representing the New Notes issued in exchange for
the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signatures, unless,
in either event, tender is being made through DTC. In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and return any Old Notes not
tendered or not exchanged in the name(s) of, and send said certificates to,
the person(s) so indicated. The undersigned recognizes that the Issuer has no
obligation pursuant to the "Special Issuance Instructions" and "Special
Delivery Instructions" to transfer any Old Notes from the name of the
registered holder(s) thereof if the Issuer does not accept for exchange any of
the Old Notes so tendered.
4
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES REGARDLESS
OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name
appears on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Letter of Transmittal. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below under "Capacity" and submit
evidence satisfactory to the Issuer of such person's authority to so act.
See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of
the Old Notes, then the registered Holder(s) must sign a valid proxy.
X _______________________ Date: ___________________
X _______________________ Date: ___________________
SIGNATURE(S) OF
HOLDER(S) OR
AUTHORIZED SIGNATORY
Name(s): ____________________ Address __________________________________
____________________ ___________________________________
(PLEASE PRINT) (INCLUDING ZIP CODE)
Capacity: ___________________ Area Code and Telephone No.: _____________
Social Security No.: ________
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
---------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
---------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
---------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
---------------------------------------------------------------------------
(PRINTED NAME)
---------------------------------------------------------------------------
(TITLE)
Date: ___________________
5
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4 HEREIN) (SEE INSTRUCTIONS 3 AND 4 HEREIN)
To be completed ONLY if certifi- To be completed ONLY if
cates for Old Notes in a principal certificates for Old Notes in a
amount not tendered are to be is- principal amount not tendered or
sued in the name of, or the New not accepted for purchase or the
Notes issued pursuant to the Ex- New Notes issued pursuant to the
change Offer are to be issued to Exchange Offer are to be sent to
the order of, someone other than someone other than the person or
the person or persons whose signa- persons whose signature(s)
ture(s) appear(s) within this Let- appear(s) within this Letter of
ter of Transmittal or issued to an Transmittal or to an address
address different from that shown different from that shown in the
in the box entitled "Description box entitled "Description of Old
of Old Notes" within this Letter Notes" within this Letter of
of Transmittal, or if Old Notes Transmittal.
tendered by book-entry transfer
that are not accepted for purchase
are to be credited to an account
maintained at DTC.
Name: ............................. Name: .............................
(PLEASE PRINT) (PLEASE PRINT)
Address: .......................... Address: ..........................
(PLEASE PRINT) (PLEASE PRINT)
................................... ...................................
ZIP CODE ZIP CODE
................................... ...................................
TAXPAYER IDENTIFICATION OR SOCIAL TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER SECURITY NUMBER
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The certificates
for the tendered Old Notes (or a confirmation of a book-entry into the
Exchange Agent's account at DTC of all Old Notes delivered electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this
Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration
Date. The method of delivery of the tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that the Holder use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes
should be sent to the Issuer.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date must tender their Old Notes and follow the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible
Institution; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Old Notes,
the certificate number or numbers of such Old Notes and the principal amount
of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of electronic delivery of book-
entry delivery into the Exchange Agent's account at DTC) and any of the
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of electronic mail
delivery of book-entry delivery into the Exchange Agent's account at DTC),
must be received by the Exchange Agent within five business days after the
Expiration Date, all as provided in the Prospectus under the caption
"Guaranteed Delivery Procedures." Any Holder of Old Notes who wishes to tender
his Old Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
prior to 5:00 p.m., New York City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Issuer's acceptance of which
would, in the opinion of counsel for the Issuer, be unlawful. The Issuer also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Notes. The Issuer's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Issuer shall determine. Neither the Issuer, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the Exchange Agent to the tendering Holders of Old Notes,
unless otherwise provided in this Letter of Transmittal, as soon as
practicable following the Expiration Date.
7
<PAGE>
2. PARTIAL TENDERS. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes is tendered, the tendering
Holders should fill in the principal amount tendered in the third column of
the chart entitled "Description of Old Notes." The entire principal amount of
Old Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Old Notes is
not tendered, Old Notes for the principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered,
Old Notes for the principal amount of Old Notes not tendered and a certificate
or certificates representing New Notes issued in exchange of any Old Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal or unless tender is made through DTC, promptly after the Old Notes
are accepted for exchange.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof)
is signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New
Notes issued in exchange therefor is to be issued (or any untendered principal
amount of Old Notes is to be reissued) to the registered Holder, such Holder
need not and should not endorse any tendered Old Note, nor provide a separate
bond power. In any other case, such Holder must either properly endorse the
Old Notes tendered or transmit a properly completed separate bond power with
this Letter of Transmittal, with the signatures on the endorsement or bond
power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes
must be endorsed or accompanied by appropriate bond powers signed as the name
of the registered Holder(s) appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Issuer, evidence satisfactory to the Issuer of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
DTC whose name appears on a security position listing as the owner of Old
Notes) who has not completed the box set forth herein entitled "Special
Issuance Instructions" or the box entitled "Special Delivery Instructions" or
(ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal (or in the case of tender of the
Old Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or are
to be registered or issued in the name of, any person other than the
registered Holder of the Old Notes tendered hereby, or if tendered Old Notes
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are registered in the name of any person other than the person signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered Holder or any
other person) will be payable by the tendering Holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
in the Prospectus. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
(DO NOT WRITE IN SPACE BELOW)
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
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Delivery Prepared by__________ Checked by__________ Date__________
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