<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 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 59-29-13586
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OR OTHER JURISDICTIONOF NUMBER)
INCORPORATION OR ORGANIZATION)
----------------
DAVID C. RUBERG, CHAIRMAN OF THE
BOARD,
3625 QUEEN PALM DRIVE
TAMPA, FLORIDA 33619 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(813) 829-0011 INTERMEDIA COMMUNICATIONS INC.
(ADDRESS, INCLUDING ZIP CODE, AND 3625 QUEEN PALM DRIVE
TELEPHONE NUMBER, INCLUDING AREA CODE, TAMPA, FLORIDA 33619
OF REGISTRANT'S PRINCIPAL EXECUTIVE (813) 829-0011
OFFICES) (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 THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13 1/2% Series B Redeem-
able
Exchangeable Preferred
Stock due 2009, par
value $1.00 per
share................. 56,507(2) $10,000 $300,000,000(2) $90,909(2)
- --------------------------------------------------------------------------------
13 1/2% Senior Subordi-
nated Debentures due
2009.................. (3)(4) (3)(4) (3)(4) (3)(4)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 26,507 shares of 13 1/2% Series B Redeemable Exchangeable
Preferred Stock due 2009 that may be issued as dividends on the 13 1/2%
Series B Redeemable Exchangeable Preferred Stock due 2009. No additional
registration fee is payable in respect thereof.
(3) The outstanding shares of 13 1/2% Series B Redeemable Exchangeable
Preferred Stock due 2009 are exchangeable, in whole but not in part, upon
the occurrence of certain events, at the option of the Company, for the 13
1/2% Senior Subordinated Debentures due 2009. No additional registration
fee is payable in respect thereof.
(4) Includes up to $265,067,803 principal amount of 13 1/2% Senior
Subordinated Debentures due 2009 that may be issued as interest payments
on the 13 1/2% Senior Subordinated Debentures due 2009. No additional
registration fee is payable in respect thereof.
----------------
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 LOCATIONS IN PROSPECTUS
---- ------------------- -----------------------
<C> <S> <C>
1 Forepart of the
Registration Statement Outside Front Cover Page
and Outside
Front Cover Page of
Prospectus..............
2 Inside Front and Outside
Back Cover Pages of Inside Front Cover Page; Available
Prospectus.............. Information; Outside Back Cover Page
3 Risk Factors, Ratio of
Earnings to Fixed Prospectus Summary; The Company;
Charges Risk Factors; Selected Financial
and Other Information... and Other Operating Data
4 Terms of the Prospectus Summary; Risk Factors;
Transaction............. The Exchange Offer; Description of
Preferred Shares; Plan of Distribution
5 Pro Forma Financial Selected Financial and Other Operating
Statements.............. Data; Financial Statements
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 Legal Matters; Experts
Experts and Counsel.....
9 Disclosure of Commission
Position on *
Indemnification For
Securities Act
Liabilities.............
10 Information With Respect Outside and Inside Cover Pages of Prospectus;
to S-3 Registrants...... 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
Other Indebtedness; Description of
Preferred Shares; Description of the
Exchange Debentures
11 Incorporation of Certain Incorporation of Certain Documents by Reference
Information 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.
1
<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 APRIL 2, 1997
OFFER TO EXCHANGE
13 1/2% SERIES B REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009 FOR ANY AND
ALL OUTSTANDING 13 1/2% REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009
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 ("ICI" or 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 one share of its 13 1/2%
Series B Redeemable Exchangeable Preferred Stock due 2009 (collectively, the
"New Preferred Shares") for each outstanding share of its 13 1/2% Series A
Redeemable Exchangeable Preferred Stock due 2009 (the "Old Preferred Shares"
and together with the New Preferred Shares, the "Preferred Shares"). As of the
date of this Prospectus, an aggregate of $300,000,000 liquidation preference of
the Old Preferred Shares were outstanding. The terms of the New Preferred
Shares are substantially identical in all material respects (aggregate
liquidation preference, dividend rate, mandatory redemption and ranking) to the
terms of the Old Preferred Shares, except that the New Preferred Shares have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and therefore will not be subject to certain transfer restrictions
applicable to the Old Preferred Shares and will not be entitled to registration
rights relating to the Old Preferred Shares. See "Description of Preferred
Shares--Registration Rights; Liquidated Damages" and "The Exchange Offer--
Proposal to Split New Preferred Shares." There will be no cash proceeds to the
Company from the Exchange Offer.
The Exchange Offer is being made to satisfy certain obligations of the
Company under the Registration Rights Agreement, dated March 7, 1997, among the
Company and the other signatories thereto (the "Registration Rights
Agreement"). See "Description of Preferred Shares--Registration Rights;
Liquidated Damages." Upon consummation of the Exchange Offer, holders of Old
Preferred Shares that were not prohibited from participating in the Exchange
Offer and did not tender their Old Preferred Shares will not have any
registration rights under the Registration Rights Agreement covering such Old
Preferred Shares not tendered and such Old Preferred Shares will continue to be
subject to the restrictions on transfer contained in the legend thereon.
Each Preferred Share has a liquidation preference of $10,000 per share
(subject to the Proposal described at "The Exchange Offer--Proposal to Split
New Preferred Shares"). Dividends on the Preferred Shares accumulate from the
Issue Date (as defined) at the rate of 13 1/2% per annum of the liquidation
preference thereof and are payable quarterly in arrears on the last days of
March, June, September and December of each year (each, a "Dividend Payment
Date"), commencing on June 30, 1997. Dividends are payable in cash, except that
on each Dividend Payment Date occurring on or prior to March 31, 2002,
dividends may be paid, at the Company's option, by the issuance of additional
New Preferred Shares or Old Preferred Shares, as applicable (including
fractional shares), having an aggregate liquidation preference equal to the
amount of such dividends. The Preferred Shares are subject to mandatory
redemption at the liquidation preference thereof, plus accumulated and unpaid
dividends and Liquidated Damages (as defined), if any, on March 31, 2009, out
of any funds legally available therefor. The Preferred Shares will rank (i)
senior to all Junior Securities (as defined); (ii) on a parity with any Parity
Securities (as defined); and (iii) junior to each class of Senior Securities
(as defined). In addition, the Preferred Shares will rank junior in right of
payment to all indebtedness and other obligations of the Company and its
subsidiaries. As of December 31, 1996, the Preferred Shares would have been
junior in right of payment to approximately $403.2 million of total
indebtedness and other obligations of the Company and its subsidiaries. See
"Description of Preferred Shares."
On any scheduled Dividend Payment Date, the Company may, at its option,
exchange, in whole but not in part, all of the Preferred Shares outstanding for
the Company's 13 1/2% Senior Subordinated Debentures due 2009 (the "Exchange
Debentures"). See "Description of Preferred Shares--Exchange." Interest on the
Exchange Debentures
Continued on following page
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 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 , 1997
<PAGE>
would accrue at the rate of 13 1/2% per annum and would be payable semi-
annually in arrears on March 31 and September 30 of each year, commencing on
the first date after the issuance date of the Exchange Debentures. Interest on
the Exchange Debentures payable on or prior to March 31, 2002 could be paid in
the form of additional Exchange Debentures valued at the principal amount
equal to the amount of such interest payment.
The Exchange Offer is not conditioned upon any minimum number of Old
Preferred Shares 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"), provided that the Exchange Offer shall not be extended
beyond 30 business days from the date of this Prospectus. The date of
acceptance for exchange of the Old Preferred Shares for the New Preferred
Shares (the "Exchange Date") will be the first business day following the
Expiration Date. Old Preferred Shares tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date; otherwise such
tenders are irrevocable.
The Old Preferred Shares were originally issued and sold on March 7, 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 Preferred Shares 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.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") with respect to similar transactions, the
Company believes that New Preferred Shares issued pursuant to the Exchange
Offer in exchange for Old Preferred Shares 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) without compliance with the registration and prospectus
deliver requirements of the Securities Act, provided that the New Preferred
Shares are acquired in the ordinary course of such holders' business, the
holders have no arrangement with any person to participate in the distribution
of the New Preferred Shares and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Preferred
Shares. Each broker-dealer that receives New Preferred Shares for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of New Preferred Shares. 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 New Preferred Shares received in exchange for Old Preferred
Shares 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, it will make this Prospectus available upon request to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company has not entered into any arrangement or understanding with any
person to distribute the New Preferred Shares to be received in the Exchange
Offer and, as of the Exchange Date, to the best of the Company's information
and belief, each person participating in the Exchange Offer will be acquiring
the New Preferred Shares in its ordinary course of business and will not have
any arrangement or understanding with any person to participate in the
distribution of the New Preferred Shares to be received in the Exchange Offer.
Prior to this Exchange Offer, there has been no public market for the
Preferred Shares. The Old Preferred Shares have traded on the PORTAL Market.
If a market for the New Preferred Shares should develop, the New Preferred
Shares could trade at prices higher or lower than their original offering
price. The Company does not currently intend to list the New Preferred Shares
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 New Preferred Shares will develop.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD PREFERRED SHARES IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT
BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
INTERMEDIA COMMUNICATIONS INC., 3625 QUEEN PALM DRIVE, TAMPA, FLORIDA 33619
(TELEPHONE 813-829-0011), ATTENTION: INVESTOR RELATIONS. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY THE DATE WHICH
IS FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and
the rules and regulations promulgated thereunder, covering the New Preferred
Shares being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to in the Registration Statement are
necessarily summaries of those documents, and, with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
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 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 Preferred Shares or Exchange Debentures
(the "Securities") 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 remain outstanding, the Company has agreed to make available to
any prospective purchaser or beneficial owner of the Securities in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
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 portions of the Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held 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 28, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
March 19, 1997.
3
<PAGE>
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, 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.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information in the Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus. References in this Prospectus to the "Company" or
"ICI" means Intermedia Communications Inc. together with its subsidiaries,
except where the context otherwise requires. Certain terms used herein are
defined in the Glossary 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
ICI is a rapidly growing integrated communications services provider ("ICP"),
offering a full suite of local, long distance and enhanced data
telecommunications services to business and government end user customers, long
distance carriers, Internet service providers ("ISPs"), resellers and wireless
communications companies. Founded in 1987, the Company is currently the third
largest (based on annualized telecommunications services revenues) among
providers generally referred to as competitive local exchange carriers
("CLECs") after MFS Communications Company, Inc. and Teleport Communications
Group Inc. The Company has sales offices in 23 cities throughout the eastern
half of the United States and offers a full product package of
telecommunications services in 15 metropolitan statistical areas. In April
1996, ICI became one of the first ICPs in the United States to provide
integrated switched local and long distance service and now has five local/long
distance voice switches in service. The Company provides enhanced data
services, including frame relay, asynchronous transfer mode ("ATM") and
Internet access services, primarily to business and government customers
(including over 100 ISPs), in approximately 2,200 cities nationwide, utilizing
89 Company-owned data switches. ICI also serves as a facilities-based
interexchange carrier to approximately 12,000 customers nationwide. ICI
continues to increase its customer base and network density in the eastern half
of the United States and is pursuing attractive opportunities to add additional
services and expand into complementary geographic markets. The total United
States annual market for the Company's local, long distance and enhanced data
services is estimated to be approximately $165 billion, of which approximately
$25 billion is estimated to be addressable by the Company.
The Company's annualized revenue based on the fourth quarter of 1996 (giving
pro forma effect to two recent acquisitions) was $173.7 million. The Company's
revenues have grown from $14.3 million in 1994 to $103.4 million in 1996,
representing a compound annual growth rate of 169%. During the same period, the
Company has increased its sales force from approximately 45 to approximately
175, increased the number of sales offices from four to 21 and grown its
customer base from 8,148 to 14,133. In 1996, the Company positioned itself as a
provider of integrated telecommunications services to its customers by (i)
obtaining CLEC certification in 13 states and the District of Columbia (with 22
applications pending), (ii) completing interconnection co-carrier agreements
with six incumbent local exchange carriers ("ILECs"), (iii) deploying four
local/long distance voice switches and (iv) deploying 37 data switches bringing
its total data switches to 89.
Management believes that a well trained team of direct sales and engineering
support professionals, offering customers a full suite of telecommunications
services, is critical to achieving its goal of capturing meaningful market
share in the newly competitive local telecommunications market. By initiating
local exchange services in markets where its sales and engineering support team
is already in place, ICI reached a significant milestone toward attaining this
goal. Management believes that being one of the few ICPs offering integrated
local, long distance and enhanced data services to its customers provides the
Company with a competitive advantage in pursuing the estimated $99 billion
national market for local exchange services. The Company's strategy is to
5
<PAGE>
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 89 enhanced
data switches and over 200 network to network interfaces ("NNIs") for frame
relay data transmission throughout the continental United States and (v) its
interconnection co-carrier agreements with six ILECs.
As of December 31, 1996, ICI had invested $241.5 million (or 67% of its total
invested capital) in gross property, plant and equipment, principally
telecommunications equipment. ICI expects to continue to grow its networks and
has identified expansion opportunities in other selected markets. Management
believes that this expansion will enable the Company to (i) increase the size
of its addressable market and reach a significant number of new potential
customers, (ii) achieve economies of scale in network operations and sales and
marketing and (iii) more effectively service customers that have a presence in
multiple metropolitan areas. The Company has also undertaken a major expansion
of its intercity network, principally to satisfy the growing demand for
interexchange services, including enhanced data services such as frame relay
networking services. As a result, frame relay nodes have grown from
approximately 2,300 nodes, serving customer locations in 600 cities as of
December 31, 1995, to approximately 9,500 nodes, serving customer locations in
2,200 cities as of December 31, 1996.
Enhanced data services, such as those provided on the Company's frame relay
network, are specialized services for customers that need to transport large
amounts of data among multiple locations. According to industry sources, the
frame relay services market is projected to grow from $753 million in 1995 to
$2.7 billion in 1999; however, there can be no assurance that such market
growth will be realized or that the assumptions underlying such projections are
reliable. While the Company has concentrated its frame relay sales in the
eastern half of the United States, ICI is currently the fifth largest national
provider of frame relay networking services (based on number of nodes) after
AT&T, Inc. ("AT&T"), MCI Communications Corporation ("MCI"), Sprint Corporation
("Sprint") and WorldCom, Inc. ("WorldCom"). In order to satisfy its customers'
desire for end-to-end frame relay services from a single provider, the Company
has deployed its network and made arrangements with other frame relay service
providers to offer national and international service.
The Company believes that it can effectively utilize its competitive
advantages as a provider of enhanced data services to communications intensive
customers in order to acquire and retain these customers as local exchange and
long distance customers throughout its markets. As ICI continues the deployment
of local/long distance voice switches, it will make more efficient use of its
intercity network. Combining long distance voice traffic between such switches
with the intercity data traffic increases the overall amount of voice and data
traffic that remains completely on the Company's network. The Company is
developing additional applications and deploying technologies that will provide
even greater efficiencies in the use of its intercity network.
The Company has developed and intends to introduce a voice product over its
enhanced data network which will provide a competitive service offering to
customers seeking a lower cost alternative to voice services currently provided
over traditional circuit switched telecommunications networks. The Company
believes that packet switched data networks, such as the Company's, will
displace a significant portion of the estimated $130
6
<PAGE>
billion telecommunications market which is currently provided over traditional
circuit switched networks. The Company believes this proposed new service
offering will accelerate its penetration of the traditional voice services
market.
The Company has developed operating strategies, important components of which
are described below, to increase market share and operating margins.
CUSTOMER STRATEGY
Provide Single-Source Telecommunications Services. The Company's service
portfolio includes: local exchange, enhanced data (i.e., frame relay and ATM,
Internet and Intranet), interexchange long distance, integration and private
line services. Management believes that its ability to deliver all of these
services provides significant advantages for both the customer and for the
Company. Not only does this capability address customers' complex requirements
associated with integration of diverse networks and technologies at various
locations, but it also reduces customers' administrative burdens associated
with service charges, billing, network monitoring, implementation, coordination
and maintenance. ICI also believes that by offering expanded, single-source
services through existing networks and customer connections, it can leverage
the significant capacity inherent in its digital networks.
Focus on Business and Government Customers. The Company's portfolio of
service offerings, customer service approach, highly reliable networks, broad
geographic coverage and integration capabilities are well-suited to serve the
demands of telecommunications-intensive business and government customers. The
Company's existing business customer base represents a broad range of
industries, including firms in the retail, financial services, Internet,
healthcare, merchandising, manufacturing and other industry segments. ICI has a
dedicated sales and engineering support group focused exclusively on providing
service to government agencies. The Company has long-term contracts with the
States of Florida and New York pursuant to which the Company provides various
telecommunications services, including frame relay and other data services (as
well as certain voice services under the New York contract).
Develop Interexchange Carrier and Value-Added Reseller Relationships. As a
result of recent changes in state and federal regulation which have provided
ILECs with mandates that foster local exchange competition, ICI has accelerated
its entry into the local exchange services market. As interexchange carriers
("IXCs") enter the local exchange business, the Company believes that they will
seek to gain access to the local exchange services market by either developing
local network capacity or by purchasing such capacity from alternative service
providers. The Company believes that these developments are likely to make ICI
a candidate for joint ventures and preferred vendor arrangements with IXCs,
ILECs and other telecommunications related companies. Such arrangements would
benefit the Company by enabling ICI to more rapidly recover its capital
investment in switches and other network infrastructure by increasing the
traffic through its networks. These IXC relationships typically began with the
Company providing special access services on behalf of these IXCs and have
recently evolved to include local access transport and local exchange services.
These arrangements should enable ICI to achieve greater market share and reach
new market segments more rapidly than it could otherwise. The Company has also
begun soliciting these IXCs, out of region ILECs, cable companies and other
value added resellers to resell the Company's local exchange and other
services. ICI has recently established a preferred vendor relationship with
Cable & Wireless, Inc., which includes the resale of ICI's local exchange
service by Cable & Wireless, Inc.
Maintain and Develop Long-Term Relationships. By providing customized
telecommunications solutions to its customers, the Company develops a sense of
partnership with its customers. This, together with the provision of an
integrated package of services (local, long distance and enhanced data
services) fosters the development of long-term customer relationships. As an
example, the group of ICI's top 42 customers as of December 31, 1994
(representing approximately 68% of ICI's billings for the month of December
1994) had
7
<PAGE>
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
ICI and, in the aggregate, represented approximately 17% of ICI's monthly
billings for December 1996.
Provide Cost-Effective Service Offerings. The Company believes that the
introduction of its services at competitive market rates has stimulated demand
from small to medium-sized customers, thereby broadening the market for ICI's
services. Each of the Company's individually packaged services is competitively
priced, and when integrated into a comprehensive telecommunications package,
typically provides significant savings to such customers over a combination of
ILEC and IXC service offerings.
Expand Solutions-Oriented Sales Effort. The Company has rapidly expanded, and
intends to continue to expand, its direct sales and support team consisting of
engineering and sales professionals. The sales and support teams have complete
product knowledge and technical, integration and program or project management
skills. This team approach promotes a close working relationship between the
Company and the customers' telecommunications, information services and user
constituencies. The Company believes such relationships improve its ability to
sell more of its services and maintain longer relationships with its customers.
During 1996, ICI increased the number of its sales offices by nine and
substantially increased its engineering support personnel and sales
representatives. The Company believes that the continued deployment of its
skilled end user engineering support and sales team will allow ICI to establish
service in new markets and maintain a competitive position in existing markets.
By focusing first on establishing customer relationships in both new and
existing markets, the Company believes it can efficiently deploy capital in
response to actual customer demand.
NETWORK STRATEGY
Control Franchise Points of the Networks. Connections to customers and
building entries represent an important component of ICI's network strategy.
These connections provide the Company with the platform to sell a variety of
services to existing and additional potential customers within a building,
analogous to those provided by traditional shared tenant services providers.
ICI believes that the deployment of switching technology and advanced network
electronics enables the Company to better configure its networks to provide
cost-effective and customized solutions to its customers.
Extend Coverage to Provide End-to-End Service. The Company believes that an
important aspect of satisfying its customers is its ability to provide and
support services from end to end. This requires network interconnection with
other carriers and operational support systems and tools to "manage" the
customer's total service. The Company has entered into interconnection co-
carrier agreements with BellSouth Telecommunications Inc. ("BellSouth"),
Sprint, GTE Corporation ("GTE"), 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. ICI now
provides originating and terminating transport services in 45 states and
maintains points of presence ("POPs") for interexchange and enhanced data
services in most major cities in the United States. The Company has deployed,
and continues to integrate, network monitoring and control tools to insure high
levels of service quality and reliability.
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.
8
<PAGE>
Deploy Capital Cost Effectively on a Demand Driven Basis. In addition to the
use of ILEC resale and unbundling, the Company has the ability to lease network
capacity from other carriers at competitive rates. This has led the Company to
lease network capacity in various areas prior to, or as an economic alternative
to, building additional capacity. As a result of its most favored nation
pricing from Advanced Radio Telecom Corp. ("ART") in the Northeast, the Company
from time to time leases 38 GHz wireless services as one such economic
alternative. Utilizing leased facilities enables the Company to (i) meet
customers' needs more rapidly, (ii) improve the utilization of ICI's existing
networks, (iii) add revenue producing customers before building networks,
thereby reducing the risks associated with speculative network construction and
(iv) subsequently focus its capital expenditures in geographic areas where
network construction or acquisition will provide a competitive advantage. The
Company focuses its capital deployment on the segments of its networks that the
Company believes will provide it with the highest revenue and cash flow
potential and the greatest long-term competitive advantage. For the 12 months
ended September 30, 1996, the Company recorded $.54 in revenue for each average
dollar of plant, property and equipment invested.
GROWTH STRATEGY
Accelerate Internal Growth. By focusing on business and government customers
and maintaining high-quality and cost-effective services, the Company has
generated a compound annual internal revenue growth rate of 63% for the two
year period ended December 31, 1996. The Company believes that its customer and
network strategies will continue to enable ICI to expand its services and
markets, increase its revenue base and effectively compete in a dynamic
marketplace. In order to achieve such growth, it is essential to continue to
add to the Company's highly skilled, broadly deployed end user sales and
engineering support team.
Accelerate Provision of Local Exchange Services. The Telecommunications Act
of 1996 (the "1996 Act") significantly improved the opportunity for competition
in the local exchange market by mandating that ILECs enter into arrangements
with competitors such as the Company for central office collocation and
unbundling of local services. The Company believes that implementation of such
pro-competitive policies creates favorable opportunities to more aggressively
pursue the provision of local exchange services. The Company has a total of
five local/long distance voice switches in operation and is currently
marketing, to existing and new customers, local dial tone, switched access
termination and origination services, centrex and desktop products bundled with
the Company's other service offerings. The Company expects to offer such
services in all of its fiber optic-based markets by mid 1997, with the
exception of Huntsville, Alabama.
Selectively Acquire Existing Networks and Services. Over the past few years,
a portion of the Company's growth has been accomplished through acquisitions
and joint ventures or selling relationships. The Company continues to examine
various acquisition and joint venture proposals to accelerate its rate of
growth. In addition to the usual financial considerations, ICI assesses each
opportunity to determine if either: (i) current network traffic into and out of
the geographic areas served by the potential joint venture or acquisition
candidate warrants developing a presence in those geographic areas or (ii) such
candidate offers services consistent with the Company's strategy. 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.
9
<PAGE>
RECENT DEVELOPMENTS
The Company completed three corporate acquisitions during 1996. In June 1996,
the Company acquired the telecommunications division of EMI Communications
Corp. ("EMI"), a company serving customers primarily in the Northeast with
aggregate telecommunications revenues of approximately $53.7 million for the
year ended December 31, 1996, of which $27.8 million was included in the
Company's revenue for 1996. With this acquisition, the Company substantially
expanded its frame relay presence into the Northeast and acquired both
additional customers (including a major contract with the State of New York)
and a number of highly skilled personnel. In December 1996, the Company
acquired Universal Telecom Inc. ("UTT"), a provider of interexchange services
to approximately 1,000 business customers in the St. Louis area with annualized
monthly telecommunications revenues of approximately $5.4 million. The UTT
acquisition was strategically significant because of the near completion of
construction of ICI's St. Louis metropolitan area fiber optic network. In
December 1996, the Company also acquired the network transport business of
NetSolve Incorporated ("NetSolve"). With this acquisition the Company gained
600 multi-site business customers and network facilities (transport and
switching) which extended the Company's intercity network into Texas and
provided facilities into incremental markets in the eastern half of the United
States. NetSolve's data transport business generated approximately $16.0
million of annualized monthly telecommunications revenues for December 1996.
The 1996 Act and the issuance by the Federal Communications Commission
("FCC") of rules for 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. Although the U.S. Court of Appeals for the Eighth
Circuit has issued a partial stay of the FCC's rules implementing the local
competition provisions of the 1996 Act, the stay is limited to issues relating
to pricing of interconnection and a CLEC's ability to impose "most favored
nation" requirements on ILECs. Both issues remain subject to scrutiny and
oversight by state regulatory commissions. Despite the stay, 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.
The Company's 1996 acquisitions expanded its customer base, network
infrastructure and geographic reach. Further, the Company greatly expanded its
direct sales force during the year to approximately 175 sales personnel located
in 23 sales offices throughout the eastern United States. Because of these
developments and the improved opportunities in the local exchange market
created by the 1996 Act, the Company has accelerated and expanded its capital
deployment plans to (i) increase its geographic reach, network density and
market penetration by extending its network to serve a greater percentage of
ILEC central offices, (ii) more rapidly deploy local/long distance voice
switches and related network electronics, and (iii) increase the level of
demand driven capital spending associated with connecting more customers to its
network. The Company's expanded activities in 1996, together with the
acceleration and expansion of its capital deployment plan, is expected to
increase the size of the Company's addressable market in 1997 from
approximately $13 billion to approximately $34 billion. See "Risk Factors" and
"Business--Services Provided and Markets." Under the Company's revised capital
deployment plan, the Company has increased from 13 to 25 the number of
local/long distance voice switches that it intends to have in operation by year
end 1998. ICI also expects to have 150 enhanced data switches in operation in
approximately 100 cities by that date.
ICI was incorporated in the State of Delaware on November 9, 1987, as the
successor to a Florida corporation that was founded in 1986. The Company's
principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619,
and its telephone number is (813) 829-0011.
10
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.............. The Company is offering to exchange up to
30,000 shares of its 13 1/2% Series B
Redeemable Exchangeable Preferred Stock,
liquidation preference $10,000 per share, par
value $1.00 per share, for up to 30,000
shares of its outstanding 13 1/2% Series A
Redeemable Exchangeable Preferred Stock,
liquidation preference $10,000 per share, par
value $1.00 per share, that were issued and
sold on March 7, 1997 in a transaction (the
"Offering") exempt from registration under
the Securities Act. The terms of the New
Preferred Shares are substantially identical
in all material respects (aggregate
liquidation preference, dividend rate,
mandatory redemption and ranking) to the
terms of the Old Preferred Shares, except
that the New Preferred Shares have been
registered under the Securities Act and
therefore will not be subject to certain
transfer restrictions applicable to the Old
Preferred Shares and will not be entitled to
registration rights relating to the Old
Preferred Shares. See "The Exchange Offer"
for a description of the procedures for
tendering Old Preferred Shares. The Exchange
Offer satisfies the registration obligations
of the Company under the Registration Rights
Agreement. Holders that do not tender all of
their Old Preferred Shares will no longer
have any registration rights under the
Registration Rights Agreement.
Tenders; Expiration Date; The Exchange Offer will expire at 5:00 p.m.,
Withdrawal..................... New York City time, on , 1997, or
such later date and time to which it is
extended, provided that the Exchange Offer
shall not be extended beyond 30 business days
from the date of this Prospectus. Tenders of
Old Preferred Shares pursuant to the Exchange
Offer may be withdrawn and re-tendered at any
time prior to the Expiration Date. Any Old
Preferred Shares not accepted for exchange
for any reason will be returned without
expense to the tendering holder thereof as
promptly as practicable after the expiration
or termination of the Exchange Offer.
Federal Income Tax The Exchange Offer will not result in any
Considerations................. income, gain or loss to the holders of
Preferred Shares 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 Preferred Shares for
the New Preferred Shares pursuant to the
Exchange Offer.
Proposal to Split New Preferred The Company has submitted to its stockholders
Shares......................... a proposal (the "Proposal") to effect a 1 for
10 split of its New Preferred Shares. Holders
of record of the Company's Common Stock,
11
<PAGE>
par value $.01 per share (the "Common
Stock"), and of the Old Preferred Shares on
April 1, 1997 (the "Proposal Record Date")
are entitled to vote on the Proposal at the
Company's annual meeting of stockholders to
be held on May 22, 1997 (the "Annual
Meeting"). As of the Record Date, no New
Preferred Shares were issued and outstanding.
If the Proposal is approved prior to the
consummation of the Exchange Offer, each
holder tendering Old Preferred Shares will
receive 10 New Preferred Shares, liquidation
preference $1,000 per share, for each Old
Preferred Share tendered. If the Proposal is
not approved by the stockholders or if the
Annual Meeting has not yet taken place when
the Exchange Offer is consummated, each
holder tendering Old Preferred Shares will
receive one New Preferred Share for each Old
Preferred Share tendered. If the Proposal is
approved after the consummation of the
Exchange Offer, upon the approval of the
Proposal by the stockholders at the Annual
Meeting each outstanding New Preferred Share,
liquidation preference $10,000 per share,
will be reclassified as 10 New Preferred
Shares, liquidation preference $1,000 per
share.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD PREFERRED SHARES PURSUANT
TO THE EXCHANGE OFFER
Generally, holders of Old Preferred Shares (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 Preferred Shares for New Preferred Shares pursuant
to the Exchange Offer may offer their New Preferred Shares for resale, resell
their New Preferred Shares, and otherwise transfer their New Preferred Shares
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such New Preferred Shares 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 New Preferred Shares and
neither the holder nor any other person is engaging in or intends to engage in
a distribution of the New Preferred Shares. Each broker-dealer that receives
New Preferred Shares for its own account in exchange for Old Preferred Shares
must acknowledge that it will deliver a prospectus in connection with any
resale of its New Preferred Shares. See "Plan of Distribution." To comply with
the securities laws of certain jurisdictions, it may be necessary to qualify
for sale or register the New Preferred Shares prior to offering or selling such
New Preferred Shares. The Company is required, under the Registration Rights
Agreement, to register the New Preferred Shares in any jurisdiction reasonably
requested by the holders, subject to certain limitations. Upon consummation of
the Exchange Offer, holders of Old Preferred Shares that were not prohibited
from participating in the Exchange Offer and did not tender their Old Preferred
Shares will not have any registration rights under the Registration Rights
Agreement covering such Old Preferred Shares not tendered and such Old
Preferred Shares will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Preferred Shares 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. See "The Exchange Offer--Consequences of Failure to Exchange".
SUMMARY DESCRIPTION OF THE PREFERRED SHARES
The terms of the New Preferred Shares and the Old Preferred Shares are
substantially identical in all material respects (aggregate liquidation
preference, dividend rate, mandatory redemption and ranking), except for
certain transfer restrictions and registration rights relating to the Old
Preferred Shares.
12
<PAGE>
PREFERRED SHARES
Securities Offered..............
30,000 shares of 13 1/2% Series B Redeemable
Exchangeable Preferred Stock due 2009, par
value $1.00 per share, plus any additional
shares issued from time to time in lieu of
cash dividends.
Mandatory Redemption............ The Preferred Shares are subject to mandatory
redemption at their Liquidation Preference,
plus accumulated and unpaid dividends and
Liquidated Damages (as defined), if any, on
March 31, 2009 out of any funds legally
available therefor.
Dividends.......................
Dividends on the Preferred Shares accumulate
at a rate of 13 1/2% per annum of the
Liquidation Preference thereof and will be
payable quarterly in arrears on the last days
of March, June, September and December of
each year (each a "Dividend Payment Date")
commencing June 30, 1997. Dividends will be
payable in cash, except that on each Dividend
Payment Date occurring on or prior to March
31, 2002, dividends may be paid, at the
Company's option, by the issuance of
additional Preferred Shares (including
fractional shares) having an aggregate
Liquidation Preference equal to the amount of
such dividends.
Liquidation Preference.......... $10,000 per share, subject to the Proposal.
Ranking......................... The Preferred Shares rank (i) senior to all
Junior Securities (as defined herein); (ii)
on a parity with any Parity Securities (as
defined herein); and (iii) junior to each
class of Senior Securities (as defined
herein). In addition, the Preferred Shares
rank junior in right of payment to all
indebtedness and other obligations of the
Company and its subsidiaries. As
of December 31, 1996, the Preferred Shares
would have been junior in right of payment to
approximately $403.2 million of total
indebtedness and other obligations of the
Company and its subsidiaries. The Company has
the ability to issue additional Preferred
Shares to pay dividends. See "Description of
Preferred Shares--Ranking."
Optional Redemption.............
The Preferred Shares are redeemable at the
option of the Company, in whole or in part,
at any time on or after March 31, 2002 at the
redemption prices set forth herein, plus
accumulated and unpaid dividends and
Liquidated Damages, if any, to the date of
redemption. In addition, prior to March 31,
2000, the Company may, at its option, redeem
up to a maximum of 35% of the initially
issued Preferred Shares from the net proceeds
of one or more underwritten public offerings
of its Common Stock or one or more sales of
its Capital Stock (other than Disqualified
Stock) to one or more Strategic Investors.
See "Description of Preferred Shares--
Redemption--Optional Redemption."
13
<PAGE>
Change of Control............... Upon a Change of Control, the Company may be
required to offer to each holder of Preferred
Shares to purchase all or any part of such
holder's Preferred Shares at an offer price
in cash equal to 101% of the Liquidation
Preference thereof, plus accumulated and
unpaid dividends and Liquidated Damages, if
any, to the date of purchase. See
"Description of Preferred Shares--Change of
Control."
Covenants.......................
The Certificate of Designation (as defined)
contains covenants restricting the Company's
and its Subsidiaries' ability to make certain
restricted payments; incur additional
indebtedness and issue preferred stock; make
certain dividend or other distributions;
enter into certain transactions with
affiliates; merge or consolidate with or
transfer all or substantially all of its
assets to another entity; and allow
restrictions on payments from Subsidiaries.
See "Description of Preferred Shares--Certain
Covenants."
Exchange........................ On any Dividend Payment Date, the Company
may, at its option, exchange, in whole but
not in part, all of the Preferred Shares then
outstanding for the Company's 13 1/2% Senior
Subordinated Debentures due 2009. See
"Description of Preferred Shares--Exchange."
EXCHANGE DEBENTURES
Securities Offered..............
13 1/2% Senior Subordinated Debentures due
2009.
Maturity Date................... March 31, 2009.
Interest........................ The Exchange Debentures will accrue interest
at a rate of 13 1/2% per annum payable semi-
annually in arrears on March 31 and September
30, commencing the first such date after the
issuance date of the Exchange Debentures.
Interest payable on or prior to March 31,
2002 may be paid in the form of additional
Exchange Debentures valued at the principal
amount thereof.
Optional Redemption.............
The Exchange Debentures will be redeemable at
the option of the Company, in whole or in
part, at any time on or after March 31, 2002,
at the redemption prices set forth herein,
plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
redemption. In addition, prior to March 31,
2000, the Company may, at its option, redeem
up to a maximum of 35% of the aggregate
principal amount of Exchange Debentures
originally issued from the net proceeds of
one or more underwritten public offerings of
its Common Stock or one or more sales of its
Capital Stock (other than Disqualified Stock)
to one or more Strategic Investors. See
"Description of the Exchange Debentures--
Optional Redemption."
14
<PAGE>
Change of Control............... Upon a Change of Control, the Company will be
required to offer to each holder of Exchange
Debentures to purchase all or any part of
such holder's Exchange Debentures at a
purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, to the date of purchase. See
"Description of the Exchange Debentures--
Offer to Purchase Upon Change of Control."
Ranking.........................
The Exchange Debentures will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Debt of the
Company and to all indebtedness and
other liabilities and commitments of the
Company's subsidiaries. As of December 31,
1996, the Exchange Debentures would have been
subordinated in right of payment to
approximately $353.3 million of Senior Debt
of the Company. In addition, as of December
31, 1996, the Exchange Debentures would have
been effectively subordinated to capital
lease obligations of the Company's
subsidiaries, of approximately $3.1 million.
See "Description of the Exchange Debentures--
Ranking" and "--Subordination."
Certain Covenants............... The indenture pursuant to which the Exchange
Debentures will be issued (the "Indenture")
will contain 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 disqualified 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 will be required to offer to purchase
Exchange Debentures at a price equal to 100%
of
the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages,
if any, to the date of purchase, with the
proceeds of certain asset sales. See
"Description of the Exchange Debentures--
Certain Covenants."
15
<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 operating results of EMI are included in the Company's consolidated
operating results commencing July 1, 1996. The operating results of UTT and
NetSolve are included in the Company's consolidated operating results
commencing December 1, 1996. The pro forma operating information gives effect
to the EMI, UTT and Netsolve acquisitions as if they occurred on January 1,
1996. The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the
Company and the Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
PRO FORMA(1)
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------------------- ------------
1992 1993 1994 1995 1996 1996
------ ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue................ $7,030 $ 8,292 $14,272 $ 38,631 $103,397 $152,071
Expenses:
Facilities
administration and
maintenance and line
costs................. 1,760 2,843 5,396 22,989 81,105 121,803
Selling, general and
administrative........ 2,607 3,893 6,412 14,993 36,610 40,663
Depreciation and
amortization.......... 2,190 3,020 5,132 10,196 19,836 23,022
------ ------- ------- -------- -------- --------
6,557 9,756 16,940 48,178 137,551 185,488
------ ------- ------- -------- -------- --------
Operating income
(loss)................ 473 (1,464) (2,668) (9,547) (34,154) (33,417)
Other income (expense)
Interest expense...... (1,031) (844) (1,218) (13,767) (35,213) (35,213)
Interest and other
income............... 323 234 819 4,060 12,168 11,428
Income tax benefit.... -- -- -- 97 -- --
------ ------- ------- -------- -------- --------
Loss before
extraordinary item... (235) (2,074) (3,067) (19,157) (57,199) (57,202)
Extraordinary loss on
early extinguishment
of debt.............. -- -- -- (1,592) -- --
------ ------- ------- -------- -------- --------
Net loss............... $ (235) $(2,074) $(3,067) $(20,749) $(57,199) $(57,202)
====== ======= ======= ======== ======== ========
Net loss per share:(2)
Loss before
extraordinary item... $ (.10) $ (.29) $ (.34) $ (1.91) $ (4.08) $ (3.94)
Extraordinary loss.... -- -- -- (.16) -- --
------ ------- ------- -------- -------- --------
Net loss.............. $ (.10) $ (.29) $ (.34) $ (2.07) $ (4.08) $ (3.94)
====== ======= ======= ======== ======== ========
Weighted average number
of shares
outstanding........... 4,797 7,077 8,956 10,036 14,018 14,518
OTHER DATA:
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) $(10,395)
Capital expenditures,
including acquisitions
of businesses, net of
cash acquired......... $8,818 $10,486 $13,731 $ 31,915 $143,615 $146,679
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1992 1993 1994 1995 1996
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NETWORK DATA:(5)
Buildings connected.......................... 161 234 293 380 487
Route miles.................................. 240 335 378 504 655
Fiber miles.................................. 6,184 10,239 11,227 17,128 24,122
Number of city-based networks in service..... 4 5 6 9 9
ENHANCED DATA SERVICES:(5)
Nodes(6)..................................... -- 100 900 2,300 9,500
Cities(7).................................... -- 37 336 600 2,200
Switches..................................... -- 4 12 31 89
EMPLOYEES(5).................................. 49 58 146 287 874
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED(8)
DECEMBER 31, DECEMBER 31,
----------------------------------------- --------------
1992 1993 1994 1995 1996 1996
------- ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents(9)........ $ 1,775 $27,954 $10,208 $ 50,997 $189,546 $477,821
Working capital(10).... 8,999 25,712 9,588 70,353 206,029 494,304
Total assets........... 36,174 61,219 74,086 216,018 512,940 801,215
Long-term obligations
and redeemable
preferred stock
(including current
maturities)........... 11,742 11,614 16,527 165,545 358,508 646,783
Total stockholders'
equity................ 21,257 45,987 52,033 40,254 114,230 114,230
</TABLE>
16
<PAGE>
- --------
1. The pro forma operating information gives effect to the EMI, UTT and
NetSolve acquisitions, which occurred effective June 30, 1996, December 1,
1996 and December 1, 1996, respectively, as if they occurred on January 1,
1996.
2. Net loss per share in 1992 has been increased to reflect preferred stock
dividends.
3. For purposes of calculating the ratio of earnings to fixed charges: (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 Preferred Shares. For the years ended December
31, 1992, 1993, 1994, 1995 and 1996 the Company's earnings were
insufficient to cover fixed charges by $622, $2,288, $3,324, $19,931 and
$59,978, respectively. For the year ended December 31, 1996, the Company's
pro forma earnings, after giving effect to the acquisitions described in
Note 1 above and the Offering, were insufficient by $102,578 to cover pro
forma fixed charges.
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. 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.
7. Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
8. Gives effect to the Offering and the application of the net proceeds
therefrom.
9. Cash and cash equivalents excludes investments of $20,954 and $26,675 in
1995 and 1996, respectively, restricted under the terms of various notes
and other agreements.
10. Working capital includes the restricted investments referred to in Note 9,
above.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Preferred Shares for the New Preferred Shares offered
hereby, holders of Old Preferred Shares should consider carefully the
following factors, which (other than "Consequences of Failure to Exchange")
are generally applicable to the Old Preferred Shares as well as to the New
Preferred Shares.
Consequences of Failure to Exchange. Upon consummation of the Exchange
Offer, holders of Old Preferred Shares that were not prohibited from
participating in the Exchange Offer and did not tender their Old Preferred
Shares will not have any registration rights under the Registration Rights
Agreement covering such Old Preferred Shares not tendered and such Old
Preferred Shares will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Preferred Shares 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 Preferred Shares under
the Securities Act. Based on interpretations by the staff of the Commission
with respect to similar transactions, the Company believes that New Preferred
Shares issued pursuant to the Exchange Offer in exchange for Old Preferred
Shares may be offered for resale, resold or otherwise transferred by holders
thereof (other than any holder that 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 New Preferred Shares 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 New Preferred Shares and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Preferred Shares. Each broker-dealer that receives New
Preferred Shares for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
the New Preferred Shares. 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 New
Preferred Shares received in exchange for Old Preferred Shares acquired by the
broker-dealer 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, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale of the New Preferred Shares. See "Plan
of Distribution." The New Preferred Shares 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 New Preferred Shares for resale in any
state (if required) as may be 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 Old Preferred Shares. If a market for the New Preferred
Shares should develop, the New Preferred Shares could trade at prices higher
or lower than their initial offering price. The Company does not currently
intend to list the New Preferred Shares 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 New Preferred Shares will
develop.
Restrictions on the Company's Ability to Pay Dividends on the Preferred
Shares. To date, the Company has not paid dividends on its shares of capital
stock. The ability of ICI to pay cash dividends on the Preferred Shares,
commencing on March 31, 2002, and to redeem the Preferred Shares upon maturity
is substantially restricted under various covenants and conditions contained
in the Indenture (the "Senior Notes Indenture") governing the Company's 13
1/2% Senior Notes due 2005 (the "Senior Notes") and the Indenture (the
"Discount Notes Indenture", and together with the Senior Notes Indenture, the
"Existing Senior Notes Indentures") governing the Company's 12 1/2% Senior
Discount Notes due 2006 (the "Discount Notes", and together with the Senior
Notes, the "Existing Senior Notes"). In addition to the limitations imposed on
the payment of dividends by the Existing Senior Notes Indentures, under
Delaware law the Company is permitted to pay dividends on its capital stock,
including the Preferred Shares, only out of its surplus, or in the event that
it has no surplus, out of
18
<PAGE>
its net profits for the year in which a dividend is declared or for the
immediately preceding fiscal year. Surplus is defined as the excess of a
company's total assets over the sum of its total liabilities plus the par
value of its outstanding capital stock. At December 31, 1996, the Company had
stockholders equity of $114.2 million and surplus of $114.1 million. In order
to pay dividends in cash, the Company must have surplus or net profits equal
to the full amount of the cash dividend at the time such dividend is declared.
The Company cannot predict what the value of its assets or the amount of its
liabilities will be in the future and, accordingly, there can be no assurance
that the Company will be able to pay cash dividends on the Preferred Shares.
The Certificate of Designation provides that upon (a) the accumulation of
accrued and unpaid dividends on the outstanding Preferred Shares in an amount
equal to six quarterly dividends (whether or not consecutive); (b) the failure
of the Company to satisfy any mandatory redemption or repurchase obligation
(including, without limitation, pursuant to any required Change of Control
Offer) with respect to the Preferred Shares; (c) the failure of the Company to
make a Change of Control Offer on the terms and in accordance with the
provisions described below under the caption "Description of Preferred
Shares--Change of Control;" (d) the failure of the Company to comply with any
of the other covenants or agreements set forth in the Certificate of
Designation and the continuance of such failure for 60 consecutive days or
more after notice; or (e) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the Closing Date, which default (i) is a Payment Default (as defined) or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the 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, the sole remedy to the holders
of the Preferred Shares will be the voting rights arising from a Voting Rights
Triggering Event (as defined). See "Description of Preferred Shares--Voting
Rights."
Limited Operations of Certain Services; History of Net Losses. The Company's
business commenced in 1987. Substantially all of the Company's revenues are
derived from local exchange services, enhanced data services, long distance
services, integration services and certain local network services. Many of
these services have only recently been initiated or their availability only
recently expanded in new market areas. The Company is expecting to
substantially increase the size of its operations in the near future.
Prospective investors, therefore, have limited historical 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, ICI has incurred significant increases in expenses
associated with the installation of local/long distance voice switches and
expansion of its fiber optic networks, services and customer base. ICI
reported net losses of approximately $3.1 million, $20.7 million and $57.2
million for the years ended December 31, 1994, 1995 and 1996, respectively.
The Company anticipates having significant net losses in 1997 that is expected
to be substantially greater than the loss in 1996 and expects net losses to
continue for the next several years. In addition, the Company expects to have
negative EBITDA in 1997. There can be no assurance that ICI will achieve or
sustain profitability or positive EBITDA in the future.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed Charges,
Including Dividends on the Preferred Shares. The Company is highly leveraged.
At December 31, 1996, after giving pro forma effect to the Offering and the
application of the net proceeds of the Offering, the Company would have had
outstanding approximately $398.7 million in aggregate principal amount of
indebtedness and other liabilities on a consolidated basis (including trade
payables) outstanding, and approximately $288.3 million of obligations with
19
<PAGE>
respect to dividend payments and the mandatory redemption of the Preferred
Shares. The degree to which the Company is leveraged could have important
consequences to holders of the Preferred Shares, 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, and to
payment of dividends on and the redemption of the Preferred Shares, 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; (iv) a substantial portion of the indebtedness of the Company
will mature in accordance with its terms prior to the mandatory redemption of
the Preferred Shares; and (v) the Company may be more leveraged than certain
of its competitors, which may be a competitive disadvantage.
For the year ended December 31, 1996, and on a pro forma basis after giving
effect to the Offering and the application of the proceeds therefrom, the
Company's pro forma earnings would have been inadequate to cover its pro forma
combined fixed charges including the Preferred Shares dividend requirements by
$102.6 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 and its dividend and redemption obligations
with respect to the Preferred Shares, 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 and its dividend and redemption obligations
with respect to the Preferred Shares. 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 ICI 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."
Regulatory Approval of the Offering. Eight of the states in which the
Company is certificated provide for prior approval of the issuance of
securities by the Company. The Company only provides intrastate
telecommunications services in three of such states. Because of time
constraints, the Company has obtained such approval from only three of the
eight states prior to the date of this Prospectus. The requirements for this
filing may have been pre-empted by the National Securities Market Improvement
Act of 1996, although there is no case law on this point. The remaining
approvals are being sought. After consultation with counsel, the Company
believes the remaining approvals will be granted and that seeking such
approvals subsequent to the consummation of the Exchange Offer should not
result in any material adverse consequences to the Company, although there can
be no assurance that such a consequence will not result.
Significant Capital Requirements and Need for Additional
Financing. Expansion of the Company's existing networks and services and the
development of new networks and services require significant capital
expenditures. ICI expects to fund its capital requirements through existing
resources, joint ventures, debt or equity financing, and internally generated
funds, including capital raised through the Offering. The Company expects that
to continue to expand its business will require raising substantial additional
equity and/or debt capital after 1998. The Company's outstanding debt
instruments do not permit the incurrence of an amount of indebtedness
sufficient to fund its anticipated future capital requirements. Accordingly,
the Company will need to obtain waivers or consents from its debtholders or
raise equity capital. There can be no assurance, however, that ICI will be
successful in raising sufficient debt or equity capital on terms that it will
consider acceptable. In addition, the Company's future capital requirements
will depend upon a number of factors, including marketing expenses, staffing
levels and customer growth, as well as other factors that are not within the
Company's control, such as competitive conditions, government regulation and
capital costs. Failure to generate sufficient funds may require ICI to delay
or abandon some of its future expansion or expenditures, which would have a
material adverse effect on its growth and its ability to compete in the
telecommunications industry.
Expansion Risk. The Company is experiencing a period of rapid expansion
which management expects will increase in the near future. This growth has
increased the operating complexity of the Company as well as the level of
responsibility for both existing and new management personnel. The Company's
ability to manage
20
<PAGE>
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.
Subordination of the Preferred Shares. The Company's obligations with
respect to the Preferred Shares are subordinate and junior in right of payment
to all present and future indebtedness of the Company and its subsidiaries,
including the Existing Senior Notes, and to all subsequent series of preferred
stock of the Company which by its terms ranks senior to the Preferred Shares.
See "Description of Other Indebtedness." In addition to the substantial
dividend and redemption restrictions set forth in the Existing Senior Notes
Indentures, no cash dividends or mandatory redemption payments may be made
with respect to the Preferred Shares if (i) the obligations with respect to
the Existing Senior Notes are not paid when due or (ii) any other event of
default has occurred under the Existing Senior Notes Indentures, and is
continuing or would occur as a consequence of such payment. As of December 31,
1996, the Preferred Shares would have been junior in right of payment to
$403.2 million of indebtedness and other liabilities and commitments of the
Company and its subsidiaries. In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the Preferred Shares only after all Senior Securities (as
defined) and all indebtedness of the Company has been paid, and there may not
be sufficient assets remaining to pay amounts due on any or all of the
Preferred Shares then outstanding. See "Description of Preferred Shares--
Ranking."
Subordination of the Exchange Debentures. The payment of principal, premium,
if any, and interest on and any other amounts owing in respect of, the
Exchange Debentures, if issued, will be subordinated to the prior payment in
full of all existing and future Senior Debt (as defined), including
indebtedness represented by the Existing Senior Notes, and will be effectively
subordinated to all indebtedness and other liabilities and commitments of the
Company's subsidiaries. As of December 31, 1996, the Exchange Debentures would
have been subordinated to $353.3 million of Senior Debt of the Company and
approximately $3.1 million of capital lease obligations of the Company's
subsidiaries. The Existing Senior Notes Indentures and the Indenture pursuant
to which the Exchange Debentures would be issued permit the incurrence by the
Company and its subsidiaries of additional indebtedness, all of which may
constitute Senior Debt, under certain circumstances. In addition, the Company
may not pay principal of, premium, if any, or interest on or any other amounts
owing in respect of, the Exchange Debentures, or purchase, redeem or otherwise
retire the Exchange Debentures, if (i) the obligations with respect to the
Existing Senior Notes are not paid when due or (ii) any other event of default
has occurred under the Existing Senior Notes Indentures, and is continuing or
would occur as a consequence of such payment. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will
be available to pay obligations on the Exchange Debentures only after all
Senior Debt has been paid, and there may not be sufficient assets remaining to
pay amounts due on any or all of the Exchange Debentures then outstanding. See
"Description of the Exchange Debentures--Ranking" and "--Subordination."
Effect of Substantial Additional Indebtedness on the Company's Ability to
Make Payments on the Preferred Shares and Exchange Debentures. The Existing
Senior Notes Indentures, the Certificate of Designation and the Indenture
limit, but do not prohibit, the incurrence of additional indebtedness by the
Company and its subsidiaries, and the Company may incur substantial additional
indebtedness during the next few years to finance the construction of networks
and purchase of network electronics, including local/long distance voice and
data switches. All additional indebtedness of the Company will rank senior in
right of payment to any payment obligations with respect to the Preferred
Shares and Exchange Debentures (to the extent that such additional
indebtedness represents Senior Debt). The debt service requirements of any
additional indebtedness would make it more difficult for the Company to pay
cash obligations with respect to the Preferred Shares and Exchange Debentures.
21
<PAGE>
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 from monopoly service revenues. In
addition, a continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. The Company also faces competition in most markets in which it
operates from one or more ICPs and CLECs operating fiber optic networks. In
addition, the Company faces competition in its network systems integration
business from equipment manufacturers, the RBOCs and other ILECs, long
distance carriers and systems integrators, and in its enhanced data services
business from local telephone companies, long distance carriers, very small
aperture terminal ("VSAT") providers and others. Many of the Company's
existing and potential competitors have financial, personnel and other
resources significantly greater than those of the Company.
The Company believes that various legislative initiatives, including the
recently enacted 1996 Act, have removed remaining legislative barriers to
local exchange competition. Nevertheless, in light of the passage of the 1996
Act, regulators are also likely to provide ILECs with increased pricing
flexibility as competition increases. If ILECs are permitted to lower their
rates substantially or engage in excessive volume or term discount pricing
practices for their customers, the net income or cash flow of ICPs and CLECs,
including the Company, could be materially adversely affected. In addition,
while the Company currently competes with AT&T, MCI and others in the
interexchange services market, the recent federal legislation permits the
RBOCs to provide interexchange services once certain criteria are met. Once
the RBOCs begin to provide such services, they will be in a position to offer
single source service similar to that being offered by ICI. In addition, AT&T
and MCI have entered and other interexchange carriers have announced their
intent to enter into the local exchange services market, which is facilitated
by the 1996 Act's resale and unbundled network element provisions. The Company
cannot predict the number of competitors that will emerge as a result of
existing or new federal and state regulatory or legislative actions.
Competition from the RBOCs with respect to interexchange services or from
AT&T, MCI or others with respect to local exchange services could have a
material adverse effect on the Company's business.
Regulation. The Company is subject to varying degrees of federal, state and
local regulation. The Company is not currently subject to price cap or rate of
return regulation, nor is it currently required to obtain FCC authorization
for the installation, acquisition or operation of its network facilities.
Further, the FCC has issued an order holding that non-dominant carriers, such
as the Company, are not required to file interstate tariffs for domestic long
distance service on an ongoing basis. That order has been stayed by a federal
appeals court and it is not clear at this time whether the detariffing order
will be implemented. Until further action is taken by the court, the Company
will continue to maintain tariffs for these services. The FCC also requires
the Company to file interstate tariffs on an ongoing basis for international
traffic and access services. The Company is generally subject to certification
and tariff or price list filing requirements for intrastate services by state
regulators. Although passage of the 1996 Act should result in increased
opportunities for companies that are competing with the ILECs, no assurance
can be given that changes in current or future regulations adopted by the FCC
or state
22
<PAGE>
regulators or other legislative or judicial initiatives relating to the
telecommunications industry would not have a material adverse effect on the
Company. In addition, although the 1996 Act provides incentives to the ILECs
that are subsidiaries of RBOCs to enter the long distance service market by
requiring ILECs to negotiate interconnection agreements with local
competitors, there can be no assurance that these ILECs will negotiate quickly
with competitors such as the Company for the required interconnection of the
competitor's networks with those of the ILECs.
Potential Diminishing Rate of Growth. During the period from 1994 to 1996,
the Company's revenues have grown at a compound annual growth rate of 169%.
While the Company expects to continue to grow, as its size increases it is
likely that its rate of growth will diminish.
Risk of New Service Acceptance by Customers. The Company has recently
introduced a number of services, primarily local exchange services, that the
Company believes are important to its long-term growth. The success of these
services will be dependent upon, among other things, the willingness of
customers to accept the Company as the provider of such new telecommunications
technology. No assurance can be given that such acceptance will occur; the
lack of such acceptance could have a material adverse effect on the Company.
Rapid Technological Changes. The telecommunications industry is subject to
rapid and significant changes in technology. While ICI believes that, for the
foreseeable future, these changes will neither materially affect the continued
use of its fiber optic networks nor materially hinder its ability to acquire
necessary technologies, the effect on the business of ICI of technological
changes such as changes relating to emerging wireline and wireless
transmission technologies, including software protocols, cannot be predicted.
Dependence on Key Personnel. The Company's business is managed by a small
number of key management and operating personnel, the loss of certain of whom
could have a material adverse impact on the Company's business. The Company
believes that its future success will depend in large part on its continued
ability to attract and 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
23
<PAGE>
requiring an additional investment in the Company. In addition to providing
additional growth capital, management believes that an alliance with an
appropriate strategic investor would provide operating synergy to, and enhance
the competitive positions of, both ICI and the investor within the rapidly
consolidating telecommunications industry. There can be no assurance that
agreements for any of the foregoing will be reached. An investment, business
combination or strategic alliance could constitute a Change of Control. The
Existing Senior Notes Indentures and the Certificate of Designation provide
that a Change of Control would require the Company to repay the indebtedness
and redeem the Preferred Shares 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 be necessary in order to
repay the Discount Notes and the Senior Notes and to redeem the Preferred
Shares. Upon the failure of the Company to make a Change of Control Offer (as
defined) on the terms and in accordance with the provisions described below
under the caption "Description of Preferred Shares--Change of Control", the
sole remedy to the holders of the outstanding Preferred Shares will be the
voting rights arising from a Voting Rights Triggering Event.
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, cyclicability, growth or decline.
Consequently, investors should not place undue reliance on the annualized
data.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Preferred Shares were originally issued and sold on March 7, 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 Commission a series of preferred shares
with substantially identical terms as the Old Preferred Shares, to be offered
in exchange for the Old Preferred Shares. The purpose of the Exchange Offer is
to satisfy the Company's obligations under the Registration Rights Agreement.
Holders that do not tender all of their Old Preferred Shares 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 number and aggregate liquidation preference of New Preferred Shares for
the Old Preferred Shares tendered for exchange. The terms of the New Preferred
Shares are substantially identical in all material respects (aggregate
liquidation preference, dividend rate, mandatory redemption and ranking) to
the terms of the Old Preferred Shares, except that the New Preferred Shares
have been registered under the Securities Act and therefore will not be
subject to certain transfer restrictions applicable to the Old Preferred
Shares and will not be entitled to registration rights relating to the Old
Preferred Shares. See " -- Proposal to Split New Preferred Shares" and
"Description of Preferred Shares--Registration Rights; Liquidated Damages."
The New Preferred Shares, like the Old Preferred Shares, are governed by the
Certificate of Designation of Voting Power, Designation Preferences and
Relative, Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions filed with the Secretary of State of the State of
Delaware on March 6, 1997 (the "Certificate of Designation"). See "Description
of Preferred Shares." The Exchange Offer is not conditioned upon any minimum
number of Old Preferred Shares being tendered for exchange.
The Company believes that New Preferred Shares tendered for exchange for Old
Preferred Shares may be offered for sale, sold and otherwise transferred by
any holder thereof (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 New Preferred Shares 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 New
Preferred Shares and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the New Preferred Shares. Any holder
who tenders in the Exchange Offer for the purpose of participating in a public
distribution of the New Preferred Shares must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
distribution.
Tendering holders of the Old Preferred Shares 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.
PROPOSAL TO SPLIT NEW PREFERRED SHARES
The Company has submitted to its stockholders a proposal to effect a 1 for
10 split of its New Preferred Shares. Holders of record of the Company's
Common Stock and Old Preferred Shares on April 1, 1997 are entitled to vote on
the Proposal at the Company's annual meeting of stockholders to be held on May
22, 1997. As of the Proposal Record Date, no New Preferred Shares were issued
and outstanding. If the Proposal is approved prior to the consummation of the
Exchange Offer, each holder tendering Old Preferred Shares will receive 10 New
Preferred Shares, liquidation preference $1,000 per share, for each Old
Preferred Share tendered. If the Proposal is not approved by the stockholders
or if the Annual Meeting has not yet taken place when the Exchange Offer is
consummated, each holder tendering Old Preferred Shares will receive one New
Preferred Share for each Old Preferred Share tendered. If the Proposal is
approved after the consummation of the Exchange Offer, upon the approval of
the Proposal by the stockholders at the Annual Meeting each outstanding New
Preferred Share, liquidation preference $10,000 per share, will be
reclassified as 10 New Preferred Shares, liquidation preference $1,000 per
share.
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<PAGE>
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,
provided that the Exchange Offer shall not be extended beyond 30 business days
from the date of this Prospectus. 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 Preferred Shares 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 Preferred Shares 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.
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 Preferred Shares 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 Preferred Shares, whether before or
after any tender of the Old Preferred Shares. 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 New Preferred Shares for the Old Preferred
Shares on the Exchange Date.
PROCEDURES FOR TENDERING OLD PREFERRED SHARES
The Exchange Offer is subject to the terms and conditions set forth in this
Prospectus and the Letter of Transmittal.
Old Preferred Shares 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 Preferred Shares being tendered and any required
signature guarantees, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of the Old Preferred Shares, 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 New Preferred Shares are to be issued (and any untendered Old
Preferred Shares) 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 Preferred Shares 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 New Preferred Shares and/or Old Preferred
Shares not exchanged are to be delivered to an address other than that of the
registered holder appearing on the register for the Old Preferred Shares, the
signature on the Letter of Transmittal must be guaranteed by an Eligible
Institution.
THE METHOD OF DELIVERY OF OLD PREFERRED SHARES, 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 PREFERRED SHARES
SHOULD BE SENT TO THE COMPANY.
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<PAGE>
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 Preferred Shares 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 Preferred Shares
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
Preferred Shares. 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.
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 Preferred Shares exchanges, assigns and transfers
the Old Preferred Shares to the Company and irrevocably constitutes and
appoints the Exchange Agent as the holder's agent and attorney-in-fact to
cause the Old Preferred Shares to be assigned, transferred and exchanged. The
holder represents and warrants to the Company and the Exchange Agent that (i)
it has full power and authority to tender, exchange, assign and transfer the
Old Preferred Shares and to acquire New Preferred Shares in exchange for the
Old Preferred Shares, (ii) when the Old Preferred Shares are accepted for
exchange, the Company will acquire good and unencumbered title to the Old
Preferred Shares, 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 Preferred Shares. 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) it
is acquiring the New Preferred Shares offered in the ordinary course of its
business and (iii) has no arrangement with any person to participate in the
distribution of the New Preferred Shares.
WITHDRAWAL RIGHTS
Old Preferred Shares 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 Preferred Shares to be withdrawn, the certificate numbers
of Old Preferred Shares to be withdrawn, the aggregate liquidation preference
of Old Preferred Shares to be withdrawn, a statement that the holder is
withdrawing its election to tender the Old Preferred Shares for exchange, and
the name of the registered holder of the Old Preferred Shares, 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
Preferred Shares being withdrawn. The Exchange Agent will return the properly
withdrawn Old Preferred Shares promptly following receipt of notice of
withdrawal. If Old Preferred Shares have been tendered pursuant to a book-
entry
27
<PAGE>
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 Preferred Shares 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 Preferred
Shares 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 Preferred Shares tendered by book-entry transfer by crediting an
account maintained with the Book-Entry Transfer Facility for the Old Preferred
Shares) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Preferred Shares may
be re-tendered at any time on or prior to the Expiration Date. Any Old
Preferred Shares so withdrawn and not re-tendered will not be exchanged for
New Preferred Shares under the Exchange Offer.
ACCEPTANCE OF OLD PREFERRED SHARES FOR EXCHANGE; DELIVERY OF NEW PREFERRED
SHARES
Upon terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Preferred Shares validly tendered and not
withdrawn and issuance of the New Preferred Shares 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 Preferred Shares
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old
Preferred Shares for the purpose of causing the Old Preferred Shares to be
assigned, transferred and exchanged for New Preferred Shares. Upon the terms
and subject to the conditions of the Exchange Offer, delivery of New Preferred
Shares in exchange for Old Preferred Shares will be made by the Exchange Agent
promptly after acceptance of the tendered Old Preferred Shares by the Company.
Tendered Old Preferred Shares not accepted for exchange by the Company will be
returned without expense to the tendering holders (or, in the case of Old
Preferred Shares tendered by book-entry transfer crediting an account
maintained with the Depositary) 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 Preferred Shares by causing the Book-Entry Transfer Facility to transfer
the Old Preferred Shares 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 Preferred Shares and (i) whose Old
Preferred Shares are not immediately available or (ii) who cannot deliver
their Old Preferred Shares, the Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date, must
tender their Old Preferred Shares 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 from the Eligible Institution a properly
completed and duly executed notice of guaranteed delivery (a "Notice of
Guaranteed Delivery") (by facsimile transmission, mail or hand delivery),
setting forth the name and address of the holder of the Old Preferred Shares,
the certificate number or numbers of such Old Preferred Shares and the
aggregate liquidation preference of Old Preferred Shares 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
Preferred Shares (or a confirmation of electronic
28
<PAGE>
delivery or book-entry delivery into the Exchange Agent's account at the
Depositary) 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 thereof), as well
as all other documents required by the Letter of Transmittal and the
certificate(s) representing all tendered Old Preferred Shares in proper form
for transfer (or a confirmation of electronic mail delivery or book-entry
delivery into the Exchange Agent's account at the Depositary), must be
received by the Exchange Agent within five business days after the Expiration
Date. Any holder of Old Preferred Shares who wishes to tender its Old
Preferred Shares 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 New Preferred Shares in exchange for any properly
tendered Old Preferred Shares 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:
1. 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 Preferred Shares 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 New Preferred
Shares having obligations with respect to resales and transfers of New
Preferred Shares which are greater than those described in the
interpretation of the Commission referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
2. 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
prospects 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 Preferred
Shares or the New Preferred Shares; 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 Preferred Shares 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 Preferred Shares). 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 Preferred Shares.
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<PAGE>
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 of Preferred Shares, absent manifest error.
In addition, the Company will not accept for exchange any Old Preferred
Shares tendered, and no New Preferred Shares will be issued in exchange for
any such Old Preferred Shares, 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.
EXCHANGE AGENT
Continental Stock Transfer & Trust Company, the Transfer Agent for the
Preferred Shares, 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:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Reorganization Department
Facsimile: (212) 509-5150
Confirm by telephone: (212) 509-4000-x535
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 Preferred Shares 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
Preferred Shares in such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Preferred Shares in exchange for New Preferred
Shares will not be obligated to pay any transfer taxes in connection
therewith, except that holders who instruct the Company to register New
Preferred Shares in the name of, or request that Old Preferred Shares 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 taxes thereon.
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<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Preferred Shares
that were not prohibited from participating in the Exchange Offer and did not
tender their Old Preferred Shares will not have any registration rights under
the Registration Rights Agreement with respect to such non-tendered Old
Preferred Shares and, accordingly, such Old Preferred Shares will continue to
be subject to the restrictions on transfer contained in the legend thereon. In
general, the Old Preferred Shares may not be offered or sold, unless
registered under the Securities Act and the 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 Preferred Shares under the Securities Act. Based on
interpretations by the staff of the Commission, New Preferred Shares issued
pursuant to the Exchange Offer in exchange for Old Preferred Shares may be
offered for resale, resold or otherwise transferred by holders (other than any
holder that 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 New
Preferred Shares 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 New Preferred Shares and neither the holder nor any other
person is engaging in or intends to engage in a distribution of the New
Preferred Shares. If any holder has any arrangement or understanding with
respect to the distribution of the New Preferred Shares to be acquired
pursuant to the Exchange Offer, the holder (i) could not rely on the
applicable interpretations of the staff of the Commission 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 New Preferred Shares for its own account in exchange for Old
Preferred Shares must acknowledge that it will deliver a prospectus in
connection with any resale of the New Preferred Shares. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Preferred Shares 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 New Preferred Shares for resale in any
jurisdictions requested by any holder, subject to certain limitations.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Preferred Shares 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 Preferred Shares
that were not prohibited from participating in the Exchange Offer and did not
tender their Old Preferred Shares will not have any registration rights under
the Registration Rights Agreement with respect to such non-tendered Old
Preferred Shares and, accordingly, such Old Preferred Shares 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 New Preferred Shares to be received in the Exchange
Offer and, as of the Exchange Date, to the best of the Company's information
and belief, each person participating in the Exchange Offer will be acquiring
the New Preferred Shares in its ordinary course of business and will not have
any arrangement or understanding with any person to participate in the
distribution of the New Preferred Shares 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 New
Preferred Shares to be acquired in the registered Exchange Offer (i) may not
rely on the staff position enunciated in K-III Communications Corporation
(available May 14, 1993) , Morgan Stanley and Co. Inc. (avail. June 5, 1991)
and Exxon Capital Holding Corp. (avail. May 13, 1988) or similar letters and
(ii) must comply with registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
31
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer.
CAPITALIZATION
The following table sets forth the consolidated actual and consolidated as
adjusted cash and cash equivalents and capitalization of the Company at
December 31, 1996. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto, and
other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
---------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(2)............................ $189,546 $477,821
======== ========
Long-term debt (including current maturities):
13 1/2% Senior Notes due 2005......................... $159,115 $159,115
12 1/2% Senior Discount Notes due 2006................ 194,224 194,224
Other long-term debt.................................. 165 165
Capital lease obligations............................. 5,004 5,004
-------- --------
Total long-term debt................................ 358,508 358,508
-------- --------
Series A redeemable exchangeable preferred stock due
2009(3)................................................ -- 288,275
Stockholders' equity:
Common stock and additional paid-in capital........... 212,973 212,973
Accumulated deficit................................... (91,141) (91,141)
Deferred compensation................................. (7,602) (7,602)
-------- --------
Total stockholders' equity.............................. 114,230 114,230
-------- --------
Total capitalization.................................... $472,738 $761,013
======== ========
</TABLE>
- --------
(1) Gives effect to the Offering and the application of the net proceeds
therefrom.
(2) Excludes restricted cash held as of December 31, 1996.
(3) Net of issuance costs.
32
<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 operating results of EMI are included in the Company's consolidated
operating results commencing July 1, 1996. The operating results of UTT and
NetSolve are included in the Company's consolidated operating results
commencing December 1, 1996. The pro forma operating information gives effect
to the EMI, UTT and NetSolve acquisitions as if they occurred on January 1,
1996. The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the
Company and the Notes thereto, included elsewhere in this Prospectus.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenue................ $ 7,030 $ 8,292 $14,272 $ 38,631 $103,397 $152,071
Expenses
Facilities
administration and
maintenance and line
costs................. 1,760 2,843 5,396 22,989 81,105 121,803
Selling, general and
administrative........ 2,607 3,893 6,412 14,993 36,610 40,663
Depreciation and
amortization.......... 2,190 3,020 5,132 10,196 19,836 23,022
------- ------- ------- -------- -------- ---------
6,557 9,756 16,940 48,178 137,551 185,488
------- ------- ------- -------- -------- ---------
Operating income
(loss)................ 473 (1,464) (2,668) (9,547) (34,154) (33,417)
Other income (expense)
Interest expense...... (1,031) (844) (1,218) (13,767) (35,213) (35,213)
Interest and other
income............... 323 234 819 4,060 12,168 11,428
Income tax benefit.... -- -- -- 97 -- --
------- ------- ------- -------- -------- ---------
Loss before
extraordinary item... (235) (2,074) (3,067) (19,157) (57,199) (57,202)
Extraordinary loss on
early extinguishment
of debt.............. -- -- -- (1,592) -- --
------- ------- ------- -------- -------- ---------
Net loss............... $ (235) $(2,074) $(3,067) $(20,749) $(57,199) $ (57,202)
======= ======= ======= ======== ======== =========
Net loss per share:(2)
Loss before
extraordinary item... $ (.10) $ (.29) $ (.34) $ (1.91) $ (4.08) $ (3.94)
Extraordinary loss.... -- -- -- (.16) -- --
------- ------- ------- -------- -------- ---------
Net loss.............. $ (.10) $ (.29) $ (.34) $ (2.07) $ (4.08) $ (3.94)
======= ======= ======= ======== ======== =========
Weighted average number
of shares
outstanding........... 4,797 7,077 8,956 10,036 14,018 14,518
OTHER DATA:
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) $ (10,395)
Capital expenditures,
including acquisitions
of businesses, net of
cash acquired......... $ 8,818 $10,486 $13,731 $ 31,915 $143,615 $146,679
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
NETWORK DATA:(5)
Buildings connected..................... 161 234 293 380 487
Route miles............................. 240 335 378 504 655
Fiber miles............................. 6,184 10,239 11,227 17,128 24,122
Number of city-based networks in serv-
ice.................................... 4 5 6 9 9
ENHANCED DATA SERVICES:(5)
Nodes(6)................................ -- 100 900 2,300 9,500
Cities(7)............................... -- 37 336 600 2,200
Switches................................ -- 4 12 31 89
EMPLOYEES(5)............................. 49 58 146 287 874
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED(8)
DECEMBER 31, DECEMBER 31,
----------------------------------------- --------------
1992 1993 1994 1995 1996 1996
------- ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents(9).............. $ 1,775 $27,954 $10,208 $ 50,997 $189,546 $ 477,821
Working capital(10).... 8,999 25,712 9,588 70,353 206,029 494,304
Total assets........... 36,174 61,219 74,086 216,018 512,940 801,215
Long-term obligations
and redeemable
preferred stock
(including current
maturities)........... 11,742 11,614 16,527 165,545 358,508 646,783
Total stockholders' eq-
uity.................. 21,257 45,987 52,033 40,254 114,230 114,230
</TABLE>
33
<PAGE>
- --------
1. The pro forma operating information gives effect to the EMI, UTT and
NetSolve acquisitions, which occurred effective June 30, 1996, December 1,
1996 and December 1, 1996, respectively, as if they occurred on January 1,
1996.
2. Net loss per share in 1992 has been increased to reflect preferred stock
dividends.
3. For purposes of calculating the ratio of earning to fixed charges: (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 Preferred Shares. For the years
ended December 31, 1992, 1993, 1994, 1995, and 1996 the Company's earnings
were insufficient to cover fixed charges by $622, $2,288, $3,324, $19,931
and $59,978, respectively. For the year ended December 31, 1996, the
Company's pro forma earnings, after giving effect to the acquisitions
described in Note 1 above and the Offering were insufficient by $102,578
to cover pro forma fixed charges.
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. 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.
7. Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
8. Gives effect to the Offering and the application of the net proceeds
therefrom.
9. Cash and cash equivalents excludes investments of $20,954 and $26,675 in
1995 and 1996, respectively, restricted under the terms of various notes
and other agreements.
10. Working capital includes the restricted investments referred to in Note 9,
above.
34
<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 appearing
elsewhere in this Prospectus.
OVERVIEW
Since its inception in 1987, the Company has experienced substantial growth.
Building from its original base in Florida, ICI is now a provider of
integrated telecommunications services to customers that have a presence in
the eastern half of the United States. The Company currently has nine digital,
fiber optic networks in service and one under development. In addition, the
Company's frame relay network serves customers in approximately 2,200 cities
and provides end-to-end connectivity throughout the United States and many
international markets. As its networks and service offerings have expanded,
the Company has experienced significant year to year growth in revenues and
customers.
ICI competes with the ILECs and IXCs in its service territory and offers a
full range of voice and data telecommunications services. ICI's customers
include a broad range of business and government end users and IXCs. The
Company delivers local network services, including local exchange service,
primarily over digital fiber optic telecommunications networks that it either
owns or leases. In some circumstances, leasing facilities enables the Company
to more rapidly initiate service to customers, reduces the risk of network
construction or acquisition and potentially improves cash flow due to the
reduction or deferment of capital expenditures. The Company also offers
enhanced data services to its customers on an extensive intercity network that
connects its customers, either through its own network or through other
carriers, to locations throughout the country and internationally. This
intercity network combined with the Company's local/long distance voice
switches allows the Company to provide interexchange long distance service
domestically and internationally.
At its inception, ICI provided special access and private line services to
IXC's. In 1988, ICI was the first telecommunications service provider in
Florida to begin providing special access and private line services to
business customers. In 1991, ICI began offering integration services in
response to customers' needs and in 1992, ICI introduced its first enhanced
data services to provide flexible capacity and highly reliable end-to-end data
service for its business and government customers. The Company began offering
interexchange long distance service in December 1994, Internet services in
1995 and local exchange services in 1996. The pace with which the Company has
introduced new service offerings has enabled it to achieve substantial growth,
improve its mix of customers and diversify its sources of revenue. The Company
believes that business and government customers will continue to account for a
substantial share of its revenues over the next several years, because of
ICI's ability to offer such customers integrated, cost-effective
telecommunications solutions. The Company believes that during the first few
years of local exchange competition, the IXCs may enter the market by becoming
resellers of the Company's local services. If the IXCs pursue a reseller
strategy, the amount of revenue the Company realizes from carriers may
increase during this period.
From 1992 through 1995, the Company had achieved positive EBITDA and
increased its revenue base substantially. However, as a result of significant
investments in resources necessary to launch local exchange services and
expand enhanced data services, EBITDA decreased as a percentage of revenue and
the Company's EBITDA was negative for 1996. This was due to the significant up
front expenses related to the development of its networks and leased
facilities, the revenue from which is expected to be realized in later
periods. The development of the Company's business and the installation and
expansion of its networks have resulted in substantial capital expenditures
and net losses during this period of its operations. Procurement of rights-of-
way, administration and maintenance of facilities, depreciation of network
capital expenditures and sales, general and administrative costs will continue
to represent a large portion of the Company's expenses during its rapid
expansion. In addition, the Company is experiencing rapid growth in marketing
and selling expenses consistent with the addition of new customers and an
increased level of selling and marketing activity. All of the marketing
35
<PAGE>
and selling expenses associated with the acquisition of new customers are
expensed as they are incurred even though these customers are expected to
generate recurring revenue for the Company for several years. The continued
expansion of the Company's networks in anticipation of new customers and the
marketing of services to new and existing customers is therefore adversely
impacting EBITDA of the Company in the near term. The Company anticipates, but
there can be no assurance, that as its customer base grows, incremental
revenues will be greater than incremental operating expenses.
PLAN OF OPERATION
In 1997 and beyond, the Company believes that its growth will be balanced
among its local exchange, long distance and enhanced data services. Based on
the Company's analysis of FCC data and its knowledge of the industry, the
Company estimates that the market for local exchange, long distance and data
services was approximately $25 billion in 1996 in the Company's service
territory. As a result of the Company's planned expansion in 1997, the Company
expects to be positioned to provide these services in markets with a total
opportunity of approximately $34 billion by the end of 1997.
In order to develop its businesses more rapidly and efficiently utilize its
capital resources, ICI plans to use the existing fiber optic infrastructure of
other providers in addition to using its existing networks. While the Company
will use significant amounts of capital to deploy enhanced data and voice
switches on a demand driven basis in selected markets, ICI believes that its
substantial existing network capacity should enable it to add new customers
and provide additional services that will result in increased revenues with
lower incremental costs and, correspondingly, over time improve its EBITDA.
For example, selling additional services, such as local exchange services, to
existing or new customers allows the Company to utilize unused portions of the
capacity inherent in its existing fiber optic networks. This operating
leverage increases the utilization of the network with limited additional
capital expenditures. The Company's strategy to offer a full complement of
telecommunications services is designed to enable the Company to take
advantage of the operating leverage of its networks.
REVENUE AND CUSTOMER BASE ANALYSIS
Since the Company's founding in 1987, ICI has continually introduced new
services. Due to these efforts, ICI's customer and revenue base has expanded
substantially in recent years. The Company believes that the continued
aggressive expansion of its enhanced data and interexchange voice services and
the continued deployment of local exchange services will accelerate the
diversification of the Company's customer and revenue base. The Company
believes the expansion of the Company's customer base and the diversification
of its revenue sources have (i) lowered the Company's reliance on any one
customer, (ii) increased the total addressable market for the Company's
services and (iii) reduced the Company's percentage of revenue associated with
services to IXCs. The table set forth below provides an analysis of the
Company's customer and revenue base.
REVENUE AND CUSTOMER BASE ANALYSIS
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
--------------------------- DECEMBER 31,
1994 1995 1996 1996
-------- ------- -------- ------------
<S> <C> <C> <C> <C>
Customer revenue:
Non-IXCs.......................... 77% 90% 90% 91%
IXCs.............................. 23 10 10 9
-------- ------- -------- ------
Total........................... 100% 100% 100% 100%
======== ======= ======== ======
Number of customers served (at end
of period)(2)...................... 8,148 9,530 14,133 14,133
Revenue sources:
Local network services............ 57% 28% 13% 9%
Enhanced data services............ 16 18 31 24
Interexchange services............ 9 49 51 64
System integration................ 18 5 5 3
-------- ------- -------- ------
100% 100% 100% 100%
======== ======= ======== ======
</TABLE>
- --------
(1) Gives effect to the acquisitions of EMI, UTT and NetSolve as if they had
occurred at the beginning of the period presented.
(2) Excludes long distance customers for whom billings during December 1996
were less than $5.00.
36
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain information
derived from the Consolidated Statements of Operations of the Company and the
Unaudited Pro Forma Condensed Consolidated Financial Statements expressed in
percentages of revenue:
<TABLE>
<CAPTION>
PRO FORMA(1)
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------- DECEMBER 31,
1994 1995 1996 1996
------- ------- -------- ------------
<S> <C> <C> <C> <C>
Revenue........................... 100.0% 100.0% 100.0% 100.0%
Facilities administration and
maintenance and line cost........ 37.8 59.5 78.4 80.1
Selling, general and administra-
tive............................. 44.9 38.8 35.4 26.7
Depreciation and amortization..... 36.0 26.4 19.2 15.1
------- ------- -------- -----
Operating loss.................... (18.7) (24.7) (33.0) (21.9)
Interest expense.................. (8.5) (35.6) (34.1) (23.2)
Interest and other income......... 5.7 10.5 11.8 7.5
Income tax benefit................ -- 0.2 -- --
------- ------- -------- -----
Loss before extraordinary item.... (21.5) (49.6) (55.3) (37.6)
Extraordinary loss on early extin-
guishment of debt................ -- (4.1) -- --
------- ------- -------- -----
Net loss.......................... (21.5)% (53.7)% (55.3)% (37.6)%
======= ======= ======== =====
</TABLE>
- --------
(1) Gives effect to the acquisitions EMI, UTT and NetSolve as if they had
occurred at the beginning of the period presented.
YEAR ENDED 1996 VS. YEAR ENDED 1995
The Company's revenue grew from $38.6 million to $103.4 million or 168% from
1995 to 1996. Revenues in 1995 and 1996 for each of the product lines were as
follows:
<TABLE>
<CAPTION>
1995 1996 INCREASE
----- ------ --------
<S> <C> <C> <C>
Local network services............................... $10.8 $ 13.5 $2.7
Enhanced data services............................... 6.9 31.7 24.8
Interexchange services............................... 18.9 53.1 34.2
Systems integration.................................. 2.0 5.1 3.1
----- ------ -----
$38.6 $103.4 $64.8
===== ====== =====
</TABLE>
The increase in revenue was derived principally from growth in the Company's
local network services, enhanced data services and interexchange services. EMI
contributed $27.8 million to the growth during the last six months of 1996, of
which $20.5 million related to interexchange services and $7.3 million related
to enhanced data services. The Company acquired the telecommunications
division of EMI in June 1996. The Company's annualized monthly recurring
revenue increased to $12.3 million at December 31, 1996 from $3.3 million at
December 31, 1995, an increase of 273%. Monthly recurring revenue represents
the monthly service charges billable to telecommunications service customers
as of the last day of the period indicated and excludes nonrecurring revenues
for certain one-time charges, such as installation fees or equipment sales.
The increase in the level of enhanced data services was evidenced by the
increase in nodes which grew approximately 313% from approximately 2,300 at
December 31, 1995 to approximately 9,500 at December 31, 1996. The geographic
coverage of the Company's networks also grew in 1996 primarily through the
acquisitions of EMI, UTT and NetSolve and the expansion of the Company's
intercity network. Monthly recurring revenue in the backlog (booked sales that
have yet to be installed) at December 31, 1996 was approximately $4.8 million
annualized, a 14.3% increase from the prior year. From December 31, 1995 to
December 31, 1996, the number of fiber miles in the Company's networks
increased from 17,128 to 24,122; route miles increased from 504 to 655; and
the number of customers served by ICI increased from 9,530 to 14,133.
37
<PAGE>
Operating expenses in total increased by 186% from $48.2 million for 1995 to
$137.6 million in 1996, a $89.4 million increase. Of the increase,
approximately $25.9 million, $1.9 million and $.5 million were attributable to
the inclusion of EMI, NetSolve and UTT operating expenses, respectively. The
operating results of EMI have been included in the consolidated results since
July 1, 1996. NetSolve and UTT operating results have been included in the
consolidated results since December 1, 1996. The balance of the increase was
consistent with the significant expansion of the Company's owned and leased
networks and equipment sales to customers.
Facilities administration and maintenance and line costs increased $58.1
million or 253% to $81.1 million in 1996 from $23.0 million in 1995. Of the
increase, approximately $20.9 million, $.9 million and $.4 million were
attributable to the inclusion of EMI, NetSolve and UTT operating results,
respectively. In addition, increases in leased network capacity associated
with the growth of local network service, enhanced data service and
interexchange service revenues, increases in maintenance expense due to
network expansion, payroll expense increases due to hiring additional
engineering and operations staff along with increased cost of goods sold
related to equipment sold to customers contributed to the change.
Selling, general and administrative expenses increased to $36.6 million in
1996 from $15.0 million in 1995, an increase of $21.6 million or 144%. The
increase in expense is primarily related to increased sales commissions as a
result of increases in sales bookings, in addition to increased sales,
customer service, marketing and management information systems and payroll
expense along with related costs, including one-time recruitment, relocation
and training expenses. Of the increase, approximately $2.7 million was
attributable to the inclusion of EMI operating results. Selling, general and
administrative expenses in 1996 include $.9 million of amortization of
deferred compensation expense related to the Company's 1996 Long-Term
Incentive Plan. Unamortized deferred compensation to be amortized into expense
over approximately the next 5 years amounts to $7.6 million.
Depreciation and amortization expense increased to $19.8 million in 1996
from $10.2 million in 1995, an increase of $9.6 million or 95%. These
increases are directly related to the $149.6 million and $34.9 million of
telecommunications equipment additions (including capital leases and business
acquisitions) in 1996 and 1995, respectively, relating to ongoing network
expansion.
Interest expense increased to $35.2 million in 1996 from $13.8 million in
1995, an increase of $21.4 million or 156%. This increase is the result of
interest expense on the May 1996 issuance of $330 million principal amount of
12.5% Discount Notes and the effect of a full year of interest expense on the
June 1995 issuance of $160 million principal amount of 13.5% Senior Notes.
Included in the $35.2 million of interest expense for 1996 was $14.3 million
of interest on the 12 1/2% Discount Notes which was accreted into principal
without a cash outlay.
Interest and other income increased to $12.2 million in 1996 from $4.1
million in 1995, an increase of $8.1 million or 200%, resulting from interest
income earned on the excess proceeds of the May 1996 issuance of $330 million
principal amount of 12.5% Discount 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% Senior Notes.
Extraordinary loss of $1.6 million in 1995 reflects $1.2 million in
prepayment penalties related to certain indebtedness which was repaid from the
proceeds of the June 1995 issuance of $160 million principal amount of 13.5%
Senior Notes and the write-off of the unamortized deferred financing costs
associated with the indebtedness repaid.
EBITDA for 1996 decreased $15.0 million in 1996 from $.6 million in 1995 to
$(14.3) million in 1996. As a percentage of revenue, 1996 and 1995 EBITDA were
approximately (13.8%) and 2.0%, respectively. This decline was the result of
the acceleration in the deployment of ICI's capital expansion plan which
significantly increased growth oriented expenses (such as increases in sales,
customer service and market development costs) prior to realizing revenues
associated with these expenditures.
38
<PAGE>
YEAR ENDED 1995 VS. YEAR ENDED 1994
The Company's revenue grew from $14.3 million to $38.6 million or 171% from
1994 to 1995. Revenues in 1995 and 1994 for each of the product lines were as
follows:
<TABLE>
<CAPTION>
1994 1995 INCREASE
----- ----- --------
<S> <C> <C> <C>
Local network services................................ $ 8.2 $10.8 $ 2.6
Enhanced data services................................ 2.3 6.9 4.6
Interexchange services................................ 1.3 18.9 17.6
Systems integration................................... 2.5 2.0 (0.5)
----- ----- -----
$14.3 $38.6 $24.3
===== ===== =====
</TABLE>
A substantial portion of the increase in revenue was derived from growth in
the Company's enhanced data services and the revenues of Phone One, Inc.
("Phone One") (interexchange services) for the full year in 1995. The Company
acquired all of the outstanding common stock of Phone One on December 2, 1994.
Monthly recurring revenue increased to $2.9 million at December 31, 1995 from
$2 million at December 31, 1994, an increase of 45%. Monthly recurring revenue
represents the monthly service charges billable to telecommunications service
customers as of the last day of the period indicated and excludes nonrecurring
revenues for certain one-time charges, such as installation fees or equipment
charges. The increase in the level of enhanced data services was evidenced by
the increase in nodes which grew approximately 156% from approximately 900 at
December 31, 1994 to approximately 2,300 at December 31, 1995. The geographic
coverage of the Company's networks also grew in 1995 primarily through the
acquisition of FiberNet USA, Inc. and FiberNet Telecommunications of
Cincinnati, Inc. (collectively, "FiberNet") and the expansion of the Company's
intercity network. Monthly recurring revenue in the backlog at December
31, 1995 was approximately $4.2 million annualized, an approximately 45%
increase from the prior year. From December 31, 1994 to December 31, 1995, the
number of fiber miles in the Company's networks increased from 11,227 to
17,128; route miles increased from 378 to 504; and the number of customers
serviced by ICI (including interexchange customers) increased from 8,148 to
9,530.
Operating expense in total increased by 184% from $16.9 million for 1994 to
$48.2 million in 1995, a $31.3 million increase. Approximately $20.5 million
of the increase was attributable to the inclusion of operating expenses
relating to the Company's interexchange long distance services. Approximately
$2.1 million of the increase was attributable to the inclusion of FiberNet's
operating expenses. The operating results of FiberNet have been included in
the consolidated results since March 1, 1995. The balance of the increase was
consistent with the significant expansion of the Company's owned and leased
networks and equipment sales to customers. As a result, the Company incurred a
net loss of $20.7 million for 1995, as compared to a net loss of $3.1 million
in 1994.
Facilities administration and maintenance and line costs increased by 326%
from $5.4 million in 1994 to $23.0 million in 1995, a $17.6 million increase.
Approximately $13.3 million of the increase is due to inclusion of the
operating results of the Company's interexchange long distance services. In
addition, increases in maintenance expense due to network expansion, payroll
expense due to hiring additional engineering staff and cost of goods sold
related to equipment sold to customers contributed to the change.
Selling, general, and administrative expense increased by 134% from $6.4
million in 1994 to $15.0 million in 1995, an $8.6 million increase.
Approximately $5.2 million of the increase is due to the inclusion of the
operating results of the Company's interexchange long distance services and
$.3 million is due to the inclusion of FiberNet's operating results. The
remaining change was primarily due to increases in sales commissions as a
result of increases in sales bookings, accounting, marketing and management
information systems staff, and increased property taxes relating to network
expansion and enhancements. In addition, the Company expended additional
resources by increasing the number and skill level of its sales and sales
support staff. Recovery of these additional expenditures typically is
recognized in future periods.
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<PAGE>
Depreciation and amortization expense increased by 99% from $5.1 million in
1994 to $10.2 million in 1995, an increase of $5.1 million. These increases
are directly related to the $34.9 million and $18.3 million of
telecommunications equipment additions (including capital leases) in 1995 and
1994, respectively, relating to ongoing network expansion and increases in the
amortization of intangibles associated with the acquisitions of Phone One and
FiberNet.
Interest and other income increased 396% from $0.8 million in 1994 to $4.1
million in 1995, a $3.3 million increase, as a result of interest earned on
the cash available from the proceeds of the offering of the Senior Notes which
were received in June 1995.
Interest expense increased by 1029% from $1.2 million in 1994 to $13.8
million in 1995, an increase of $12.6 million. The increase is primarily due
to the interest incurred on the Senior Notes.
Extraordinary loss of $1.6 million was incurred which consisted of $1.2
million in prepayment penalties relating to certain indebtedness which was
repaid from the proceeds of the offering of the Senior Notes and the write off
of the unamortized deferred financing costs associated with the indebtedness
repaid.
EBITDA decreased by $1.8 million or 74% from $2.5 million in 1994 to $0.6
million in 1995. As a percent of revenue, 1995 and 1994 EBITDA were
approximately 2% and 17%, respectively. This decline was the result of the
inclusion of a full year of revenues and expenses relating to interexchange
long distance services which have a lower operating margin than the Company's
other services, the incurrence of additional growth oriented expenses (such as
increases in sales and support staff and market development costs) prior to
realizing revenues associated with these expenditures and the Company's
introduction of switched access transport services to IXCs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the purchase of telecommunications equipment and the design, construction and
development of the Company's networks. Capital expenditures for the Company
were $13.7 million, $30.0 million and $131.2 million in 1994, 1995 and 1996,
respectively, excluding capital leases and telecommunications equipment
acquired in connection with business acquisitions. The Company expects that it
will continue to have substantial capital requirements in connection with the
(i) expansion and improvement of the Company's existing networks, (ii) design,
construction and development of new networks, (iii) connection of additional
buildings and customers to the Company's networks, (iv) purchase of switches
necessary for local exchange services and expansion of interexchange services
and (v) development of the Company's enhanced data services.
The Company has funded a substantial portion of these expenditures through
the public sale of debt and equity securities and, to a lesser extent,
privately placed debt. From inception through December 31, 1996, the Company
has raised approximately $212.6 million from the sale of Common Stock,
including Common Stock issued in connection with the acquisitions of FiberNet,
Phone One, EMI and UTT, and $324.6 million from the sale of the Existing
Senior Notes.
The substantial capital investment required to build the Company's networks
has resulted in negative cash flow from operations after consideration of
investing activities over the last five year period. This negative cash flow
after investing activities is a result of the requirement to build a
substantial portion of the Company's network in anticipation of connecting
revenue generating customers. The Company expects to continue to produce
negative cash flow after investing activities for the next several years due
to expansion activities associated with the development of the Company's
networks. Until sufficient cash flow after investing activities is generated
from operation, the Company will be required to utilize its current and future
capital resources to meet its cash flow requirements, including the issuance
of additional debt and/or equity securities.
In response to the new pro-competitive telecommunications environment (See
"Business--Government Regulation"), the Company has accelerated and expanded
its capital deployment plan to allow for an increased
40
<PAGE>
level of demand-driven capital spending necessary to more rapidly exploit the
market opportunity in the local exchange market. The Company expects to expend
substantial amounts to upgrade its existing networks in order to switch
traffic within the local service area in those states where it is currently
permitted to provide such services. As of March 31, 1997, the Company was
certified as a CLEC in 15 states and the District of Columbia, allowing the
Company to provide local exchange services in those markets, and had CLEC
certification applications pending in 21 states. In addition, the Company
expects to expend capital toward the further development of the Company's
enhanced data service and interchange service offerings. The Company currently
estimates that it will require approximately $190 million to fund anticipated
capital requirements during 1997, which it expects to fund from its existing
operations and with the proceeds of the Offering described in the next
paragraph.
On March 7, 1997, the Company sold 30,000 Old Preferred Shares (aggregate
liquidation preference $300,000,000) in a private placement transaction. Net
proceeds to the Company amounted to approximately $288,875,000. Dividends on
the Old Preferred Shares accumulate at a rate of 13 1/2% of the aggregate
liquidation preference thereof and are payable quarterly, in arrears.
Dividends are payable in cash or, at the Company's option, by the issuance of
additional Old Preferred Shares having an aggregate liquidation preference
equal to the amount of such dividends. The Old Preferred Shares are subject to
mandatory redemption at their liquidation preference of $10,000 per share,
plus accumulated and unpaid dividends on March 31, 2009. The Old Preferred
Shares will be redeemable at the option of the Company at any time after March
31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007.
The Company may, at its option, exchange some or all of the Old Preferred
Shares for the Company's 13 1/2% Senior Subordinated Debentures, due 2009. The
Exchange Debentures mature on March 31, 2009. Interest on the Exchange
Debentures would be payable semi-annually, and could be paid in the form of
additional Exchange Debentures at the Company's option. Exchange Debentures
would be redeemable by the Company at any time after March 31, 2002 at rates
commencing with 106.75%, declining to 100% on March 31, 2007.
The Company expects that its available cash, including proceeds from the
Offering, will be sufficient to fund its accelerated and expanded capital
deployment plan through 1998. The Company expects to require additional
financing to continue its capital deployment plan beyond 1998. The Company may
obtain additional funding through the sale of public or private debt and/or
equity securities or through securing a bank credit facility. There can be no
assurance as to the availability or the terms upon which such financing might
be available. Moreover, the Existing Senior Notes and the Preferred Shares
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.
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<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 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.
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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 data services.
THE COMPANY
ICI 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 23 cities
throughout the eastern half of the United States and offers a full product
package of telecommunications services in 15 metropolitan statistical areas.
In April 1996, ICI became one of the first ICPs in the United States to
provide integrated switched local and long distance service and now has five
local/long distance voice switches in service. The Company provides enhanced
data services, including frame relay, ATM and Internet access services,
primarily to business and government customers (including over 100 ISPs), in
approximately 2,200 cities nationwide, utilizing 89 Company-owned data
switches. ICI also serves as a facilities-based interexchange carrier to
approximately 12,000 customers nationwide. ICI continues to increase its
customer base and network density in the eastern half of the United States and
is pursuing attractive opportunities to add additional services and expand
into complementary geographic markets. The total United States annual market
for the Company's local, long distance and enhanced data services is estimated
to be approximately $165 billion, of which approximately $25 billion is
estimated to be addressable by the Company.
The Company's annualized revenue based on the fourth quarter of 1996 (giving
pro forma effect to two recent acquisitions) was $173.7 million. The Company's
revenues have grown from $14.3 million in 1994 to $103.4 million in 1996,
representing a compound annual growth rate of 169%. During the same period,
the Company has increased its sales force from approximately 45 to
approximately 175, increased the number of sales offices from four to 21 and
grown its customer base from 8,148 to 14,133. In 1996, the Company achieved a
significant milestone by introducing local exchange services in its product
portfolio and positioned itself as a provider of integrated telecommunications
services to its customers by (i) obtaining CLEC certification in 13 states and
the District of Columbia (with 22 applications pending), (ii) completing
interconnection co-carrier agreements with six ILECs, (iii) deploying four
local/long distance voice switches and (iv) deploying 37 data switches
bringing its total data switches to 89.
Management believes that a well trained team of direct sales and engineering
support professionals, offering customers a full suite of telecommunications
services, is critical to achieving its goal of capturing meaningful market
share in the newly competitive local telecommunications market. By initiating
local switched services in markets where its sales and engineering support
team is already in place, ICI reached a significant milestone toward attaining
this goal. Management believes that being one of the few ICPs offering
integrated local, long distance and enhanced data services to its customers
provides the Company with a competitive advantage in pursuing the estimated
$99 billion national market for local exchange services. The Company's
strategy is to systematically secure a growing portion of a customer's
telecommunications business and through the provision of additional integrated
services, increase the customer's reliance on, and sense of partnership with,
the Company.
The Company believes that a significant portion of business and government
customers prefer a single source telecommunications provider that delivers a
full range of efficient and cost effective solutions to their
telecommunications needs. These customers require maximum reliability, high
quality, broad geographic coverage, end-to-end service, solutions-oriented
customer service and the timely introduction of new and innovative services.
The Company is well positioned to satisfy such customer requirements due to
(i) its specialized sales and service approach employing engineering and sales
professionals who design and implement cost-effective telecommunications
solutions, (ii) the ongoing development and integration of new
telecommunications services, (iii) its local/long distance voice switch and
transmission network deployment program, (iv) the implementation of 89
enhanced data switches and over 200 NNIs for frame relay data transmission
throughout the continental United States and (v) its interconnection co-
carrier agreements with six ILECs.
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As of March 31, 1997, the Company was certified as a CLEC in 15 states and
the District of Columbia, allowing the Company to provide local exchange
services in those markets, and had CLEC certification applications pending in
21 states. In addition, ICI 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 December 31, 1996, this
infrastructure was comprised of 24,122 fiber miles and 655 route miles and was
connected to 487 buildings. As of December 31, 1996, ICI had invested $241.5
million (or 67% of its total invested capital) in gross plant, property and
equipment, principally telecommunications equipment. ICI expects to continue
to grow its networks and has identified expansion opportunities in other
selected markets. Management believes that this expansion will enable the
Company to (i) increase the size of its addressable market and reach a
significant number of new potential customers, (ii) achieve economies of scale
in network operations and sales and marketing and (iii) more effectively
service customers that have a presence in multiple metropolitan areas. The
Company has also undertaken a major expansion of its intercity network,
principally to satisfy the growing demand for interexchange services,
including enhanced data services such as frame relay networking services. As a
result, frame relay nodes have grown from approximately 2,300 nodes, serving
customer locations in 600 cities as of December 31, 1995, to approximately
9,500 nodes, serving customer locations in 2,200 cities as of December 31,
1996.
Enhanced data services, such as those provided on the Company's frame relay
network, are specialized services for customers that need to transport large
amounts of data among multiple locations. According to industry sources, the
frame relay services market is projected to grow from $753 million in 1995 to
$2.7 billion in 1999; however, there can be no assurance that such market
growth will be realized or that the assumptions underlying such projections
are reliable. While the Company has concentrated its frame relay sales in the
eastern half of the United States, ICI is currently the fifth largest national
provider of frame relay networking services (based on number of nodes) after
AT&T, 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.
ICI founded the UniSPAN(C) consortium in 1994 with three other carriers to
enable the Company to provide end-to-end frame relay services throughout the
United States and Canada. Because of the high volume of telecommunications
traffic between ICI's target markets and certain Latin American markets, the
Company has entered into international frame relay operating agreements with
ImpSat of Columbia S.A., TresCom International, Telecom Holdings Panama and
Americatel Corporation for the provision of frame relay services to and from
Columbia, Puerto Rico, Panama, Chile & Costa Rica. ICI plans to pursue similar
arrangements to enter other Latin American markets. The Company has pioneered
the interconnection of its frame relay network with those of the ILECs,
allowing pervasive, cost-efficient termination for its customers. Over 200
such NNIs have been implemented with BellSouth, Sprint, GTE, NYNEX, Bell
Atlantic and Southern New England Telecommunications Corp.
The Company believes that it can effectively utilize its competitive
advantages as a provider of enhanced data services to communications intensive
customers in order to acquire and retain these customers as local exchange and
long distance customers throughout its markets. As ICI continues the
deployment of local/long distance voice switches, it will make more efficient
use of its intercity network. Combining long distance voice traffic between
such switches with the intercity data traffic increases the overall amount of
voice and data traffic that remains completely on the Company's network. The
Company is developing additional applications and deploying technologies that
will provide even greater efficiencies in the use of its intercity network.
The Company has developed and intends to introduce a voice product over its
enhanced data network which will provide a competitive service offering to
customers seeking a lower cost alternative to voice services currently
provided over traditional circuit switched telecommunications networks. The
Company believes that packet switched data networks, such as the Company's,
will displace a significant portion of the estimated $130 billion
telecommunications market which is currently provided over traditional circuit
switched networks. The Company believes this proposed new service offering
will accelerate its penetration of the traditional voice services market.
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<PAGE>
The Company has developed operating strategies, important components of
which are described below, to increase market share and operating margins.
CUSTOMER STRATEGY
Provide Single-Source Telecommunications Services. The Company's service
portfolio includes: local exchange, enhanced data (i.e., frame relay and ATM,
Internet and Intranet), interexchange long distance, integration and private
line services. Management believes that its ability to deliver all of these
services provides significant advantages for both the customer and for the
Company. Not only does this capability address customers' complex requirements
associated with integration of diverse networks and technologies at various
locations, but it also reduces customers' administrative burdens associated
with service charges, billing, network monitoring, implementation,
coordination and maintenance. ICI also believes that by offering expanded,
single-source services through existing networks and customer connections, it
can leverage the significant capacity inherent in its digital networks.
Focus on Business and Government Customers. The Company's portfolio of
service offerings, customer service approach, highly reliable networks, broad
geographic coverage and integration capabilities are well-suited to serve the
demands of telecommunications-intensive business and government customers. The
Company's existing business customer base represents a broad range of
industries, including firms in the retail, financial services, Internet,
healthcare, merchandising, manufacturing and other industry segments. ICI has
a dedicated sales and engineering support group focused exclusively on
providing service to government agencies. The Company has long-term contracts
with the States of Florida and New York pursuant to which the Company provides
various telecommunications services, including frame relay and other data
services (as well as certain voice services under the New York contract).
Develop Interexchange Carrier and Value-Added Reseller Relationships. As a
result of recent changes in state and federal regulation which have provided
ILECs with mandates that foster local exchange competition, ICI has
accelerated its entry into the local exchange services market. As IXCs enter
the local exchange business, the Company believes that they will seek to gain
access to the local exchange services market by either developing local
network capacity or by purchasing such capacity from alternative service
providers. The Company believes that these developments are likely to make ICI
a candidate for joint ventures and preferred vendor arrangements with IXCs,
ILECs and other telecommunications related companies. Such arrangements would
benefit the Company by enabling ICI to more rapidly recover its capital
investment in switches and other network infrastructure by increasing the
traffic through its networks. These IXC relationships typically began with the
Company providing special access services on behalf of these IXCs and have
recently evolved to include local access transport and local exchange
services. These arrangements should enable ICI to achieve greater market share
and reach new market segments more rapidly than it could otherwise. The
Company has also begun soliciting these IXCs, out of region ILECs, cable
companies and other value added resellers to resell the Company's local
exchange and other services. ICI has recently established a preferred vendor
relationship with Cable & Wireless, Inc., which includes the resale of ICI's
local exchange service by Cable & Wireless, Inc.
Maintain and Develop Long-Term Relationships. By providing customized
telecommunications solutions to its customers, the Company develops a sense of
partnership with its customers. This, together with the provision of an
integrated package of services (local, long distance and enhanced data
services) fosters the development of long-term customer relationships. As an
example, the group of ICI's top 42 customers as of December 31, 1994
(representing approximately 68% of ICI's billings for the month of December
1994) had increased their aggregate billings in excess of 100% for the month
of December 31, 1996. At December 31, 1996, 37 of these 42 customers were
still customers of ICI and, in the aggregate, represented approximately 17% of
ICI's monthly billings for December 1996.
Provide Cost-Effective Service Offerings. The Company believes that the
introduction of its services at competitive market rates has stimulated demand
from small to medium-sized customers, thereby broadening the
45
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market for ICI's services. Each of the Company's individually packaged
services is competitively priced, and when integrated into a comprehensive
telecommunications package, typically provides significant savings to such
customers over a combination of ILEC and IXC service offerings.
Expand Solutions-Oriented Sales Effort. The Company has rapidly expanded,
and intends to continue to expand, its direct sales and support team
consisting of engineering and sales professionals. The sales and support teams
have complete product knowledge and technical, integration and program or
project management skills. This team approach promotes a close working
relationship between the Company and the customers' telecommunications,
information services and user constituencies. The Company believes such
relationships improve its ability to sell more of its services and maintain
longer relationships with its customers. During 1996, ICI increased the number
of its sales offices by nine and substantially increased its engineering
support personnel and sales representatives. The Company believes that the
continued deployment of its skilled end user engineering support and sales
team will allow ICI to establish service in new markets and maintain a
competitive position in existing markets. By focusing first on establishing
customer relationships in both new and existing markets, the Company believes
it can efficiently deploy capital in response to actual customer demand.
NETWORK STRATEGY
Control Franchise Points of the Networks. Connections to customers and
building entries represent an important component of ICI's network strategy.
These connections provide the Company with the platform to sell a variety of
services to existing and additional potential customers within a building,
analogous to those provided by traditional shared tenant services providers.
ICI believes that the deployment of switching technology and advanced network
electronics enables the Company to better configure its networks to provide
cost-effective and customized solutions to its customers.
Extend Coverage to Provide End-to-End Service. The Company believes that an
important aspect of satisfying its customers is its ability to provide and
support services from end to end. This requires network interconnection with
other carriers and operational support systems and tools to "manage" the
customer's total service. The Company has entered into interconnection co-
carrier agreements with BellSouth, Sprint, GTE, NYNEX, SBC and Bell Atlantic.
This will allow the Company to access a large number of business and
government telephones in its service territory. The Company anticipates
entering into similar arrangements with ILECs in other markets. The Company
has also interconnected its frame relay network to various ILECs, thereby
substantially expanding the reach of its networks. ICI now provides
originating and terminating transport services in 45 states and maintains POPs
for interexchange and enhanced data services in most major cities in the
United States. The Company has deployed, and continues to integrate, network
monitoring and control tools to insure high levels of service quality and
reliability.
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 ICI's existing networks, (iii) add revenue
producing customers before building networks, thereby reducing the risks
associated with speculative network construction and (iv) subsequently focus
its capital expenditures in
46
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geographic areas where network construction or acquisition will provide a
competitive advantage. The Company focuses its capital deployment on the
segments of its networks that the Company believes will provide it with the
highest revenue and cash flow potential and the greatest long-term competitive
advantage. For the 12 months ended September 30, 1996, the Company recorded
$.54 in revenue for each average dollar of plant, property and equipment
invested.
GROWTH STRATEGY
Accelerate Internal Growth. By focusing on business and government customers
and maintaining high-quality and cost-effective services, the Company has
generated a compound annual internal revenue growth rate of 63% for the two
year period ended December 31, 1996. The Company believes that its customer
and network strategies will continue to enable ICI to expand its services and
markets, increase its revenue base and effectively compete in a dynamic
marketplace. In order to achieve such growth, it is essential to continue to
add to the Company's highly skilled, broadly deployed end user sales and
engineering support team.
Accelerate Provision of Local Exchange Services. The 1996 Act significantly
improved the opportunity for competition in the local exchange market by
mandating that ILECs enter into arrangements with competitors such as the
Company for central office collocation and unbundling of local services. The
Company believes that implementation of such pro-competitive policies creates
favorable opportunities to more aggressively pursue the provision of local
exchange services. The Company has a total of five local/long distance voice
switches in operation and is currently marketing, to existing and new
customers, local dial tone, switched access termination and origination
services, centrex and desktop products bundled with the Company's other
service offerings. The Company expects to offer such services in all of its
fiber optic-based markets by mid 1997, with the exception of Huntsville,
Alabama.
Selectively Acquire Existing Networks and Services. Over the past few years,
a portion of the Company's growth has been accomplished through acquisitions
and joint ventures or selling relationships. The Company continues to examine
various acquisition and joint venture proposals to accelerate its rate of
growth. In addition to the usual financial considerations, ICI assesses each
opportunity to determine if either: (i) current network traffic into and out
of the geographic areas served by the potential joint venture or acquisition
candidate warrants developing a presence in those geographic areas or (ii)
such candidate offers services consistent with the Company's strategy. While
management does not believe that acquisitions are necessary to achieve the
Company's strategic goals, strategic alliances with or acquisitions of
appropriate companies may accelerate achievement of certain goals by creating
operating synergies and providing for a more rapid expansion of the Company's
networks and services. The Company is currently evaluating various acquisition
opportunities. No assurance can be given that any potential acquisition will
be consummated.
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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 ICI's A business customer uses ICI's
switch, providing full, voicemail service to avoid the
personalized answering service cost and upkeep on an answering
for a business customer. machine in their office.
</TABLE>
Enhanced Data Services. Switching and transport of digitized data (or voice)
over a seamless network, designed to provide highly reliable, flexible service
and support of many data transmission protocols. ICI's enhanced data services
are provided over its network of frame relay and ATM data switches, located
throughout its service territory. Examples of these services are listed below:
<TABLE>
<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 ICI's enhanced data network. finance and accounting, one for
LAN to LAN connection) that all
consist of a large "host" site
and numerous remote sites,
currently connected by a large
number of dedicated private
lines. It is converted to ICI's
frame relay network, with a
single connection to each
location, and the multiple
networks operating over this
single connection.
A small, multi-location firm has
LANs at each location, but has
not been able to provide company-
wide email and file access,
without using dial up
connections. The establishment of
a frame relay network allows an
affordable means to interconnect
all offices, for full time access
to company-wide email and shared
files.
</TABLE>
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<PAGE>
Internet and Intranet Services. ICI offers access to the Internet and
provides additional services that utilize the Internet via its frame relay
network. Examples of these services are listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
Dedicated Internet Connection to the Internet via An existing ICI frame relay
Access ICI's frame relay network. customer utilizes an existing
physical connection to access
other computers on the Internet,
using a "web browser."
Hosted Internet Service ICI provides a World Wide Web A business wishes to have a world
presence for a customer, wide web presence, but lacks the
establishing and maintaining expertise, computing platform,
the customer's web page on and technical resources to
ICI's platform. design, implement, and maintain
their web presence. ICI provides
the turnkey service.
Intranet Service Private equivalent of the ICI provides a large corporation
Internet. with "private" equivalents of the
Internet, allowing secure, closed
user access to the company's
private web sites, file transfer
capabilities, etc.
</TABLE>
Long Distance Services. The origination and termination of telephone calls
between users in different cities or exchanges. The Company provides these
services on a usage basis, utilizing its local/long distance switches its
intercity network and services provided by other carriers. Examples are listed
below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
------------------ ----------- -------------------
<S> <C> <C>
Outbound Long Distance Completion of long distance An ICI customer of local exchange
calls originated by ICI services makes a "1+" call,
customers. domestic or international, which
is processed and delivered to its
destination by the ICI network as
part of an integrated local/long
distance service package.
Inbound Long Distance "800" or "888" number service. An ICI customer receives "toll
free" calls, handled over ICI-
provided dedicated lines to the
customer, or over the customer's
ICI local exchange service lines.
Calling Card Nationwide long distance An ICI customer dials a
calling without cash. nationwide 800 number, and
completes a long distance call
using the ICI calling card;
billing is aggregated with the
customer's other services.
</TABLE>
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<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 ICI orders a
connects a customer to an IXC special access circuit to one of
for the purpose of delivering its customers in an ICI city.
long distance calls to the
IXC--does not carry local
traffic.
Interexchange Private An inter-city private line, for An ICI customer needs a 1.544
Line voice or data, of a fixed Mbps connection between two
bandwidth, connecting to two computers in Miami and Boston.
locations of the same customer. The full 1.544 Mbps is used
constantly.
IXC End Office Transport Connecting an IXC to the End An IXC customer of ICI needs
Office of an ILEC or CLEC. circuits to the end office of a
LEC, to allow the IXC's customers
to obtain "1+" long distance
dialing from that IXC.
</TABLE>
Integration Services. Provision and custom configuration of network devices,
normally located at the customer's location, which may include any special
engineering, installation, or service function provided by ICI. Examples are
listed below:
<TABLE>
<CAPTION>
SERVICE OR FEATURE DESCRIPTION TYPICAL APPLICATION
- ------------------ ----------- -------------------
<S> <C> <C>
CPE Integration Provision, configuration, ICI designs a router-based data
installation, and monitoring of network for a customer, procures,
specialized telecom equipment. configures, installs and
maintains both hardware and
software for the customer,
packaged into a single service
invoice.
Campus LAN Construction of a private fiber ICI designs, constructs and
network. optionally monitors a private
fiber "loop" built on a campus of
buildings.
Design Service Provision of engineering ICI provides hardware and
services in support of a software engineering services to
customer application. support a customer's Internet
"web" site.
</TABLE>
50
<PAGE>
The following table sets forth the Company's estimates, based upon an
analysis of industry sources including industry projections, and FCC data, of
the market size nationally of the services described above. Only a limited
amount of direct information is currently available and therefore a
significant portion of the information set forth below is based upon estimates
and assumptions made by the Company. The Company believes that its estimates
are based upon reliable information and that its assumptions are reasonable.
There can be no assurance, however, that the estimates will not vary from the
actual market data and that these variances will not be substantial.
<TABLE>
<CAPTION>
UNITED STATES COMPETITIVE
TELECOMMUNICATIONS MARKET
OPPORTUNITY
1996 COMPANY ESTIMATES
(DOLLARS IN MILLIONS)
-------------------------
<S> <C>
Local Network Services
Special Access and Private Line Services............ $ 7,800
Switched Access Services............................ 19,700
Local Exchange Services(1).......................... 47,200
Other(2)............................................ 23,800
--------
Total Local Network Services...................... 98,500
--------
Enhanced Data Services................................ 1,300
Interexchange Services................................ 65,200
--------
Total Additional Services......................... 66,500
--------
Total Market Size............................... $165,000
========
</TABLE>
- --------
(1) As of March 31, 1997, the Company was permitted to offer these services in
Florida, Alabama, Washington, D.C., Georgia, Illinois, Iowa, Kentucky,
Maryland, Mississippi, New York, North Carolina, South Carolina,
Tennessee, Massachusetts, Nevada and Texas 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.
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 March 31, 1997, ICI had obtained all
certifications necessary to permit the Company to provide local exchange
service in 15 states and the District of Columbia and was 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 its 1997 addressable market, computed under
this methodology, is approximately $34 billion. Investors should not place
undue reliance on this information in making an investment decision with
respect to the securities offered hereby.
ICI's services generally fall into three categories: (i) local network
services, which include local exchange services, special and switched access
services and local private line services, (ii) enhanced data services, which
include frame relay based data transport, ATM and Internet and Intranet
services and (iii) interexchange (long distance) services.
The Company's local network services consist of local private line services,
which the Company has been offering since 1987, and local exchange service,
which the Company began offering in 1996. The Company provides customers local
private line services either by building network facilities or leasing
extended network facilities to the customer's premises. In the markets where
the Company has digital, fiber optic networks, the addition of local exchange
services allows the Company to increase its revenue generating product mix
without
51
<PAGE>
having to acquire additional transport facilities and allows a more integrated
service to be offered to the customer. The initial circuit used to reach the
customer establishes a platform that can be utilized to offer additional
services. Due to the significant bandwidth inherent in fiber optic cable, a
single connection can support a large number of service types and a large
number of customers.
The Company has built its base of local network service customers by
offering highly reliable, high quality services that compete primarily with
the ILECs. In 1996, local network services accounted for approximately 13% (or
approximately $13.5 million) of the Company's total revenues. The Company
believes that the market for these services will grow through the introduction
of local exchange services, expansion of networks within existing markets,
addition of new markets, and increased penetration of existing customers
through provision of new incremental services.
Enhanced data services consist of interexchange data networks utilizing
frame relay technology and application services, such as Internet, which
utilize the frame relay network. Enhanced data services enable customers to
economically and securely transmit large volumes of data typically sent in
large bursts from one site to another. Previously, customers had to utilize
low speed dedicated private lines or dial up circuits for interconnecting
remote LANs and other customer locations. These methods had numerous
disadvantages including (i) low transmission speeds, (ii) systems that
required the utilization of complementary protocols and line speeds which
significantly increased the cost of implementing networks, (iii) limited
security, placing customers' entire networks at risk to tampering from outside
sources and (iv) high costs due to the necessity to pay for a full time
dedicated line despite infrequent use. Enhanced data services are utilized for
LAN interconnection, remote site, point of sale and branch office
communications solutions.
The typical ICI customer for enhanced data services has multiple business
locations and requires communication for one or more data applications among
these locations. The customer may also have a number of locations served by
ICI's fiber optic networks; however, provision of enhanced data services is
not dependent on the provision of local network services at any specific
location. All of the customers' locations, whether domestic or international,
are monitored by the Company and can be served through the Company's own
operations or through the use of partner networks (e.g., UniSPAN(C)).
As a consequence of a significantly increased volume of traffic and number
of Internet customers connected to ICI's network, many of these customers
connect to other users or Internet hosts without ever leaving ICI's network.
Over 100 ISPs utilize ICI's network for access to their customers and other
Internet sites.
In 1996, the Company's enhanced data services accounted for approximately
31% of the Company's total revenue. The market for enhanced data services,
according to industry sources, is expected to grow from $1.3 billion in 1996
to $2.7 billion in 1999. There can be no assurance, however, that such market
growth will be realized or that the assumptions underlying such projections
are reliable.
Long distance services have been offered by the Company since December 1994.
Long distance services include inbound (800) service, outbound service and
calling card telephone service. The Company currently provides interLATA long
distance services in 41 states, interstate long distance services nationwide
and international termination worldwide.
The Company's integration services are applicable to all three categories of
service described above and are made available to end user and carrier
customers. A team of sales professionals and engineers develop specialized
solutions for a customer's specific telecommunications needs. Some of these
integration services include the sale, configuration and installation of third
party equipment to handle certain telecommunications and monitoring functions
and the development of private networks. The Company believes that such
services increase the level of linkage between the Company's and the
customer's operations thereby increasing the customer's reliance on the
Company.
52
<PAGE>
The Company plans to continue to expand its domestic geographic reach by
acquiring and integrating high quality, value added companies. In addition,
the Company, through the pursuit of strategic alliances, plans to expand its
ability to originate and terminate voice and data traffic in certain Latin
American markets beyond those recently established in Panama, Columbia, Puerto
Rico, Chile and Costa Rica. ICI believes these markets are important to its
business because, not only is there a significant community of interest
between many of these countries and certain key cities in ICI's service
territory as a result of the large Spanish speaking populations in these
cities, but there are also a number of businesses that have operations in both
Latin America and in the Company's southeastern markets.
SALES, MARKETING AND SERVICE DELIVERY
ICI's marketing activities are primarily directed to business and government
customers with a presence in the Company's service territory. The Company's
customers include large corporations, financial services companies, government
departments and agencies, and academic, scientific and other major
institutions as well as small and medium sized businesses and IXCs.
The Company's sales and marketing approach is to build long-term business
relationships with its customers, with the intent of becoming the single
source provider of all of their telecommunications services. In an effort to
leverage its recent success in obtaining government contracts, the Company has
created a sales group whose focus is the marketing of ICI's telecommunications
services to government departments and agencies. The Company has also
established a sales group that focuses exclusively on obtaining building entry
agreements with owners of multiple office building complexes. The ICI sales
force includes specialized professionals who focus on sales to retail,
wholesale and alternate channel (agents and value added resellers) consumers
of the Company's telecommunications services. The Company's sales staff works
to gain a better understanding of the customer's operations in order to
develop innovative, application-specific solutions to each customer's needs.
Sales personnel locate potential business customers by several methods,
including customer referral, market research, cold calling and other
networking alliances, including customer demand information from certain IXCs.
Enhanced data services, like all other ICI services, are sold through the
Company's existing sales force, supported by sales engineers, and often in
cooperation with agents and value added resellers (independent providers of
communications hardware to customers) and other business associates. This
approach enables the Company to (i) emphasize the applications solutions
aspects of enhanced data services and (ii) utilize the expertise and resources
of other vendors. The Company intends to continue expanding its sales and
engineering support staff and other technical specialists in order to meet the
growing demand for enhanced data services. Since these services are also sold
to extended network customers of the Company, this sales effort offers the
Company a means of expanding its network. See "--Network."
New customer relationships are typically established by providing services
from one of the three major categories (local, enhanced and long distance),
then following up with additional services from the other two categories. For
instance, during 1996, the Company established approximately 2,800 new
customer relationships through the sale of long distance services.
The Company's service delivery staff is primarily responsible for
coordinating service and installation activities. Service delivery activities
include surveying the site to assess ambient conditions and power, and space
requirements, as well as coordinating installation dates and equipment
delivery and testing. ICI's customer service and technical staff plans,
engineers, monitors and maintains the integrity, quality and availability of
the Company's networks. ICI's customer service and technical staff are
available to customers 24 hours every day.
To support all of its network based services, the Company has implemented an
automated ordering, provisioning and billing system similar to that used by
the ILECs. This automated system makes it easy for the Company's IXC customers
to track their orders with ICI, and similarly allows ICI to track its orders
with the ILECs. ICI has also implemented an integrated network management
system which enhances the Company's ability to monitor, test, track trouble
and dispatch repair resources. This system monitors the performance of ICI's
networks and services 24 hours every day.
53
<PAGE>
NETWORK
The Company has deployed its network infrastructure selecting the most
economical alternative of constructing or leasing facilities or a combination
thereof. The Company generally chooses to own facilities where (i) there is no
fiber optic network alternative and the Company can be the incumbent network
provider, (ii) ownership creates strategic value for the Company, (iii) large
concentrations of telecommunications traffic are accessible, or have been
secured, to justify network construction and (iv) network construction can
create significant barriers to entry for subsequent competitors who may wish
to enter the Company's markets.
In addition to the "build" vs. "lease" decision for network deployment, the
Company also considers potential network acquisitions from time to time. The
Company believes that acquisitions will generally provide it with (i)
immediate access to incremental customers, (ii) reduction of network
construction and implementation risks, (iii) elimination of an incumbent
competitor, (iv) immediate access to additional qualified management, sales
and technical personnel and (v) a network platform for the provision of
incremental value added services. The Company has demonstrated such strategy
with its acquisition of FiberNet, EMI and NetSolve.
In those markets where ICI chooses to deploy broadband fiber networks, the
Company's strategy is to first develop the "carrier ring" portion of its
network, a high capacity network designed to be accessible to all the major
long distance carriers and key ILEC central offices in the area. This portion
of the network allows the Company to provide access to these long distance
carriers, provide connectivity to the ILEC network for interconnection and use
of unbundled ILEC network elements, and over time, to connect business and
government customers to such long distance carriers. Second, the Company
designs a larger "backbone ring" extending from the carrier ring, with a view
toward making the network accessible to the largest concentration of
telecommunications-intensive business and government customers in the area.
Hubs are strategically located on the backbone rings to allow for the
collection and distribution of telecommunications traffic onto and off the
backbone ring. Third, the Company concentrates its sales and marketing efforts
on adding business and government customers located on or very near its
backbone network and hub locations. Once ICI determines that there is
sufficient customer demand in a particular area, it extends "distribution
rings" from the backbone ring to reach specific business customers in that
area. The Company's emphasis is on the building and expansion of these city-
based networks to reach end user customers in buildings or office parks with
substantial telecommunications opportunity. The establishment of a "franchise
point" at a customer's location is a key strategic design element of these
networks.
ICI's city-based networks are comprised of fiber optic cables, integrated
switching facilities, advanced electronics, data switching equipment (e.g.
frame relay and ATM), transmission equipment and associated wiring and
equipment. By virtue of its state-of-the-art equipment and ring-like
architecture, the Company's networks offer electronic redundancy and diverse
access routing. Through automatic protection switching, if any electrical
component or fiber optic strand fails, the signal is instantaneously switched
to a "hot standby" component or fiber. Since network outages and transmission
errors can be very disruptive and costly to long distance carriers and other
customers, consistent reliability is critical to customers.
The Company currently has fiber optic networks in service in the Orlando,
Tampa, Miami, St. Petersburg, Jacksonville, and West Palm Beach, Florida,
Cincinnati, Ohio, Raleigh-Durham, North Carolina, and Huntsville, Alabama
metropolitan areas and one under development in St. Louis, Missouri. ICI
continues to expand these networks and has identified similar network
expansion opportunities in other selected markets.
As a result of its acquisition of EMI in 1996, ICI also utilizes certain
wireless technologies as a part of its provision of services. ICI owns a long-
haul microwave transmission system comprising approximately 5,000 route miles
in the Northeast, which is principally used for transporting digital
interexchange trunking and analog video signals. Additionally, as a part of a
1995 Asset Purchase Agreement between EMI and ART, ICI has access to 38 GHz
licenses in most metropolitan areas in the Northeast at the lowest rate
charged by ART for such services. The Company uses this technology from time
to time to connect its customers to its network, allowing rapid initiation of
service.
54
<PAGE>
In addition, the Company has undertaken a significant network expansion to
satisfy the demands of the Company's market driven growth in interexchange
data and voice offerings. The Company has deployed resources, primarily
switching equipment, to develop an extensive network to provide these
services. Excess capacity on this primarily leased network can be used to
provide incremental telecommunications services such as interexchange long
distance services.
The Company has recently undertaken the deployment of ATM networking
technology in its intercity network, allowing the network capacity to be
efficiently shared between multiple platforms. Often, the Company offers
interexchange services in geographic markets where it has not deployed its own
fiber optic network by leasing facilities from a variety of entities,
including ILECs, utilities, IXCs, local governments, cable companies and
various transit/highway authorities. In many cases, such capacity is obtained
through the capital lease or purchase of "dark fiber." The combination of the
Company's city-based networks and its intercity capacity comprise the seamless
network platform which the Company utilizes to offer its broad array of
telecommunications services to its customers. The Company also has agreements
with certain third parties and the carriers in the UniSPAN(C) consortium to
deliver enhanced data services nationwide or internationally through a
seamless data network.
The Company's telecommunications equipment vendors actively participate in
planning and developing electronic equipment for use in ICI's networks. The
Company does not believe it is dependent on any single vendor for equipment.
Because the Company uses existing telecommunications technology rather than
developing it, ICI's research and development expenditures are not material.
COMPETITION
The Company faces intense competition in each of its three service
categories--local services, enhanced services and long distance services.
The Company believes that various legislative initiatives, including the
recently enacted 1996 Act and certain state initiatives, will result in the
removal of the remaining regulatory barriers to local exchange competition.
While the Company currently competes with AT&T, MCI and others in the
interexchange services market, the 1996 Act also permits the RBOCs to provide
interexchange services upon meeting certain requirements described in the 1996
Act. When the RBOCs begin to provide such services, they will be in a position
to offer single source service similar to that being offered by ICI. In
addition, Sprint and GTE offer, and various ILECs and IXCs, including
BellSouth, have announced their intent to offer, integrated telecommunication
services in areas currently served by ICI. AT&T and MCI have begun to enter
the local exchange services market. The Company cannot predict the number of
competitors that will emerge as a result of existing and any new federal and
state regulatory or legislative actions. Competition from integrated
telecommunications services provided by the RBOCs, AT&T, MCI, Sprint, WorldCom
and others could have a material adverse effect on the Company's business.
Competition in each of the service categories provided by the Company, as
well as for systems integration which is common to all market segments, is
discussed below.
Local Services. In each of its geographic markets, the Company faces
significant competition for the local services it offers from RBOCs and other
ILECs, which currently dominate their local telecommunications markets. These
companies all have long-standing relationships with their customers and have
financial, personnel and technical resources substantially greater than those
of ICI.
The Company also faces competition in most markets in which it operates from
one or more CLECs or ICPs operating fiber optic networks. Other local service
providers have operations or are initiating operations within one or more of
the Company's service areas. ICI expects WorldCom, MCI, Teleport
Communications Group, Inc. ("Teleport"), and certain cable television
providers, many of which are substantially larger and have substantially
greater financial resources than the Company, to enter some or all of the
markets that the Company
55
<PAGE>
presently serves. At least two of these competitors, WorldCom and Teleport,
have entered or announced plans to enter a number of ICI's service areas. ICI
also understands that other entities have indicated their desire to enter the
local exchange services market within specific metropolitan areas served or
targeted by ICI.
In addition, a continuing trend toward consolidation and strategic alliances
within the telecommunications industry could result in significant new
competition for the Company. AT&T and MCI have begun to enter the local
services market. Other potential competitors of the Company include utility
companies, long distance carriers, wireless telephone systems and private
networks built by individual business customers. The Company cannot predict
the number of competitors that will emerge as a result of existing or any new
federal and state regulatory or legislative actions.
Competition in all of the Company's geographic market areas is based on
quality, reliability, customer service and responsiveness, service features
and price. The Company has kept its prices at levels competitive with those of
the ILECs while providing, in the opinion of the Company, a higher level of
service and responsiveness to its customers.
Although the ILECs are generally subject to greater pricing and regulatory
constraints than other local network service providers, ILECs are achieving
increasing pricing flexibility for their local services as a result of recent
legislative and regulatory developments. The ILECs have continued to lower
rates, resulting in downward pressure on certain dedicated and switched access
transport rates. This price erosion has decreased operating margins for these
services. However, the Company believes this effect will be more than offset
by the increased revenues available as a result of access to customers
provided through interconnection co-carrier agreements and the opening of
local exchange service to competition. In addition, the Company believes that
lower rates for dedicated access will benefit other services offered by the
Company.
Enhanced Data Services. The Company faces competition in its enhanced data
services business from ILECs, IXCs, VSAT providers and others. Many of the
Company's existing and potential competitors have financial and other
resources significantly greater than those of the Company.
The Company competes with the larger IXCs on the basis of service
responsiveness, rapid response to technology and service trends, and a
regional focus borne of early market successes. All of the major IXCs,
including AT&T, MCI, Sprint and WorldCom offer frame relay services and
several of the major IXCs have announced plans to provide Internet services.
The Company believes it competes favorably with these providers in its
markets, based on the features and functions of its services, the high density
of its networks, relatively greater experience and in-house expertise.
Continued aggressive pricing is expected to support continued rapid growth,
but will place increasing pressure on operating margins.
The Company also competes with VSAT services on the basis of price and data
capacity. The Company believes that the relatively low bandwidth of each VSAT
terminal and the cost of purchasing and installing VSAT equipment limits the
ability of VSAT to compete with the frame relay services provided by the
Company.
Many of the ILECs now offer services similar to ICI's enhanced data
services, but offer them only on an intraLATA basis. While the ILECs generally
cannot interconnect their frame relay networks with each other, ICI has
interconnected its frame relay network with those of various ILECs. As a
result, ICI can use certain ILEC services to keep its own costs down when
distributing into areas that cannot be more economically serviced on its own
network. ICI expects the ILECs to aggressively expand their enhanced data
services as regulatory developments permit them to deploy interLATA long
distance networks. When the ILECs are permitted to provide such services, they
will be in a position to offer single source service similar to that being
offered by ICI. As part of its various interconnection agreements, ICI has
negotiated favorable rates for unbundled ILEC frame relay service elements.
The Company expects such negotiations to decrease its costs, positively
impacting margins for this service.
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<PAGE>
Interexchange Services. The Company currently competes with AT&T, MCI and
others in the interexchange services market. Many of the Company's competitors
have longstanding relationships with their customers and have financial,
personnel and technical resources substantially greater than those of ICI. In
providing interexchange services, the Company focuses on quality service and
economy to distinguish itself in a very competitive marketplace. ICI has built
a loyal customer base by emphasizing its customer service. The additional new
services that are offered as the Company implements its local exchange
services should further support this position by allowing the Company to
market a wide array of fully integrated telecommunications services. While
these services are subject to highly competitive pricing pressures, the
Company's cost to provide these services is decreasing as it deploys more
local/long distance voice switches and interexchange network facilities.
Systems Integration. The Company faces competition in its systems
integration business from equipment manufacturers, the RBOCs and other ILECs,
long distance carriers and systems integrators, many of which have financial,
and other resources significantly greater than those of the Company. Because
the Company is not highly dependent on system integration revenues and because
the Company typically provides system integration services to customers who
purchase other services of the Company, ICI's systems integration competitors
should not pose a significant threat to ICI's overall business.
GOVERNMENT REGULATION
Overview. The Company's services are subject to varying degrees of federal,
state and local regulation. The FCC exercises jurisdiction over all facilities
of, and services offered by, telecommunications common carriers to the extent
those facilities are used to provide, originate or terminate interstate or
international communications. The state regulatory commissions retain
jurisdiction over most of the same facilities and services to the extent they
are used to originate or terminate intrastate communications. In addition,
many of the regulations issued by these regulatory bodies may be subject to
judicial review, the result of which ICI is unable to predict.
Federal Regulation. The Company must comply with the requirements of common
carriage under the Communications Act of 1934 (the "Communications Act"), as
amended. Comprehensive amendments to the Communications Act were made by the
1996 Act, which was signed into law on February 8, 1996. The 1996 Act effected
plenary changes in regulation at both the federal and state levels that affect
virtually every segment of the telecommunications industry. The stated purpose
of the 1996 Act is to promote competition in all areas of telecommunications
and to reduce unnecessary regulation to the greatest extent possible. While it
will take years for the industry to feel the full impact of the 1996 Act, it
is already clear that the legislation provides the Company with both new
opportunities and new challenges.
The 1996 Act gives the FCC the authority to forebear from regulating
companies if it finds that such regulation does not serve the public interest,
and directs the FCC to review its regulations for continued relevance on a
regular basis. As a result of this directive, a number of the regulations that
historically applied to the Company have been and may continue to be
eliminated in the future. While it is therefore expected that a number of
regulations that were developed prior to the 1996 Act will be eliminated in
time, those which still apply to the Company at present are discussed below.
The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic common carrier service providers, only GTE and
the RBOCs are classified as dominant carriers, and all other providers of
domestic common carrier services, including the Company, are classified as
non-dominant carriers. The 1996 Act provides the FCC with the authority to
forebear from imposing any regulations it deems unnecessary, including
requiring non-dominant carriers to file tariffs. On November 1, 1996, in its
first major exercise of regulatory forbearance authority granted by the 1996
Act, the FCC issued an order detariffing domestic interexchange services. The
order requires mandatory detariffing and gives carriers such as ICI nine
months to withdraw federal tariffs and move to contractual relationships with
its customers. This order subsequently was stayed by a federal appeals court
and it is unclear at this time whether the detariffing order will be
implemented.
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The 1996 Act greatly expands the FCC's interconnection requirements on the
ILECs. The 1996 Act requires the ILECs to: (i) provide physical collocation,
which allows companies such as ICI and other interconnectors to install and
maintain their own network termination equipment in ILEC central offices, and
virtual collocation only if requested or if physical collocation is
demonstrated to be technically infeasible; (ii) unbundle components of their
local service networks so that other providers of local service can compete
for a wider range of local services customers; (iii) establish "wholesale"
rates for their services to promote resale by CLECs and other competitors;
(iv) establish number portability, which will allow a customer to retain its
existing phone number if it switches from the ILEC to a competitive local
service provider; (v) establish dialing parity, which ensures that customers
will not detect a quality difference in dialing telephone numbers or accessing
operators or emergency services; and (vi) provide nondiscriminatory access to
telephone poles, ducts, conduits and rights-of-way. In addition, the 1996 Act
requires ILECs to compensate competitive carriers for traffic originated by
the ILECs and terminated on the competitive carriers' networks. The FCC is
charged with establishing national guidelines to implement the 1996 Act. The
FCC issued its Interconnection Order on August 8, 1996, after which, six
separate motions were filed with the Eighth Circuit Court of Appeals in St.
Louis for a stay of the FCC's Interconnection Order. On October 15, 1996, the
court stayed the pricing and "most favored nation" provisions contained in the
Interconnection Order while leaving in place the structural aspects of the
order. The Eighth Circuit Court is expected to render a decision by June 1997
on the merits of the FCC's interconnection rules and that decision is expected
to be appealed to the United States Supreme Court.
As part of its pro-competitive policies, the 1996 Act frees the RBOCs from
the judicial orders that prohibited their provision of interLATA services.
Specifically, the Act permits RBOCs to provide long distance services outside
their local service regions immediately, and will permit them to provide in-
region interLATA service upon demonstrating to the FCC and state regulatory
agencies that they have adhered to the FCC's interconnection regulations.
BellSouth in Georgia and North Carolina and Ameritech Corporation
("Ameritech") in Michigan have asked their respective state regulatory
agencies to review their applications and to recommend approval by the FCC.
These RBOCs are expected to file their applications with the FCC by June 1997.
The FCC is expected to scrutinize these and future applications to ensure that
the interconnection requirements have been met.
As a result of these provisions of the 1996 Act, the Company has taken the
steps necessary to be a provider of local exchange services and has positioned
itself as a full service, integrated telecommunications services provider. As
of March 31, 1997, ICI had obtained local certification in 15 states and the
District of Columbia and had applications pending for local certification in
21 additional states. In addition, the Company has successfully negotiated
interconnection agreements that meet the interconnection provisions contained
in the 1996 Act with six ILECs. At the same time, the 1996 Act also makes
competitive entry more attractive to RBOCs, other ILECs, interexchange
carriers and other companies, and likely will increase the level of
competition that the Company faces.
The 1996 Act also repeals the telecommunications/cable television cross-
ownership prohibition which generally had prohibited ILECs from providing in-
region cable television service.
The 1996 Act's interconnection requirements also apply to interexchange
carriers and all other providers of telecommunications services, although the
terms and conditions for interconnection provided by these carriers are not
regulated as strictly as interconnection provided by the ILECs. This may
provide the Company with the ability to reduce its own access costs by
interconnecting directly with non-ILECs, but may also cause the Company to
incur additional administrative and regulatory expenses in replying to
interconnection requests.
While the 1996 Act reduces regulation to which non-dominant local exchange
carriers are subject, it also reduces the level of regulation that applies to
the ILECs, and increases their ability to respond quickly to competition from
the Company and others. For example, in accordance with the 1996 Act, the FCC
has proposed to subject the ILECs to "streamlined" tariff regulation, which
greatly accelerates the time in which tariffs that change service rates take
effect, and eliminates the requirement that ILECs obtain FCC authorization
before constructing new domestic facilities. These actions will allow ILECs to
change service rates more quickly in
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response to competition. The FCC initiated a proceeding on December 24, 1996
that addresses these issues and is expected to issue an order on these issues
in May 1997. Similarly, the FCC has initiated a proceeding to review its price
cap rules that may permit significant new pricing flexibility to ILECs. To the
extent that such increased pricing flexibility is provided, the Company's
ability to compete with ILECs for certain services may be adversely affected.
The 1996 Act directs the FCC, in cooperation with state regulators, to
establish a Universal Service Fund that will provide subsidies to carriers
that provide service to under-served individuals and high cost areas. These
proceedings, which must be concluded in May 1997, may require the Company to
contribute to the Universal Service Fund, but may also allow the Company to
receive payments from the Fund if it is deemed eligible. The Company also may
provide service to under-served customers in lieu of making Universal Service
Fund payments. The net revenue effect of these regulations on the Company
cannot be determined at this time.
In an order released on October 18, 1995, the FCC found that the transport
of frame relay service should be classified as a "basic" service. Previously,
it was common practice in the industry for many carriers to consider frame
relay an "enhanced" service. This decision was significant because the FCC
requires that basic services be tariffed, but permits enhanced services to be
offered on an off-tariff basis. As a result of the FCC's decision, all
carriers that provide frame relay transport were required to include the
service in their federal tariffs by May 6, 1996. The Company has included its
frame relay service in its federal tariff. The "basic" and "enhanced"
terminology used by the FCC is a regulatory term of art denoting the
classification of services for tariffing purposes. This regulatory use of the
term should not be confused with the Company's description of a class of
services-frame relay, ATM and Internet services-as "enhanced" elsewhere in
this document.
State Regulation. To the extent that the Company provides intrastate
service, it is subject to the jurisdiction of the relevant state public
service commissions. The Company currently provides some intrastate services
in 36 states and is subject to regulation by the public service commissions of
those states. As of March 31, 1997, the Company was certificated (or
certification was not required) in 45 states and the District of Columbia to
provide toll services and was seeking certification in the five remaining
states. As of March 31, 1997, the Company was certified as a CLEC in 15 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.
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In most states, the Company is required to file tariffs setting forth the
terms, conditions and prices for services that are classified as intrastate
(local, toll and enhanced). Most states require the Company to list the
services provided and the specific rate for each service. Under different
forms of regulatory flexibility, the Company may be allowed to set price
ranges for specific services, and in some cases, prices may be set on an
individual customer basis. The Company is not subject to price cap or rate of
return regulation in any state in which it is currently certificated to
provide local exchange service.
As the Company expands its operations into other states, it may become
subject to the jurisdiction of their respective public service commissions for
certain services offered by ICI. The Company does not believe that its
relationship with Latin American or other international service providers
currently subjects it to (or will subject it to) regulation outside the United
States.
Local Government Authorizations. The Company may be required to obtain from
municipal authorities street opening and construction permits to install and
expand its fiber optic networks in certain cities. In some cities, local
partners or subcontractors may already possess the requisite authorizations to
construct or expand the Company's networks.
In some of the areas where the Company provides service, it may be subject
to municipal franchise requirements and may be required to pay license or
franchise fees based on a percent of gross revenue. There are no assurances
that certain municipalities that do not currently impose fees will not seek to
impose fees in the future, nor is there any assurance that, following the
expiration of existing franchises, fees will remain at their current levels.
In many markets, other companies providing local telecommunications services,
particularly the ILECs, currently are excused from paying license or franchise
fees or pay fees that are materially lower than those required to be paid by
the Company. The 1996 Act requires municipalities to charge nondiscriminatory
fees to all telecommunications providers, but it is uncertain how quickly this
requirement will be implemented by particular municipalities in which the
Company operates or plans to operate or whether it will be implemented without
a legal challenge initiated by the Company or another ICP or CLEC.
If any of the Company's existing network agreements were terminated prior to
their expiration date and the Company was forced to remove its fiber optic
cables from the streets or abandon its network in place, even with
compensation, such termination could have a material adverse effect on the
Company.
The Company also must obtain licenses to attach facilities to utility poles
in order to build and expand facilities. Because utilities that are owned by
cooperatives or municipalities are not subject to federal pole attachment
regulation, there is no assurance that the Company will be able to obtain pole
attachment from these utilities at reasonable rates, terms and conditions.
AGREEMENTS
Interconnection Co-carrier Agreements. The Company has recently entered into
interconnection co-carrier agreements with BellSouth, NYNEX, SBC, GTE, Sprint
and Bell Atlantic, and is in the process of negotiating a similar agreement
with Ameritech. While the Company has reached agreement with Ameritech on most
of the key provisions of an interconnection co-carrier agreement, the Company
is currently arbitrating terms for transport and termination of frame relay
services with Ameritech in Illinois, Indiana and Ohio. 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
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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 ICI to make revenue sharing payments or, in some cases, to
provide a fixed price alternative or dark fiber to the lessor without an
additional charge. In addition, the Company has various other performance
obligations under its Network Agreements, the breach of which could result in
the termination of such agreements. Further, actions by governmental
regulatory bodies could, in certain instances, also result in the termination
of certain Network Agreements. The cancellation of any of the material Network
Agreements could materially adversely affect the Company's business in the
affected metropolitan area. See "Risk Factors--Risk of Cancellation or Non-
Renewal of Network Agreements, Licenses and Permits."
Interexchange Agreements. ICI, from time to time, enters into purchase
agreements with interexchange carriers for the transport and/or termination of
long distance calls outside of its territory. These contracts are typically
two years in duration and customarily include minimum purchase amounts.
UniSPAN(C). In order to provide end-to-end connectivity and interoperability
throughout the United States to its enhanced data services customers, ICI
entered into a frame relay service agreement (the "UniSPAN Agreement") in
September 1994 with EMI (since acquired by ICI), PacNet, Inc., Integrated
Network Services, Inc. and MRC Telecommunications, Inc. In September 1995,
Telemedia International, Inc., an international telecommunications company,
became a party to the UniSPAN Agreement. Pursuant to the UniSPAN Agreement,
each of the parties agreed to (i) provide frame relay services on its networks
to each of the other parties, subject to available capacity and agreement as
to certain terms including price and access to facilities, and (ii) use
reasonable efforts to utilize the services of the other parties in the event
that such party requires frame relay services in a geographic location not
served by its own networks. The UniSPAN Agreement has an initial three year
term with successive one year renewal periods until terminated by a majority
vote of the parties. However, any party may withdraw from the agreement as of
the expiration of any term by giving 60 days prior written notice thereof.
Throughout the term of the UniSPAN Agreement and for one year thereafter, or
for a period of one year after the withdrawal of any party, none of the
parties may solicit provision of frame relay services to customers which were
brought in to the UniSPAN(C) program by another party or for which frame relay
services were requested by another party.
EMPLOYEES
As of December 31, 1996, ICI employed a total of 874 full-time employees.
The Company anticipates that the number of employees will increase
significantly throughout 1997. The Company believes that its future success
will depend in large part on its continued ability to attract and retain
highly skilled and qualified personnel. ICI has nondisclosure agreements with
all of its employees. The Company also regularly uses the services of contract
technicians for the installation and maintenance of its networks. None of
ICI's employees is represented by a collective bargaining agreement. ICI
believes that its relations with its employees are good.
PROPERTIES
The Company leases its principal administrative, marketing, warehouse and
service development facilities in Tampa, Florida and leases other space for
storage of its electronics equipment and for administrative, sales and
engineering functions in other cities where the Company operates networks
and/or performs sales functions. The Company believes that its properties are
adequate and suitable for their intended purposes.
As of December 31, 1996, the Company's total telecommunications and
equipment in service consisted of fiber optic telecommunications equipment
(53%), fiber optic cable (16%), furniture and fixtures (8%), leasehold
improvements (2%) and construction in progress (21%). Such properties do not
lend themselves to description
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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
</TABLE>
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings except for
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or
lawsuits will have a material effect on the Company's financial condition or
results of operations.
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MANAGEMENT
The directors and executive officers of ICI, their respective ages, positions
and biographies 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).. 34 Senior Vice President, Public Relations and Public
Affairs
Michael A. Viren...... 55 Senior Vice President, Strategic Planning,
Regulatory and Industry Relations
Patricia A. Kurlin.... 42 Vice President, Corporate Counsel
Jeanne M. Walters..... 34 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. From 1969 to 1986, he managed
several subsidiaries of Rochester Telephone, now a part of Frontier
Corporation. Mr. Rouse received his B.A. from the University of Rochester in
1971.
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 from March 1995 through August 1995 and as the President of FiberNet
since its inception. Mr. Geiger was one of the founding principals of FiberNet,
initially serving as Vice President of Sales and Marketing and subsequently
serving as President. 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.
Robert M. Manning has served as Senior Vice President, Chief Financial
Officer of the Company since September 1996. Mr. Manning joined ICI 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.
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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 ICI 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
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.
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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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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR NOTES
As of December 31, 1996, the Company had outstanding an aggregate principal
amount of $159,115,000 of 13 1/2% Series B Senior Notes due 2005. The Senior
Notes mature on June 1, 2005 and pay interest semi-annually in arrears on June
1 and December 1 of each year. The Senior 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
Senior 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 Senior Notes have the right to require
the Company to purchase their Senior 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 Senior Notes. The covenants set forth in the Senior Notes Indenture are
similar, but more restrictive in some instances, to those in the Indenture,
including with respect to the covenant described below under the caption
"Description of the Exchange Debentures--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock." The Senior 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 Senior 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.
DISCOUNT NOTES
The Company has outstanding an aggregate principal amount of $330,000,000 of
12 1/2% Senior Discount Notes due 2006, with an aggregate accreted value of
$194,224,000 as of December 31, 1996. The Discount Notes were issued at a
substantial discount from their principal amount and mature on May 15, 2006.
Cash interest does not accrue on the Discount Notes prior to May 15, 2001.
Commencing November 15, 2001, cash interest on the Discount 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 Discount 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 Discount 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
Senior Notes, and rank senior to any future subordinated indebtedness,
including the Exchange Debentures. In the event of a change of control of the
Company prior to May 15, 2001, holders of the Discount Notes have the right to
require the Company to repurchase their Discount 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 set forth in the Discount Notes Indenture are similar to those
described below in the Indenture. The Discount 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 Discount Notes at a price equal to 100% of
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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.
CAPITAL LEASE OBLIGATIONS
As of December 31, 1996, 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 ICI
renewal options, from 2001 to 2016.
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DESCRIPTION OF PREFERRED SHARES
GENERAL
Set forth below is a summary of certain provisions of the Preferred Shares.
The terms of the New Preferred Shares are identical in all material respects
to the terms of the Old Preferred Shares (aggregate liquidation preference,
dividend rate, mandatory redemption and ranking), except for certain transfer
restrictions and registration rights relating to the Old Preferred Shares. The
New Preferred Shares, like the Old Preferred Shares, are governed by the
Certificate of Designation of Voting Power, Designation Preferences and
Relative, Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions filed with the Secretary of State of the State of
Delaware on March 6, 1997 (the "Certificate of Designation"). The following
summary of the Preferred Shares, the Certificate of Designation and the
Registration Rights Agreement is not intended to be complete and is subject to
and qualified in its entirety by reference to the Company's Restated
Certificate of Incorporation, as amended, the Certificate of Designation and
the Registration Rights Agreement, including the definitions therein of
certain terms used below. Wherever particular provisions of the Certificate of
Designation are referred to in this summary, such provisions are incorporated
by reference as a part of the statements made and such statements are
qualified in their entirety by such reference. The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions." As used in this Description of Preferred Shares, the term
"Company" refers to Intermedia Communications Inc., excluding its
Subsidiaries.
The Preferred Shares rank junior in right of payment to all indebtedness and
other obligations of the Company. As of December 31, 1996, the Preferred
Shares would have been junior in right of payment to approximately $398.7
million of total indebtedness of the Company. The Company has the ability to
issue additional Preferred Shares to pay dividends. The Certificate of
Designation provides that the Company may not, without the consent of the
holders of at least a majority of the then outstanding Preferred Shares,
authorize, create (by way of reclassification or otherwise) or issue any
Senior Securities or any Obligation or security convertible or exchangeable
into or evidencing a right to purchase, shares of any class or series of
Senior Securities, except, the Company may issue Senior Securities pursuant to
the covenant entitled, "Incurrence of Indebtedness and Issuance of
Disqualified Stock or Preferred Stock." See "Voting Rights." The Certificate
of Designation provides that the Company may not, without the consent of the
holders of at least a majority of the then outstanding New Preferred Shares or
Old Preferred Shares, as applicable, authorize, create (by way of
reclassification or otherwise) or issue any Parity Securities or any
Obligation or security convertible or exchangeable into or evidencing a right
to purchase, shares of any class or series of Parity Securities, except, the
Company may issue: (i) the New Preferred Shares as provided in the Certificate
of Designation, (ii) Old Preferred Shares or New Preferred Shares to pay
dividends thereon in accordance with the terms of the Certificate of
Designation, and (iii) Parity Securities pursuant to the covenant entitled,
"Incurrence of Indebtedness and Issuance of Disqualified Stock or Preferred
Stock."
In addition, 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
Preferred Shares. Any right of the Company to receive assets of any of its
Subsidiaries will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations)
of the Company's Subsidiaries. As of December 31, 1996, the aggregate amount
of Indebtedness and other obligations of the Company and its Subsidiaries,
that would effectively rank senior in right of payment to the obligations of
the Company under the Preferred Shares would have been approximately $403.2
million. See "Risk Factors--Substantial Indebtedness; Insufficiency of
Earnings to Cover Fixed Charges Including Dividends on the Preferred Shares"
and "--Subordination of the Preferred Shares."
Pursuant to the Certificate of Designation, 60,000 Old Preferred Shares and
60,000 New Preferred Shares with a liquidation preference of $10,000 per share
(the "Liquidation Preference") are authorized for issuance. The Old Preferred
Shares are fully paid and nonassessable, and holders thereof have no
preemptive rights in connection therewith. The New Preferred Shares will, when
issued pursuant to the Exchange Offer, be fully paid and nonassessable, and
holders thereof will have no preemptive rights in connection therewith.
The Company has submitted to its stockholders a proposal to effect a 1 for
10 split of its New Preferred Shares. Holders of record of the Company's
Common Stock and Old Preferred Shares on April 1, 1997 are
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entitled to vote on the Proposal at the Company's annual meeting of
stockholders to be held on May 22, 1997. As of the Proposal Record Date, no
New Preferred Shares were issued and outstanding. If the Proposal is approved
prior to the consummation of the Exchange Offer, each holder tendering Old
Preferred Shares will receive 10 New Preferred Shares, liquidation preference
$1,000 per share, for each Old Preferred Share tendered. If the Proposal is
not approved by the stockholders or if the Annual Meeting has not yet taken
place when the Exchange Offer is consummated, each holder tendering Old
Preferred Shares will receive one New Preferred Share for each Old Preferred
Share tendered. If the Proposal is approved after the consummation of the
Exchange Offer, upon the approval of the Proposal by the stockholders at the
Annual Meeting, each outstanding New Preferred Share, liquidation preference
$10,000 per share, will be reclassified as 10 New Preferred Shares,
liquidation preference $1,000 per share.
The transfer agent for the Preferred Shares is Continental Stock Transfer &
Trust Co. unless and until a successor is selected by the Company (the
"Transfer Agent").
RANKING
The Preferred Shares, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company,
rank (i) senior to all classes of common stock of the Company and to each
other class of capital stock or series of preferred stock established after
March 7, 1997 by the Board of Directors, the terms of which do not expressly
provide that it ranks senior to or on a parity with the Preferred Shares as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the common stock of
the Company as "Junior Securities"); (ii) on a parity with any additional
Preferred Shares issued by the Company in the future and any other class of
capital stock or series of preferred stock issued by the Company in the future
and any other class of capital stock or series of preferred stock issued by
the Company established after March 7, 1997 by the Board of Directors, the
terms of which expressly provide that such class or series will rank on a
parity with the Preferred Shares as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company
(collectively referred to as "Parity Securities"); and (iii) junior to each
class of capital stock or series of preferred stock issued by the Company
established after March 7, 1997 by the Board of Directors, the terms of which
expressly provide that such class or series will rank senior to the Preferred
Shares as to dividend distributions and distributions upon liquidation,
winding-up and dissolution of the Company (collectively referred to as "Senior
Securities").
DIVIDENDS
The holders of the Preferred Shares are entitled to receive, when, as and if
dividends are declared by the Board of Directors out of funds of the Company
legally available therefor, cumulative preferential dividends from the Issue
Date accumulating at the rate per share of 13 1/2% of the Liquidation
Preference per share per annum, payable quarterly in arrears on each of the
last days of March, June, September and December or, if any such date is not a
Business Day, on the next succeeding Business Day (each, a "Dividend Payment
Date"), to the holders of record as of the next preceding March 15, June 15,
September 15 and December 15, (each, a "Record Date"). Dividends are payable
in cash, except that on each Dividend Payment Date occurring on or prior March
31, 2002, dividends may be paid, at the Company's option, by the issuance of
additional Old Preferred Shares or New Preferred Shares, as applicable
(including fractional shares provided, that the Company may, at its option,
pay cash in lieu of issuing fractional shares), having an aggregate
Liquidation Preference equal to the amount of such dividends. The issuance of
such additional Preferred Shares constitutes "payment" of the related dividend
for all purposes of the Certificate of Designation. The first dividend payment
on the Preferred Shares is payable on June 30, 1997. Dividends payable on the
Preferred Shares are computed on the basis of a 360-day year consisting of
twelve 30-day months and are deemed to accumulate on a daily basis.
Dividends on the Preferred Shares accumulate whether or not the Company has
earnings or profits, whether or not there are funds legally available for the
payment of such dividends and whether or not dividends are
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declared. Dividends accumulate to the extent they are not paid on the Dividend
Payment Date for the period to which they relate. The Certificate of
Designation provides that the Company will take all actions required or
permitted under the Delaware General Corporation Law (the "DGCL") to permit
the payment of dividends on the Preferred Shares, including, without
limitation, through the revaluation of its assets in accordance with the DGCL,
to make or keep funds legally available for the payment of dividends.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding Preferred Shares with
respect to any dividend period unless all dividends for all preceding dividend
periods have been declared and paid, or declared and a sufficient sum set
apart for the payment of such dividend, upon all outstanding Preferred Shares.
Unless full cumulative dividends on all outstanding Preferred Shares for all
past dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart, then: (i) no dividend (other
than a dividend payable solely in shares of any Junior Securities) shall be
declared or paid upon, or any sum set apart for the payment of dividends upon,
any shares of Junior Securities; (ii) no other distribution shall be declared
or made upon, or any sum set apart for the payment of any distribution upon,
any shares of Junior Securities, other than a distribution consisting solely
of Junior Securities; (iii) no shares of Junior Securities shall be purchased,
redeemed or otherwise acquired or retired for value (excluding an exchange for
shares of other Junior Securities) by the Company or any of its Subsidiaries;
and (iv) no monies shall be paid into or set apart or made available for a
sinking or other like fund for the purchase, redemption or other acquisition
or retirement for value of any shares of Junior Securities by the Company or
any of its Subsidiaries. Holders of the Preferred Shares are not entitled to
any dividends, whether payable in cash, property or stock, in excess of the
full cumulative dividends as herein described.
The Existing Senior Notes Indentures contain, and any future credit
agreements or other agreements relating to Indebtedness to which the Company
becomes a party may contain, restrictions on the ability of the Company to pay
dividends on the Preferred Shares.
VOTING RIGHTS
Holders of record of the Preferred Shares have no voting rights, except as
required by law and as provided in the Certificate of Designation. The
Certificate of Designation provides that upon (a) the accumulation of
accumulated and unpaid dividends on the outstanding Preferred Shares in an
amount equal to six quarterly dividends (whether or not consecutive); (b) the
failure of the Company to satisfy any mandatory redemption or repurchase
obligation (including, without limitation, pursuant to any required Change of
Control Offer) with respect to the Preferred Shares; (c) the failure of the
Company to make a Change of Control Offer on the terms and in accordance with
the provisions described below under the caption "--Change of Control;" (d)
the failure of the Company to comply with any of the other covenants or
agreements set forth in the Certificate of Designation and the continuance of
such failure for 60 consecutive days or more after notice; or (e) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Closing Date,
which default (i) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more (each of the
events described in clauses (a), (b), (c), (d) and (e) being referred to
herein as a "Voting Rights Triggering Event"), then the holders of a majority
of the outstanding Old Preferred Shares and New Preferred Shares, voting as a
separate single class, are entitled to elect such number of members to the
Board of Directors of the Company constituting at least 20% of the then
existing Board of Directors before such election (rounded to the nearest whole
number), provided, however, that such number shall be no less than one nor
greater than two, and the number of members of the Company's Board of
Directors will be immediately and automatically increased by one or two, as
the case may
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be. Voting rights arising as a result of a Voting Rights Triggering Event will
continue until such time as all dividends in arrears on the Preferred Shares
are paid in full and all other Voting Rights Triggering Events have been cured
or waived, at which time the term of office of any such members of the Board
of Directors so elected shall terminate and such directors shall be deemed to
have resigned.
In addition, the Certificate of Designation provides that, the Company will
not authorize any class of Senior Securities or any Obligation or security
convertible or exchangeable into or evidencing a right to purchase, shares of
any class or series of Senior Securities, without the approval of holders of
at least a majority of the Old Preferred Shares and New Preferred Shares then
outstanding, voting or consenting, as the case may be, as one class. The
Certificate of Designation also provides that the Company may not amend the
Certificate of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of Old Preferred Shares
and New Preferred Shares, or authorize the issuance of any additional Old
Preferred Shares or New Preferred Shares, without the approval of the holders
of at least a majority of the then outstanding Old Preferred Shares and New
Preferred Shares, voting or consenting, as the case may be, as one class;
provided, however, that (a) the Company may not amend the Change of Control
provisions of the Certificate of Designation (including the related
definitions) without the approval of the holders of at least 66 2/3% of the
then outstanding Old Preferred Shares and New Preferred Shares, voting or
consenting, as the case may be, as one class and (b) without the consent of
the holders of the Old Preferred Shares and New Preferred Shares, the Company
will have the ability to issue additional Old Preferred Shares and New
Preferred Shares to pay dividends. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock or Preferred Stock." The
Certificate of Designation also provides that, except as set forth above, (a)
the creation, authorization or issuance of any shares of Junior Securities,
Parity Securities or Senior Securities or (b) the increase or decrease in the
amount of authorized capital stock of any class, including any preferred
stock, shall not require the consent of the holders of Old Preferred Shares
and the New Preferred Shares and shall not be deemed to affect adversely the
rights, preferences, privileges, special rights or voting rights of holders of
the Old Preferred Shares and the New Preferred Shares.
AMENDMENT
The Certificate of Designation shall not be amended, either directly or
indirectly, or through merger or consolidation with another entity, in any
manner that would alter or change the powers, preferences or special rights of
the Old Preferred Shares or New Preferred Shares so as to affect them
adversely without the affirmative vote of the holders of a majority or more of
the outstanding Old Preferred Shares and New Preferred Shares, voting
separately as a class. Notwithstanding the foregoing, the Certificate of
Designation may be amended by the Board of Directors in order to provide for
the New Preferred Shares to have a Liquidation Preference of $1,000 per share.
EXCHANGE
The Company may, at its option, on any Dividend Payment Date, exchange, in
whole, but not in part, the then outstanding Preferred Shares for Exchange
Debentures with a principal amount equal to the liquidation preference of the
Preferred Shares; provided, that on the date of such exchange (i) there are no
accumulated and unpaid dividends and Liquidated Damages, if any, on the
Preferred Shares (including the dividends payable on such date) or other
contractual impediments to such exchange; (ii) there shall be legally
available funds sufficient therefor; (iii) immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the
Indenture) would exist under the Indenture or would be caused thereby; (iv)
the Indenture has been qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), if such qualification is required at the
time of exchange; and (v) the Company shall have delivered a written opinion
of counsel to the Trustee (as defined herein) to the effect that all
conditions to be satisfied prior to such exchange have been satisfied.
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The Exchange Debentures will be issuable in principal amounts of $1,000 and
integral multiples thereof to the extent possible, and will also be issuable
in principal amounts less than $1,000 so that each holder of Preferred Shares
will receive certificates representing the entire amount of Exchange
Debentures to which such holder's Preferred Shares entitle such holder;
provided that the Company may pay cash in lieu of issuing an Exchange
Debenture having a principal amount less than $1,000. Notice of the intention
to exchange will be sent by or on behalf of the Company not more than 60 days
nor less than 30 days prior to the Exchange Date, by first class mail, postage
prepaid, to each holder of record of Preferred Shares at its registered
address. In addition to any information required by law or by the applicable
rules of any exchange upon which Preferred Shares may be listed or admitted to
trading, such notice will state: (i) the date of exchange (the "Debenture
Exchange Date"); (ii) the place or places where certificates for such shares
are to be surrendered for exchange, including any procedures applicable to
exchanges to be accomplished through book-entry transfers; and (iii) that
dividends on the Preferred Shares to be exchanged will cease to accumulate on
the Debenture Exchange Date. If notice of any exchange has been properly
given, and if on or before the Debenture Exchange Date the Exchange Debentures
have been duly executed and authenticated and deposited with the Transfer
Agent, then on and after the close of business on the Debenture Exchange Date,
the Preferred Shares to be exchanged will no longer be deemed to be
outstanding and may thereafter be issued in the same manner as the other
authorized but unissued preferred stock, but not as Preferred Shares, and all
rights of the holders thereof as stockholders of the Company will cease,
except the right of the holders to receive upon surrender of their
certificates the Exchange Debentures and all accrued interest, if any,
thereon.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Preferred Shares will
initially 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").
New Preferred Shares 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 New
Preferred Shares 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 the
appropriate number of shares of the Global Securities and (ii) ownership of
the New Preferred Shares 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 New
Preferred Shares evidenced by the Global Securities will be limited to such
extent.
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So long as the Global Security Holder is the registered owner of any New
Preferred Shares the Global Security Holder will be considered the sole holder
under the Certificate of Designation of any New Preferred Shares evidenced by
the Global Securities. Beneficial Owners of New Preferred Shares evidenced by
the Global Securities will not be considered the owners or holders thereof
under the Certificate of Designation for any purpose. Neither the Company nor
the Transfer Agent 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 New Preferred Shares.
Payments in respect of dividends and redemption payments and Liquidated
Damages, if any, on any New Preferred Shares registered in the name of the
Global Security Holder on the applicable record date will be payable by the
Company to or at the direction of the Global Security Holder in its capacity
as the registered holder under the Certificate of Designation. Under the terms
of the Certificate of Designation, the Company and the Transfer Agent may
treat the persons in whose names New Preferred Shares, including the Global
Securities, are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither the Company nor the Transfer Agent has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of New Preferred Shares. 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 New Preferred Shares 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 Transfer Agent, exchange such
beneficial interest for New Preferred Shares in the form of Certificated
Securities. Upon any such issuance, the Transfer Agent 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 Transfer Agent 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 Transfer Agent in writing that it elects to cause
the issuance of New Preferred Shares in the form of Certificated Securities
under the Certificate of Designation, then, upon surrender by the Global
Security Holder of its Global Securities, New Preferred Shares 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 New Preferred
Shares. If the Company elects to pay dividends on the Preferred Shares by
issuing additional Preferred Shares, fractional shares, if any, issued in
connection with any such dividend payment may be issued to holders of
Preferred Shares as Certificated Securities.
Neither the Company nor the Transfer Agent will be liable for any delay by
the Global Security Holder or the Depositary in identifying the Beneficial
Owners of New Preferred Shares and the Company and the Transfer Agent may
conclusively rely on, and will be protected in relying on, instructions from
the Global Security Holder or the Depositary for all purposes.
REDEMPTION
Mandatory Redemption
On March 31, 2009 (the "Mandatory Redemption Date"), the Company is required
to redeem (subject to the legal availability of funds therefor) all
outstanding Preferred Shares at a price in cash equal to the Liquidation
Preference thereof, plus accumulated and unpaid dividends (including an amount
in cash equal to a prorated dividend for any partial dividend period) and
Liquidated Damages, if any, to the date of redemption. The Company will not be
required to make sinking fund payments with respect to the Preferred Shares.
The Certificate of Designation provides that the Company will take all actions
required or permitted under Delaware law to permit such redemption.
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Optional Redemption
The Preferred Shares may not be redeemed at the option of the Company prior
to March 31, 2002. The Preferred Shares may be redeemed, in whole or in part,
at the option of the Company on or after March 31, 2002, at the redemption
prices specified below (expressed as percentages of the Liquidation Preference
thereof), in each case, together with accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for any partial
dividend period) and Liquidated Damages, if any, to the date of redemption,
upon not less than 30 nor more than 60 days' prior written notice, if redeemed
during the 12-month period commencing on March 31 of each of the years set
forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................................ 106.75%
2003............................................................ 105.40%
2004............................................................ 104.05%
2005............................................................ 102.70%
2006............................................................ 101.35%
2007 and thereafter............................................. 100.00%
</TABLE>
Notwithstanding the foregoing, prior to March 31, 2000, the Company may, on
any one or more occasions, use the net proceeds of one or more underwritten
public offerings of its Common Stock or the sale or sales of its Capital Stock
(other than Disqualified Stock) to a Strategic Investor provided that the
proceeds of such offerings and sales are at least equal to $50 million, to
redeem up to 35% of the shares of Preferred Shares then outstanding (whether
initially issued or issued in lieu of cash dividends) at a redemption price
equal to 113 1/2% of the Liquidation Preference per share, plus accumulated
and unpaid dividends and Liquidated Damages, if any, to the date of
redemption; provided that, after any such redemption, at least 65% of
Preferred Shares initially issued remains outstanding.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Company's
capital stock, each holder of the Preferred Shares is entitled to payment out
of the assets of the Company available for distribution of an amount equal to
the Liquidation Preference per Preferred Share held by such holder, plus
accrued and unpaid dividends and Liquidated Damages, if any, to the date fixed
for liquidation, dissolution, winding-up or reduction or decrease in capital
stock, before any distribution is made on any Junior Securities, including,
without limitation, common stock of the Company. After payment in full of the
Liquidation Preference and all accrued dividends and Liquidated Damages, if
any, to which holders of Preferred Shares are entitled, such holders will not
be entitled to any further participation in any distribution of assets of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Preferred
Shares and all other Parity Securities are not paid in full, the holders of
the Preferred Shares and the Parity Securities will share equally and ratably
in any distribution of assets of the Company in proportion to the full
liquidation preference and accumulated and unpaid dividends and Liquidated
Damages, if any, to which each is entitled. However, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the property or assets
of the Company nor the consolidation or merger of the Company with or into one
or more Persons will be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Company or reduction or decrease in capital
stock, unless such sale, conveyance, exchange or transfer shall be in
connection with a liquidation, dissolution or winding-up of the business of
the Company or reduction or decrease in capital stock.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the Liquidation Preference of the Preferred
Shares, although such Liquidation Preference will be substantially in excess
of the par value of the Preferred Shares.
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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 Preferred
Shares to repurchase all or any part (but not, in the case of any holder
requiring the Company to purchase less than all of the Preferred Shares held
by such holder, any fractional shares) of such holder's Preferred Shares at an
offer price in cash equal to 101% of the aggregate Liquidation Preference
thereof plus accumulated and unpaid dividends and Liquidated Damages, if any,
thereon to the date of purchase (the "Change of Control Payment").
The Change 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 otherwise required by applicable law) and must comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Preferred Shares as a
result of a Change of Control.
The Certificate of Designation provides that, if, at the time of a Change of
Control, the Company is prohibited by the terms of any Indebtedness from
purchasing Preferred Shares that may be tendered by holders pursuant to a
Change of Control Offer, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Change of Control, the
Company must either (i) repay in full all outstanding Indebtedness or (ii)
obtain the requisite consents, if any, under all agreements governing
outstanding Indebtedness to permit the repurchase of Preferred Shares required
by this covenant. The Company must first comply with the covenant described in
the preceding sentence before it will be required to repurchase Preferred
Shares in the event of a Change of Control; provided, that if the Company
fails to comply with the covenant described in the preceding sentence, the
sole remedy to holders of Preferred Shares will be the voting rights arising
from a Voting Rights Triggering Event. Moreover, the Company will not
repurchase or redeem any Preferred Shares pursuant to this Change of Control
provision prior to the Company's repurchase of the Existing Senior Notes
pursuant to the Change of Control covenants in the Existing Senior Notes
Indentures. As a result of the foregoing, a holder of the Preferred Shares may
not be able to compel the Company to purchase the Preferred Shares unless the
Company is able at the time to refinance all such indebtedness. See "Risk
Factors--Business Combinations; Change of Control." The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Certificate of Designation are applicable.
Except as described above with respect to a Change of Control, the Certificate
of Designation does not contain provisions that permit the holders of the
Preferred Shares to require that the Company repurchase or redeem the
Preferred Shares in the event of a takeover, recapitalization or similar
transaction.
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 assets of the Company. 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 Preferred Shares to require the Company to repurchase such Preferred
Shares 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.
The Company is not required to make a Change of Control Offer to the holders
of Preferred Shares upon a Change of Control if a third party makes the Change
of Control Offer described above in the manner, at the times and otherwise in
compliance with the requirements set forth in the Certificate of Designation
and purchases all Preferred Shares validly tendered and not withdrawn under
such Change of Control Offer.
CERTAIN COVENANTS
The sole remedy to holders of Preferred Shares in the event of a breach of
any of the covenants contained in the Certificate of Designation, including
the mandatory redemption provisions thereof, will be the voting rights arising
from a Voting Rights Triggering Event and such breach by the Company will not
cause any action taken by the Company to be invalid or unauthorized under its
charter documents.
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Restricted Payments
The Certificate of Designation 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 that are Junior Securities or of any of
its Subsidiaries other than dividends or distributions payable (A) in
Junior Securities of the Company that are not Disqualified Stock or (B) to
the Company or any Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for value
("Retire" and correlatively, a "Retirement") any Equity Interests of the
Company that are Junior Securities or of any of its Subsidiaries or other
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Subsidiary);
(iii) make any Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iii) above being collectively referred to
as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test described under "--Incurrence of Indebtedness and
Issuance of Disqualified Stock or Preferred 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), (iii) and (iv) of the next paragraph), is less than the sum of
(w) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Issue Date to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities
that have been converted into Disqualified Stock) after the Issue
Date (other than any such Equity Interests, the proceeds of which
were used as set forth in clause (ii) below), plus
(y) 100% of the sum of, without duplication, (1) aggregate
dividends or distributions received by the Company or any Subsidiary
from any Joint Venture (other than dividends or distributions to pay
any obligations of such Joint Venture to Persons other than the
Company or any Subsidiary, such as income taxes), with non-cash
distributions to be valued at the lower of book value or Fair Market
Value as determined by the Board of Directors, (2) the amount of the
principal and interest payments received since the Issue Date by the
Company or any Subsidiary from any Joint Venture and (3) the net
proceeds from the sale of an Investment in a Joint Venture received
by the Company or any Subsidiary; provided that there is no
obligation to return any such amounts to the Joint Venture, and
excluding any such dividend, distribution, interest payment or net
proceeds that constitutes a return of capital invested pursuant to
clause (vi) of the next succeeding paragraph, plus
(z) $10.0 million.
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The foregoing provisions will 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 Certificate of Designation;
(ii) the Retirement of any Junior Securities of the Company or Equity
Interests of any Subsidiary of the Company, in exchange for, or out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary
of the Company) of, Junior Securities of the Company (other than
Disqualified Stock) or other Equity Interests of such Subsidiary that is
not Disqualified Stock;
(iii) the Retirement of any Junior Securities of the Company or any
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries; and
(iv) Investments in any Joint Venture; provided that at the time any such
Investment is made, such Investment will not cause the aggregate amount of
Investments at any one time outstanding under this clause (vi) to exceed 5%
of the Total Common Equity of the Company;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), and (iv), no
Default or Event of Default shall have occurred and be continuing.
The Certificate of Designation 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 or Preferred Stock" and (ii) no Default or Event of Default
would be in existence following such designation.
Incurrence of Indebtedness and Issuance of Disqualified Stock or Preferred
Stock
The Certificate of Designation 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
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(ii) the Company and its Subsidiaries may not issue any Disqualified
Stock or any Preferred Stock, provided, however, that the Company and/or
any of its Subsidiaries may incur Indebtedness (including, without
limitation, Acquired Debt) or issue shares of Disqualified Stock or any
Preferred Stock if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock or Preferred Stock,
the Consolidated Cash Flow Leverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date of such incurrence or issuance (A)
does not exceed 6.5 to 1 if such incurrence or issuance occurs on or prior
to June 1, 1999 and (B) does not exceed 6.0 to 1 if such occurrence or
issuance occurs after June 1, 1999, in each case, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as
if the additional Indebtedness had been incurred, or the Disqualified Stock
or Preferred Stock had been issued, as the case may be, at the beginning of
such four-quarter period. If the Company incurs any Indebtedness or issues
or redeems any Preferred Stock or Disqualified Stock subsequent to the
commencement of the period for which such ratio is being calculated but
prior to the event for which the calculation of the ratio is made, then the
ratio will be calculated giving pro forma effect to any such incurrence of
Indebtedness, or such issuance or redemption of Preferred Stock or
Disqualified Stock as if the same had occurred at the beginning of the
applicable period. In making such calculation on a pro forma basis,
interest attributable to Indebtedness bearing a floating interest rate
shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period.
The foregoing limitation 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;
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total
cost of the Telecommunications Related Assets financed therewith if such
Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of the
Existing Indebtedness, including the Existing Senior Notes; and the Old
Preferred Shares and the New Preferred Shares issued in exchange for the
Old Preferred Shares pursuant to the Registration Rights Agreement (and any
shares of Old Preferred Shares or New Preferred Shares issued as dividends
thereon):
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $25.0 million at any one
time outstanding;
(e) the incurrence by the Company of Indebtedness or Preferred Stock in
an aggregate principal amount and liquidation preference not to exceed 2.0
times the net cash proceeds received by the Company after the Issue Date
from the issuance and sale of Equity Interests of the Company plus the fair
market value of Equity Interests (other than Disqualified Stock) issued in
connection with any acquisition of any Telecommunications Business;
(f) the incurrence by the Company and/or any of its Subsidiaries of
Acquired Debt in connection with any acquisition of any Telecommunications
Business in an amount not to exceed $50.0 million;
(g) the incurrence (a "Permitted Refinancing") by the Company and/or any
of its Subsidiaries of Indebtedness issued in exchange for, or the proceeds
of which are used to refinance, replace, refund or defease ("Refinance" and
correlatively, "Refinanced" and "Refinancing") Indebtedness (or the
incurrence of Preferred Stock or Disqualified Stock to Refinance Preferred
Stock or Disqualified Stock, as the case may be), other than Indebtedness
incurred pursuant to clause (a) above, but only to the extent that:
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(1) the net proceeds of such Refinancing Indebtedness or Refinancing
Capital Stock, as the case may be, does not exceed the principal amount
of and premium, if any, and accrued interest on the Indebtedness so
Refinanced (or if such Indebtedness was issued at an original issue
discount, the original issue price plus amortization of the original
issue discount at the time of the repayment of such Indebtedness) or
the liquidation preference of the Capital Stock so Refinanced plus the
fees, expenses and costs of such Refinancing and reasonable prepayment
premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness or the Refinancing Capital Stock, as
the case may be, shall have a final maturity no earlier than, and a
Weighted Average Life to Maturity equal to or greater than, the final
maturity and Weighted Average Life to Maturity of the Indebtedness or
Capital Stock being Refinanced; and
(3) if the Capital Stock being Refinanced is subordinated in right of
payment to the Preferred Shares, the Refinancing Capital Stock shall be
subordinated in right of payment to the Preferred Shares on terms at
least as favorable to the holders of Preferred Shares as those
contained in the documentation governing the Capital Stock being so
Refinanced;
(h) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(i) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate or foreign currency risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Certificate of
Designation to be outstanding;
(j) the incurrence by the Company of Junior Securities that are not
Disqualified Stock; and
(k) the incurrence by the Company of the Exchange Debentures in
accordance with the terms of the Certificate of Designation.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness, Disqualified Stock or Preferred Stock meets the
criteria of more than one of the categories described in clauses (a) through
(k) above or is entitled to be incurred pursuant to the first paragraph of
this covenant, the Company shall, in its sole discretion, classify such item
in any manner that complies with this covenant and such item will be treated
as having been incurred pursuant to only one of such clauses or pursuant to
the first paragraph herein. Accrual of interest or dividends, the accretion of
accreted value or liquidation preference and the payment of interest or
dividends in the form or additional Indebtedness or Preferred Stock will not
be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Certificate of Designation 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;
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(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with
past practices;
(e) Indebtedness or Preferred Stock in respect of a Permitted
Refinancing, provided that the restrictions contained in the agreements
governing such Refinancing Indebtedness or Refinancing Capital Stock
are not materially more restrictive than those contained in the
agreements governing the Indebtedness or Capital Stock being
refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
(g) Indebtedness incurred under clause (a) of the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock or
Preferred Stock;"
(h) the Certificate of Designation, the Indenture, the Old Preferred
Shares, the New Preferred Shares or the Exchange Debentures; or
(i) in the case of clauses (a), (c), (e), (g) and (h) above, any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not
materially more restrictive with respect to such dividend and other
payment restrictions than those contained in such instruments as in
effect on the date of their incurrence or, if later, the Issue Date.
Merger, Consolidation or Sale of Assets
The Certificate of Designation 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 (the "Surviving Person") assumes all the obligations of the Company
under the Old Preferred Shares and New Preferred Shares;
(iii) immediately after such transaction no Default or Event of Default
exists;
(iv) if the holders of at least 85% of the common stock of the Surviving
Person immediately after such transaction are not, directly or indirectly,
the same as the holders of the common stock of the Company immediately
prior to such transaction, the Surviving Person, at the time of such
transaction after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable fiscal quarter (including
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), either (A)
could incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Cash Flow Leverage Ratio test described under "--Incurrence of
Indebtedness and Issuance of Disqualified Stock or Preferred 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
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(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 Certificate of Designation 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; and
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company;
provided that
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its
Subsidiaries, or any grant of stock, in the ordinary course of business
that are approved by the Board of Directors of the Company,
(b) transactions between or among the Company and its Subsidiaries,
(c) transactions permitted by the provisions of the Certificate of
Designation 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.
Reports
The Certificate of Designation provides that the Company will file within 15
days after it files them with the Commission copies of the annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act ("SEC Reports"). In the event the Company is not
required or shall cease to be required to file SEC Reports, pursuant to the
Exchange Act, the Company will nevertheless continue to file such reports with
the Commission (unless the Commission will not accept such a filing). Whether
or not required by the Exchange Act to file SEC Reports with the Commission,
so long as any Old Preferred Shares or New Preferred Shares are outstanding,
the Company will furnish copies of the SEC Reports to the holders of Old
Preferred Shares or New Preferred Shares at the time the Company is required
to make such information available to investors who request it in writing. In
addition, the Company has agreed that, for so long as any Old Preferred Shares
or New Preferred Shares 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.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designation. Reference is made to the Certificate of Designation for a full
disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"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,
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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.
"Asset Sale" means when the Company and its Subsidiaries, whether in a
single transaction or a series of related transactions occurring within any
twelve-month period, (i) sell, lease, convey, dispose of or otherwise transfer
any assets (including by way of a Sale and Leaseback Transaction) (other than
sales, leases, conveyances, dispositions or other transfers (A) in the
ordinary course of business, (B) to the Company by any Subsidiary of the
Company or from the Company to any Subsidiary of the Company, (C) that
constitute a Restricted Payment, Investment or dividend or distribution
permitted under the covenant described above 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 above 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.
"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 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.
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"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on Nasdaq National
Market but the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under
the Exchange Act) and the principal securities exchange on which such shares
are listed or admitted to trading is a Designated Offshore Securities Market
(as defined in Rule 902(a) under the Securities Act), the average of the
reported closing bid and asked prices regular way on such principal exchange,
or, if such shares are not listed or admitted to trading on any national
securities exchange or quoted on Nasdaq National Market and the issuer and
principal securities exchange do not meet such requirements. the average of
the closing bid and asked prices in the over-the-counter market as furnished
by any New York Stock Exchange member firm that is selected from time to time
by the Company for that purpose and is reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means the
ratio of the Consolidated Indebtedness and Liquidation Preference of such
Person to the Consolidated EBITDA of such Person for the relevant period;
provided, however, that (1) if the Company or any Subsidiary of the Company
has incurred any Indebtedness (including Acquired Debt) or if the Company has
issued any Disqualified Stock or if any Subsidiary of the Company has issued
any Disqualified Stock or Preferred Stock since the beginning of such period
that remains outstanding on the date of such determination or if the
transaction giving rise to the need to calculate the Consolidated Cash Flow
Leverage Ratio is an incurrence of Indebtedness (including Acquired Debt) or
the issuance of Disqualified Stock by the Company, Consolidated EBITDA and
Consolidated Indebtedness and Liquidation Preference for such period will be
calculated after giving effect on a pro forma basis to (A) such Indebtedness,
Disqualified Stock or Preferred Stock, as applicable, as if such Indebtedness
had been incurred or such stock had been issued on the first day of such
period, (B) the discharge of any other Indebtedness or Preferred Stock repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness or sale of stock as if such discharge had occurred on the first
day of such period, and (C) the interest income realized by the Company or its
Subsidiaries on the proceeds of such Indebtedness or of such stock sale, to
the extent not yet applied at the date of determination, assuming such
proceeds earned interest at the rate in effect on the date of determination
from the first day of such period through such date of determination, (2) if
since the beginning of such period the Company or any Subsidiary of the
Company has made any sale of assets (including, without limitation, any Asset
Sales or pursuant to any Sale and Leaseback Transaction), Consolidated EBITDA
for such period will be (A) reduced by an amount equal to Consolidated EBITDA
(if positive) directly attributable to the assets which are the subject of
such sale of assets for such period or (B) increased by an amount equal to
Consolidated EBITDA (if negative) directly attributable thereto for such
period and (3) if since the beginning of such period the Company or any
Subsidiary of the Company (by merger or otherwise) has made an Investment in
any Subsidiary of the Company (or any Person which becomes a Subsidiary of the
Company) or has made an acquisition of assets, including, without limitation,
any acquisition of assets occurring in connection with a transaction causing a
calculation of Consolidated EBITDA to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, Consolidated EBITDA
for such period will be calculated after giving pro forma effect thereto
(including the incurrence of any Indebtedness (including Acquired Debt)) as if
such Investment or acquisition occurred on the first day of such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the pro forma calculations will be determined in good
faith by a responsible financial or accounting Officer of the Company,
provided, however, that such Officer shall assume (i) the historical sales and
gross profit margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the first month of
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such 12-month period will be no more than 18 months prior to such date of
purchase) and (ii) other expenses as if such assets had been owned by the
Company since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) or stock bears a floating rate of interest
and is being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the Consolidated
Net Income for such period (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, (ii) Consolidated Interest Expense, (iii)
depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period and excluding non-cash interest and dividend income) of such
Person and its Subsidiaries for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation,
amortization, interest expense and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary,
or loaned to the Company by any such Subsidiary, without prior approval (that
has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness and Liquidation Preference" means, with respect
to any Person, as of any date of determination, the aggregate amount of
Indebtedness and liquidation preference of Preferred Stock of such Person and
its Subsidiaries as of such date calculated on a consolidated basis in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP: (a) the amount of interest in
respect of Indebtedness (including amortization of original issue discount,
amortization of debt issuance costs, and non-cash interest payments on any
Indebtedness, the interest portion of any deferred payment obligation and
after taking into account the effect of elections made under any Interest Rate
Agreement, however denominated with respect to such Indebtedness), (b) the
amount of Redeemable Dividends (to the extent not already included in
Indebtedness in determining Consolidated Interest Expense for the relevant
period) and (c) the interest component of rentals in respect of any Capital
Lease Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in
such Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or other distributions by that
Subsidiary of that Net Income is not at the date of determination
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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/or any Subsidiary and one or more commercial banks or financial
institutions, providing for senior term or revolving credit borrowings of a
type similar to credit facilities typically entered into by commercial banks
and financial institutions, including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit facility and related agreements may be amended,
extended, refinanced, renewed, restated, replaced or refunded from time to
time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and only to
the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to March 31, 2009, provided, however, that
any Capital Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Capital Stock upon the occurrence of a Change of
Control occurring prior to March 31, 2009 shall not constitute Disqualified
Stock if the change in control provisions applicable to such Capital Stock are
no more favorable to the holders of such Capital Stock than the provisions
applicable to the Series A Preferred Stock contained in the covenant described
under "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 Series A Preferred Stock
as are required to be repurchased pursuant to the covenant described under
"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.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or
exchangeable for Capital Stock).
"Event of Default" means any Voting Rights Triggering Event.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder.
"Exchange Offer" means the exchange offer of the New Preferred Stock for the
Series A Preferred Stock or the New Debentures for the Exchange Debentures, as
applicable, pursuant to the Registration Rights Agreement.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 13 1/2% Senior Notes due 2005
and the Company's 12 1/2% Senior Discount Notes due 2006.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant
to capital leases) or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations or letters of
credit) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Persons), all obligations to purchase, redeem, retire, defease or
otherwise acquire for value any Disqualified Stock or any warrants, rights or
options to acquire such Disqualified Stock valued, in the case of Disqualified
Stock, at the greatest amount payable in respect thereof on a liquidation
(whether voluntary or involuntary) plus accrued and unpaid dividends, the
liquidation value of any Preferred Stock issued by Subsidiaries of such Person
plus accrued and unpaid dividends, and also includes, to the extent not
otherwise included, the Guarantee of items that would be included within this
definition and any amendment, supplement, modification, deferral, renewal,
extension or refunding of
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any of the above; notwithstanding the foregoing, in no event will performance
bonds or similar security for performance be deemed Indebtedness so long as
such performance bonds or similar security for performance would not appear as
a liability on a balance sheet of such Person prepared in accordance with
GAAP; and provided further, that the amount of any Indebtedness in respect of
any Guarantee shall be the maximum principal amount of the Indebtedness so
guaranteed; it being understood that Indebtedness with respect to the
Certificate of Designation does not include any obligation with respect to the
Exchangeable Preferred Stock.
"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 Certificate of Designation.
"Issue Date" means the initial issuance date of the Old Preferred Shares.
"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.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible Institution;
(iii) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types described
in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be applied to the repayment
of Indebtedness secured by a Lien on the asset or assets that are the subject
of such Asset Sale and any reserve for adjustment in respect of
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the sale price of such asset or assets. Net Proceeds shall exclude any non-
cash proceeds received from any Asset Sale, but shall include such proceeds
when and as converted by the Company or any Subsidiary of the Company to cash.
"New Preferred Stock" means the Series B Preferred Stock authorized by the
Certificate of Designation that may be issued pursuant to the Exchange Offer
pursuant to the Registration Rights Agreement.
"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 Disqualified Stock or Preferred Stock"; and (i) bonds, notes,
debentures or other securities received as a result of Asset Sales.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock of any other class of such Person.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising: (i)
accounts; (ii) accounts receivable, including, without limitation, all rights
to payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance; (iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit,
relating to any of the foregoing after creation of the foregoing or arising
therefrom; (iv) all rights to any goods or merchandise represented by any of
the foregoing, including, without limitation, returned or repossessed goods;
(v) all reserves and credit balances with respect to any such accounts
receivable or account debtors; (vi) all letters of credit, security, or
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.
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"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Initial Purchasers.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"S&P" means Standard & Poor's Rating Group and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Strategic Investor" means, with respect to any sale of the Company's
Capital Stock, any Person which, both as of the Trading Day immediately before
the day of such sale and the Trading Day immediately after the day of such
sale, has, or whose parent has, a Total Market Capitalization of at least $1.0
billion on a consolidated basis. In calculating Total Market Capitalization
for the purpose of this definition, the consolidated Indebtedness of such
Person, solely when calculated as of the Trading Day immediately after the day
of such sale, will be calculated after giving effect to such sale (including
any Indebtedness incurred in connection with such sale). For purposes of this
definition, the term parent means any Person of which the referent Strategic
Investor is a Subsidiary.
"Subsidiary" of any Person means (i) any corporation, association or
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of such Person or a combination thereof and
(ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person or any combination thereof; provided that any Unrestricted Subsidiary
shall be excluded from this definition of "Subsidiary."
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in a Telecommunications Business or (iii) evaluating, participating or
pursuing any other activity or opportunity that is related to those identified
in (i) or (ii) above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors of the Company.
"Telecommunications Related Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used in connection
with a Telecommunications Business.
"Total Common Equity" of any Person means, as of any date of determination
(and as modified for purposes of the definition of "Change of Control"), the
product of (i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no
such Closing Price exists with respect to shares of any such class, the value
of such shares for purposes of clause (ii) of the preceding sentence shall be
determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors.
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"Total Market Capitalization" of any Person means, as of any day of
determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of (1) the consolidated Indebtedness of such Person and
its Subsidiaries (except in the case of the Company, in which case of the
Company and its Subsidiaries) on such day, plus (2) the product of (i) the
aggregate number of outstanding primary shares of Common Stock of such Person
on such day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person) and
(ii) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day, plus (3) the liquidation value of
any outstanding share of Preferred Stock of such Person on such day. If no
such Closing Price exists with respect to shares of any such class, the value
of such shares for purposes of clause (2) of the preceding sentence shall be
determined by the Company's Board of Directors in good faith and evidenced by
a resolution of the Board of Directors.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred in connection with the acquisition or construction of
Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company entered into the Registration Rights Agreement on March 7, 1997
(the "Closing Date"), pursuant to which the Company agreed to file with the
Commission the Exchange Offer Registration Statement, of which this Prospectus
forms a part (the "Exchange Offer Registation Statement") with respect to the
New Preferred Shares, or if the Old Preferred Shares have been exchanged for
Exchange Debentures, the New Exchange Debentures. 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 New Preferred Shares or New Exchange
Debentures, as the case may be. 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 prior to the 20th day following consummation of the
Exchange Offer that (A) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (B) that
it may not resell the New Preferred Shares or New Exchange Debentures acquired
by it in the Exchange Offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer
and owns Old Preferred Shares or Exchange Debentures acquired directly from
the Company or an affiliate of the Company, the Company will file with the
Commission a shelf registration statement (the "Shelf Registration Statement")
to cover resales of the Old Preferred Shares or Exchange Debentures 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 as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Preferred Share or
Exchange Debenture until (i) the date on which such Preferred Share or
Exchange Debenture has been exchanged by a person other than a broker-dealer
for New Preferred Shares or New Exchange Debentures in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of Old
Preferred Shares or Exchange Debentures for New Preferred Shares or New
Exchange Debentures the date on which such New Preferred Shares or New
Exchange Debentures are sold to a purchaser who receives from such broker-
dealer on or prior to
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the date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Old Preferred Shares or
Exchange Debenture 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 Preferred Shares or Exchange Debenture is
distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 30
days after the Closing Date, (ii) the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 120 days after the Closing Date, (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, New Preferred
Shares or New Exchange Debentures, as the case may be, in exchange for all
Preferred Shares or Exchange Debentures tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its best efforts to file the Shelf Registration Statement
with the Commission on or prior to 30 days after such filing obligation arises
(and in any event within 150 days after the Closing Date) and to cause the
Shelf Registration to be declared effective by the Commission on or prior to
90 days after such obligation arises (and in any event within 240 days after
the Closing Date). 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"), or (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 ("Liquidated Damages") to each affected holder of
Preferred Shares or Exchange Debentures, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default
in an amount equal to $.005 per week per $100 liquidation preference of
Preferred Shares or $.05 per week per $1,000 principal amount of Exchange
Debentures held by such holder. The amount of the Liquidated Damages will
increase by an additional $.005 per week per $100 liquidation preference of
Preferred Shares or $.05 per week per $1,000 principal amount of Exchange
Debentures with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.05 per week per $100 liquidation preference of Preferred Shares
or $.50 per week per $1,000 principal amount of Exchange Debentures. All
accrued Liquidated Damages will be paid by the Company on each Damages Payment
Date to the Global Security Holder by wire transfer of immediately available
funds or by federal funds check and to holders of Certificated Securities by
wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
Holders of Old Preferred Shares or Exchange Debentures 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 are
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 Preferred Shares or Exchange Debentures
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
Upon consummation of the Exchange Offer, holders of Old Preferred Shares
that were not prohibited from participating in the Exchange Offer and did not
tender their Old Preferred Shares will not have any registration rights under
the Registration Rights Agreement with respect to such non-tendered Old
Preferred Shares and, accordingly, such Old Preferred Shares will continue to
be subject to the restrictions on transfer contained in the legend thereon. In
general, the Old Preferred Shares may not be offered or sold, unless
registered under the Securities Act and the 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.
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DESCRIPTION OF THE EXCHANGE DEBENTURES
GENERAL
The 13 1/2% Senior Subordinated Debentures due 2009 (the "Exchange
Debentures") will be issued pursuant to an Indenture (the "Indenture") between
the Company and a trustee to be selected by the Company (the "Trustee"). The
terms of the Exchange Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Exchange Debentures are subject to all such terms, and holders of Exchange
Debentures 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 will be 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 Description of the
Exchange Debentures, the term "Company" refers to Intermedia Communications
Inc., excluding its Subsidiaries.
RANKING
The Exchange Debentures will be general unsecured obligations of the Company
and will be subordinated in right of payment to all current and future Senior
Debt. As of December 31, 1996, on a pro forma basis giving effect to the
Offering, the Company would have had Senior Debt of approximately $353.3
million. The Indenture will permit the incurrence of additional Senior Debt in
the future.
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
Exchange Debentures. The Exchange Debentures 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
Exchange Debentures 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 December 31, 1996, the
Exchange Debentures would have been effectively subordinated to Capital Lease
Obligations of the Company's Subsidiaries of approximately $3.1 million.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Exchange
Debentures will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of Exchange
Debentures will be entitled to receive any payment with respect to the
Exchange Debentures and until all Obligations with respect to Senior Debt are
paid in full, any distribution to which the holders of Exchange Debentures
would be entitled shall be made to the holders of Senior Debt (except that
holders of Exchange Debentures may receive Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
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The Company also may not make any payment upon or in respect of the Exchange
Debentures (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. Payments on the Exchange Debentures may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and
until (i) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest on the Exchange Debentures that have come due
have been paid in full in cash. No more than one Payment Blockage Notice to
the Trustee may be given in any 360 day period.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Exchange Debentures is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of Exchange Debentures may recover less
ratably than creditors of the Company who are holders of Senior Debt. On a pro
forma basis, after giving effect to the Offering and the application of the
proceeds therefrom, the principal amount of Senior Debt outstanding at
December 31, 1996, would have been approximately $353.3 million. The Indenture
will limit, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Subsidiaries can
incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Debentures will be issued with an aggregate principal amount
limited to the aggregate liquidation preference of the Old Preferred Shares or
New Preferred Shares, as the case may be, plus accrued and unpaid dividends on
the date of exchange of the Old Preferred Shares or the New Preferred Shares,
as the case may be, into Exchange Debentures (plus any additional Exchange
Debentures issued in lieu of cash interest as described herein) and will
mature on March 31, 2009. Interest will accrue at a rate of 13 1/2% per annum
and will be payable semi-annually on March 31 and September 30 of each year,
commencing on the first such date after the issuance date of the Exchange
Debentures, to holders of record on the immediately preceding March 15 and
September 15. Interest payable on or prior to March 31, 2002 may be paid in
the form of additional Exchange Debentures valued at the principal amount
thereof. Interest on the Exchange Debentures will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
the date of issuance of the Exchange Debentures. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. The Exchange
Debentures will be payable both as to principal, premium, if any, 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 and Liquidated Damages may be made by check
mailed to the holders of the Exchange Debentures at their respective addresses
set forth in the register of holders of the Exchange Debentures. 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
Exchange Debentures will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
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OPTIONAL REDEMPTION
The Exchange Debentures will not be redeemable at the Company's option prior
to March 31, 2002. Thereafter, the Exchange Debentures will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 31 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................................ 106.75%
2003............................................................ 105.40%
2004............................................................ 104.05%
2005............................................................ 102.70%
2006............................................................ 101.35%
2007 and thereafter............................................. 100.00%
</TABLE>
Notwithstanding the foregoing, prior to March 31, 2000, the Company may, on
any one or more occasions, use the net proceeds of one or more underwritten
public offerings of its Common Stock or from the sale of its Capital Stock
(other than Disqualified Stock) to a Strategic Investor in a single
transaction or series of related transactions for an aggregate purchase price
equal to or exceeding $50.0 million, to redeem up to a maximum of 35% of the
aggregate principal amount of the Exchange Debentures originally issued from
the net cash proceeds of such sale or offering (but only to the extent such
proceeds consist of cash or readily marketable cash equivalents) at a
redemption price equal to 113 1/2% of the principal amount thereof with
respect to the Exchange Debentures to be redeemed on the redemption date,
provided that at least 65% of the aggregate principal amount of the Exchange
Debentures originally issued remains outstanding immediately after the
occurrence of such redemption and that such redemption occurs within 90 days
of the date of the closing of such sale.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the Exchange Debentures.
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 Exchange
Debentures to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Exchange Debentures at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon, to the date of
purchase (the "Change of Control Payment"). The Change 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. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Exchange Debentures required by this covenant.
Except as described above with respect to a Change of Control, the Indenture
will not contain provisions that permit the holders of the Exchange Debentures
to require that the Company repurchase or redeem the Exchange Debentures in
the event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and subordination of the
Exchange Debentures to Senior Debt of the Company and the effective
subordination of the Exchange Debentures to Indebtedness of the Company's
Subsidiaries, the Company may not have sufficient funds available to purchase
the Exchange Debentures tendered in response to a Change of Control Offer. In
addition, the Existing Senior Notes, the Credit Facility 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. Any future credit agreements or
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other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing
Exchange Debentures, the Company could seek the consent of its lenders to the
purchase of Exchange Debentures or could attempt to refinance the borrowings
that contain such prohibition. If the Company does not obtain such a consent
or repay such borrowings, the Company will remain prohibited from purchasing
Exchange Debentures. In such case, the Company's failure to purchase tendered
Exchange Debentures would constitute an Event of Default under the Indenture
which would, in turn, constitute as default under the Existing Senior Notes
Indentures. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Exchange
Debentures.
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 Exchange Debentures to require the Company to repurchase such
Exchange Debentures 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 Exchange Debentures and Pari Passu Notes (an
"Excess Proceeds Offer"), to purchase the maximum principal amount of Exchange
Debentures and Pari Passu Notes that may be purchased out of such Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
outstanding principal amount of the Exchange Debentures and 100% of the
outstanding principal amount of the Pari Passu Notes, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon, to the date fixed for the
closing of such offer, in accordance with the procedures specified in the
Indenture.
If the aggregate principal amount of Exchange Debentures and Pari Passu
Notes surrendered by holders thereof exceeds the amount of Excess Proceeds,
the Trustee will select the Exchange Debentures and Pari Passu Notes to be
purchased on a pro rata basis based upon their applicable principal amount. To
the extent that the aggregate amount of Exchange Debentures 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 EXCHANGE DEBENTURES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Exchange Debentures are to be redeemed or to be
purchased pursuant to any purchase offer required under the Indenture at any
time, selection of Exchange Debentures 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 Exchange Debentures are listed, or,
if the Exchange Debentures 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 Exchange Debentures with a principal amount of $1,000 or less shall be
redeemed or purchased in part. A new Exchange Debenture 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 Exchange Debenture. On
and after the redemption or purchase date, interest will cease to accrue on
the Exchange Debentures 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 Exchange
Debentures to be redeemed at its registered address. If any Exchange
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Debenture is to be redeemed in part only, the notice of redemption that
relates to such Exchange Debenture shall state the portion of the principal
amount to be redeemed.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide 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 Exchange Debentures or (B) any
Subsidiary, except, with respect to clause (i) (A) or (i) (B) above, at
final maturity or in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such
Indebtedness; or
(iv) make any Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred to
as "Restricted Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test 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 the beginning of the
first fiscal quarter commencing after the Issue Date to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities
that have been converted into Disqualified Stock) after the Issue
Date (other than any such Equity Interests, the proceeds of which
were used as set forth in clause (ii) below, plus
(y) 100% of the sum of, without duplication, (1) aggregate
dividends or distributions received by the Company or any Subsidiary
from any Joint Venture (other than dividends or distributions to pay
any obligations of such Joint Venture to Persons other than the
Company or any Subsidiary, such as income taxes), with non-cash
distributions to be valued at the lower of book value or fair market
value as determined by the Board of Directors, (2) the amount of the
principal and interest payments received since the Issue Date by the
Company or any Subsidiary from any Joint Venture and (3) the net
proceeds from the sale of an Investment in a Joint Venture received
by the Company or any Subsidiary; provided that there is no
obligation to return any
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such amounts to the Joint Venture, and excluding any such dividend,
distribution, interest payment or net proceeds that constitutes a
return of capital invested pursuant to clause (vi) of the next
succeeding paragraph, plus
(z) $10.0 million.
The foregoing provisions will not prohibit:
(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 Exchange Debentures or (C) Indebtedness of a Subsidiary
of the Company, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, Equity Interests of the Company (other than Disqualified Stock);
(iii) the Retirement of any Indebtedness of the Company subordinated in
right of payment to the Exchange Debentures in exchange for, or out of the
proceeds of the substantially concurrent incurrence of Indebtedness of the
Company (other than Indebtedness to a Subsidiary of the Company), but only
to the extent that such new Indebtedness is permitted under 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
Exchange Debentures at least to the same extent as, (2) has a Weighted
Average Life to Maturity at least as long as, and (3) has no scheduled
principal payments due in any amount earlier than, any equivalent amount of
principal under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Subsidiary of the Company in
exchange for, or out of the proceeds of the substantially concurrent
incurrence of Indebtedness of the Company or any Subsidiary but only to the
extent that such incurrence is permitted under 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 Exchange Debentures at least to the
same extent as the Retired Indebtedness;
(v) the Retirement of any Equity Interests of the Company or any
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries; and
(vi) Investments in any Joint Venture; provided that at the time any such
Investment is made, such Investment will not cause the aggregate amount of
Investments at any one time outstanding under this clause (vi) to exceed 5%
of the Total Common Equity of the Company;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v) and
(vi), no Default or Event of Default shall have occurred and be continuing.
The Indenture will also provide 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
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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 will provide 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.
The foregoing limitation will not apply to (with each exception to be given
independent effect):
(a) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness under the Credit Facility in an aggregate principal amount at
any one time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and/or any of its Subsidiaries thereunder) not to exceed $75.0 million in
the aggregate at any one time outstanding, 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;"
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(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total
cost of the Telecommunications Related Assets financed therewith if such
Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of the
Existing Indebtedness, including the Existing Senior Notes;
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $25.0 million at any one
time outstanding;
(e) the incurrence by the Company of Indebtedness, but only to the extent
that such Indebtedness is expressly subordinate to the payment in full of
all Obligations with respect to the Existing Senior Notes and are not
senior in right of payment of the Exchange Debentures and has a final
maturity no earlier than, and a Weighted Average Life to Maturity equal to
or greater than, the final maturity and Weighted Average Life to Maturity,
respectively, of the Exchange Debentures, in an aggregate principal amount
not to exceed 2.0 times the net cash proceeds received by the Company after
May 14, 1996 from the issuance and sale of Equity Interests of the Company
plus the fair market value of Equity Interests (other than Disqualified
Stock) issued in connection with any acquisition of any Telecommunications
Business;
(f) the incurrence (a "Permitted Refinancing") by the Company and/or any
of its Subsidiaries of Indebtedness issued in exchange for, or the proceeds
of which are used to refinance, replace, refund or defease ("Refinance" and
correlatively, "Refinanced" and "Refinancing") Indebtedness, other than
Indebtedness incurred pursuant to clause (a) above, but only to the extent
that:
(1) the net proceeds of such Refinancing Indebtedness does not exceed
the principal amount of and premium, if any, and accrued interest on
the Indebtedness so Refinanced (or if such Indebtedness was issued at
an original issue discount, the original issue price plus amortization
of the original issue discount at the time of the repayment of such
Indebtedness) 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 Exchange Debentures, the Refinancing Indebtedness shall
be subordinated in right of payment to the Exchange Debentures on terms
at least as favorable to the holders of Exchange Debentures as those
contained in the documentation governing the Indebtedness being so
Refinanced;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; and
(h) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate or foreign currency risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding.
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 or Preferred Stock will not
be deemed to be an incurrence of Indebtedness for purposes of this covenant.
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Asset Sales
The Indenture will provide 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 Exchange
Debentures) that are assumed by the transferee of any such assets and
(y) any notes, obligations or other securities received by the Company
or any such Subsidiary from such transferee that are immediately
converted by the Company or such Subsidiary into cash, shall be deemed
to be cash (to the extent of the cash received in the case of subclause
(y)) for purposes of this clause (c); and (B) an amount equal to the
Fair Market Value (determined as set forth in clause (b) above) of
(1) Telecommunications Related Assets received by the Company or any
such Subsidiary from the transferee that will be used by the Company or
any such Subsidiary in the operation of a Telecommunications Business
in the United States and (2) the Voting Stock of any Person engaged in
the Telecommunications Business in the United States received by the
Company or any such Subsidiary (provided that such Voting Stock is
converted to cash within 270 days or such Person concurrently becomes
or is a Subsidiary of the Company) will be deemed to be cash for
purposes of this clause (c).
The foregoing provisions will not apply to a sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company, which
will be governed by the provisions of the Indenture described below under
"Merger, Consolidation, or Sale of Assets."
The Indenture will also provide 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 Debt (including the Existing Senior Notes) or (ii) the
purchase of Telecommunications Related Assets or Voting Stock of any Person
engaged in the Telecommunications Business in the United States (provided that
such Person concurrently becomes a Subsidiary of the Company). Any Net
Proceeds from any Asset Sales that
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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 Asset Sale Offer in accordance with the terms set forth
under "Offer to Purchase with Excess Asset Sale Proceeds." Notwithstanding the
foregoing, the Company shall have no obligation to make an Asset Sale Offer
unless the Existing Senior Notes outstanding, if any, have matured or are no
longer outstanding.
Liens
The Indenture will provide that the Company and its Subsidiaries may not,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except for Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide 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, the Preferred Shares and the Exchange Debentures;
or
(i) in the case of clauses (a), (c), (e), (g) and (h) above, any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not
materially more restrictive with respect to such dividend and other
payment restrictions than those contained in such instruments as in
effect on the date of their incurrence or, if later, the Issue Date.
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Merger, Consolidation or Sale of Assets
The Indenture will provide 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 Exchange
Debentures 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) 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 will provide 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.
Business Activities
The Indenture will provide 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 will provide 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 will provide 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 Exchange Debentures are outstanding, the
Company will furnish copies of the SEC Reports to the holders of Exchange
Debentures at the time the Company is required to file the same with the
Trustee and make such information available to investors who request it in
writing. In addition, the Company has agreed that, for so long as any Exchange
Debentures 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.
No Senior Subordinated Debt
The Indenture will provide that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Exchange Debentures.
Payments for Consent
The Indenture will provide 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 Exchange Debentures for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Exchange
Debentures unless such consideration is offered to be paid or agreed
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to be paid to all holders of the Exchange Debentures that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default:
(i) default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to, the Exchange Debentures,
whether or not prohibited by the subordination provisions of the Indenture;
(ii) default in payment when due of principal or premium, if any, on the
Exchange Debentures at maturity, upon redemption or otherwise, whether or
not prohibited by the subordination provisions of the Indenture;
(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 Exchange Debentures
then outstanding to comply with its other agreements in the Indenture or
the Exchange Debentures;
(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;
(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 Exchange Debentures may declare all the Exchange Debentures to be
due and payable immediately, provided that the Existing Senior Notes
outstanding, if any, have become due and payable. Upon such declaration, the
principal of premium, if any, and accrued and unpaid interest and Liquidated
Damages, if any, on the Exchange Debentures shall be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, the foregoing amount shall
ipso facto become due and payable without further action or notice, provided
that the Existing Senior Notes outstanding, if any, have become due and
payable. No premium is payable upon acceleration of the Exchange Debentures
except that in the case of an Event of Default that is the result of an action
or inaction by the Company or any of its Subsidiaries intended to avoid
restrictions on or premiums related to redemptions of the Exchange Debentures
contained in
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the Indenture or the Exchange Debentures, the amount declared due and payable
will include the premium that would have been applicable on a voluntary
prepayment of the Exchange Debentures or, if voluntary prepayment is not then
permitted, the premium set forth in the Indenture. holders of the Exchange
Debentures may not enforce the Indenture or the Exchange Debentures except as
provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Exchange Debentures may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Exchange Debentures 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 of the Exchange
Debentures then outstanding, by notice to the Trustee, may on behalf of the
holders of all of the Exchange Debentures then outstanding, 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 Exchange Debentures
then outstanding.
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
Exchange Debentures or the Indenture or for any claim based on, in respect of,
or by reason of such obligations or their creation. Each holder of Exchange
Debentures by accepting a Exchange Debenture waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Exchange Debentures. 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 Exchange Debentures
("legal defeasance"). Such legal defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Exchange Debentures, except for:
(a) the rights of holders of outstanding Exchange Debentures to receive
from the trust described below payments in respect of the principal of,
premium, if any, and interest on and Liquidated Damages with respect to
such Exchange Debentures when such payments are due, or on the redemption
date, as the case may be;
(b) the Company's obligations with respect to the Exchange Debentures
concerning issuing temporary Exchange Debentures, registration of Exchange
Debentures, mutilated, destroyed, lost or stolen Exchange Debentures and
the maintenance of an office or agency for payment and money for security
payments held in trust;
(c) the rights, powers, trust, duties and immunities of the Trustee, and
the Company's obligations in connection therewith; and
(d) the legal defeasance provisions of 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 Exchange Debentures. In the event
covenant defeasance occurs, certain events (not including nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Exchange Debentures.
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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 Exchange Debentures, 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 Exchange Debentures, 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 Exchange Debentures;
(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 Exchange
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such legal defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such legal defeasance had not
occurred;
(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 Exchange
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred;
(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 Exchange Debentures over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(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 Exchange Debentures 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 Exchange Debenture selected for redemption. Also, the Company is
not required to transfer or exchange any Exchange Debenture for a period of 15
days before a selection of Exchange Debentures to be redeemed.
The registered holder of a Exchange Debenture will be treated as the owner
of it for all purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Exchange Debentures may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the Exchange Debentures
then outstanding (including consents obtained in connection with a tender
offer or exchange offer for Exchange Debentures), and any existing default or
compliance with any provision of the Indenture or the Exchange Debentures may
be waived with the consent of the holders of a majority in principal amount of
the then outstanding Exchange Debentures (including consents obtained in
connection with a tender offer or exchange offer for Exchange Debentures).
Without the consent of each holder affected, however, an amendment or waiver
may not (with respect to any Exchange Debenture held by a non-consenting
holder):
(i) reduce the principal amount of Exchange Debentures whose holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any Exchange
Debenture or alter the provisions with respect to the redemption of the
Exchange Debentures (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 Exchange Debentures;
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Exchange Debentures (except a
rescission of acceleration of the Exchange Debentures by the holders of at
least a majority in aggregate principal amount of the Exchange Debentures
and a waiver of the payment default that resulted from such acceleration);
(v) make any Exchange Debenture payable in money other than that stated
in the Exchange Debentures;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Exchange Debentures to
receive payments of principal of, premium, if any, or interest or
Liquidated Damages on the Exchange Debentures;
(vii) waive a redemption payment with respect to any Exchange Debenture
(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.
In addition, any amendment to the provisions of Article 10 of the Indenture
(which relate to subordination) will require the consent of the holders of at
least 75% in aggregate principal amount of the Exchange Debentures then
outstanding if such amendment would adversely affect the rights of holders of
Exchange Debentures.
Notwithstanding the foregoing, without the consent of any holder of Exchange
Debentures, the Company and the Trustee may amend or supplement the Indenture
or the Exchange Debentures:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Exchange Debentures in addition to or
in place of certificated Exchange Debentures;
(c) to provide for the assumption of the Company's obligations to holders
of the Exchange Debentures in the case of a merger or consolidation;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Exchange Debentures or that does not
adversely affect the legal rights under the Indenture of any such holder;
or
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(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 will contain 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
Exchange Debentures 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 will provide 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 Exchange Debentures,
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
Exchange Debenture 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 of the then outstanding Exchange
Debentures make a written request to pursue the remedy, (iii) such holders of
the Exchange Debentures provide to the Trustee satisfactory indemnity and (iv)
the Trustee does not comply within 60 days. Otherwise, no holder of any
Exchange Debenture will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, except: (i) a holder of
a Exchange Debenture may institute suit for enforcement of payment of the
principal of and premium, if any, or interest on such Exchange Debenture on or
after the respective due dates expressed in such Exchange Debenture (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 of
the outstanding Exchange Debentures, provided that, upon institution of any
proceeding or exercise of any remedy such holders provide the Trustee with
prompt notice thereof.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Certificate of
Designation, the Indenture or the Registration Rights Agreement without charge
by writing to the Company at 3625 Queen Palm Drive, Tampa, Florida 33619,
Attention: Investor Relations.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Debentures to be
resold as set forth herein will initially be issued in the form of one Global
Security (the "Global Security"). The Global Security will be deposited on the
date of the closing of the sale of the Exchange Debentures offered hereby (the
"Closing 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").
Exchange Debentures 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 Security has previously
been exchanged for Certificated Securities, be exchanged for an interest in
the Global Security representing the principal amount of Exchange Debentures
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
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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 thorough 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 Security, the Depositary will credit
the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Security and (ii) ownership of
the Exchange Debentures evidenced by the Global Security 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
Exchange Debentures evidenced by the Global Security will be limited to such
extent. For certain other restrictions on the transferability of the Exchange
Debentures, see "Notice to Investors."
So long as the Global Security Holder is the registered owner of any
Exchange Debentures, the Global Security Holder will be considered the sole
holder under the Indenture of any Exchange Debentures evidenced by the Global
Security. Beneficial owners of Exchange Debentures evidenced by the Global
Security 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 Exchange Debentures.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Debentures registered in the name
of the Global Security Holder on the applicable record date will be 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
Exchange Debentures, including the Global Security, 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 Exchange
Debentures. 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 Exchange Debentures 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 Security may, upon request to the Trustee, exchange such beneficial
interest for Exchange Debentures 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). All such certificated Exchange
Debentures would be subject to the legend requirements described herein under
"Notice to Investors." 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 Exchange Debentures in the form of
Certificated Securities under the Indenture, then, upon surrender by the
Global Security
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Holder of its Global Security, Exchange Debentures 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 Exchange Debentures.
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 Exchange Debentures 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.
NEXT DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Exchange
Debentures represented by the Global Security (including principal, premium,
if any, interest and Liquidated Damages, if any) be made by wire transfer of
immediately available next day 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 next day 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
Company expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
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.
"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.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
and its Subsidiaries, taken as a whole, to any Person or group (as such term
is used in Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) any Person or group (as defined above) is or becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the total Voting Stock or
Total Common Equity of the Company, including by way of merger, consolidation
or otherwise or (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on Nasdaq National
Market but the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under
the Exchange Act) and the principal securities exchange on which such shares
are listed or admitted to trading is a Designated Offshore Securities Market
(as defined in Rule 902(a) under the Securities Act), the average of the
reported closing bid and asked prices regular way on such principal exchange,
or, if such shares are not listed or admitted to trading on any national
securities exchange or quoted on Nasdaq National Market and the issuer and
principal securities exchange do not meet such requirements. the average of
the closing bid and asked prices in the over-the-counter market as furnished
by any New York Stock Exchange member firm that is selected from time to time
by the Company for that purpose and is reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means the
ratio of the Consolidated Indebtedness of such Person to the Consolidated
EBITDA of such Person for the relevant period; provided, however, that (1) if
the Company or any Subsidiary of the Company has incurred any Indebtedness
(including Acquired Debt) or if the Company has issued any Disqualified Stock
or if any Subsidiary of the Company has issued any Preferred Stock since the
beginning of such period that remains outstanding on the date of such
determination or if the transaction giving rise to the need to calculate the
Consolidated Cash Flow Leverage Ratio is an incurrence of Indebtedness
(including Acquired Debt) or the issuance of Disqualified 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
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at the rate in effect on the date of determination from the first day of such
period through such date of determination, (2) if since the beginning of such
period the Company or any Subsidiary of the Company has made any sale of
assets (including, without limitation, any Asset Sales or pursuant to any Sale
and Leaseback Transaction), Consolidated EBITDA for such period will be (A)
reduced by an amount equal to Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such sale of assets for
such period or (B) increased by an amount equal to Consolidated EBITDA (if
negative) directly attributable thereto for such period and (3) if since the
beginning of such period the Company or any Subsidiary of the Company (by
merger or otherwise) has made an Investment in any Subsidiary of the Company
(or any Person which becomes a Subsidiary of the Company) or has made an
acquisition of assets, including, without limitation, any acquisition of
assets occurring in connection with a transaction causing a calculation of
Consolidated EBITDA to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, Consolidated EBITDA for
such period will be calculated after giving pro forma effect thereto
(including the incurrence of any Indebtedness (including Acquired Debt)) as if
such Investment or acquisition occurred on the first day of such period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the pro forma calculations will be determined in good
faith by a responsible financial or accounting Officer of the Company,
provided, however, that such Officer shall assume (i) the historical sales and
gross profit margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the first month of
such 12-month period will be no more than 18 months prior to such date of
purchase) and (ii) other expenses as if such assets had been owned by the
Company since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the Consolidated
Net Income for such period (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, (ii) Consolidated Interest Expense, (iii)
depreciation, amortization (including amortization of goodwill and other
intangibles) and other non-cash charges (excluding any such non-cash charge to
the extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period and excluding non-cash interest and dividend income) of such
Person and its Subsidiaries for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation.
amortization, interest expense and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in 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
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already included in Indebtedness in determining Consolidated Interest Expense
for the relevant period) and (c) the interest component of rentals in respect
of any Capital Lease Obligation paid, in each case whether accrued or
scheduled to be paid or accrued by such Person during such period to the
extent such amounts were deducted in computing Consolidated Net Income,
determined on a consolidated basis in accordance with GAAP. For purposes of
this definition interest on a Capital Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by such Person to be the rate
of interest implicit in such Capital Lease Obligation in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or other distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(iv) the cumulative effect of a change in accounting principles shall be
excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Contingent Investment" means, with respect to any Person, any guarantee by
such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a
Contingent Investment shall be deemed made at the time that the guarantee of
performance or the commitment to invest is given, and the amount of such
Investment shall be the maximum monetary obligation under such guarantee of
performance or commitment to invest. To the extent that a Contingent
Investment is released or lapses without payment under the guarantee of
performance or the commitment to invest, such Investment shall be deemed not
made to the extent of such release or lapse. With respect to any Contingent
Investment, the payment of the guarantee of performance or the payment under
the commitment to invest shall not be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means any credit facility entered into by and among the
Company and/or any Subsidiary and one or more commercial banks or financial
institutions, providing for senior term or revolving credit borrowings of a
type similar to credit facilities typically entered into by commercial banks
and financial institutions, including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit facility and related agreements may be amended,
extended, refinanced, renewed, restated, replaced or refunded from time to
time.
"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.
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"Designated Senior Debt" means (i) the Credit Facility and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is
$5.0 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock to the extent that, and only to
the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to March 31, 2009, provided, however, that
any Capital Stock which would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require the Company to
repurchase or redeem such Capital Stock upon the occurrence of a Change of
Control occurring prior to March 31, 2009 shall not constitute Disqualified
Stock if the change in control provisions applicable to such Capital Stock are
no more favorable to the holders of such Capital Stock than the provisions
applicable to the Exchange Debentures 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
Exchange Debentures 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.
"Exchange Offer" means the exchange offer of the New Preferred Shares for
the Old Preferred Shares or the New Debentures for the Exchange Debentures, as
applicable, pursuant to the Registration Rights Agreement.
"Existing Indebtedness" means the Exchange Debentures and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue
Date.
"Existing Senior Notes" means the Company's 13 1/2% Senior Notes due 2005
and the Company's 12 1/2% Senior Discount Notes due 2006.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"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.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant
to capital leases) or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than Hedging Obligations or letters of
credit) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, all indebtedness of others secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Persons), all obligations to purchase, redeem, retire, defease or
otherwise acquire for value any Disqualified Stock or any warrants, rights or
options to acquire such Disqualified Stock valued, in the case of Disqualified
Stock, at the greatest amount payable in respect thereof on a liquidation
(whether voluntary or involuntary) plus accrued and unpaid dividends, the
liquidation value of any Preferred Stock issued by Subsidiaries of such Person
plus accrued and unpaid dividends, and also includes, to the extent not
otherwise included, the Guarantee of items that would be included within this
definition and any amendment, supplement, modification, deferral, renewal,
extension or refunding of any of the above; notwithstanding the foregoing, in
no event will performance bonds or similar security for performance be deemed
Indebtedness so long as such performance bonds or similar security for
performance would not appear as a liability on a balance sheet of such Person
prepared in accordance with GAAP; and provided further, that the amount of any
Indebtedness in respect of any Guarantee shall be the maximum principal amount
of the Indebtedness so guaranteed.
"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 the original issuance date for the Old Preferred Shares
of the Company.
"Joint Venture" means a Person in the Telecommunications Business in which
the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
"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;
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<PAGE>
(ii) any certificate of deposit maturing not more than 270 days after the
date of acquisition issued by, or time deposit of, an Eligible Institution;
(iii) commercial paper maturing not more than 270 days after the date of
acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued or
offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types described
in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts required to be applied to the repayment
of Indebtedness secured by a Lien on the asset or assets that are the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets. Net Proceeds shall exclude any non-cash proceeds
received from any Asset Sale, but shall include such proceeds when and as
converted by the Company or any Subsidiary of the Company to cash.
"New Exchange Debentures" means the new issue of debentures of the Company
issued pursuant to the Exchange Offer pursuant to the Registration Rights
Agreement.
"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."
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"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to
a greater extent than, the Exchange Debentures are subordinated to Senior Debt
pursuant to Article 10 of the Indenture.
"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 Disqualified 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; (vii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings timely instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; (ix) existing Liens to secure the Existing Senior Notes pursuant
to the indenture governing the Existing Senior Notes; (x) Liens on
Telecommunications Related Assets existing during the time of the construction
thereof; (xi) Liens on Receivables to secure Indebtedness permitted to be
incurred by the covenant entitled "Incurrence of Indebtedness and Issuance of
Disqualified 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.
"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.
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"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer
of such Disqualified Stock or Preferred Stock.
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Initial Purchasers.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"S&P" means Standard & Poor's Rating Group and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"Senior Debt" 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 Exchange Debentures. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (i) any liability for
federal, state, local or other taxes owed or owing by the Company, (ii) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(iii) any trade payables or (iv) any Indebtedness that is incurred in
violation of 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.
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"Total Common Equity" of any Person means, as of any date of determination
(and as modified for purposes of the definition of "Change of Control"), the
product of (i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (ii) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no
such Closing Price exists with respect to shares of any such class, the value
of such shares for purposes of clause (ii) of the preceding sentence shall be
determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.
"Total Market Capitalization" of any Person means, as of any day of
determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of (1) the consolidated Indebtedness of such Person and
its Subsidiaries (except in the case of the Company, in which case of the
Company and its Subsidiaries) on such day, plus (2) the product of (i) the
aggregate number of outstanding primary shares of Common Stock of such Person
on such day (which shall not include any options or warrants on, or securities
convertible or exchangeable into, shares of Common Stock of such Person) and
(ii) the average Closing Price of such Common Stock over the 20 consecutive
Trading Days immediately preceding such day, plus (3) the liquidation value of
any outstanding shares of Preferred Stock of such Person on such day. If no
such Closing Price exists with respect to shares of any such class, the value
of such shares for purposes of clause (2) of the preceding sentence shall be
determined by the Company's Board of Directors in good faith and evidenced by
a resolution of the Board of Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred in connection with the acquisition or construction of
Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
principal amount of such Indebtedness into (b) the total of the product
obtained by multiplying (x) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (y) the number of
years (calculated to the nearest one-twelfth) that will elapse between such
date and the making of such payment; provided, that with respect to Capital
Lease Obligations, that maturity shall be calculated after giving effect to
all renewal options by the Lessee.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Preferred Shares for New Preferred Shares will not
constitute a recognition event for federal income tax purposes. Consequently,
no gain or loss will be recognized by a holder on the exchange. Immediately
after the exchange, a holder's adjusted tax basis in the New Preferred Shares
will be the same as the holder's adjusted basis in the Old Preferred Shares
immediately before the exchange. A holder will be considered to have held the
New Preferred Shares from the time the holder originally acquired the Old
Preferred Shares.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Company believes that New Preferred Shares issued
pursuant to the Exchange Offer in exchange for Old Preferred Shares 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) without compliance with the registration
and prospectus deliver requirements of the Securities Act, provided that the
New Preferred Shares are acquired in the ordinary course of such holders'
business, the holders have no arrangement with any person to participate in
the distribution of the New Preferred Shares and neither the holder nor any
other person is engaging in or intends to engage in a distribution of the New
Preferred Shares. Each broker-dealer that receives New Preferred Shares for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of New Preferred Shares.
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 New Preferred Shares
received in exchange for Old Preferred Shares acquired as a result of market-
making activities or other trading activities. The Company has agreed that it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale for a period of 365 days after the Exchange Date or until
all participating broker-dealers have so resold.
The Company will not receive any proceeds from any sale of New Preferred
Shares by broker-dealers. New Preferred Shares 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 on the New Preferred Shares 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 New
Preferred Shares. Any broker-dealer that resells New Preferred Shares that
were received by it for its own account pursuant to the Exchange Offer and any
broker-dealer that participates in a distribution of New Preferred Shares may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of New Preferred Shares 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.
Each holder of the Old Preferred Shares who wishes to exchange its Old
Preferred Shares for New Preferred Shares in the Exchange Offer will be
required to make certain representations to the Company as set forth in "The
Exchange Offer--Terms and Conditions of the Letter of Transmittal." The
Company has not entered into any arrangement or understanding with any person
to distribute the New Preferred Shares to be received in the Exchange Offer
and, as of the Exchange Date, to the best of the Company's information and
belief, each person participating in the Exchange Offer will be acquiring the
New Preferred Shares in its ordinary course of business and will not have any
arrangement or understanding with any person to participate in the
distribution of the New Preferred Shares 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 of Intermedia Communications Inc. at
December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing. The consolidated financial
statements and schedule of Intermedia Communications Inc. appearing in
Intermedia Communication Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1996 have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon
incorporated herein by reference. Such consolidated financial statements and
schedule 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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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INTERMEDIA COMMUNICATIONS INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations........ F-2
INTERMEDIA COMMUNICATIONS INC.
Report of Independent Certified Public Accountants........................ F-4
Consolidated Balance Sheets............................................... F-5
Consolidated Statements of Operations..................................... F-6
Consolidated Statements of Stockholders' Equity........................... F-7
Consolidated Statements of Cash Flows..................................... F-8
Notes to Consolidated Financial Statements................................ F-9
</TABLE>
F-1
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying unaudited pro forma condensed consolidated statement of
operations of Intermedia Communications Inc. for the year ended December 31,
1996 includes the historical results of operations of the Company for the year
ended December 31, 1996 and the pro forma effects of the acquisitions of the
Telecommunications Division of EMI Communications Corporation (EMI), acquired
in June 1996 and certain assets and related business lines of Universal
Telcom, Inc. (UTT) and of NetSolve, Incorporated (NetSolve) which were both
acquired in December 1996. The unaudited pro forma condensed consolidated
statement of operations has been prepared to reflect the aforementioned
purchase transactions as if they were consummated on January 1, 1996. The pro
forma effects are based on the historical financial statements of the acquired
businesses giving effect to the transactions under the purchase method of
accounting and the assumptions and adjustments described in the notes to the
Unaudited Pro Forma Condensed Consolidated Statement of Operations.
The pro forma information does not purport to be indicative of the actual
results that would have been achieved had the acquisitions in fact been
consummated on January 1, 1996. Such pro forma financial information should be
read in conjunction with the Consolidated Financial Statements and Notes of
Intermedia Communications Inc.
F-2
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------
(A) (B) (C) (C) PRO FORMA PRO FORMA
INTERMEDIA EMI UTT NETSOLVE ADJUSTMENTS TOTALS
------------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 103,396,887 $ 25,882,243 $ 4,812,264 $ 18,028,000 $ (48,309)(d) $152,071,085
Expenses:
Facilities
administration and
management and line
costs................. 81,105,107 24,331,366 4,330,831 12,084,400 (48,309)(d) 121,803,395
Selling, general and
administrative........ 36,609,846 1,646,047 1,335,714 1,071,700 40,663,307
Depreciation and
amortization.......... 19,835,686 1,930,775 39,999 -- (584,000)(e)
1,799,000(f) 23,021,460
------------- ------------ ----------- ------------ ----------- ------------
137,550,639 27,908,188 5,706,544 13,156,100 1,166,691 185,488,162
------------- ------------ ----------- ------------ ----------- ------------
Loss from operations.... (34,153,752) (2,025,945) (894,280) 4,871,900 (1,215,000) (33,417,077)
Other income (expense):
Interest expense....... (35,213,179) -- (230,004) (30,400) 260,404(g) (35,213,179)
Interest and other
income................ 12,168,220 118,695 -- -- (740,000)(g) 11,428,220
(118,695)(g)
------------- ------------ ----------- ------------ ----------- ------------
Loss before income tax
benefit................ (57,198,711) (1,907,250) (1,124,284) 4,841,500 (1,813,291) (57,202,036)
Income tax benefit...... -- 676,643 (676,643)(h) --
------------- ------------ ----------- ------------ ----------- ------------
Net loss................ $ (57,198,711) $ (1,230,607) $(1,124,284) $ 4,481,500 $(2,489,934) $(57,202,036)
============= ============ =========== ============ =========== ============
Net loss per share...... $ (4.08) $ (3.94)
============= ============
Weighted average number
of shares outstanding.. 14,017,597 14,517,727 (i)
============= ============
</TABLE>
- --------
(a) Represents the historical consolidated statement of operations of the
Company for its year ended December 31, 1996.
(b) Represents the historical statement of operations of EMI for the six-
months ended June 30, 1996.
(c) Represents the historical statements of operations for each of UTT and
NetSolve for the eleven-months ended November 30, 1996.
(d) Represents the elimination of revenues between the Company and EMI for the
six months ended June 30, 1996.
(e) Represents the reduction of historical depreciation expense of EMI's
telecommunications equipment as a result of the allocation of the purchase
price. In addition, the assets are being depreciated on a straight-line
basis using Intermedia's estimated weighted average remaining life of
seven years versus the original estimated lives and accelerated
depreciation method historically followed.
(f) Represents eleven-months amortization of intangible assets, principally
customer lists and goodwill, acquired with the UTT and NetSolve purchases.
For pro forma purposes, an eight year estimated useful live is assumed.
However, as reflected in the notes to the Company's consolidated financial
statements, the purchase price allocation for these two acquisitions is
preliminary.
(g) Reflects the elimination of historical interest expense of UTT and
NetSolve that would not have been incurred had the acquisitions occurred
on January 1, 1996. In addition, Intermedia's interest income has been
reduced to eliminate historical earnings which would not have been earned
if the acquisition had been consummated on January 1, 1996.
(h) Represents the elimination of the historical income tax benefit of EMI
that would not have been realized had the operations of EMI been
consolidated with the Company for the year.
(i) Includes the weighted effect of 937,500 shares issued in June 1996 for EMI
and 31,380 shares issued in December 1996 for UTT.
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Intermedia Communications Inc.
We have audited the accompanying consolidated balance sheets of Intermedia
Communications Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Intermedia Communications Inc. at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Tampa, Florida
February 10, 1997, except for Note 13, as to which the date is
March 7, 1997.
F-4
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 50,996,919 $189,545,939
Short-term investments........................... -- 6,041,000
Restricted investments........................... 20,954,015 26,674,831
Accounts receivable, less allowance for doubtful
accounts of $869,000 in 1995 and $1,346,000 in
1996............................................ 7,954,194 19,271,769
Prepaid expenses and other current assets........ 1,832,186 5,230,149
------------ ------------
Total current assets............................... 81,737,314 246,763,688
Restricted investments............................. 30,869,001 10,481,358
Telecommunications equipment, net.................. 76,169,589 203,907,013
Intangible assets, net............................. 26,986,915 48,397,317
Other assets....................................... 255,306 3,391,001
------------ ------------
Total assets....................................... $216,018,125 $512,940,377
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 4,810,175 $ 29,895,061
Accrued taxes.................................... 285,757 1,660,279
Accrued interest................................. 1,800,000 1,800,000
Other accrued expenses........................... 1,575,925 3,709,951
Advance billings................................. 1,747,081 3,137,093
Current portion of long-term debt................ 107,757 55,015
Current portion of capital lease obligations..... 1,057,927 476,973
------------ ------------
Total current liabilities.......................... 11,384,622 40,734,372
Long-term debt..................................... 159,199,226 353,449,031
Capital lease obligations.......................... 5,179,914 4,526,764
Stockholders' equity:
Preferred stock, $1.00 par value; 500,000 and
460,000 shares authorized in 1995 and 1996,
respectively; no shares issued.................. -- --
Series C preferred stock, $1.00 par value; 40,000
shares authorized in 1996, none in 1995; no
shares issued................................... -- --
Common stock, $.01 par value; 20,000,000 and
50,000,000 shares authorized in 1995 and 1996,
respectively; 10,359,771 and 16,285,340 shares
issued and outstanding in 1995 and 1996,
respectively.................................... 103,597 162,853
Additional paid-in capital....................... 74,093,476 212,810,661
Accumulated deficit.............................. (33,942,710) (91,141,421)
Deferred compensation............................ -- (7,601,883)
------------ ------------
Total stockholders' equity......................... 40,254,363 114,230,210
------------ ------------
Total liabilities and stockholders' equity......... $216,018,125 $512,940,377
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Revenues.............................. $14,272,396 $ 38,630,574 $103,396,887
Expenses:
Facilities administration and
maintenance and line costs......... 5,395,932 22,989,195 81,105,107
Selling, general, and
administrative..................... 6,412,287 14,992,458 36,609,846
Depreciation and amortization....... 5,131,940 10,195,871 19,835,686
----------- ------------ ------------
16,940,159 48,177,524 137,550,639
----------- ------------ ------------
Loss from operations.................. (2,667,763) (9,546,950) (34,153,752)
Other income (expense):
Interest expense.................... (1,218,876) (13,766,639) (35,213,179)
Interest and other income........... 819,260 4,060,040 12,168,220
----------- ------------ ------------
Loss before income tax benefit and ex-
traordinary item..................... (3,067,379) (19,253,549) (57,198,711)
Income tax benefit.................... -- 96,952 --
----------- ------------ ------------
Loss before extraordinary item........ (3,067,379) (19,156,597) (57,198,711)
Extraordinary loss on early extin-
guishment of debt.................... -- (1,592,045) --
----------- ------------ ------------
Net loss.............................. $(3,067,379) $(20,748,642) $(57,198,711)
=========== ============ ============
Loss per share:
Loss before extraordinary item...... $ (0.34) $ (1.91) $ (4.08)
Extraordinary loss.................. -- (0.16) --
----------- ------------ ------------
Net loss per share.................. $ (0.34) $ (2.07) $ (4.08)
=========== ============ ============
Weighted average number of shares out-
standing............................. 8,955,993 10,035,774 14,017,597
=========== ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY
---------- -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................... 8,877,432 $ 88,774 $ 56,025,341 $(10,126,689) $ - $ 45,987,426
Issuance of shares of
common stock for
business combination.. 740,000 7,400 8,836,100 -- -- 8,843,500
Exercise of stock
options for 41,756
shares of common stock
at prices ranging from
$6.25 to $10.63 per
share................. 41,756 418 269,398 -- -- 269,816
Net loss............... -- -- -- (3,067,379) -- (3,067,379)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1994................... 9,659,188 96,592 65,130,839 (13,194,068) -- 52,033,363
Issuance of shares of
common stock for
business combination.. 683,583 6,836 7,854,369 -- -- 7,861,205
Return and cancellation
of escrowed shares
issued for 1994
business combination.. (22,357) (224) (279,239) -- -- (279,463)
Exercise of stock
options and warrants
for 39,357 shares of
common stock at prices
ranging from $4.20 to
$12.20 per share...... 39,357 393 336,307 -- -- 336,700
Issuance of detachable
stock purchase
warrants, net of
issuance costs........ -- -- 1,051,200 -- -- 1,051,200
Net loss............... -- -- -- (20,748,642) -- (20,748,642)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1995................... 10,359,771 103,597 74,093,476 (33,942,710) -- 40,254,363
Sale of common stock... 4,674,503 46,745 111,670,973 -- -- 111,717,718
Issuance of shares of
common stock for
business
combinations.......... 968,880 9,689 17,767,495 -- -- 17,777,184
Exercise of stock
options and warrants
for 82,186 shares of
common stock at prices
ranging from $4.20 to
$27.06 per share...... 82,186 822 706,222 -- -- 707,044
Issuance of stock
options under long-
term compensation
plan.................. -- -- 3,574,500 -- (3,574,500) --
Issuance of common
stock under long-term
compensation plan..... 200,000 2,000 4,997,995 -- (4,999,995) --
Amortization of
deferred
compensation.......... -- -- -- -- 972,612 972,612
Net loss............... -- -- -- (57,198,711) -- (57,198,711)
---------- -------- ------------ ------------ ----------- ------------
Balance at December 31,
1996................... 16,285,340 $162,853 $212,810,661 $(91,141,421) $(7,601,883) $114,230,210
========== ======== ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................... $ (3,067,379) $ (20,748,642) $ (57,198,711)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 5,131,940 10,607,666 21,087,749
Amortization of deferred
compensation................... -- -- 972,612
Accretion of interest on notes.. -- -- 14,304,460
Extraordinary loss.............. -- 1,592,045 --
Deferred tax benefit............ -- (96,952) --
Provision for doubtful
accounts....................... 80,222 856,055 2,284,502
Changes in operating assets and
liabilities:
Accounts receivable............ (1,273,985) (3,442,940) (13,150,097)
Prepaid expenses and other
current assets................ (741,888) (204,824) (1,702,353)
Other assets................... -- 159,751 (178,009)
Accounts payable............... (552,512) (591,955) 22,326,204
Other accrued expenses and
taxes......................... (360,073) 1,483,878 2,107,548
Advance billings............... 367,290 691,046 1,390,012
------------ ------------- -------------
Net cash used in operating activi-
ties............................. (416,385) (9,694,872) (7,756,083)
INVESTING ACTIVITIES
Purchase of restricted invest-
ments............................ -- (60,952,496) (5,250,000)
Maturities of restricted invest-
ment............................. -- 9,179,480 19,916,827
Purchase of business, net of cash
acquired......................... -- (1,952,268) (12,401,086)
Purchases of short-term invest-
ments............................ -- -- (6,041,000)
Purchases of telecommunications
equipment........................ (13,730,693) (29,962,419) (131,214,187)
Proceeds from sale of telecommuni-
cations equipment................ -- -- 624,110
Other investing activities........ 201,701 -- --
------------ ------------- -------------
Net cash used in investing activi-
ties............................. (13,528,992) (83,687,703) (134,365,336)
FINANCING ACTIVITIES
Proceeds from sale of common
stock, net of issuance costs..... -- -- 111,717,718
Exercise of stock warrants and op-
tions............................ 269,816 336,700 707,044
Payments on long-term debt........ (3,143,782) (14,804,457) (1,320,510)
Net proceeds from issuance of
long-term debt and warrants...... -- 153,766,848 170,862,622
Payments on capital leases........ (926,318) (5,127,784) (1,296,435)
------------ ------------- -------------
Net cash (used in) provided by fi-
nancing activities............... (3,800,284) 134,171,307 280,670,439
------------ ------------- -------------
Increase (decrease) in cash and
cash equivalents................. (17,745,661) 40,788,732 138,549,020
Cash and cash equivalents at be-
ginning of year.................. 27,953,848 10,208,187 50,996,919
------------ ------------- -------------
Cash and cash equivalents at end
of year.......................... $ 10,208,187 $ 50,996,919 $ 189,545,939
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid..................... $ 1,481,679 $ 12,318,014 $ 23,436,882
============ ============= =============
</TABLE>
See accompanying notes.
F-8
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Intermedia Communications Inc. (ICI or the Company), formerly Intermedia
Communications of Florida, Inc. through May 29, 1996, is an integrated
communications services provider offering a full suite of local, long-distance
and enhanced data services to business and government end users. Services
include data and video telecommunications services, frame relay, Internet
access services, local exchange services, long-distance services and
telecommunications equipment. The Company offers its full product package of
telecommunications services to customers in 15 metropolitan statistical areas
in the eastern half of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Intermedia
Communications Inc. and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-Term Investments
Short-term investments consist of certificates of deposit with maturities of
more than three months when purchased and are stated at cost.
Restricted Investments
Restricted investments consist of U.S. Treasury Notes which are restricted
for the repayment of interest on certain debt and are stated at amortized
cost. Management designated these investments as held-to-maturity securities
in accordance with the provisions of Statement of Financial Accounting
Standards No.115, Accounting for Certain Investments in Debt and Equity
Securities.
Telecommunications Equipment
Telecommunications equipment is stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of
the assets as follows:
<TABLE>
<S> <C>
Telecommunications equipment...................................... 3--7 years
Fiber optic cable................................................. 20 years
Furniture and fixtures............................................ 5--7 years
</TABLE>
F-9
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Leasehold improvements are amortized using the straight-line method over the
shorter of the term of the lease or the estimated useful life of the
improvements.
Intangible Assets
Intangible assets are stated at cost and include purchased customer lists,
deferred debt issuance costs, and goodwill. Customer lists are amortized using
the straight-line method over their estimated useful lives of eight years.
Goodwill is amortized using the straight-line method over periods of eight to
forty years.
As more fully discussed in Note 2, during December 1996, the Company
acquired Universal Telcom, Inc. and NetSolve, Inc. in transactions accounted
for using the purchase method. The excess of the respective purchase prices
over the fair value of tangible net assets acquired have been preliminarily
classified in the accompanying consolidated balance sheets as intangible
assets. The final allocation to identifiable intangible assets is currently
underway by management. The preliminary intangible assets not allocated to
identifiable tangible and intangible assets will be recorded as goodwill.
Deferred debt issuance costs relate to the issuance of debt and are
amortized using the effective interest method over the term of the debt
agreements. The related amortization is included as a component of interest
expense in the accompanying consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue in the period the service is provided or the
goods are shipped for equipment product sales. Unbilled revenues represent
revenues earned for telecommunications services provided which will be billed
in the succeeding month and totaled $636,257 and $2,403,584 and as of December
31, 1995 and 1996, respectively. Unbilled revenues are included as a component
of accounts receivable in the accompanying consolidated balance sheets. The
Company invoices customers one month in advance for recurring services
resulting in advance billings at December 31, 1995 and 1996 of $1,747,100 and
$3,137,000 respectively.
Income Taxes
The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires an asset and
liability approach in accounting for income taxes for all years presented.
Deferred income taxes are provided for in the consolidated financial
statements and principally relate to net operating losses and basis
differences for customer lists and telecommunications equipment.
Loss Per Share
Loss per share is based on the weighted average shares outstanding. Common
stock equivalents are not considered in the Company's calculation of loss per
share as all are antidilutive and would have no impact on the results.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No.
105, Disclosure of Information About Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments with Concentrations of Credit Risk, are
primarily cash and cash equivalents and accounts receivable.
F-10
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company places its cash and temporary cash investments with high-quality
institutions. As of December 31, 1996, cash equivalents totaling approximately
$227,000,000 were held by a single financial institution. Such amounts were
collateralized by government-backed securities.
Accounts receivable are due from residential and commercial
telecommunications customers. Credit is extended based on evaluation of the
customer's financial condition and generally collateral is not required.
Anticipated credit losses are provided for in the consolidated financial
statements and have been within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with APB No.
25, Accounting for Stock Issued to Employees, and, in cases where exercise
prices equal or exceed fair market value, recognizes no compensation expense
for the stock option grants . In cases where exercise prices are less than
fair value, compensation is recognized over the period of performance or the
vesting period.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting and Disclosure of Stock-Based Compensation, (Statement
123) which encourages, but does not require, companies to recognize stock
awards based on their fair value at the date of grant. Unaudited pro forma
financial information, assuming that the Company had adopted the measurement
standards of Statement 123, is included in Note 7.
RECLASSIFICATIONS
Certain prior year investment accounts have been reclassified as restricted
in order to conform with the 1996 presentation.
2. BUSINESS ACQUISITIONS
During December 1994, the Company acquired the common stock of Phone One,
Inc. in exchange for 740,000 shares of common stock of the Company, valued at
approximately $8,800,000. The acquisition was accounted for by the purchase
method of accounting, with the purchase price allocated based on fair values
of assets acquired, principally customer lists, and liabilities assumed. The
operating results of Phone One, Inc. are included in the Company's
consolidated financial statements from the date of acquisition.
During February 1995, the Company acquired FiberNet in exchange for 683,583
shares of the Company's common stock, valued at approximately $7,800,000, the
assumption of approximately $5,000,000 in liabilities and a note payable of
$1,200,000 which was paid on July 17, 1995. The acquisition was accounted for
by the purchase method of accounting with the purchase price allocated based
on fair values of assets acquired and liabilities assumed. The excess of the
purchase price over the fair values of the net assets amounted to $11,000,000
and is being amortized over 20 years. The operating results of FiberNet are
included in the Company's consolidated financial statements since March 1,
1995 since the operating results from the date of acquisition were deemed to
be immaterial.
During June 1996, the Company acquired the Telecommunications Division of
EMI Communications Corporation (EMI) in exchange for 937,500 shares of the
Company's common stock, valued at approximately $16,900,000. The acquisition
was accounted for by the purchase method of accounting, with the purchase
price allocated to the fair values of assets acquired, principally
telecommunications equipment. The operating results of EMI are included in the
Company's consolidated financial statements from the date of acquisition.
F-11
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During December 1996, the Company acquired, in two separate transactions,
certain assets and the related businesses of Universal Telcom, Inc. (UTT) and
NetSolve, Incorporated (NetSolve). The purchase price for UTT included 31,380
shares of the Company's common stock, valued at approximately $900,000, and
the assumption of approximately $2,000,000 of UTT's liabilities. NetSolve was
purchased for cash of $12,800,000. The operations of UTT and NetSolve are
included in the Company's consolidated financial statements from December 1,
1996, at which date the Company exercised control. The acquisitions are
accounted for by the purchase method, with the purchase price to be allocated
to the assets acquired based upon fair values. The allocation of the purchase
price to both UTT and NetSolve is tentative pending completion of the
valuations of certain identifiable intangibles.
The following unaudited pro forma results of operations for the years ended
December 31 assume the acquisitions of FiberNet, EMI, UTT and NetSolve had
occurred at the beginning of the periods presented, and do not purport to be
indicative of the results that actually would have occurred if the
acquisitions had been made as of those dates or of results which may occur in
the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenue......................................... $104,687,000 $152,071,000
Loss before extraordinary item.................. $(18,354,000) $(57,202,000)
Net loss........................................ $(19,946,000) $(57,202,000)
Net loss per share.............................. $ (1.79) $ (3.94)
</TABLE>
3. TELECOMMUNICATIONS EQUIPMENT
Telecommunications equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Telecommunications equipment..................... $ 50,506,651 $128,995,630
Fiber optic cable................................ 27,891,274 38,098,811
Furniture and fixtures........................... 5,223,389 18,492,948
Leasehold improvements........................... 985,876 4,500,441
Construction in progress......................... 12,830,122 51,393,299
------------ ------------
97,437,312 241,481,129
Less accumulated depreciation.................... (21,267,723) (37,574,116)
------------ ------------
$ 76,169,589 $203,907,013
============ ============
</TABLE>
Depreciation expense totaled $4,911,001, $7,940,173 and $15,453,931 in 1994,
1995 and 1996, respectively.
Interest expense capitalized in connection with the Company's internally-
managed construction of telecommunications equipment amounted to $257,058,
$677,512 and $2,780,125 in 1994, 1995 and 1996, respectively.
Telecommunications equipment and construction in progress included
$7,264,534 and $6,867,256 of equipment recorded under capitalized lease
arrangements at December 31, 1995 and 1996, respectively. Accumulated
amortization of assets recorded under capital leases amounts to $1,007,802 and
$1,450,381 at December 31, 1995 and 1996, respectively. Telecommunications
equipment purchases financed through capital lease obligations totaled
$4,558,761, $4,910,724 and $251,824, in 1994, 1995 and 1996, respectively. The
amortization of assets recorded under capital leases is included in
depreciation expense.
F-12
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with network expansion, the Company had firm commitments for
capital expenditures of approximately $4,500,000 at December 31, 1996.
4. INTANGIBLE ASSETS
Intangible assets consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Goodwill........................................... $13,210,045 $13,233,045
Customer lists..................................... 10,096,975 10,376,437
Preliminary intangible assets (Notes 1 and 2)...... -- 15,451,050
Debt issuance costs................................ 6,233,152 15,288,931
----------- -----------
29,540,172 54,349,463
Less accumulated amortization...................... (2,553,257) (5,952,146)
----------- -----------
$26,986,915 $48,397,317
=========== ===========
</TABLE>
Amortization of goodwill and customer lists amounted to $220,939 in 1994,
$2,011,508 in 1995 and $3,123,157 in 1996. Amortization of debt issuance
costs, included in interest expense, amounted to $69,192, $411,795 and
$1,252,063 in 1994, 1995 and 1996, respectively.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
13.5% Senior Notes............................... $158,983,840 $159,115,240
12.5% Senior Discount Notes...................... -- 194,223,760
Other notes payable.............................. 323,143 165,046
------------ ------------
159,306,983 353,504,046
Less current portion............................. (107,757) (55,015)
------------ ------------
$159,199,226 $353,449,031
============ ============
</TABLE>
During June 1995, ICI issued $160,000,000 principal amount of 13.5% Senior
Notes due 2005 (the Senior Notes) and warrants to purchase 350,400 shares of
the Company's common stock. The Company allocated $1,051,200 of the proceeds
to the warrants, representing the estimated fair value at the date of
issuance. The Senior Notes are limited in aggregate principal amount to $160
million and mature on June 1, 2005. The Senior Notes may be redeemed at the
option of the Company, in whole or in part, on or after June 1, 2000,
beginning at a premium of 106.75% of par and declining to par in 2003, plus
accrued and unpaid interest and liquidated damages, if any, through the
redemption rate. The Senior Notes bear interest at the rate of 13.5% per annum
payable semiannually in arrears on June 1 and December 1. The Senior Notes
agreement contains certain covenants including limits on the incurrence of
additional indebtedness, with which the Company is in compliance at December
31, 1996.
The Company used a portion of the proceeds from the Senior Notes to retire
certain other long-term indebtedness. In connection with the repayment of
certain indebtedness, the Company incurred a prepayment
F-13
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
penalty of approximately $1,156,000. This amount, plus the write-off of
related unamortized financing costs have been reported as an extraordinary
loss in the accompanying 1995 consolidated statements of operations.
During May 1996, the Company issued $330,000,000 principal amount of 12.5%
Senior Discount Notes, due May 15, 2006 (the Senior Discount Notes). The
original issue discounted price for each $1,000 face value Senior Discount
Note was $545. The original issue discount is to be amortized over the term of
the Senior Discount Notes using the effective interest method. Commencing on
November 15, 2001, interest on the Senior Discount Notes will be payable
semiannually in arrears on May 15 and November 15 at a rate of 12.5% per
annum. Amortization of the original issue discount amounted to approximately
$14,304,000 during 1996 and is included in interest expense. The Senior
Discount Notes are redeemable at the option of the Company after May 15, 2001,
at a premium declining to par in 2004, plus accrued and unpaid interest. The
Senior Discount Notes agreement contains certain restrictive covenants
including limitations on the incurrence of additional indebtedness, with which
the Company is in compliance.
Long-term debt maturities as of December 31, 1996 for the next five years
are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 55,015
1998............................................................ 55,015
1999............................................................ 55,016
2000............................................................ --
2001............................................................ --
Thereafter...................................................... 353,339,000
------------
$353,504,046
============
</TABLE>
The Company is a party to various capital lease agreements for fiber optic
cable, underground conduit equipment and utility poles which extend through
the year 2015.
Future minimum lease payments for assets under the capital leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 1,066,442
1998............................................................ 1,036,487
1999............................................................ 1,038,348
2000............................................................ 1,009,265
2001............................................................ 542,298
Thereafter...................................................... 5,875,168
-----------
10,568,008
Less amount representing interest............................... (5,564,271)
-----------
Present value of future minimum lease payments.................. 5,003,737
Less current portion............................................ (476,973)
-----------
$ 4,526,764
===========
</TABLE>
F-14
<PAGE>
INTERMEDIA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents............. $ 50,996,919 $ 50,996,919 $189,545,939 $189,545,939
Short-term investments... -- -- 6,041,000 6,041,000
Restricted investments,
current and noncurrent.. 51,823,016 52,064,050 37,156,189 36,920,392
Accounts receivable...... 7,954,194 7,954,194 19,271,769 19,271,769
Liabilities:
Accounts payable......... $ 4,810,175 $ 4,810,175 $ 29,895,061 $ 29,895,061
Long-term debt:
13.5% Senior Notes...... 158,983,840 179,200,000 159,115,240 182,800,000
12.5% Senior Discount
Notes.................. -- -- 194,223,760 216,975,000
Other notes payable..... 323,143 323,143 165,046 165,046
</TABLE>
The following methods and assumptions are used in estimating fair values for
financial instruments:
Cash and cash equivalents: The carrying amount reported in the consolidated
balance sheets for cash and cash equivalents approximates its fair value.
Investments: As of December 31, 1996, these investments are classified as
held-to-maturity, in accordance with SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. The fair value of these investments
is estimated from quoted market prices.
Accounts receivable and accounts payable: The carrying amounts reported in
the consolidated balance sheets for accounts receivable and accounts payable
approximate their fair value.
Long-term and short-term debt: The estimated fair value of the Company's
borrowing is based on negotiated trades for the securities as provided by the
Company's investment banker or by using discounted cash flows at the Company's
incremental borrowing rate.
7. STOCKHOLDERS' EQUITY
Stock Options: The Company has a 1992 Stock Option Plan and a 1996 Long-Term
Incentive Plan (the Plans) under which options to acquire an aggregate of
1,346,000 shares and 1,500,000 shares, respectively, of common stock may be
granted to employees, officers, directors and consultants of the Company. The
Plans authorize the Board of Directors (the Board) to issue incentive stock
options (ISOs), as defined in Section 422A(b) of the Internal Revenue Code,
and stock options that do not conform to the requirements of that Code section
(Non-ISOs). The Board has discretionary authority to determine the types of
stock options to be granted, the persons among those eligible to whom options
will be granted, the number of shares to be subject to such options, and the
terms of the stock option agreements. Options may be exercised in the manner
and at such times as fixed by the Board, but may not be exercised after the
tenth anniversary of the grant of such options.
F-15
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the transactions for the three years ended
December 31, 1996 relating to the Plans:
<TABLE>
<CAPTION>
PER SHARE
NUMBER OF SHARES OPTION PRICE
---------------- --------------
<S> <C> <C>
Outstanding, January 1, 1994................ 627,739 $ 6.06--$12.13
Granted................................... 233,248 $10.25--$12.25
Exercised................................. (41,756) $ 6.25--$10.63
Canceled.................................. (70,464) $ 6.06--$12.13
---------
Outstanding, December 31,1994............... 748,767 $ 6.06--$12.25
Granted................................... 549,057 $ 9.50--$15.56
Exercised................................. (37,831) $ 6.38--$12.25
Canceled.................................. (121,019) $ 6.38--$12.25
---------
Outstanding, December 31, 1995.............. 1,138,974 $ 6.06--$15.56
Granted................................... 1,187,183 $19.75--$34.50
Exercised................................. (81,996) $ 6.38--$27.06
Canceled.................................. (67,490) $ 6.60--$15.56
---------
Outstanding, December 31, 1996.............. 2,176,671
=========
Exercisable, December 31, 1996.............. 526,528
=========
</TABLE>
The Board of Directors has reserved 674,142 shares of common stock in
connection with stock warrants, and 2,462,341 shares of common stock that may
be issued to employees, officers, directors, and consultants of the Company
pursuant to stock options as may be determined by the Board of Directors.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk-free interest rates of 6.2%; a dividend
yield of zero; volatility factors of the expected market price of the
Company's common stock based on historical trends; and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Pro forma net loss.............................. $(20,961,000) $(58,602,000)
Pro forma earnings (loss) per share............. $ (2.09) $ (4.18)
</TABLE>
F-16
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Award Plans: During 1996, the Company entered into restricted share
agreements with three executive officers that provide stock award incentives.
Pursuant to the agreements, up to an aggregate of 255,000 restricted shares of
common stock are awarded to the respective officers upon the attainment of
certain stock price milestones ranging from $20 to $40. Shares awarded under
these arrangements vest over a period of five years following the award.
During 1996, 200,000 shares were awarded with a fair value of $4,999,995,
which amount will be amortized over the vesting period.
Stock Warrants: At December 31, 1996, warrants to purchase the following
shares of the Company's common stock were outstanding:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE EXPIRATION DATE
------ --------------- ---------------
<S> <C> <C>
6,282 $ 4.20 March 4, 1997
317,460 4.20 June 2, 1997
350,400 10.86 June 1, 2000
</TABLE>
As further discussed in Note 5, the Company issued warrants expiring in 2000
to acquire 350,400 shares of common stock in connection with the issuance of
the Senior Notes. The Company also has warrants outstanding that had been
issued for consulting services.
Shareholder Rights Plan: On March 7, 1996, the Board of Directors adopted a
Shareholder Rights Plan and declared a dividend of one common stock Purchase
Right (a Right) for each outstanding share of common stock to shareholders of
record on March 18, 1996. Such Rights only become exercisable, or transferable
apart from the common stock, ten business days after a person or group (an
Acquiring Person) acquires beneficial ownership of, or commences a tender or
exchange offer for, 15% or more of the Company's common stock.
Each Right then may be exercised to acquire 1/1000th of a share of the
Company's Series C preferred stock at an exercise price of $85. Thereafter,
upon the occurrence of certain events, the Rights entitle holders other than
the Acquiring Person to acquire the existing Company's preferred stock or
common stock of the surviving company having a value of twice the exercise
price of the Rights.
The Rights may be redeemed by the Company at a redemption price of $.01 per
Right at any time until the 10th business day following public announcement
that a 15% position has been acquired or ten business days after commencement
of a tender or exchange offer.
Authorized Shares: On May 24, 1996, the Board of Directors approved an
increase in the number of shares of authorized common stock from 20,000,000 to
50,000,000.
F-17
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
At December 31, 1995 and 1996, the Company had temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. The Company also has net operating loss (NOL)
carryforwards available to offset future taxable income. Significant
components of the Company's deferred tax assets and liabilities as of December
31 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
--------------------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1995 1996
- ----------------------------------- ------------ ------------
<S> <C> <C>
Tax over book depreciation........................... $ (3,410,117) $ (5,751,022)
Intangibles.......................................... (3,324,225) (2,849,139)
------------ ------------
Total deferred tax liabilities..................... (6,734,342) (8,600,161)
Net operating loss carryforwards..................... 14,198,845 37,091,018
Other................................................ 300,746 1,037,985
------------ ------------
Total deferred tax assets.......................... 14,499,591 38,129,003
Less valuation allowance (7,765,249) (29,528,842)
------------ ------------
Net deferred tax assets.............................. 6,734,342 8,600,161
------------ ------------
$ -- $ --
============ ============
</TABLE>
The Company has net operating loss carryforwards of approximately
$98,000,000 at December 31, 1996 that expire in various amounts from 2003 to
2011. Approximately $68,000,000 of these net operating loss carryforward is
subject to the "ownership change" rules of Section 382 of the Internal Revenue
Code of 1986 and can only be utilized at the rate of approximately $31,000,000
per year.
9. RESTRICTED INVESTMENTS
The terms of the Company's Senior Note agreement (see Note 5) required the
Company to use a portion of the debt proceeds to purchase pledged securities
(Restricted Investments) sufficient to provide for the payment of interest on
the Senior Notes through June 1, 1998. The Company has purchased government
securities whose maturity coincides with the interest repayment dates.
The Company's restricted investments at December 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes........... $30,806,189 $-- $82,070 $30,724,119
Certificates of deposit....... 6,350,000 -- -- 6,350,000
----------- ---- ------- -----------
$37,156,189 $-- $82,070 $37,074,119
=========== ==== ======= ===========
</TABLE>
The amortized cost and estimated fair value of the Company's restricted
investments at December 31, 1996 by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITIES COST FAIR VALUE
---------- ----------- -----------
<S> <C> <C>
Due within one year................................. $26,674,831 $26,635,996
Due after one year through five years............... 10,481,358 10,438,123
----------- -----------
$37,156,189 $37,074,119
=========== ===========
</TABLE>
F-18
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) profit-sharing plan. Employees 21 years
or older with one year of service are eligible to participate in the plan.
Participants may elect to contribute, on a tax-deferred basis, up to 15% of
their compensation, not to exceed $9,500 in 1996. The Company will match one-
half of a participant's contribution, up to a maximum of 3% of the
participant's compensation. The Company's matching contribution fully vests
after five years of service. The Company's contributions to the plan were
approximately $58,000, $85,000 and $77,000 in 1994, 1995 and 1996,
respectively.
11. OPERATING LEASES
The Company leases rights-of-way and cable conduit space, fiber optic cable,
terminal facility space, and office space. The leases generally contain
renewal options which range from one year to fifteen years, with certain
rights-of-way and cable conduit space being renewable indefinitely after the
minimum lease term subject to cancellation notice by either party to the
lease. Lease payments in some cases may be adjusted for related revenues,
increases in property taxes, operating costs of the lessor, and increases in
the Consumer Price Index. Lease expense was $908,000, $1,466,000 and
$4,795,000, and for 1994, 1995, and 1996, respectively.
Future minimum lease payments under noncancelable operating leases with
original terms of more than one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RIGHTS-OF-WAY
AND CABLE
CONDUIT SPACE FIBER OPTIC CABLE TERMINAL FACILITY SPACE OFFICE SPACE TOTAL
------------- ----------------- ----------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1997.................... $12,250 $ 532,300 $ 3,211,780 $ 3,128,806 $ 6,885,136
1998.................... -- 529,344 2,768,667 3,072,439 6,370,450
1999.................... -- 355,434 2,184,255 2,733,543 5,273,232
2000.................... -- 321,280 1,351,807 2,117,851 3,790,938
2001.................... -- 321,280 890,191 890,325 2,101,796
Thereafter.............. -- 937,066 8,648,872 960,767 10,546,705
------- ---------- ----------- ----------- -----------
$12,250 $2,996,704 $19,055,572 $12,903,731 $34,968,257
======= ========== =========== =========== ===========
</TABLE>
12. CONTINGENCIES
On May 3, 1995, the Company asserted a claim for indemnification against the
former shareholder of Phone One, Inc. (the Former Shareholder) for
approximately $1 million on account of various breaches of representations and
warranties made by the Former Shareholder to the Company in the agreement for
the acquisition of Phone One, Inc. (the Phone One Acquisition Agreement). The
Former Shareholder has objected to the indemnification claim, which is subject
to arbitration under the Phone One Acquisition Agreement. On May 24, 1995, the
Former Shareholder advised the Company that it has filed a complaint against
the Company in the Florida circuit court for Dade County seeking rescission of
the Phone One, Inc. acquisition and damages for breach of contract in excess
of $3 million. Pursuant to the mandatory arbitration requirements of the Phone
One Acquisition Agreement, in July 1995, the Company filed a demand for
arbitration, and the action was stayed in the circuit court. The parties
negotiated a settlement proposal, and on August 27, 1996, the dispute was
settled and mutual general releases exchanged by which the Company delivered
22,357 of the holdback shares, pursuant to the terms of the Phone One
Acquisition Agreement. On September 3, 1996, the action in circuit court was
dismissed with prejudice.
The Company is not a party to any other pending legal proceedings except for
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or
lawsuits will have a material effect on the Company's financial condition,
results of operations or cash flows.
F-19
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SUBSEQUENT EVENT
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000,000) of its 13 1/2% Series A Redeemable Exchangeable
Preferred Stock, due 2009, (the "Preferred Stock") in a private placement
transaction. Net proceeds to the Company amounted to approximately
$288,875,000. Dividends on the Preferred Stock accumulate at a rate of 13 1/2%
of the aggregate liquidation preference and are payable quarterly, in arrears.
Dividends are payable in cash or, at the Company's option, by the issuance of
additional shares of Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. The Preferred Stock is
subject to mandatory redemption at its liquidation preference of $10,000 per
share, plus accumulated and unpaid dividends on March 31, 2009. The Preferred
Stock will be redeemable at the option of the Company at any time after March
31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007.
The Company may, at its option, exchange some or all shares of the Preferred
Stock for the Company's 13 1/2% Senior Subordinated Debentures, due 2009 (the
"Exchange Debentures"). The Exchange Debentures mature on March 31, 2009.
Interest on the exchange debentures is payable semi-annually, and may be paid
in the form of additional Exchange Debentures at the Company's option.
Exchange Debentures will be redeemable by the Company at any time after March
31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007.
F-20
<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 THE NEW PREFERRED SHARES OFFERED HERE-
BY, 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 AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED 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
HEREUNDER 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.................................................... 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 18
The Exchange Offer....................................................... 25
Use of Proceeds.......................................................... 32
Capitalization........................................................... 32
Selected Financial and Other Operating Data.............................. 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 42
Management............................................................... 63
Description of Other Indebtedness........................................ 66
Description of Preferred Shares.......................................... 68
Description of the Exchange Debentures................................... 92
Certain Federal Income Tax Considerations................................ 120
Plan of Distribution..................................................... 120
Legal Matters............................................................ 121
Experts.................................................................. 121
Index to Financial Statements............................................ F-1
Glossary................................................................. A-1
</TABLE>
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$300,000,000
[LOGO INTERMEDIA COMMUNICATIONS INC.]
INTERMEDIA COMMUNICATIONS INC.
13 1/2% SERIES B REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009
----------------
PROSPECTUS
----------------
April 2, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANNEX A
[LOGO] INTERMEDIA COMMUNICATIONS INC.
-------------------------------------------------------------------
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 grater 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 or local service
provider that appeared in the late 1980's, who competed with local telephone
companies by placing its own fiber optic cables in a city and sold various
private line telecommunications services in direct competition to the local
telephone company.
CENTREX--A Central office based business telephone service that roughly
provides the user with the same services as a PBX, without the capital
investment of the PBX. Centrex services include station to station dialing (2
through 5 digits), customized long distance call handling, and user-input
authorization codes.
CLEC (Competitive Local Exchange Carrier)--A category of telephone service
provider (carrier) that offers services similar to the former monopoly local
telephone company, as recently allowed by changes in telecommunications law
and regulation. A CLEC may also provide other types of telecommunications
services (long distance, etc.)
CLEC (Certification)--Granted by a state public service commission or public
utility commission, this allows a telecommunications services provider the
legal standing to offer local exchange telephone services in direct
competition with the incumbent LEC and other CLECs. Such certifications are
granted on a state by state basis.
CO (Central Office)--The switching center and/or central circuit termination
facility of a local telephone company.
Communications Act of 1934, The--The first major federal legislation that
established rules for broadcast and non-broadcast communications, both
wireless and wired telephony.
- -------------------------------------------------------------------------------
A-1
<PAGE>
Connected Building--A building that is connected to a carrier's network via
a non-switched circuit that is managed and monitored by that carrier.
Dedicated Access--A circuit that connects a customer to a carrier's network,
not shared amongst multiple customers.
Diverse Routing--A network topology that provides reliability by providing
two distinct physical routes for network transmission path (fiber optic or
copper cables) with the ability to quickly "switch" traffic from one route to
the other, should one of the routes be rendered inoperable.
DMS-500--A telephone switch manufactured by Nortel, that provides both local
exchange switching (also known as a "class 5" switch) and a long distance
switch (also known as a "class 4" switch) in a single device.
EBITDA--Earnings Before Interest, Tax, Depreciation, and Amortization - a
financial measure of cash flow.
Enhanced Data Services--Data networking services provided on a
sophisticated, software managed transport and switching network, such as a
frame relay or ATM data network.
FCC (Federal Communications Commission)--The US Government organization
charged with the oversight of all public communications media.
Feature Group Circuit--A telecommunications channel that connects a LEC
telephone switch with an IXC telephone switch, for the purpose of passing long
distance calls between the two carriers' networks. Calls placed by dialing
"1+" are routed over these circuits.
Frame Relay--A wide area information transport technology that organizes
data into units called frames, with variable bit length, designed to move
information that is "bursty" in nature.
ICP (Integrated Communications Provider)--A telecommunications carrier that
provides packaged or integrated services from among a broad range of
categories, including local exchange service, long distance service, enhanced
data service, cable TV service, and other communications services.
ILEC (Incumbent Local Exchange Carrier)--The local exchange carrier that was
the monopoly carrier, prior to the opening of local exchange services to
competition.
ILEC Collocation--A location serving as the interface point for a CLEC's
network at the point of interconnection to the ILEC. Subcollocation can be 1)
physical, in which the CLEC "builds" a fiber optic network extension into the
ILEC central office, or 2) virtual, in which the ILEC leases a facility,
similar to that which it might build, to affect a presence in the ILEC central
office
Interconnection (co-carrier) Agreement--A contract between an ILEC and a
CLEC for the interconnection of the two's networks, for the purpose of mutual
passing of traffic between the networks, allowing customers of one of the
networks to call users served by the other network. These agreements set out
the financial and operational aspects of such interconnection.
Interexchange Services--Telecommunications services that are provided
between two exchange areas, generally meaning between two cities. These
services can be either voice or data.
Interim Number Portability--A temporary technique that allows local exchange
service customers of an ILEC to keep their existing telephone number, while
moving their service to a CLEC. Their interim technique uses a central office
feature called remote call forwarding. The permanent solution to number
portability is to implemented over the next few years.
ISDN (Integrated Services Digital Network)--a modern telephone technology
that combines voice and data switching in an efficient manner.
ISP (Internet Service Provider)--a recently created category of
telecommunications service provider who provides access to the Internet,
normally for dial access customers, by sharing communications lines and
equipment.
- -------------------------------------------------------------------------------
A-2
<PAGE>
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.
POP (Point of Presence)--A location where a carrier, usually an IXC, has
located transmission and terminating equipment to connect its network to the
networks of other carriers, or to customers.
RBOC (Regional Bell Operating Company)--One of the Leeks created by the
Divestiture of the local exchange business by AT&T. These include BellSouth,
NYNEX, Bell Atlantic, Ameritech, US West, SBC, and PacTel.
SONET (Synchronous Optical NETwork)--A transmission technology that is used
by carriers in both local and long distance telecommunications networks to
provide efficient, highly reliable communications channels.
Special Access Services--Private, non-switched connections between an IXC
and a customer, for the purpose of connecting the customer's long distance
calls to the IXC's network, without having to pay the LEC's access charges.
Systems Integration--The provision of specialized skills and equipment to
met specific customer needs.
VSAT (Very Small Aperture Terminal)--A satellite communication system that
comprises small diameter (approximately 1 meter in diameter) antennae and
electronics to establish a communications terminal, use mostly for data. VSAT
networks compete with other, landline based networks such as private lines and
frame relay.
- -------------------------------------------------------------------------------
A-3
<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 to the Company unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses. The 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 liabilities
that may occur in their capacity as such.
Insofar as indemnification for liabilities arising under the Securities 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 Securities Act and is therefor unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1* Purchase Agreement, dated March 4, 1997, between the Company and Bear,
Stearns & Co. Inc., Morgan Stanley & Co. Incorporated and Salomon
Brothers Inc (collectively, the "Initial Purchasers").
2.1(a) Acquisition agreement between the Company and Phone One International,
Inc. dated November 9, 1994 (the "Acquisition Agreement"). Exhibit 2
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 filed with the Commission on November 15, 1994 is
incorporated herein by reference.
2.1(b) Amendment No. 1 to the Acquisition Agreement, dated as of December 2,
1994. Exhibit 2.1(b) to the Company's Current Report on Form 8-K filed
with the Commission on December 14, 1994 (the "1994 Form 8-K") is
incorporated herein by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
2.1(c) Letter agreement dated December 16, 1994 between the Company and Phone
One International, Inc. Exhibit 2.1(c) to the Company's Current Report
on Form 8-K filed with the Commission on January 27, 1995 is
incorporated herein by reference.
2.2 Agreement and Plan of Merger, dated as of February 15, 1995, among the
Company, FAC Acquisition, Inc., CAC Acquisition, Inc., FiberNet USA,
Inc., FiberNet Telecommunications Cincinnati, Inc., James F. Geiger,
Mark A. Masi, Joseph A. Tortoretti, Petrocelli Industries, Inc. and
Santo Petrocelli. Exhibit 2.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 is incorporated herein by
reference.
2.3 Asset Purchase Agreement (the "EMI Asset Purchase Agreement") dated as
of February 20, 1996 among EMI Communications Corp., Eastern Message,
Inc., Eastern Message of New Jersey, Inc., Eastern Message of
Pennsylvania, Inc., Eastern Message of Massachusetts, Inc., Eastern
Message of Maryland, Inc., Newhouse Broadcasting Corporation and
Intermedia Communications of Florida, Inc. Exhibit 2.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Form 10-K") is incorporated herein by reference.
2.3(a) Amendment No. 1 to the EMI Asset Purchase Agreement. Exhibit 2.2 to the
Company's Current Report on Form 8-K filed with the Commission on June
28, 1996 is incorporated herein by reference.
3.1 Restated Certificate of Incorporation of ICI, together with all
amendments thereto. Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "1996 Form 10-K") is
incorporated herein by reference.
3.2 By-laws of ICI, together with all amendments thereto. Exhibit 3.2 to
the Company's Form S-1, filed with the Commission on November 8, 1993
(No. 33-69053) (the "Form S-1") is incorporated herein by reference.
4.1 Registration Rights Agreement between the Company and Phone One
International, Inc., dated December 2, 1994. Exhibit 4.1 to the 1994
Form 8-K is incorporated herein by reference.
4.1(a) Amended and Restated Stockholders Agreement, dated as of June 5, 1991,
among ICI, Robert Benton, Richard Anthony, James Burt, Mary Couture,
Robert Hardie, Sheryl Houff, Thomas Klump, Richard Kolsby, William
Miller, Daniel Montague, Susan Rodriguez, Barbara Samson, Harvard
Southall, Bruce Sutcliffe, Marion Samson Joseph, APA Excelsior II,
National Westminster Jersey Trust Co. Ltd., Custodian for APA Excelsior
Venture Capital Holdings (Jersey) Ltd, Morgan Holland Fund L.P., MBW
Venture Partners Limited Partnership, Michigan Investment Fund L.P. and
Philip E. McCarthy, Vista III L.P., Kronish, Lieb, Weiner & Hellman
Profit Sharing Plan and Trust F/B/O Ralph J. Sutcliffe, New York Life
Insurance Company, and Community Investment Partners, L.P. (the
"Stockholders Agreement"). Exhibit 4.1(a) to the Form S-1 is
incorporated herein by reference.
4.1(b) Amendment to Stockholders Agreement dated as of February 21, 1992.
Exhibit 4.1(b) to the Form S-1 is incorporated herein by reference.
4.2 Indenture, dated as of June 2, 1995, between the Company and SunBank
National Association, as trustee. Exhibit 4.1 to the Company's
Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on June 20, 1995 (No. 33-93622) (the "Form S-4") is
incorporated herein by reference.
4.2(a) Amended and Restated Indenture, dated as of April 26, 1996, governing
the Company's 13 1/2% Series B Senior Notes due 2005, between the
Company and SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on April 29, 1996 is incorporated herein by
reference.
4.3 Registration Rights Agreement, dated as of June 2, 1995 among the
Company, Bear, Stearns, & Co., Inc. and Morgan Stanley & Co., as
initial purchasers. Exhibit 4.3 to the Form S-4 is incorporated herein
by reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
4.4 Rights Agreement dated as of March 7, 1996, between Intermedia
Communications of Florida, Inc., and Continental Stock Transfer and
Trust Company. Exhibit 4.1 to the Company's Current Report on Form 8-K
filed with the Commission on March 12, 1996 is incorporated herein by
reference.
4.4(a) Amendment to Rights Agreement, dated as of February 20, 1997 between
Intermedia Communications Inc. and Continental Stock Transfer & Trust
Company. Exhibit 4.4(a) to the 1996 Form 10-K is incorporated herein
by reference.
4.5 Warrant Agreement, dated as of February 18, 1988, between ICI and
certain of its stockholders. Exhibit 10.16 to the Company's Form S-1
is incorporated herein by reference.
4.6 Warrant Agreement, dated as of June 5, 1991, between ICI and New York
Life Insurance Company. Exhibit 10.17 to the Company's Form S-1 is
incorporated herein by reference.
4.7 Form of Warrant Agreement, dated as of March 4, 1992, between ICI and
certain of its stockholders. Exhibit 10.18 to the Company's Form S-1
is incorporated herein by reference.
4.8 Indenture, dated as of May 14, 1996, between the Company and SunTrust
Bank, Central Florida, National Association, as trustee. Exhibit 4.1
to Amendment No. 1 to the Company's Registration Statement on Form S-3
(Commission File No. 33-34738) filed with the Commission on April 18,
1996 is incorporated herein by reference.
4.9 Certificate of Designation of the Company's 13 1/2% Series A and
Series B Redeemable Exchangeable Preferred Stock due 2009. Exhibit 3.1
(beginning on page 29 of such exhibit) to the 1996 Form 10-K is
incorporated herein by reference.
4.10 Registration Rights Agreement, dated as of March 7, 1997, by and among
the Company and Bear, Stearns & Co. Inc., Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc, as the initial purchasers.
Exhibit 4.10 to the 1996 Form 10-K is incorporated herein by
reference.
4.11 Certificate of Designation, as amended, of the Company's Series C
Preferred Stock is contained in the Company's Restated Certificate of
Incorporation, as amended, filed as Exhibit 3.1 to the 1996 Form 10-K
and incorporated herein by reference.
4.12* Form of 13 1/2% Series A Redeemable Exchangeable Preferred Stock
Certificate.
4.13* Form of 13 1/2% Series B Redeemable Exchangeable Preferred Stock
Certificate.
5.1** Opinion of Kronosh, Lieb, Weiner & Hellman LLP.
10.1(a) 1992 Stock Option Plan. Exhibit 10.1 to the Form S-1 is incorporated
herein by reference.
10.1(b) Amendment to 1992 Stock Option Plan dated May 20, 1993. Exhibit
10.1(b) to the Form S-1 is incorporated herein by reference.
10.1(c) Long Term Incentive Plan. Exhibit 10.1(c) to the Company's 1995 Form
10-K is incorporated herein by reference.
10.2 David C. Ruberg Employment Agreement, dated May 1, 1993, between David
C. Ruberg and ICI. Exhibit 10.2 to the Company's 1995 Form 10-K is
incorporated herein by reference.
10.3 Sublease, dated August 28, 1995, between ICI and Pharmacy Management
Services, Inc. for its principal executive offices located at 3625
Queen Palm Drive, Tampa, Florida. Exhibit 10.3 to the Company's 1995
Form 10-K is incorporated herein by reference.
10.4 Stock Purchase Agreement, dated as of February 18, 1988, among ICI,
Marion Samson Joseph, Robert Benton, Barbara Samson, Bruce Sutcliffe,
William Miller, Richard Kolsby; and National Westminster Jersey Trust
Co. Ltd., Custodian for APA Excelsior Venture Capital Holdings
(Jersey) Ltd, APA Excelsior II, Morgan Holland Fund L.P., MBW Venture
Partners Limited Partnership, Michigan Investment Fund L.P., and
Philip E. McCarthy, as amended. Exhibit 10.11 to the Form S-1 is
incorporated herein by reference.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.5 Stock Purchase Agreement, dated as of March 18, 1988, among ICI,
Marion Samson Joseph. Robert Benton, Barbara Samson, Bruce Sutcliffe,
William Miller, Richard Kolsby; and Vista III L.P., Morgan Holland
Fund L.P., MBW Venture Partners Limited Partnership, Michigan
Investment Fund L.P., and Kronish, Lieb, Weiner & Hellman Profit
Sharing Plan and Trust F/B/O Ralph J. Sutcliffe, as amended. Exhibit
10.12 to the Form S-1 is incorporated herein by reference.
10.6 Stock Purchase Agreement, dated as of July 18, 1989, between ICI and
New York Life Insurance Company. Exhibit 10.13 to the Form S-1 is
incorporated herein by reference.
10.7(a) Stock Purchase Agreement, dated as of June 5, 1991, as amended (the
"1991 Stock Purchase Agreement"), among ICI, New York Life Insurance,
National Westminster Jersey Trust Co. Ltd., Custodian for APA
Excelsior Venture Capital Holdings (Jersey) Ltd, APA Excelsior II,
Morgan Holland Fund L.P., Vista III, L.P., MBW Venture Partners
Limited Partnership Michigan Investment Fund L.P., Philip E. McCarthy,
Community Investment Partners, L.P. and Kronish, Lieb, Weiner &
Hellman Profit Sharing Plan and Trust F/B/O Ralph J. Sutcliffe.
Exhibit 10.14(a) to the Form S-1 is incorporated herein by reference.
10.7(b) Amendment to 1991 Stock Purchase Agreement, dated as of March 2, 1992.
Exhibit 10.14(b) to the Form S-1 is incorporated herein by reference.
10.7(c) Instrument of Approval, dated as of February 21, 1992, by parties to
the 1991 Stock Purchase Agreement. Exhibit 10.14(c) to the Company's
Form S-1 is incorporated herein by reference.
10.11 401(k) Plan. Exhibit 10.20 to the Company's Form S-1 is incorporated
herein by reference.
10.12 Frame Relay Service Program Agreement, dated September 12, 1994, among
PacNet, Inc., ICI, EMI Communications Corp., Integrated Network
Services, Inc. and MRC Telecommunications, Inc. Exhibit 10.12 to the
Company's 1995 Form 10-K is incorporated herein by reference.
11* Statement Re: Computation of Per Share Earnings.
12* Statement Re: Computation of Ratios.
21 Subsidiaries of the company. Exhibit 21 to the 1996 Form 10-K is
incorporated herein by reference.
23.1 Consent of Kronosh, 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.
99.1* Form of Letter of Transmittal.
</TABLE>
- --------
*Filed herewith
** To be filed by Amendment
(b) Financial Statement Schedules
Financial statement schedules have been omitted because the required
information is not present or not present in amounts to require submission of
the schedules, or because the information required is included in the
financial statements.
II-4
<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 registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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 Securities Exchange Act of 1934, as amended
(the "Exchange Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) 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.
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement when
it became effective.
II-5
<PAGE>
(7) That, 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 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 registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the financial adjudication of such
issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, 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, ON THIS 2ND DAY
OF APRIL, 1997.
INTERMEDIA COMMUNICATIONS INC.
/s/ David C. Ruberg
By___________________________________
DAVID C. RUBERG, CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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 April 2, 1997
- ------------------------------------- Board, President
DAVID C. RUBERG and Chief Executive
Officer
Principal Financial and Accounting Officers:
/s/ Robert M. Manning Chief Financial April 2, 1997
- ------------------------------------- Officer, Secretary
ROBERT M. MANNING and Senior Vice
President
/s/ Jeanne M. Walters Controller and Chief April 2, 1997
- ------------------------------------- Accounting Officer
JEANNE M. WALTERS
Other Directors:
/s/ John C. Baker Director April 2, 1997
- -------------------------------------
JOHN C. BAKER
/s/ George F. Knapp Director April 1, 1997
- -------------------------------------
GEORGE F. KNAPP
/s/ Philip A. Campbell Director April 2, 1997
- -------------------------------------
PHILIP A. CAMPBELL
<PAGE>
Exhibit 1.1
EXECUTION COPY
================================================================================
INTERMEDIA COMMUNICATIONS INC.
13 1/2% Series A Redeemable Exchangeable Preferred Stock due 2009
Purchase Agreement
March 4, 1997
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
================================================================================
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
13 1/2% Series A Redeemable Exchangeable Preferred Stock due 2009
PURCHASE AGREEMENT
------------------
March 4, 1997
New York, New York
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
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., Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc (together, the "Initial Purchasers")
------------------
30,000 shares of its 13 1/2% Series A Redeemable Exchangeable Preferred Stock
due 2009, liquidation preference $10,000 per share (the "Series A Preferred
------------------
Stock"). The Series A Preferred Stock is to be authorized and issued pursuant
- -----
to the provisions of a Certificate of Designation of the Voting Power,
Designation Preferences and Relative, Participating, Optional or Other Special
Rights and Qualifications, Limitations and Restrictions (the "Certificate of
--------------
Designation") to be filed with the Secretary of State of the State of Delaware.
- -----------
Continental Stock Transfer & Trust Company will be transfer agent and registrar
for the Series A Preferred Stock. The Series A Preferred Stock and the New
Preferred Stock (as defined below) issuable in exchange therefor are
collectively referred to herein as the "Securities." Under certain
----------
circumstances set forth in the Certificate of Designation, the Securities may be
exchanged for the Company's 13 1/2% Senior Subordinated Debentures due 2009 (the
"Exchange Debentures"). The Exchange Debentures and the New Exchange Debentures
-------------------
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "Debentures."
----------
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 an aggregate of $300,000,000 liquidation preference of Series A
Preferred Stock. Capitalized terms used but not otherwise defined herein shall
have the meanings given to such terms in the Certificate of Designation.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Series A
Preferred Stock (and all securities issued in exchange therefor, in substitution
thereof or upon conversion thereof) shall bear the following legend:
<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 Series A Preferred Stock 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 February 24, 1997
(the "Preliminary Offering Memorandum"), and a final offering memorandum, dated
-------------------------------
March 4, 1997 (the "Offering Memorandum"), relating to the Company and the
-------------------
Series A Preferred Stock.
The Initial Purchasers have advised the Company that the Initial Purchasers
will make offers (the "Exempt Resales") of the Series A Preferred Stock 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 to 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"). The
-------------------
QIBs and the Accredited Investors are referred to herein as the "Eligible
--------
Purchasers." The Initial Purchasers will offer the Series A Preferred Stock to
- ----------
such QIBs and Accredited Investors initially at a price of $10,000.00 per share.
Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Series A Preferred Stock
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 (as defined), for so long as
---------
such Series A Preferred Stock constitute "Transfer Restricted Securities" (as
defined in the Registration Rights 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")
- ----------------------
2
<PAGE>
relating to the 13 1/2% Series B Redeemable Exchangeable Preferred Stock due
2009 (the "New Preferred Stock") to be offered in exchange for the Series A
-------------------
Preferred Stock or, if the Series A Preferred Stock has been exchanged for the
Exchange Debentures, the Company's 13 1/2% Senior Subordinated Debentures due
2009 (the "New Exchange Debentures") to be offered in exchange for the Exchange
-----------------------
Debentures (in either case such offer to exchange being referred to as the
"Exchange Offer") and, if necessary, (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 Series A Preferred Stock or Exchange
Debentures, as the case may be, and to use its best efforts to cause such
Registration Statements to be declared effective and consummate the Exchange
Offer. This Agreement, the Certificate of Designation, the indenture pursuant
to which the Exchange Debentures will be issued (the "Indenture"), the
---------
Securities, the Debentures 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 number of shares set forth opposite its name on Schedule I hereto.
The purchase price for the Series A Preferred Stock shall be $9,629.17 per
share.
(b) Delivery of, and payment of the purchase price for, the Series A
Preferred Stock shall be made, against payment of the purchase price, at the
offices of Kronish, Lieb, Weiner & Hellman LLP ("Kronish, Lieb") at 1114 Avenue
-------------
of the Americas, New York, New York 10036, 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 March 7, 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."
------------
(c) The Series A Preferred Stock shall initially be issued in the form of
one or more Global Securities (the "Global Securities"), registered in the name
-----------------
of Cede & Co., as nominee of the Depository Trust Company ("DTC"), having a
---
liquidation preference corresponding to the aggregate liquidation preference of
the Series A Preferred Stock. The Global Securities shall be delivered by the
Company to the Initial Purchasers (or as the Initial Purchasers direct) in each
case with any transfer taxes payable upon initial issuance thereof duly paid by
the Company against payment of the Purchase Price by wire transfer of same-day
funds to the order of the Company. 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 of the Series A
Preferred Stock 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
3
<PAGE>
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 of the Series A Preferred Stock 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 of the Series A Preferred Stock 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.
(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) to
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 Series A Preferred Stock 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 hereby 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:
4
<PAGE>
(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 and, if issued, the Debentures 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 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 Series A Preferred Stock 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 Transfer Agent and its counsel in connection with the
Certificate of Designation, (xii) the performance by the Company of its
other obligations under this Agreement and the other Operative Documents
and (xiii) "roadshow" travel and other expenses incurred in connection with
the marketing and sale of the Securities (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 Series A Preferred Stock
in the manner described in the Offering Memorandum under the caption "Use
of Proceeds."
(h) If the Debentures are issued, not to voluntarily claim, and to
resist actively any attempts to claim, the benefit of any usury laws
against the holders of the Debentures.
(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 Series
A Preferred Stock.
(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 Series A Preferred Stock in a manner that
would require the registration under the Act of the sale to the Initial
Purchasers or Eligible Purchasers of the Series A Preferred Stock 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 Act of 1934, as amended (the "Exchange Act"), to
------------
make available to any holder of the Series A Preferred Stock in connection
with any sale thereof and any prospective purchaser of such Series A
Preferred Stock from such holder, the information required by Rule
144A(d)(4) under the Act.
5
<PAGE>
(l) To cause the Exchange Offer to be made in the appropriate form to
permit registered New Preferred Stock or New Exchange Debentures to be
offered in exchange for the Series A Preferred Stock or Exchange
Debentures, as the case may be, 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 Series A
Preferred Stock 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 publicly disclosed by the Company, a
copy of any consolidated financial statements of the Company for any period
subsequent to the period 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
Series A Preferred Stock. 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
Series A Preferred Stock.
(r) To comply with the agreements in the Certificate of Designation,
the Indenture, the Registration Rights Agreement and any other Operative
Document.
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
6
<PAGE>
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 Series A Preferred Stock is issued and delivered
pursuant to this Agreement, no Series A Preferred Stock 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) The Company and each of its subsidiaries (each, a "Subsidiary"
----------
and, collectively, 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
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 Securities 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").
-----------------------
(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 December 31, 1996, on a combined basis, after giving effect to
the issuance and sale of the Series A Preferred Stock pursuant hereto, the
Company had an authorized and outstanding consolidated capitalization as
set forth in the Offering Memorandum under the caption "Capitalization."
(v) Except as set forth in the Offering Memorandum and on Exhibit E
---------
attached 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 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 Securities 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
7
<PAGE>
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 shares of Series A Preferred Stock have been duly and
validly authorized for issuance and sale to the Initial Purchasers by the
Company pursuant to this Agreement and, when issued, delivered and paid for
in accordance with the terms of this Agreement, will be validly issued,
fully paid and non-assessable and entitled to the rights, privileges and
preferences set forth in the Certificate of Designation, and the issuance
of such shares of Series A Preferred Stock will not be subject to any
preemptive or similar rights. The Series A Preferred Stock will conform in
all material respects with the description thereof in the Offering
Memorandum.
(ix) The shares of New Preferred Stock have been duly and validly
authorized by the Company and, when issued and delivered in accordance with
the terms of the Certificate of Designation and the Exchange Offer, will be
validly issued, fully paid and non-assessable and entitled to the rights,
privileges and preferences set forth in the Certificate of Designation, and
the issuance of such shares of New Preferred Stock will not be subject to
any preemptive or similar rights. The New Preferred Stock will conform in
all material respects to the description thereof in the Offering
Memorandum.
(x) The Exchange Debentures have been duly and validly authorized
by the Company and, if and when issued by the Company will conform in all
material respects to the description thereof in the Offering Memorandum.
When the Exchange Debentures are issued and delivered in accordance with
the Indenture, the Exchange Debentures will constitute 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 Exchange Debentures will
conform in all material respects to the description thereof in the Offering
Memorandum.
(xi) The New Exchange Debentures have been duly and validly
authorized by the Company and, if and when issued and delivered by the
Company in accordance with the terms of the Indenture and the Exchange
Offer, will constitute 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 New Exchange Debentures will conform in all material respects
to the description thereof in the Offering Memorandum.
(xii) The Certificate of Designation has been duly authorized by all
necessary corporate and any necessary stockholder action and, on the
Closing Date will have been duly executed by the Company and filed with the
Secretary of State of the State of Delaware and will conform in all
material respects to the description thereof in the Offering Memorandum.
(xiii) The Indenture has been duly and validly authorized by the
Company, will conform to the description thereof in the Offering Memorandum
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,
8
<PAGE>
fraudulent conveyance, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity.
(xiv) 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 and limitations on the validity or
enforceability of provisions relating to rights of indemnity and
contribution set forth therein. The Offering Memorandum contains a fair
summary of the terms of the Registration Rights Agreement.
(xv) None of the Company or any Subsidiary 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 could not reasonably be expected to have a Material Adverse
Effect. To the best knowledge of the Company, there exists no condition
that, with notice, the passage of time or otherwise, would constitute a
default under any such document or instrument that could reasonably be
expected to result in a Material Adverse Effect.
(xvi) 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 Series A Preferred Stock, (C) the issuance of the
New Preferred Stock in exchange for the Series A Preferred Stock, (D) the
performance by the Company of its obligations under this Agreement and the
other Operative Documents and (E) the consummation of the transactions
contemplated by this Agreement and the other Operative Documents 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 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 would not singly, or in the
aggregate, have a Material Adverse Effect. 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
9
<PAGE>
the Company of this Agreement and the other Operative Documents, or (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.
(xvii) 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 or may be 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.
(xviii) 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 Series A Preferred Stock 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 Series A
Preferred Stock or prevents or suspends the sale of the Series A Preferred
Stock in any jurisdiction referred to in Section 5(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.
(xix) 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, 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 that could reasonably be expected to result in a Material
Adverse Effect. 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
10
<PAGE>
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.
(xx) 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.
(xxi) 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, (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 and (iv) no
reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Authorization, except with
respect to clauses (i) through (iv) as described in the Offering Memorandum
or as could not reasonably be expected to result in a Material Adverse
Effect. 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. Except as could not
reasonably be expected to result in a Material Adverse Effect, 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.
(xxii) Except as could not reasonably be expected to result in a
Material Adverse Effect, 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, 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. The use of the Intellectual Property in
connection with the business and operations of the Company and the
Subsidiaries does
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not infringe on the rights of any person, except as could not reasonably be
expected to have a Material Adverse Effect.
(xxiii) 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.
(xxiv) 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.
(xxv) None of the Company or any Subsidiary 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 company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(xxvi) Except as disclosed in the Offering Memorandum, 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.
(xxvii) 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.
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(xxviii) 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.
(xxix) 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 Securities
or (ii) since the date of the Preliminary Offering Memorandum (A) sold, bid
for, purchased or paid any person (other than the Initial Purchasers) any
compensation for soliciting purchases of the Series A Preferred Stock or
(B) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xxx) No registration under the Act of the Series A Preferred Stock
is required for the sale of the Series A Preferred Stock to the Initial
Purchasers as contemplated hereby or for the Exempt Resales assuming (i)
that the purchasers who buy the Series A Preferred Stock 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 Series A Preferred Stock 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 Series A Preferred Stock or 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 Series A Preferred
Stock have been issued and sold by the Company within the six-month period
immediately prior to the date hereof.
(xxxi) Set forth on Exhibit B hereto is a list of each employee
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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 is a party in interest or disqualified person.
The execution and delivery of this Agreement, the other Operative Documents
and the sale of the Series A Preferred Stock to be purchased by the
Eligible Purchasers 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 Eligible Purchasers as set forth in the Offering Memorandum under the
caption "Notice to Investors."
(xxxii) 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.
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<PAGE>
(xxxiii) 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) 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 (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock.
(xxxiv) None of the Company or any Subsidiary or any agent thereof
acting on the behalf of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the
Securities to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve System or
analogous foreign laws and regulations.
(xxxv) 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 consolidated historical financial statements, together with related
schedules and notes, set forth in the Offering Memorandum 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 the 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 and 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 the
Subsidiaries, as applicable.
(xxxvi) 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 Series A Preferred Stock, 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
14
<PAGE>
liabilities) of the Company on a consolidated basis as they become absolute
and matured. Upon the issuance of the Series A Preferred Stock, 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.
(xxxvii) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company 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.
(xxxviii) 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 Series A Preferred
Stock.
(ii) Such Initial Purchaser (A) is not acquiring the Series A
Preferred Stock 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
Series A Preferred Stock 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 Series
A Preferred Stock, 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.
(iv) Each of the Initial Purchasers agrees that, in connection with
the Exempt Resales, it will solicit offers to buy the Series A Preferred
Stock only from, and will offer to sell the Series A Preferred Stock only
to, Eligible Purchasers. The Initial Purchasers further agree (A) that
they will offer to sell the Series A Preferred Stock only to, and will
solicit offers to buy the Series A Preferred Stock only from (1) QIB's who
in purchasing such Series A Preferred Stock will be deemed to have
represented and agreed that they are purchasing the Series A Preferred
Stock for their own accounts or accounts with respect to which they
exercise sole investment
15
<PAGE>
discretion and that they or such accounts are QIBs and (2) Accredited
Institutions 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 the Offering Memorandum and (B) that, in the case of
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such Eligible Purchasers, acknowledges and agrees that such Series A
Preferred Stock 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 under the Act, (III) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the Act
or (IV) 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 or any
other applicable jurisdiction 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 any 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 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 Series A Preferred
Stock which are the subject thereof if it is finally judicially determined
16
<PAGE>
that such loss, liability, claim, damage or expense resulted solely from
the fact that the Initial Purchaser sold Series A Preferred Stock 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 any Initial Purchaser expressly for use therein;
provided, however, that in no case shall any 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 agreement will be in addition to any
liability which any 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 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 one of the
17
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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
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
more 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 Series A Preferred Stock 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 Series
A Preferred Stock (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 any of the Initial Purchasers be
required to contribute any amount in excess of the amount by which the discount
applicable to the Series A Preferred Stock 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
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<PAGE>
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 any 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 Series A
Preferred Stock, as provided herein, shall be subject to the satisfaction of the
following conditions:
(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 in all material respects 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
Series A Preferred Stock 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
Series A Preferred Stock; 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 could
reasonably be expected to result in a Material Adverse Effect; 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.
(d) Since the dates as of which information is given in 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
19
<PAGE>
declared, paid or made by the Company or any Subsidiary (other than any
dividends or distributions paid to the Company) on any class of its capital
stock and (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 change, or
any development which may reasonably be expected to involve a material
adverse change, in the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company and
the Subsidiaries taken as a whole.
(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 M. 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.
---------
(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 LLP, special regulatory counsel to the Company, to the effect set
forth in Exhibit D hereto.
---------
(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, 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 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
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
20
<PAGE>
(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 shall have authorized, executed and filed the
Certificate of Designation in accordance with Delaware law and each of the
Initial Purchasers shall have received an original, duly executed by the
Company.
(m) The Company shall have entered into the Registration Rights
Agreement and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(n) At or prior to the Closing Date, all FCC or state approvals
required in connection with the Offering shall have been obtained or
applications for such approvals submitted or prepared for submission promptly
following the Closing Date and the Company shall have delivered to the Initial
Purchasers evidence satisfactory to the Initial Purchasers that such FCC or
state approvals have been obtained or applications thereof have been made or
prepared for submission promptly following the Closing Date.
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 Series A Preferred Stock set forth in the last paragraph of the
cover page, the third paragraph and the sixth and seventh sentences of the
fourth paragraph 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 Series A Preferred Stock to and by the Initial Purchasers. The
representations contained in Section 6 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.
----------------------------------------
(a) This Agreement shall become effective upon execution and delivery
of a counterpart hereof by each of the parties hereto.
(b) 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,
21
<PAGE>
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 Series A Preferred Stock 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 Series A Preferred Stock as contemplated hereby.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, telex, telephonic facsimile, or telegraph, confirmed in writing
by letter.
(d) 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 Series A Preferred Stock 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., Morgan Stanley & Co.
Incorporated 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 telexed, telegraphed or telecopied and confirmed in writing to
Intermedia Communications Inc., 3625 Queen Palm Drive, Tampa, Florida 33619,
Attention:
22
<PAGE>
Robert M. Manning, 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, telecopy
number (212) 997-3527; 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 Series A Preferred Stock from the Initial Purchasers.
14. Construction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
------------
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN 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:
By: Bear, Stearns & Co. Inc.
By:
-----------------------------
Name:
Title:
By: Morgan Stanley & Co. Incorporated
By:
-----------------------------
Name:
Title:
By: Salomon Brothers Inc
By:
-----------------------------
Name:
Title:
<PAGE>
Schedule I
Number of Shares of
Series A Preferred
Initial Purchaser Stock to be Purchased
- ----------------- ---------------------
<TABLE>
<CAPTION>
<S> <C>
Bear, Stearns & Co. Inc................................................. 16,500
Morgan Stanley & Co. Incorporated....................................... 7,500
Salomon Brothers Inc.................................................... 6,000
==========
Total 30,000
</TABLE>
Sched I-1
<PAGE>
Exhibit A
Form of Registration Rights Agreement
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. All of the
issued and outstanding shares of capital stock of, or other ownership
interests in, each Subsidiary have been duly authorized and validly issued,
are fully paid and non-assessable and were not issued in violation of or
subject to any preemptive or similar rights under the Delaware General
Corporation Law or known to such counsel, after reasonable inquiry, and,
except as set forth in the Offering Memorandum or on Schedule A hereto, are
owned by the Company of record, and to the knowledge of such counsel, after
reasonable inquiry, beneficially, directly or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or other restriction on transferability or voting.
2. 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. The
authorized, issued and outstanding capital stock of the Company conforms in
all respects to the description thereof set forth in the Offering
Memorandum. Except as set forth in the Offering Memorandum or on Schedule
A hereto, there are no outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire, or instruments convertible into
or exercisable or exchangeable for, any capital stock or other equity
interest in the Company or any of its Subsidiaries known to such counsel
after reasonable inquiry.
3. When the Series A Preferred Stock are issued and delivered
pursuant to this Agreement, no Series A Preferred Stock 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.
4. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement, the
Certificate of Designation, 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.
5. This Agreement has been duly and validly authorized, executed and
delivered by the Company and, assuming due execution by the other parties
thereto, is the legally valid and binding agreement of the Company.
C-1
<PAGE>
6. The Certificate of Designation has been duly authorized by all
necessary corporate and stockholder action, executed by the Company and
filed with the Secretary of State of the State of Delaware.
7. The Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company and 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 Series A Preferred Stock have been duly and validly authorized
for issuance and sale to the Initial Purchasers by the Company pursuant to
this Agreement and, when issued, delivered and paid for in accordance with
the terms of this Agreement, will be validly issued, fully paid and non-
assessable and entitled to the rights, privileges and preferences set forth
in the Certificate of Designation, and the issuance of such shares of
Series A Preferred Stock will not be subject to any preemptive or similar
rights.
9. The Series B Preferred Stock have been duly and validly authorized
for issuance by the Company and, when issued and delivered in accordance
with the terms of the Exchange Offer and the Certificate of Designation,
will be validly issued, fully paid and non-assessable and entitled to the
rights, privileges and preferences set forth in the Certificate of
Designation, and the issuance of such shares of Series B Preferred Stock
will not be subject to any preemptive or similar rights.
10. The Exchange Debentures have been duly and validly authorized for
issuance and, if and when issued and delivered by the Company in accordance
with the terms of the Indenture and the Certificate of Designation, the
Exchange Debentures will constitute 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.
11. The New Exchange Debentures have been duly and validly authorized
for issuance and, if and when the New Exchange Debentures are issued and
delivered by the Company in accordance with the terms of the Indenture, the
Certificate of Designation and the Exchange Offer, the New Exchange
Debentures will constitute 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.
12. The Indenture has been duly and validly authorized and, if and
when the Indenture is executed and delivered in accordance with the terms
of the Certificate of Designation and Preferred Stock, (assuming the due
authorization, execution and delivery thereof by the Trustee), the
Indenture will constitute a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy,
C-2
<PAGE>
insolvency, fraudulent conveyance, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity.
13. The Offering Memorandum contains a fair summary of each of the
Series A Preferred Stock, the Certificate of Designation, the New Preferred
Stock, the Exchange Debentures, the New Debentures, the Indenture and the
Registration Rights Agreement.
14. No registration under the Act of the Series A Preferred Stock is
required for the sale of the Series A Preferred Stock 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 Series A Preferred Stock in the Exempt Resales are
either QIBs or Accredited Investors, (iii) the accuracy of the Initial
Purchasers' and the Company's representations regarding the absence of
general solicitation in connection with the sale of Series A Preferred
Stock 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), (xxiii),(xxx) last sentence only and (xxxii) 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 B to the Offering Memorandum.
-------
15. 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.
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 Series A Preferred Stock, (C) the issuance of the New Preferred
Stock in exchange for the Series A Preferred Stock, (D) the performance by
the Company of its obligations under this Agreement and the other Operative
Documents and (E) the consummation of the transactions contemplated by this
Agreement and the other Operative Documents violates, conflicts with or
constitutes 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 any of them or their property is or may
be bound identified to such counsel by the Company as material (assuming
all of such agreements are governed by New York law), (iii) any local,
state, federal or administrative statute, rule or regulation applicable to
the Company or any Subsidiary or any of their assets or properties (except
such counsel shall express no opinion as to the matters addressed in the
opinion of Kelley Drye & Warren LLP), or (iv) any judgment, order or decree
of any court or governmental agency or authority having jurisdiction over
the Company or any Subsidiary or any of their assets or properties known to
such counsel, 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
C-3
<PAGE>
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)
such counsel shall express no opinion as to the matters addressed in the
opinion of Kelley Drye & Warren LLP. To such counsel's knowledge, after
reasonable inquiry, 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 or the issuance and sale of the
Securities, other than such consents and waivers as have been obtained.
17. 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, 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.
18. Except as set forth in this Agreement or in the Registration
Rights Agreement, to such counsel's knowledge, after reasonable inquiry,
there are no holders of any 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 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.
20. To the knowledge of such counsel, no search of court records
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 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 or to which the business, assets or property of the Company or any
of the Subsidiaries are or may be subject has been issued that, in the case
of clauses (i), (ii) and (iii) above, (x) is required to be disclosed in
the Preliminary Offering
C-4
<PAGE>
Memorandum and the Offering Memorandum and that is not so disclosed, (y)
could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect or (z) might interfere with, adversely
affect or in any manner question the validity of the issuance and sale of
the Series A Preferred Stock 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 under the caption "Description of Preferred Stock"
and "Description of the Exchange Debentures" in the Offering Memorandum,
insofar as such statements constitute a summary of documents referred to
therein present a fair summary thereof. The terms of the Certificate of
Designation and the Indenture conform to the descriptions thereof contained
in the Offering Memorandum.
22. The statements contained in the Offering Memorandum under the
caption "Certain Federal Income Tax Considerations" are a fair and accurate
summary of the matters discussed therein.
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 their 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 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 we express no opinion 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 Kelley Drye & Warren LLP
D-1
<PAGE>
Exhibit E
Subsidiaries of Intermedia Communications Inc.
- ----------------------------------------------
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.
- ---------------------
1. AT&T Credit Corporation own warrants to purchase 10% of the outstanding
capital stock of FiberNet North Carolina, Inc.
E-1
<PAGE>
EXHIBIT 4.12
NUMBER SHARES
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS SET FORTH ON THE OPPOSITE SIDE HEREOF.
INTERMEDIA COMMUNICATIONS INC.
CUSIP NO.
INCORPORATED UNDER THE LAWS OF THE 13 1/2% SERIES A REDEEMABLE
STATE OF DELAWARE EXCHANGEABLE PREFERRED STOCK,
par value $1.00 per share
THE RIGHTS, PREFERENCES, RESTRICTIONS AND LIMITATIONS OF THE SERIES A
REDEEMABLE EXCHANGEABLE PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE ARE
DETERMINED BY THE CERTIFICATE OF DESIGNATION ESTABLISHING THE RIGHTS,
PREFERENCES, RESTRICTIONS AND LIMITATIONS OF THIS CLASS OF STOCK, WHICH WAS
APPROVED BY THE BOARD OF DIRECTORS OF THE CORPORATION AND FILED WITH THE
SECRETARY OF STATE OF THE STATE OF DELAWARE. A COPY OF THE CERTIFICATE OF
DESIGNATION IS AVAILABLE FROM THE CORPORATION WITHOUT CHARGE TO STOCKHOLDERS
UPON WRITTEN REQUEST.
- --------------------------------------------------------------------------------
This
CERTIFIES
that
CEDE & CO.
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 13 1/2% SERIES A REDEEMABLE
EXCHANGEABLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE, OF
INTERMEDIA COMMUNICATIONS INC.
transferable on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as TRANSFER AGENT AND REGISTRAR
SECRETARY PRESIDENT
AUTHORIZED AGENT
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A SECURITY IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. THE DEPOSITARY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A
SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE TRANSFER AGENT. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ........... Custodians ..........
TEN ENT - as tenants by the entireties (CUST) (MINOR)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants in common Act..........................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
________________________________________________________________________attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OF
ENLARGEMENT OR ANY CHANGE WHATEVER.
In presence of
X_____________________________________
<PAGE>
EXHIBIT 4.13
NUMBER SHARES
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS SET FORTH ON THE OPPOSITE SIDE HEREOF.
INTERMEDIA COMMUNICATIONS INC.
CUSIP NO.
INCORPORATED UNDER THE LAWS OF THE 13 1/2% SERIES B REDEEMABLE
STATE OF DELAWARE EXCHANGEABLE PREFERRED STOCK,
par value $1.00 per share
THE RIGHTS, PREFERENCES, RESTRICTIONS AND LIMITATIONS OF THE SERIES A
REDEEMABLE EXCHANGEABLE PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE ARE
DETERMINED BY THE CERTIFICATE OF DESIGNATION ESTABLISHING THE RIGHTS,
PREFERENCES, RESTRICTIONS AND LIMITATIONS OF THIS CLASS OF STOCK, WHICH WAS
APPROVED BY THE BOARD OF DIRECTORS OF THE CORPORATION AND FILED WITH THE
SECRETARY OF STATE OF THE STATE OF DELAWARE. A COPY OF THE CERTIFICATE OF
DESIGNATION IS AVAILABLE FROM THE CORPORATION WITHOUT CHARGE TO STOCKHOLDERS
UPON WRITTEN REQUEST.
- --------------------------------------------------------------------------------
This
CERTIFIES
that
CEDE & CO.
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 13 1/2% SERIES B REDEEMABLE
EXCHANGEABLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE, OF
INTERMEDIA COMMUNICATIONS INC.
transferable on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the corporation has caused this Certificate to be
signed by its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as TRANSFER AGENT AND REGISTRAR
SECRETARY PRESIDENT
AUTHORIZED AGENT
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A SECURITY IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. THE DEPOSITARY TRUST COMPANY SHALL ACT AS THE DEPOSITARY UNTIL A
SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE TRANSFER AGENT. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ........... Custodians ..........
TEN ENT - as tenants by the entireties (CUST) (MINOR)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors
survivorship and not as tenants in common Act..........................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
________________________________________________________________________attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OF
ENLARGEMENT OR ANY CHANGE WHATEVER.
In presence of
X_____________________________________
<PAGE>
INTERMEDIA COMMUNICATIONS INC.
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
Average shares outstanding............ 8,955,993 10,035,774 14,017,597
=========== ============ ============
Loss before extraordinary item........ $(3,067,379) $(19,156,597) $(57,198,711)
Extraordinary item.................... -- (1,592,045) --
----------- ------------ ------------
Net loss.............................. $(3,067,379) $(20,748,642) $(57,198,711)
=========== ============ ============
Per share amount:
Loss before extraordinary item...... $ (0.34) $ (1.91) $ (4.08)
Extraordinary item.................. -- (0.16) --
----------- ------------ ------------
Net loss.............................. $ (0.34) $ (2.07) $ (4.08)
=========== ============ ============
</TABLE>
<PAGE>
Exhibit 12
Earnings to Fixed Charge Ratio
Earnings to Fixed Charge Coverage Ratio
Intermedia Communications Inc.
12/31/96
<TABLE>
<CAPTION>
--------------------------------------------------------------------
--------------------------------------------------------------------
1992 1993 1994 1995 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loss before extraordinary items ($235) ($2,074) ($3,067) ($19,157) ($57,198)
Income tax benefit 0 0 0 (97) 0
--------------------------------------------------------------------
Loss before income taxes ($235) ($2,074) ($3,067) ($19,254) ($57,198)
Fixed Charges:
Interest expensed $1,031 $844 $1,219 $13,355 $35,213
Capitalized interest 120 214 257 677 2,780
Amortization of deferred financing costs 67 78 69 412 1,252
Estimated interest factor on operating leases 275 313 200 428 1,598
Dividends on redeemable preferred stock 267 0 0 0 0
--------------------------------------------------------------------
Total fixed charges $1,760 $1,449 $1,745 $14,872 $40,843
====================================================================
Earnings:
Loss before income tax ($235) ($2,074) ($3,067) ($19,254) ($57,198)
Fixed charges excluding capitalized interest 1,373 1,235 1,488 14,195 38,063
--------------------------------------------------------------------
Total earnings $1,138 ($839) ($1,579) ($5,059) ($19,135)
====================================================================
Ratio of earnings to fixed charges 0.65 (0.58) (0.90) (0.34) (0.47)
====================================================================
Insufficiency of earnings to cover fixed charge $622 $2,288 $3,324 $19,931 $59,978
====================================================================
</TABLE>
Page 1
<PAGE>
Exhibit 23.2
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1997, except for Note 13 as to which the
date is March 7, 1997, in the Registration Statement (Form S-4) and related
Prospectus of Intermedia Communications Inc. for the registration of 56,507
shares of 13-1/2% Series B Redeemable Exchangeable Preferred Stock due 2009.
We also consent 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. for the year ended December 31, 1996 included in the Annual
Report (Form 10-K) for 1996 filed with the Securities and Exchange Commission.
Tampa, Florida
April 1, 1997
<PAGE>
LETTER OF TRANSMITTAL
FOR
13 1/2% REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009
OF
INTERMEDIA COMMUNICATIONS INC.
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OUTSTANDING 13 1/2% SERIES A REDEEMABLE EXCHANGEABLE PREFERRED STOCK
DUE 2009
FOR
13 1/2% SERIES B REDEEMABLE EXCHANGEABLE PREFERRED STOCK DUE 2009
PURSUANT TO THE PROSPECTUS DATED , 1997
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED, TENDERS OF OLD PREFERRED
SHARES 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: EXCHANGE AGENT
By Mail, Hand or Overnight Courier: By Facsimile:
Continental Stock Transfer (212) 509-5150
& Trust Company
2 Broadway Confirm by Telephone:
New York, New York 10004 (212) 509-4000, X535
Attn: Reorganization Department
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 PREFERRED SHARES FOR THEIR
OLD PREFERRED SHARES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR OLD PREFERRED SHARES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
(the "Prospectus"), dated , 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 one share of its 13 1/2% Series B Redeemable
Exchangeable Preferred Stock due 2009, liquidation preference $10,000 per
share/1/ (collectively, the "New Preferred Shares"), that has been registered
under the Securities
- ---------------------------
/1/ The Issuer has submitted to its stockholders a proposal (the "Proposal") to
effect a 1 for 10 split of its New Preferred Shares. Holders of record of the
Issuer's Common Stock, par value $.01 per share, and Old Preferred Shares on
April 1, 1997 (the "Record Date") are entitled to vote on the Proposal at the
Issuer's annual meeting of stockholders to be held on May 22, 1997 (the "Annual
Meeting"). As of the Record Date, no New Preferred Shares were issued and
outstanding. If the Proposal is approved prior to the consummation of the
Exchange Offer, each Holder tendering Old Preferred Shares will receive 10 New
Preferred Shares, $1,000 liquidation preference per share, for each Old
Preferred Share tendered. If the Proposal is not approved by the stockholders or
if the Annual Meeting has not yet taken place when the Exchange Offer is
consummated, each Holder tendering Old Preferred Shares will receive one New
Preferred Share, $10,000 liquidation preference per share, for each Old
Preferred Share tendered. If the Proposal is approved after the consummation of
the Exchange Offer, upon the approval of the Proposal by the stockholders at the
Annual Meeting, each outstanding New Preferred Share, liquidation preference
$10,000 per share, will be reclassified as 10 New Preferred Shares, liquidation
preference $1,000 per share.
<PAGE>
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which the Prospectus constitutes a part, for each share of its
outstanding 13 1/2% Series A Redeemable Exchangeable Preferred Stock due 2009,
liquidation preference $10,000 per share (the "Old Preferred Shares"), upon the
terms and subject to the conditions set forth in the Prospectus.
The Issuer has not entered into any arrangement or understanding with any
person to distribute the New Preferred Shares 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 Preferred Shares in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the New Preferred Shares to be
received in the Exchange Offer.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Preferred Shares are to be physically delivered to the Exchange
Agent herewith by Holders; (ii) tender of Old Preferred Shares 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 Preferred Shares" by any
financial institution that is a participant in DTC and whose name appears on a
security position listing as the owner of Old Preferred Shares (such
participants, acting on behalf of Holders, are referred to herein, together with
such Holders, as "Acting Holders"); or (iii) tender of Old Preferred Shares is
to be made according to the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer-Procedures for Tendering Old Preferred
Shares." Delivery of documents to DTC does not constitute delivery to the
Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Preferred Shares 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 Preferred Shares are held of record by DTC
who desires to deliver such Old Preferred Shares 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 Preferred Shares
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
PREFERRED SHARES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Preferred Shares to which this Letter of Transmittal
relates. If the space provided below is inadequate, list the certificate
numbers and liquidation preferences on a separately executed schedule and affix
the schedule to this Letter of Transmittal. Tenders of fractional shares of Old
Preferred Shares will not be accepted.
2
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD PREFERRED SHARES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATE AGGREGATE
NUMBER(S)* NUMBER
(ATTACH SIGNED OF OLD PREFERRED SHARES
NAMES(S) AND ADDRESS(ES) OF HOLDER(S) LIST IF TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NECESSARY) THAN ALL)**
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
TOTAL LIQUIDATION PREFERENCE OF OLD PREFERRED SHARES
- ---------------------------------------------------------------------------------------------------
* 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 PREFERRED SHARES
LISTED. SEE INSTRUCTION 2.
- ---------------------------------------------------------------------------------------------------
3
</TABLE>
<PAGE>
[_] CHECK HERE IF TENDERED OLD PREFERRED SHARES 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 Preferred Shares pursuant to the Exchange
Offer and (i) certificates representing such Old Preferred Shares are not lost
but are not immediately available, (ii) time will not permit this Letter of
Transmittal, certificates representing such Old Preferred Shares 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 Preferred Shares
in accordance with the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer-Procedures for Tendering Old Preferred
Shares."
[_] CHECK HERE IF TENDERED OLD PREFERRED SHARES 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 Preferred Shares: _________________________
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 number of Old Preferred Shares indicated above.
Subject to and effective upon the acceptance for exchange of the number of Old
Preferred Shares 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 Preferred Shares tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Issuer) with respect to the tendered Old
Preferred Shares with full power of substitution to (i) deliver certificates for
such Old Preferred Shares to the Issuer, or transfer ownership of such Old
Preferred Shares 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 Preferred Shares for
transfer on the books of the Issuer and receive all benefits and otherwise
exercise all rights of beneficial ownership of such Old Preferred Shares, all in
accordance with the terms of the
4
<PAGE>
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 Preferred
Shares 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 Preferred Shares issued in exchange for the Old
Preferred Shares pursuant to the Exchange Offer may he 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 Preferred Shares 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
Preferred Shares. The undersigned acknowledges that if he or she is
participating in the Exchange Offer for the purpose of distributing the New
Preferred Shares, 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 Preferred Shares. If the undersigned is a broker-
dealer that will receive New Preferred Shares for its own account in exchange
for Old Preferred Shares, the undersigned represents that such Old Preferred
Shares 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 Preferred Shares; 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 Preferred Shares 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 Preferred Shares 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 he necessary or
desirable to complete the assignment and transfer of the Old Preferred Shares
tendered hereby.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Old Preferred Shares when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent. If any tendered Old
Preferred Shares are not accepted for exchange pursuant to the Exchange Offer
for any reason, certificates for any such unaccepted Old Preferred Shares 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 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 Preferred Shares
pursuant to the procedures described under the caption "The Exchange Offer-
Procedures for Tendering Old Preferred Shares" 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.
5
<PAGE>
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Preferred Shares issued in exchange
for the Old Preferred Shares accepted for exchange and return any Old Preferred
Shares not tendered or not exchanged, in the name(s) of the undersigned (or in
either such event, in the case of Old Preferred Shares 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 Preferred Shares issued in exchange for the Old Preferred Shares accepted
for exchange and any certificates for Old Preferred Shares 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 Preferred Shares issued in exchange for
the Old Preferred Shares accepted for exchange and return any Old Preferred
Shares 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 Preferred Shares from the
name of the registered holder(s) thereof if the Issuer does not accept for
exchange any of the Old Preferred Shares so tendered.
6
<PAGE>
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PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD PREFERRED SHARES REGARDLESS
OF WHETHER OLD PREFERRED SHARES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Preferred
Shares exactly as their name(s) appear(s) on certificate(s) for Old Preferred
Shares 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 Preferred
Shares, 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 Preferred Shares, then the registered Holder(s) must sign a valid proxy.
X_______________________________________ Date:_______________________________
X_______________________________________ Date:_______________________________
SIGNATURE(S) OF HOLDER(S) OR
AUTHORIZED SIGNATORY
Names(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)
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(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
OF FIRM)
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(AUTHORIZED SIGNATURE)
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(PRINTED NAME)
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(TITLE)
Date:_________________________
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7
<PAGE>
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- -
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4 herein)
To be completed ONLY if certificates for the number of Old Preferred Shares
not tendered are to be issued in the name of, or the New Preferred Shares issued
pursuant to the Exchange Offer are to be issued to the order of, someone other
than the person or persons whose signature(s) appear(s) within this Letter of
Transmittal or issued to an address different from that shown in the box
entitled "Description of Old Preferred Shares" within this Letter of
Transmittal, or if Old Preferred Shares tendered by book-entry transfer that are
not accepted for purchase are to be credited to an account maintained at DTC.
Name:..........................................................................
(Please Print)
Address:.......................................................................
(Please Print)
...............................................................................
Zip Code
...............................................................................
Taxpayer Identification or Social Security Number
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SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4 herein)
To be completed ONLY if certificates for Old Preferred Shares not tendered or
not accepted for purchase or the New Preferred Shares issued pursuant to the
Exchange Offer are to be sent to someone other than the person or persons whose
signature(s) appear(s) within this Letter of Transmittal or to an address
different from that shown in the box entitled "Description of Old Preferred
Shares" within this Letter of Transmittal.
Name:..........................................................................
(Please Print)
Address:.......................................................................
(Please Print)
...............................................................................
Zip Code
...............................................................................
Taxpayer Identification or Social Security Number
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8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD PREFERRED SHARES. The
certificates for the tendered Old Preferred Shares (or a confirmation of a book-
entry into the Exchange Agent's account at DTC of all Old Preferred Shares
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 ,
1997, unless extended (the "Expiration Date"). The method of delivery of the
tendered Old Preferred Shares, 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 Preferred Shares should be sent to the Issuer.
Holders who wish to tender their Old Preferred Shares and (i) whose Old
Preferred Shares are not immediately available or (ii) who cannot deliver their
Old Preferred Shares, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date must tender their Old
Preferred Shares 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
Preferred Shares, the certificate number or numbers of such Old Preferred Shares
and the number of and liquidation preference of Old Preferred Shares 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
Preferred Shares (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 Preferred
Shares 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 "The Exchange Offer--
Guaranteed Delivery Procedures." Any Holder of Old Preferred Shares who wishes
to tender his Old Preferred Shares 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 Preferred Shares 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 Preferred Shares not properly tendered or any Old Preferred Shares 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 Preferred Shares. 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 Preferred Shares 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 Preferred Shares, nor shall any of them incur any liability for
failure to give such notification. Tenders of Old Preferred Shares will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Old Preferred Shares received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or
9
<PAGE>
waived will be returned without cost by the Exchange Agent to the tendering
Holders of Old Preferred Shares, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
2. PARTIAL TENDERS. Tenders of Old Preferred Shares will be not be
accepted of fractional Old Preferred Shares. If less than the entire
aggregate liquidation preference and number of Old Preferred Shares is tendered,
the tendering Holders should fill in the liquidation preference and number of
Old Preferred Shares tendered in the third column of the chart entitled
"Description of Old Preferred Shares." The entire liquidation preference and
number of Old Preferred Shares delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated. If the entire liquidation
preference and number of all Old Preferred Shares is not tendered, such number
of Old Preferred Shares not tendered and a certificate or certificates
representing New Preferred Shares issued in exchange of any Old Preferred Shares
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
Preferred Shares 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 Preferred Shares tendered hereby,
the signature must correspond with the name(s) as written on the face of the Old
Preferred Shares without alteration, enlargement or any change whatsoever.
If this letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Preferred Shares tendered and the certificate(s) for
New Preferred Shares issued in exchange therefor is to be issued (or any
untendered number of Old Preferred Shares is to be reissued) to the registered
Holder, such Holder need not and should not endorse any tendered Old Preferred
Shares, nor provide a separate bond power. In any other case, such Holder must
either properly endorse the Old Preferred Shares 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 Preferred Shares listed, such Old
Preferred Shares must be endorsed or accompanied by appropriate bond powers
signed as the name of the registered Holder(s) appears on the Old Preferred
Shares.
If this Letter of Transmittal (or facsimile hereof) or any Old Preferred
Shares 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 Preferred Shares 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 he
guaranteed by an Eligible Institution unless the Old Preferred Shares 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 Preferred Shares) 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 Preferred
Shares or substitute Old Preferred Shares for such number of Old Preferred
Shares 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 Preferred Shares 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.
10
<PAGE>
5. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Old Preferred Shares pursuant to the Exchange
Offer. If, however, certificates representing New Preferred Shares or Old
Preferred Shares for shares 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 Preferred Shares tendered hereby, or if
tendered Old Preferred Shares 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 Preferred Shares 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 Preferred Shares 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 Preferred Shares tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED OLD PREFERRED SHARES. Any
tendering Holder whose Old Preferred Shares 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)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Certificate Surrendered Old Preferred Shares Tendered Old Preferred Shares Accepted
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Delivery Prepared by ___________________ Checked by ___________________ Date __________
- -----------------------------------------------------------------------------------------------------
11
</TABLE>
