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Filed pursuant to Rule 424(b)(3)
Registration No. 333-56939
OFFER TO EXCHANGE
8.60% Series B Senior Notes due 2008
for Any and All Outstanding 8.60% Senior Notes due 2008 of
INTERMEDIA COMMUNICATIONS INC.
The Exchange Offer will expire at 5:00 P.M.,
New York City time, on July 28, 1998, unless extended
------------------------
Intermedia Communications Inc., a Delaware corporation ("Intermedia" 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 $1,000 principal amount
of 8.60% Series B Senior Notes due 2008 (the "Senior Notes") of the Company for
each $1,000 principal amount of the issued and outstanding 8.60% Senior Notes
due 2008 (the "Old Notes" and collectively with the Senior Notes, the "Notes")
of the Company. As of the date of this Prospectus, $500,000,000 principal amount
of the Old Notes was outstanding. The terms of the Senior Notes are
substantially identical in all material respects (including interest rate and
maturity) to the terms of the Old Notes except for certain transfer restrictions
and registration rights relating to the Old Notes.
The Exchange Offer is being made to satisfy certain obligations of the
Company under the Note Registration Rights Agreement, dated May 27, 1998, among
the Company and the other signatories thereto (the "Note Registration Rights
Agreement"). Upon consummation of the Exchange Offer, holders of Old Notes that
were not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Note
Registration Rights Agreement covering such Old Notes not tendered and such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. If the Exchange Offer is not consummated, or the Shelf
Registration Statement (as defined) is not filed or is not declared effective
or, after either this Registration Statement (the "Exchange Registration
Statement") or the Shelf Registration Statement has been declared effective,
such registration statement thereafter ceases to be effective or usable (subject
to certain exceptions) in connection with resales of Old Notes or Senior Notes
in accordance with and during the periods specified in the Note Registration
Rights Agreement, additional interest will accrue and be payable on the Notes
until so declared effective or the consummation of such resales. See "The
Exchange Offer," "Description of the Senior Notes -- Registration Rights;
Liquidated Damages."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") with respect to similar transactions,
the Company believes that Senior Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act")) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the Senior
Notes are acquired in the ordinary course of the holders' business, the holders
have no arrangement with any person to participate in the distribution of the
Senior Notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the Senior Notes. Each broker-dealer that
receives Senior Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
Senior Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Senior Notes received in exchange
for Old Notes acquired as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 365 days after the
Exchange Date (as defined), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 11 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 June 29, 1998
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(Continuation of front cover page)
The Senior Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture (as defined). For a more complete
description of the terms of the Senior Notes, see "Description of the Senior
Notes." There will be no cash proceeds to the Company from the Exchange Offer.
The Senior Notes will be senior 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 Company's 12 1/2%
Senior Discount Notes due 2006 (the "12 1/2% Notes"), the 11 1/4% Senior
Discount Notes due 2007 (the "11 1/4% Notes"), the 8 7/8% Senior Notes due 2007
(the "8 7/8% Notes"), the 8 1/2% Senior Notes due 2008 (the "8 1/2% Notes" and,
together with the 12 1/2% Notes, the 11 1/4% Notes and the 8 7/8% Notes, the
"Existing Senior Notes") and the Old Notes, and will rank senior in right of
payment to any future subordinated indebtedness of the Company. Holders of
secured indebtedness of the Company will, however, have claims that are prior to
the claims of the holders of the Senior Notes with respect to the assets
securing such other indebtedness. See "Description of the Senior Notes." As of
March 31, 1998, on a pro forma basis after giving effect to the May Offering (as
defined) and the acquisition of National (as defined), the Company would have
had approximately $2.4 billion of indebtedness and other liabilities, including
trade payables outstanding, which includes approximately $148.9 million of
indebtedness and other liabilities of the Company's subsidiaries.
The Old Notes were originally issued and purchased by Bear, Stearns & Co.
Inc., Salomon Brothers Inc, Merrill Lynch & Co. and SBC Warburg Dillon Read Inc.
(the "Initial Purchasers") pursuant to a note purchase agreement (the "Purchase
Agreement") dated as of May 21, 1998 among the Company and the Initial
Purchasers, including the exercise of the over-allotment option provided for
therein (the "May Offering"). The Initial Purchasers, in turn, resold the Old
Notes in private sales 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. The Old Notes may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless registered or unless an
exemption from the registration requirements of the Securities Act and
applicable state securities laws is available.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Notes to be received in the Exchange Offer and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the Senior Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the Senior Notes to be received in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The Exchange Offer will expire
at 5:00 p.m., New York City time, on July 28, 1998, unless extended (the
"Expiration Date"). The date of acceptance for exchange of the Old Notes for the
Senior Notes (the "Exchange Date") will be the first business day following the
Expiration Date. Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date; otherwise such tenders are
irrevocable.
The Senior Notes will have the same issue date and issue price as the Old
Notes. For a discussion of the tax consequences of the Exchange Offer, see
"Certain Federal Income Tax Considerations."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Company does not currently intend to list the Senior Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active public market for the
Senior Notes will develop.
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 JULY 22, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. Such
reports, proxy and other information can be inspected and copied without charge
at the Public Reference Room maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington D.C. 20549. In addition, upon request, such reports,
proxy statements and other information will be made available for inspection and
copying at the Commission's public reference facilities at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center,
13th floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates upon request from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549. The Commission also
maintains a site on the World Wide Web (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, like the Company, that file electronically with the Commission. The
Company's common stock is listed on the Nasdaq National Market under the symbol
"ICIX". Reports, proxy statements and other information concerning the Company
may be inspected and copied at the offices of the National Association of
Securities Dealers, Inc. 1735 K Street, N.W., Washington D.C. 20006.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, whether
or not it is required to do so by the rules and regulations of the Commission,
for so long as any of the securities offered hereby remain outstanding, it will
furnish to the holders of the securities and file with the Commission (unless
the Commission will not accept such a filing) (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual information
only, a report thereon by the Company's certified independent public accountants
and (ii) all reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition, for so
long as any of the securities offered hereby remain outstanding, the Company has
agreed to make available to any prospective purchaser of the securities or
beneficial owner of the securities in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act.
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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,
1997.
The portions of the Proxy Statement for the Annual Meeting of Stockholders
of the Company held on May 20, 1998 that have been incorporated by reference
into the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
The Company's Current Report on Form 8-K filed with the Commission on
January 21, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
February 12, 1998.
The Company's Current Report on Form 8-K filed with the Commission on March
18, 1998
The Company's Current Report on Form 8-K/A filed with the Commission on
March 30, 1998.
The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
The Company's Current Report on Form 8-K filed with the Commission on April
6, 1998.
The Company's Current Report on Form 8-K filed with the Commission on April
30, 1998.
The Company's Current Report on Form 8-K filed with the Commission on May
1, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on May
13, 1998.
The Company's Current Report on Form 8-K filed with the Commission on May
20, 1998.
The Company's Current Report on Form 8-K filed with the Commission on May
29, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on
June 11, 1998.
In addition, the following information that has been filed with the
Commission is incorporated herein by reference:
The consolidated financial statements of DIGEX, Incorporated ("DIGEX")
appearing in DIGEX's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
The audited financial statements of Shared Technologies Fairchild Inc.
("Shared") appearing in Shared's Annual Report on Form 10-K for the year
ended December 31, 1996.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, upon the
written or oral request of such person to Intermedia Communications Inc., 3625
Queen Palm Drive, Tampa, Florida 33619 (telephone 813-829-0011), Attention:
Investor Relations, a copy of any or all of the documents referred to above
(other than exhibits to such documents) which have been incorporated by
reference in this Prospectus.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the Consolidated
Financial Statements and the Notes thereto incorporated herein by reference.
References in this Prospectus to the "Company" or "Intermedia" mean Intermedia
Communications Inc. together with its subsidiaries, except where the context
otherwise requires. This Prospectus contains certain "forward-looking
statements" concerning the Company's operations, economic performance and
financial condition, which are subject to inherent uncertainties and risks,
including those identified under "Risk Factors." Actual results could differ
materially from those anticipated in this Prospectus. When used in this
Prospectus, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements.
THE COMPANY
Intermedia is a rapidly growing integrated communications provider ("ICP")
delivering local, long distance and enhanced data services (including
Internet-related services) to business and government customers. Intermedia is
currently the largest domestic independent company among those companies
generally referred to as competitive local exchange carriers ("CLECs") (based
upon annualized telecommunications services revenues and assuming the closing of
the announced transaction between AT&T, Inc. ("AT&T") and Teleport
Communications Group, Inc.) and is also the largest provider of shared tenant
telecommunications services in the United States. As a tier-one Internet
services provider ("ISP") and the fourth largest (based on number of nodes)
frame relay provider in the United States, Intermedia is also a leading provider
of enhanced data services to business and government customers. Intermedia
provides services to its customers throughout the United States and in selected
international markets through a combination of owned and leased network
facilities. As an ICP with over 10 years experience focusing on business and
government customers, Intermedia believes it is positioned to take advantage of
technical, regulatory and market dynamics which currently promote demand for a
fully integrated set of communications services.
As of May 21, 1998, Intermedia served approximately 95,000 business
customers and had over 560 quota carrying sales personnel operating in 81 cities
serviced by 102 Company sales offices. The Company's annualized first quarter
1998 pro forma revenues were $738.8 million. Intermedia's reported revenues have
grown from $14.3 million in 1994 to $247.9 million in 1997, representing a
compound annual growth rate of 158.8%.
Through a combination of acquisitions, leased infrastructure, expansion of
existing network and asset purchases, Intermedia continues to increase its
customer base and network density. Additionally, the Company continues to pursue
attractive opportunities to complement and support its existing network
infrastructure and service offerings and to expand into new geographic markets.
As of May 21, 1998, Intermedia's network infrastructure included over 238,000
access line equivalents in service, 20 voice switches, 150 data switches, 22,789
frame relay nodes, 433 network to network interfaces ("NNIs"), including NNIs
with BellSouth Telecommunications Inc. ("BellSouth"), US West Communications
("US West"), Sprint Corporation ("Sprint"), GTE Corporation ("GTE"), Bell
Atlantic Nynex Corp. ("Bell Atlantic") and Southern New England
Telecommunications Corp ("SNET"), and approximately 36,000 miles of nationwide
long distance fiber facilities. This infrastructure is capable of delivering
local, long distance and enhanced data services (including frame relay,
asynchronous transfer mode ("ATM") and Internet services) and enabled Intermedia
to address $34 billion of a $222 billion national market opportunity by the end
of 1997. The Company believes that at the end of 1998, its addressable market
will be over $90 billion. Management believes that continuing expansion will
enable Intermedia to (i) increase the size of its addressable market to reach a
significant number of new potential customers, (ii) achieve economies of scale
in network operations and sales and marketing and (iii) more effectively serve
customers having a presence in multiple metropolitan areas.
In order to capitalize on the significant increase in the Company's
addressable market, Intermedia has rapidly expanded, and intends to continue to
expand, its direct sales and support team consisting of highly
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skilled engineering and sales professionals. The sales and support team has
complete product knowledge and technical, integration and program or project
management skills. This team approach promotes a close working relationship
between Intermedia and the customers' telecommunications, information services
and user constituencies. Intermedia believes such relationships enable it to
sell more of its services and maintain longer relationships with its customers.
During the 16 month period commencing January 1, 1997 and ending April 30,
1998, Intermedia increased the number of its sales offices from 21 to 102 and
substantially increased its engineering support personnel and sales
representatives. Intermedia believes that the continued deployment of its
skilled end user engineering support and sales teams will allow Intermedia to
establish service in new markets and gain a stronger competitive position in
existing markets. By focusing first on establishing customer relationships in
both new and existing markets, Intermedia believes it can subsequently deploy
capital efficiently in response to customer demand.
Intermedia expects to realize economies of scale on its intercity network:
(i) through the continued deployment of local/long distance voice switches to
serve its rapidly growing customer base, and (ii) by combining long distance
voice traffic between switches with intercity enhanced data and Internet
traffic. In addition, Intermedia plans to introduce a new class of voice
products which utilize data protocols to deliver voice traffic over Intermedia's
packet/cell switched network which efficiently combines multiple data and voice
protocols over a single network fabric ("Packet/Cell Switched Network"). These
services will provide a competitive service offering to customers seeking a more
cost efficient and flexible alternative to voice services provided over
traditional circuit switched telecommunications networks. Intermedia believes
that Packet/Cell Switched Networks, such as its own, will displace a significant
portion of the national telecommunications market that is currently served over
traditional circuit switched networks. Intermedia believes this new service
offering, when implemented, will accelerate its penetration of the traditional
voice services market and provide improved returns on its network investment.
Enhanced data services, such as those provided over Intermedia's ATM and
frame relay network, include specialized communications services for customers
needing to transport various forms of digital data among multiple locations. An
important category of Intermedia's enhanced data services are its Internet
services, both access to the Internet and various Web hosting and Web site
management services. These Internet services are regularly delivered over
Intermedia's ATM and frame relay network. According to industry sources, the
frame relay services market is projected to grow from $1.3 billion in 1996 to
$2.7 billion in 1999 and Internet Web site management services are estimated to
grow from $450 million in 1997 to $7 billion in 2002. There can be no assurance
that such market growth will be realized or that the assumptions underlying such
projections are reliable. While Intermedia has historically concentrated its
enhanced data sales in the eastern half of the United States, Intermedia is
currently the fourth largest national provider of frame relay networking
services (based on number of nodes) after AT&T, MCI Communications Corporation
("MCI") combined with WorldCom, Inc. ("WorldCom") and Sprint. To satisfy its
customers' desire for end-to-end enhanced data services (both networking and
Internet services) from a single provider, Intermedia has deployed its network
and made interconnection arrangements with other providers to offer national and
international service.
Intermedia's mission is to become the premier provider of communications
services to business and government customers. Intermedia believes its target
customers have sophisticated communications services requirements, including the
need for reliable network infrastructure, high quality, solutions-oriented and
responsive customer service and continuous focus on service enhancements and new
service development. Intermedia believes it has multiple advantages over its
competitors in serving its targeted customer base as a result of the Company's:
(i) specialized sales and service approach employing engineering and sales
professionals who design and implement integrated, cost-effective
telecommunications solutions; (ii) expertise in developing and operating a
highly reliable, advanced digital fiber optic network offering substantial
transmission capacity for the provision of a full suite of "all distance"
communications services; (iii) emphasis on providing solutions-oriented and
responsive customer service; (iv) network platform capable of servicing
customers throughout the United States and in selected international markets;
(v) network development plan designed to assure an efficient evolution from a
voice-oriented, circuit switched network to a Packet/Cell
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Switched Network; (vi) ongoing development and integration of new
telecommunications technologies into its services, especially those technologies
that allow the increasing integration of voice and data applications onto a
single Packet/Cell Switched Network; (vii) ability to deliver local,
long-distance and enhanced data services over a network controlled from
end-to-end by Intermedia; and (viii) long-term contracts with building owners
where the Company acts as a shared tenant telecommunications services provider.
Over the past few years, a portion of Intermedia's growth has been
accomplished through acquisitions and other strategic ventures or selling
relationships. Intermedia continues to examine various acquisitions and other
strategic relationship proposals to accelerate its rate of growth. In addition
to financial considerations, Intermedia assesses each acquisition opportunity to
determine if it provides: (i) an established customer base to whom Intermedia
can cross-sell its other services, (ii) a greater network density in region or
provides needed network connectivity out of region, (iii) accelerated time to
market in a pre-defined target market, (iv) products and services that are
complementary to Intermedia's existing portfolio and (v) skilled staff,
particularly in sales and sales support. While management does not believe that
acquisitions are necessary to achieve Intermedia's strategic goals or to satisfy
its business plan, strategic alliances with or acquisitions of appropriate
companies may accelerate achievement of certain goals by creating financial and
operating synergies, and by providing for more rapid expansion of Intermedia's
network and services. Intermedia is currently evaluating various acquisitions
and strategic relationship opportunities. No assurance can be given that any
potential acquisition or strategic relationship will be consummated.
Intermedia was incorporated in the state of Delaware on November 9, 1987,
as the successor to a Florida corporation that was founded in 1986. Intermedia's
principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619 and
its telephone number is (813) 829-0011.
RECENT DEVELOPMENTS
US West and Ameritech Agreements. In January 1998, Intermedia entered into
a frame relay services agreement with US West. In May 1998, Intermedia entered
into a similar frame relay services agreement with Ameritech Communications
International, Inc. ("Ameritech"). Pursuant to these agreements both US West and
Ameritech will utilize Intermedia as its preferred data provider for the
provisioning of frame relay networking and Internet services for all interLATA
connections, both inside and outside US West's and Ameritech's respective
regions. The Company believes these agreements will bring additional traffic
onto Intermedia's network and will create cross-selling opportunities in US
West's 14 state territory (where Intermedia currently has no selling activity)
and in Ameritech's five state territory (where Intermedia intends to
substantially expand its selling activities). Intermedia has undertaken
discussions with other incumbent local exchange carriers ("ILECs"), including
other regional Bell operating companies ("RBOCs"), with the intent of
establishing similar agreements, although there is no assurance such additional
agreements will be consummated.
1998 Acquisitions. In March 1998, Intermedia consummated the acquisition
of Shared. The total purchase price for Shared was approximately $769.3 million,
including certain transaction expenses and fees relating to certain agreements.
Shared is the nation's largest provider of shared telecommunications services
and systems. Through its technical infrastructure and 741 employees, Shared acts
as a single point of contact for business telecommunications services at
approximately 500 Class A office buildings throughout the United States and
Canada, and provides turnkey PBX and key system implementation and operation in
other buildings throughout the United States. Shared's revenues for the year
ended December 31, 1997 were approximately $181.8 million. This acquisition is
expected to enhance Intermedia's national presence in the telecommunications
market, enabling it to provide an integrated offering of local, long distance,
data and systems integration services to Shared's existing customer base of
approximately 12,800 customers.
Also in March 1998, Intermedia consummated the acquisition of the
affiliated entities known as Long Distance Savers (collectively, "LDS") for
approximately $168.6 million including approximately $137.2 million in
Intermedia's Common Stock and $31.4 million in cash, of which $15.0 million was
used to retire LDS's long-term debt. LDS is an established regional
interexchange carrier, providing long distance services and Internet access to
more than 48,000 business customers and employing approximately 77 quota
carrying sales
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professionals in Louisiana, Texas, Oklahoma, Mississippi and Florida. LDS's
revenues for the year ended December 31, 1997 were approximately $122.3 million.
The acquisition of LDS provides a significant time-to-market advantage in a
region important to Intermedia's expansion, while also contributing an
experienced regional management team and established sales organization. Because
LDS's service portfolio and footprint complement those of Intermedia, the
Company believes that the acquisition of LDS also presents significant synergy
realization opportunities. By joining forces with an established operating
company having a staff of experienced sales, management and technical personnel,
Intermedia expects to consolidate its position in the southern markets served by
LDS.
In April 1998, Intermedia consummated the acquisition of the affiliated
entities known as National Tel (collectively, "National"). The total purchase
price for National was approximately $151.8 million consisting of approximately
$88.7 million of Intermedia's Common Stock and $63.1 million in cash, including
debt repayment of $2.8 million. National is an emerging switch-based CLEC and an
established interexchange carrier providing local exchange and long distance
voice services to approximately 11,000 business customers concentrated in
Florida's major metropolitan markets. National had revenues of approximately
$65.2 million for the year ended December 31, 1997. Intermedia believes that the
acquisition of National will help build critical mass in the State of Florida,
one of the top five telecommunications usage states in the country, and provide
an experienced team of sales professionals.
The Company has committed resources to develop and implement a program to
integrate its recently acquired businesses in order to realize maximum synergies
and future costs savings. In connection with the integration and realignment of
the Company's businesses and operating structure, Intermedia expects to record a
one-time charge later this year, the amount of which is subject to finalization
of a detailed restructuring program. The charge will be excluded from the
Company's EBITDA (as defined). Management believes that the implementation of
this program will enhance the Company's ability to realize the maximum synergies
from its acquisitions.
Williams Agreement. In March 1998, Intermedia signed a definitive
agreement with the Williams Telecommunications Group ("Williams") to purchase
nationwide transmission capacity on Williams' fiber optic network. The 20 year
indefeasible right of use ("IRU") provides Intermedia with high capacity
transport for its integrated voice and data services, connecting major markets
throughout the continental United States. The agreement will immediately reduce
Intermedia's unit cost for digital, intercity transmission capacity. Initial
implementation of the agreement is expected to connect approximately 50 cities
over the next 12 months, with additional cities to follow. The capacity provided
by Williams will become part of Intermedia's nationwide network of self-healing
rings, over which the Company will deliver its integrated voice and data
services.
Stock Split. On May 20, 1998, the Company announced a 2 for 1 split of its
Common Stock (the "Stock Split") to be effected through a stock dividend payable
on June 15, 1998 to stockholders of record on June 1, 1998.
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THE EXCHANGE OFFER
Securities Offered............ Up to $500,000,000 principal amount of 8.60%
Series B Senior Notes due 2008 of the Company.
The terms of the Senior Notes and the Old Notes
are substantially identical in all material
respects, except for certain transfer
restrictions and registration rights relating
to the Old Notes which do not apply to the
Senior Notes. See "Description of the Senior
Notes."
The Exchange Offer............ The Company is offering to exchange $1,000
principal amount of Senior Notes for each
$1,000 principal amount of Old Notes. See "The
Exchange Offer" for a description of the
procedures for tendering Old Notes. The
Exchange Offer satisfies the registration
obligations of the Company under the Note
Registration Rights Agreement. Upon
consummation of the Exchange Offer, holders of
Old Notes that were not prohibited from
participating in the Exchange Offer and did not
tender their Old Notes will not have any
registration rights under the Note Registration
Rights Agreement with respect to such
non-tendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the
restrictions on transfer contained in the
legend thereon.
Tenders, Expiration Date;
Withdrawal.................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on July 28, 1998, or such
later date and time to which it is extended.
Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn and Old Notes retendered
at any time prior to the Expiration Date. Any
Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder as promptly as practicable
after the expiration or termination of the
Exchange Offer.
Federal Income Tax
Considerations................ The Exchange Offer will not result in any
income, gain or loss to the holders or the
Company for federal income tax purposes. See
"Certain Federal Income Tax Considerations."
Use of Proceeds............... There will be no proceeds to the Company from
the exchange of the Old Notes for the Senior
Notes pursuant to the Exchange Offer.
Exchange Agent................ SunTrust Bank, Central Florida, National
Association, the trustee (the "Trustee") under
the Indenture, is serving as Exchange Agent in
connection with the Exchange Offer.
5
<PAGE> 10
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchange their Old Notes for Senior Notes pursuant to the Exchange
Offer may offer their Senior Notes for resale, resell their Senior Notes, and
otherwise transfer their Senior Notes without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided such Senior
Notes are acquired in the ordinary course of the holders' business, such holders
have no arrangement with any person to participate in a distribution of such
Senior Notes and neither the holder nor any other person is engaging in or
intends to engage in a distribution of the Senior Notes. Each broker-dealer that
receives Senior Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
its Senior Notes. Broker-dealers may not exchange Old Notes which are part of an
unsold original allotment in the Exchange Offer. See "Plan of Distribution." To
comply with the securities laws of certain jurisdictions, it may be necessary to
qualify for sale or register the Senior Notes prior to offering or selling such
Senior Notes. The Company is required, under the Note Registration Rights
Agreement, to register the Senior Notes in any jurisdiction reasonably requested
by the holders, subject to certain limitations. Upon consummation of the
Exchange Offer, holders that were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes will not have any registration
rights under the Note Registration Rights Agreement with respect to such
non-tendered Old Notes and, accordingly, such Old Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon. In
general, the Old Notes may not be offered or sold (except in private
transactions), unless registered under the Securities Act and applicable state
securities laws. See "The Exchange Offer -- Consequences of Failure to
Exchange".
6
<PAGE> 11
SUMMARY DESCRIPTION OF THE SENIOR NOTES
Securities Offered............ Up to $500,000,000 principal amount of 8.60%
Series B Senior Notes due June 1, 2008 of the
Company. The terms of the Senior Notes and the
Old Notes are substantially identical in all
material aspects, except for certain transfer
restrictions and registration rights relating
to the Old Notes which do not apply to the
Senior Notes. See "Description of the Senior
Notes."
Issue Price................... $1,000 stated principal amount of the Old Notes
per $1,000 stated principal amount of the
Senior Notes.
Maturity Date................. June 1, 2008.
Interest...................... Interest on the Senior Notes will accrue at
8.60% per annum and will be payable
semi-annually in arrears on June 1 and December
1 of each year, commencing on December 1, 1998.
Yield......................... 8.60% per annum, computed on the basis of a 360
day year comprised of twelve 30-day months.
Optional Redemption........... Prior to June 1, 2003, the Senior Notes may be
redeemed at any time at the option of the
Company, in whole or in part, at the Make-Whole
Price (as defined), plus accrued and unpaid
interest and Liquidated Damages (as defined),
if any, thereon to the redemption date. On or
after June 1, 2003, the Senior Notes may be
redeemed at the option of the Company at any
time, in whole or in part, at the redemption
prices set forth herein, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption.
In addition, at the option of the Company, up
to 25% of the aggregate principal amount of the
Notes originally issued may be redeemed at any
time prior to June 1, 2001 at a redemption
price of 108.60% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date
of redemption, with the net proceeds of one or
more Qualified Equity Offerings (as defined);
provided, however, that at least 75% in
aggregate principal amount of the Notes
originally issued remains outstanding following
any such redemption and, provided, further,
that such redemption occurs within 90 days of
the date of the closing of each such sale.
Change of Control............. In the event of a Change of Control, each
holder of the Senior Notes will have the right
to require the Company to repurchase all or any
part of such holder's Senior Notes at a
repurchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any,
thereon to the date of purchase.
Ranking....................... The Senior Notes will be senior unsecured
obligations of the Company, ranking senior in
right of payment to all subordinated
Indebtedness of the Company and pari passu in
right of payment with all existing and future
senior borrowings, including the Existing
Senior Notes, the Old Notes and any borrowings
under a credit facility which may be
established by the Company. In addition, the
Senior Notes will be effectively subordinated
to any
7
<PAGE> 12
indebtedness of the Company's subsidiaries. As
of March 31, 1998, on a pro forma basis after
giving effect to the May Offering and the
acquisition of National, the Company would have
had approximately $2.4 billion of indebtedness
and other liabilities, including trade payables
outstanding, which includes approximately
$148.9 million of indebtedness and other
liabilities of the Company's subsidiaries.
Certain Covenants............. The indenture governing the Senior Notes (the
"Indenture") contains certain covenants that,
among other things, limit the ability of the
Company and its Subsidiaries (as defined) to
make certain restricted payments, incur
additional indebtedness and issue Disqualified
Stock (as defined), 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
or enter into mergers and consolidations. See
"Description of the Senior Notes -- Certain
Covenants." In addition, under certain
circumstances, the Company will be required to
offer to purchase the Senior Notes at a price
equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
purchase.
For additional information regarding the Senior Notes and the definitions
of certain capitalized terms used above, see "Description of the Senior Notes."
8
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information and other data of the Company for the three years ended December 31,
1997 which have been derived from the consolidated financial statements of the
Company, which financial statements have been audited by Ernst & Young LLP,
independent certified public accountants. The summary financial data presented
below for the quarters ended March 31, 1997 and 1998 have been derived from
unaudited financial statements of the Company. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, which consist only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the full year.
The 1998 pro forma financial data give effect to the acquisitions of
Shared, LDS and National as if they occurred on January 1, 1998. The 1997 pro
forma financial data give effect to the acquisitions of DIGEX, Incorporated
("DIGEX"), Shared, LDS, and National as if they occurred on January 1, 1997.
Both 1997 and 1998 pro forma statement of operations and other information give
effect to the Company's 1997 debt and equity offerings as if they occurred at
the beginning of 1997. However, such pro forma information does not give effect
to additional interest expense that will result from the May Offering. The
following financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
"Consolidated Financial Statements of the Company" and Notes thereto, the
"Unaudited Condensed Consolidated Financial Statements of the Company" and Notes
thereto and the "Unaudited Pro Forma Condensed Consolidated Financial
Statements", which are incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and the
Company's Current Report on Form 8-K/A filed with the Commission on June 11,
1998.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------- ---------- -------------------- ---------
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- --------------------------------
1995 1996 1997 1997 1997 1998 1998
-------- -------- --------- ---------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 38,631 $103,397 $ 247,899 $ 636,882 $ 43,938 $ 136,786 $ 184,695
Costs and Expenses:
Network expenses, facilities
administration and maintenance
costs............................... 22,990 81,105 199,139 441,855 36,907 100,266 132,535
Selling, general and administrative... 14,992 36,610 98,598 227,126 19,526 46,347 55,548
Depreciation and amortization......... 10,196 19,836 53,613 128,587 8,294 39,864 44,323
Charge for in-process R&D(1).......... -- -- 60,000 60,000 -- 85,000 85,000
-------- -------- --------- ---------- -------- --------- ---------
48,178 137,551 411,350 857,568 64,727 271,477 317,406
-------- -------- --------- ---------- -------- --------- ---------
Income (loss) from operations........... (9,547) (34,154) (163,451) (220,686) (20,789) (134,691) (132,711)
Interest expense........................ (13,767) (35,213) (60,662) (141,513) (11,089) (49,301) (42,229)
Interest and other income............... 4,060 12,168 26,824 6,505 4,474 10,729 9,635
Income tax (provision) benefit.......... 97 -- -- (380) -- -- --
-------- -------- --------- ---------- -------- --------- ---------
Loss before extraordinary item.......... (19,157) (57,199) (197,289) (356,074) (27,404) (173,263) (165,305)
Extraordinary loss on early
extinguishment of debt(2)............. (1,592) -- (43,834) (43,834) -- -- --
-------- -------- --------- ---------- -------- --------- ---------
Net loss................................ (20,749) (57,199) (241,123) (399,908) (27,404) (173,263) (165,305)
Preferred stock dividends and
accretions............................ -- -- (43,742) (71,850) (3,375) (18,594) (18,594)
-------- -------- --------- ---------- -------- --------- ---------
Net loss attributable to common
stockholders.......................... $(20,749) $(57,199) $(284,865) $ (471,758) $(30,779) $(191,857) $(183,899)
======== ======== ========= ========== ======== ========= =========
OTHER DATA:
EBITDA(3)............................... $ 649 $(14,318) $ (49,838) $ (32,099) $(12,495) $ (9,827) $ (3,388)
Capital expenditures, including cash
portion of acquisitions............... $ 31,914 $143,615 $ 812,061 $1,252,292 $ 33,333 $ 464,739 $ 529,155
</TABLE>
(Continued
on following page)
9
<PAGE> 14
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- -----------
1995 1996 1997 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NETWORK DATA:
Buildings connected(4)................................ 380 487 3,005 4,071
Route miles........................................... 504 655 757 770
Fiber miles........................................... 17,128 24,122 34,956 35,999
Number of city-based networks in service.............. 9 9 10 10
ENHANCED DATA SERVICES:
Nodes(5).............................................. 2,300 9,777 20,209 22,789
Cities(6)............................................. 600 2,260 4,104 4,146
Switches.............................................. 31 89 136 150
LOCAL AND LONG DISTANCE SERVICES:
Voice switches in operation........................... 1 5 16 19
Long distance billable minutes........................ 32,912,501 69,118,148 139,437,921 184,227,094
Access line equivalents............................... -- 7,106 81,349 220,587
EMPLOYEES............................................... 287 874 2,036 3,320
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED(9)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7).............................. $ 335,260 $ 763,852
Working capital(8)........................................ 299,074 730,116
Total assets.............................................. 2,425,755 3,027,214
Long-term debt (including current maturities)............. 1,741,552 2,241,552
Redeemable preferred stock................................ 701,437 701,437
Total stockholders' deficiency............................ (184,993) (91,144)
</TABLE>
- ---------------
(1) Represents a one time charge to earnings as a result of the write-off of
in-process research and development in connection with the acquisitions of
DIGEX and Shared in 1997 and the first quarter of 1998, respectively.
(2) The Company incurred extraordinary charges in 1995 and 1997 related to early
extinguishment of debt.
(3) EBITDA consists of earnings (loss) before interest expense, interest and
other income, income tax (provision) benefit, depreciation, amortization and
non-recurring charges (such as the charges in 1997 and 1998 for in-process
R&D). EBITDA is presented 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.
(4) Beginning in January 1997, the Company changed its definition of "Buildings
connected" to include buildings connected to the Company's network via
facilities leased by the Company in addition to those connected to the
Company's network via facilities constructed by the Company. The Company
believes the new definition is consistent with industry practice.
(5) Each node represents an individual point of origination and termination of
data served by the Company's enhanced data network. In the opinion of
management of the Company, the number of nodes reported is an accurate
representation of the quantity of enhanced data network services provided.
(6) Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
(7) Cash and cash equivalents excludes investments of $7.5 million for the
quarter ended March 31, 1998, restricted under the terms of various notes
and other agreements.
(8) Working capital includes the restricted investments referred to in Note 7
above whose restrictions either lapse within one year or will be used to pay
current liabilities.
(9) As adjusted gives effect to the May Offering and the acquisition of National
as if they occurred on March 31, 1998.
10
<PAGE> 15
RISK FACTORS
In addition to other information set forth elsewhere in this Prospectus.
Before tendering their Old Notes for Senior Notes, holders should consider
carefully the following factors which (other than "Consequences of Failure to
Exchange" and "Resale of Senior Notes") are generally applicable to the Old
Notes as well as to the Senior Notes.
Consequences of Failure to Exchange. Upon the consummation of the Exchange
Offer, holders of Old Notes that were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes will not have any registration
rights under the Note Registration Rights Agreement with respect to such non-
tendered Old Notes and, accordingly, such Old Notes will continue to be subject
to the restrictions on transfer contained in the legend thereon. In general, the
Old Notes may not be offered or sold, unless registered under the Securities Act
and applicable state securities laws, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not intend to register the Old Notes under the
Securities Act.
Resale of Senior Notes. Based on interpretations by the Staff of the SEC
with respect to similar transactions, the Company believes that Senior Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders (other than any holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that the Senior Notes are acquired in
the ordinary course of the holders' business, the holders have no arrangement
with any person to participate in the distribution of the Senior Notes and
neither the holder nor any other person is engaging in or intends to engage in a
distribution of the Senior Notes. Each broker-dealer that receives Senior Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of the Senior Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Senior Notes received in exchange for the Old
Notes acquired by the broker-dealer as a result of market-making activities or
other trading activities. Broker-Dealers may not exchange Old Notes which are
part of an unsold original allotment in the Exchange Offer. The Company has
agreed that, for a period of 365 days after the Exchange Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale of the Senior Notes. See "Plan of Distribution." The Senior Notes may not
be offered or sold unless they have been registered or qualified for sale under
applicable state securities laws or an exemption from registration or
qualification is available and is complied with. The Note Registration Rights
Agreement requires the Company to register or qualify the Senior Notes for
resale in any state as may be reasonably requested by their holders, subject to
certain limitations.
Limited Operations of Certain Services; History of Net Losses. The
Company's business commenced in 1986. 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, Intermedia has incurred significant increases in expenses
associated with the installation of local/long distance voice switches and
expansion of its fiber optic networks, services and customer base. Intermedia
reported net losses attributable to Common Stockholders of approximately $20.7
million, $57.2 million and $284.9 million for the years ended December 31, 1995,
1996 and 1997, respectively, and a net loss of $191.9 million for the three
months ended March 31, 1998. The Company expects net losses to continue for the
next several years. In addition, the
11
<PAGE> 16
Company had negative EBITDA in 1997 and in the first quarter of 1998 of $49.8
million and $9.8 million, respectively. There can be no assurance that
Intermedia will achieve or sustain profitability and/or positive EBITDA in the
future.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges. The Company is highly leveraged. At March 31, 1998, after giving pro
forma effect to the acquisition of National and the May Offering, the Company
would have had outstanding approximately $2.4 billion in aggregate principal
amount of indebtedness and other liabilities on a consolidated basis (including
trade payables), approximately $345.7 million of obligations with respect to the
mandatory redemption of the Company's 13 1/2% Series B Redeemable Preferred
Stock due 2009 (the "Series B Preferred Stock"), and $172.5 million and $200.0
million of obligations with respect to the Company's 7% Series D Junior
Convertible Preferred Stock (the "Series D Preferred Stock") and the 7% Series E
Junior Convertible Preferred Stock (the "Series E Preferred Stock"),
respectively, in the event of a change of control of the Company. The degree to
which the Company is leveraged could have important consequences to holders of
the Senior Notes, including the following: (i) a substantial portion of the
Company's cash flow from operations will be dedicated to payment of the
principal and interest on its indebtedness, to payment of dividends on and the
redemption of the Series B Preferred Stock and the payment of dividends on the
Series D Preferred Stock and the Series E Preferred Stock, thereby reducing
funds available for other purposes; (ii) the Company's significant degree of
leverage could increase its vulnerability to changes in general economic
conditions or increases in prevailing interest rates; (iii) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes could
be impaired; and (iv) the Company may be more leveraged than certain of its
competitors, which may be a competitive disadvantage.
Commencing on November 15, 2001, semi-annual cash interest payments of
$20.7 million will be due on the 12 1/2% Notes and commencing on January 15,
2003, semi-annual cash interest payments of $36.6 million will be due on the
11 1/4% Notes. Because the Company currently has a net cash flow deficit from
its operating and investing activities, its ability to make such cash interest
payments and to repay its obligations on the Existing Senior Notes and the Notes
at maturity will depend on the Company developing one or more sources of cash
flow prior to the dates on which such cash payment obligations arise.
Alternatively, the Company may seek to refinance all or a portion of the
Existing Senior Notes and the Notes. There can be no assurance, however, that
the Company will be able to refinance such indebtedness or develop additional
sources of cash flow.
The Company's historical earnings have been insufficient to cover combined
fixed charges and dividends on preferred stock by $2.3 million, $3.3 million,
$19.9 million, $60.0 million and $245.7 million for each of the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. In addition,
insufficiencies of $31.6 million and $193.8 million were experienced in the
three month periods ended March 31, 1997 and 1998, respectively. Combined fixed
charges and dividends include interest and dividends whether paid or accrued. On
a pro forma basis, after giving applicable effect to the acquisitions of Shared,
National and LDS and each of the Company's 1997 debt and equity offerings as if
they had been consummated at the beginning of the year, the Company's earnings
were insufficient to cover combined fixed charges and dividends on preferred
stock by $432.3 million for the year ended December 31, 1997 and $185.9 million
for the three month period ended March 31, 1998. On a pro forma basis, after
giving effect to the May Offering and the transactions referred to in the
preceding sentence, the Company's earnings were insufficient to cover combined
fixed charges and dividends on preferred stock by $474.8 million for the year
ended December 31, 1997 and $196.5 million for the three month period ended
March 31, 1998. The Company anticipates that earnings will be insufficient to
cover fixed charges for the next several years. In order for the Company to meet
its debt service obligations, its dividend and redemption obligations with
respect to the Series B Preferred Stock and its dividend obligations with
respect to the Series D Preferred Stock and Series E Preferred Stock, the
Company will need to substantially improve its operating results. There can be
no assurance that the Company's operating results will be of sufficient
magnitude to enable the Company to meet such debt service, dividend and
redemption obligations. In the absence of such operating results, the Company
could face substantial liquidity problems and may be required to raise
additional financing through the issuance of debt or equity securities; however,
there can be no assurance that Intermedia would be successful in raising such
financing, or the terms or timing thereof.
12
<PAGE> 17
Effect of Substantial Additional Indebtedness on the Company's Ability to
Repay the Senior Notes. The Indenture, the indentures governing the Existing
Senior Notes (the "Existing Senior Notes Indentures") and the Certificate of
Designation governing the Series B Preferred Stock 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. In addition,
the Company may establish a bank credit facility which may be secured by a
substantial portion of the assets of the Company. All additional indebtedness of
the Company, including any indebtedness under a bank credit facility, may rank
pari passu with or effectively senior (if secured) to the Senior Notes. See
"Description of the Senior Notes." The debt service requirements of any
additional indebtedness would make it more difficult for the Company to make
principal and interest payments on the Senior Notes.
Effective Subordination of the Senior Notes. The Senior Notes are not
secured by any of the assets of the Company. Holders of secured indebtedness of
the Company will have claims that are prior to the claims of the holders of the
Senior Notes to the extent of the assets securing such other indebtedness. The
Indenture and the Existing Senior Notes Indentures permit certain indebtedness
of the Company to be secured. In addition, the Senior Notes will be effectively
subordinated to $148.9 million of indebtedness and other liabilities and
commitments (including trade payables) of the Company's subsidiaries as of March
31, 1998 after giving pro forma effect to the acquisition of National.
Historically, the Company's operations were conducted primarily through
Intermedia. However, the operations of the Company's recent acquisitions are
conducted through subsidiaries. No guarantees will be issued with respect to the
Senior Notes; thus the Company's subsidiaries are not directly obligated under
the Senior Notes. Earnings generated by any of the Company's subsidiaries, as
well as the existing assets of such subsidiaries, will have to be used first by
such subsidiaries to fulfill their debt service requirements. Moreover, the
Company has had preliminary discussions with several banks regarding the
establishment of a senior credit facility. Such credit facility may be secured
by a substantial portion of the assets of the Company. Therefore, the Senior
Notes would be effectively subordinated to such senior credit facility to the
extent of such security. There can be no assurance that the Company will enter
into such a senior credit facility.
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. The Company expects to fund its capital requirements through
existing resources, joint ventures, debt or equity financing, credit
availability and internally generated funds. The Company expects that continued
expansion of its business will require raising equity and/or debt by the end of
fiscal 1999. Depending on market conditions, the Company may determine to raise
additional capital before such time. There can be no assurance, however, that
the Company will be successful in raising sufficient debt or equity on terms
that it will consider acceptable. Moreover, the Indenture, the Existing Senior
Notes Indentures, the Series B Certificate of Designation, the Certificate of
Designation setting forth the rights of the Series D Preferred Stock and the
Certificate of Designation setting forth the rights of the Series E Preferred
Stock impose certain restrictions upon the Company's ability to incur additional
indebtedness or issue additional preferred stock. In addition, the Company's
future capital requirements will depend upon a number of factors, including
marketing expenses, staffing levels and customer growth, as well as other
factors that are not within the Company's control, such as competitive
conditions, government regulation and capital costs. Failure to generate
sufficient funds may require the Company 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.
Risks Associated with Acquisitions. In March and April 1998, the Company
completed its acquisitions of Shared, LDS and National. The Company's
acquisitions of Shared, LDS and National could divert the resources and
management time of the Company and will require integration with the Company's
existing networks and services. There can be no assurance that Shared, LDS and
National will be successfully integrated into the Company's operations and will
not have a material adverse affect on the Company's business, financial
condition and results of operations.
Consistent with its strategy, the Company is currently evaluating and often
engages in discussions regarding various acquisition opportunities. These
acquisitions could be funded by cash on hand and/or the
13
<PAGE> 18
Company's securities. It is possible that one or more of such possible future
acquisitions, if completed, could adversely affect the Company's funds from
operations or cash available for distribution, in the short term, in the long
term or both, or increase the Company's debt, or such an acquisition could be
followed by a decline in the market value of the Company's securities.
Failure to Obtain Third Party Consents in Connection with an Acquisition or
Merger. The Company has consummated a number of acquisitions over the past two
years, including the acquisitions of Shared, LDS and National. In connection
therewith, the Company may not have obtained or, as in the case of the
acquisition of Shared, may have elected not to seek, and in connection with
future acquisitions may elect not to seek, all required consents from third
parties with respect to acquired contracts. If an acquired contract required the
consent of a third party and such consent was not obtained, the third party
could assert a breach of the contract. The Company believes that the failure to
obtain any such third party consents should not result in any material adverse
consequences to the Company, although there can be no assurance that such a
consequence will not result.
Year 2000 Risk. The Company has implemented a Year 2000 date conversion
program to ensure that its computer systems and applications will function
properly beyond 1999. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 date conversion program to
be successfully completed on a timely basis. There can, however, be no assurance
that this will be the case. The Company does not expect to incur significant
expenditures to address this issue. The ability of third parties with whom the
Company transacts business or companies that Intermedia may acquire to
adequately address their Year 2000 issues is outside of the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
Maintenance of Peering Relationships. The Internet is comprised of many
Internet service providers who operate their own networks and interconnect with
other ISPs at various peering points. The establishment and maintenance of
peering relationships with other ISPs is necessary to exchange traffic with
other ISPs without having to pay settlement charges. Although the Company meets
the industry's current standards for peering, there is no assurance that other
national ISPs will maintain peering relationships with the Company. In addition,
there may develop increasing requirements associated with maintaining peering
relationships with the major national ISPs with which the Company may have to
comply. There can be no assurance that the Company will be able to expand or
adapt its network infrastructure to meet the industry's evolving standards on a
timely basis, at a commercially reasonable cost, or at all.
Potential Liability of On-Line Service Providers. The law in the United
States relating to the liability of on-line service providers and ISPs for
information carried on, disseminated through or hosted on their systems is
currently unsettled. Several private lawsuits seeking to impose such liability
are currently pending. In one case brought against an ISP, Religious Technology
Center v. Netcom On-Line Communication Services, Inc., the United States
District Court for the Northern District of California ruled in a preliminary
phase that, under certain circumstances, ISPs could be held liable for copyright
infringement. The Telecommunications Act of 1996 (the "1996 Act") prohibits and
imposes criminal penalties for using an interactive computer service to transmit
certain types of information and content, such as indecent or obscene
communications. On June 26, 1997, the Supreme Court affirmed the decision of a
panel of three federal judges which granted a preliminary injunction barring
enforcement of this portion of the 1996 Act to the extent enforcement is based
upon allegations other than obscenity or child pornography as an impermissible
restriction on the First Amendment's right of free speech. In addition, numerous
states have adopted or are currently considering similar types of legislation.
The imposition upon ISPs or Web hosting sites of potential liability for
materials carried on or disseminated through their systems could require the
Company to implement measures to reduce its exposure to such liability, which
could require the expenditure of substantial resources or the discontinuation of
certain product or service offerings. The Company believes that it is currently
unsettled whether the 1996 Act prohibits and imposes liability for any services
provided by the Company should the content or information transmitted be subject
to the statute. The increased attention focused upon liability issues as a
result of these lawsuits, legislation and legislative proposals could affect the
growth of Internet use. Any such liability or asserted liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks. The Company's success in marketing its services to business and
government users requires that the Company provide superior reliability,
capacity and security via its network infrastructure. The Company's networks are
subject to physical damage, power loss, capacity limitations, software defects,
breaches of security (by computer virus, break-ins or otherwise) and other
factors, certain of which have caused, and will continue to cause, interruptions
in service or reduced capacity for the Company's customers. Similarly, the
Company's ISP business relies on the availability of its network infrastructure
for the provision of Internet connectivity. Interruptions in service, capacity
limitations or security breaches could have a material adverse effect on the
Company's business, financial condition and results of operations.
Expansion Risk. The Company is experiencing a period of rapid expansion
which management expects will continue in the near future. This growth has
increased the operating complexity of the Company as well as the level of
responsibility for both existing and new management personnel. The Company's
ability to manage its expansion effectively will require it to continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The Company's inability to effectively manage its
expansion could have a material adverse effect on its business.
A portion of the Company's expansion may occur through acquisitions as an
alternative to direct investments in the assets required to implement the
expansion. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that the Company's
future acquisitions, if any, will be successful or will not impair the Company's
ability to service its outstanding obligations.
Risks of Implementation; Need to Obtain Permits and Rights of Way. The
Company is continuing to expand its existing networks. The Company has
identified other expansion opportunities 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 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 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 longstanding 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 for the
Company. The Company also faces competition in most markets in which it operates
from one or more ICPs and ILECs operating fiber optic networks. In addition, the
Company faces competition in its integration services business from equipment
manufacturers, the RBOCs and other ILECs, long distance carriers and systems
integrators, and in its enhanced data services business (including Internet)
from local telephone companies, long distance carriers, very small aperture
terminal providers, other ISPs and others. In particular, the market for
Internet services is extremely competitive, and there are limited barriers to
entry. Many of the Company's existing and potential competitors have financial,
personnel and other resources significantly greater than those of the Company.
The Company believes that various legislative initiatives, including the
1996 Act, have removed most of the 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
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<PAGE> 20
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, 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 the Company. Recently, a Federal
District Court in Texas found unconstitutional certain provisions of the 1996
Act restricting the RBOCs from offering long distance service in their operating
regions until they could demonstrate that their networks have been made
available to competitive providers of local exchange services in those regions.
This decision has been stayed pending appeal. If that decision is permitted to
stand, it could result in RBOCs providing interexchange service in their
operating regions sooner than previously expected. In addition, AT&T and MCI
have entered, and other interexchange carriers have announced their intent to
enter, 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 at the state or federal level, nor is it currently required
to obtain Federal Communication Commission ("FCC") authorization for the
installation, acquisition or operation of its interstate network facilities.
Further, the FCC issued an order holding that non-dominant carriers, such as
Intermedia, are required to withdraw interstate tariffs for domestic long
distance service. That order has been stayed by a federal appeals court, and it
is not clear at this time whether the detariffing order will be implemented.
Until further action is taken by the court, the Company will continue to
maintain tariffs for these services. In June 1997, the FCC issued another order
stating that non-dominant carriers, such as Intermedia, could withdraw their
tariffs for interstate access services. While the Company has no immediate plans
to withdraw its tariff, this FCC order allows the Company to do so. The FCC does
require the Company to obtain authority to provide and to file tariffs on an
ongoing basis for international traffic.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. The Company believes that the FCC's new access charge rules do not
adversely affect the Company's business plan, and that they in fact present
significant new opportunities for new entrants, including the Company. Aspects
of the access charge order may be changed in the future. Numerous parties have
either filed appeals with federal courts or asked the FCC to reconsider portions
of its new rules.
The Company is generally subject to certification or registration and
tariff or price list filing requirements for intrastate services by state
regulators. The 1996 Act and the issuance by the FCC of rules governing local
competition, particularly those requiring the interconnection of all networks
and the exchange of traffic among the ILECs and CLECs, as well as
pro-competitive policies already developed by state regulatory commissions, have
caused fundamental changes in the structure of the markets for local exchange
services. On July 18, 1997, the U.S. Court of Appeals for the Eighth Circuit
issued a decision vacating the FCC's pricing and "most favored" nation rules, as
well as certain other of the FCC's interconnection rules. On October 14, 1997,
the Eighth Circuit issued an order clarifying its previous decision. In this
order, the Court held that ILECs have an obligation under the 1996 Act to offer
other carriers access to the ILECs' network elements on an unbundled basis, but
the ILECs do not have an obligation to recombine those elements for use by other
carriers. The FCC's and other parties' petitions to the Supreme Court requesting
review of these decisions have been granted. Most recently, on January 22, 1998,
the Eighth Circuit reiterated that the FCC is bound by the pricing policies of
the state regulatory commissions regarding interconnection, unbundled access,
resale and transport and termination of local telecommunications traffic and
rebuffed what it perceived as an attempt by the FCC to condition the RBOCs'
provision of in-region long distance service on compliance with federal pricing
policies regarding these items. Even though these decisions restrict the role of
the FCC in pricing and other issues (pending review by the Supreme Court), these
issues remain subject to scrutiny and oversight by state regulatory commissions.
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<PAGE> 21
Two RBOCs, US West and Ameritech, have entered into "teaming agreements"
with an interexchange carrier ("IXC"), Qwest Communications International, Inc.
("Qwest"), whereby the RBOCs would solicit customers for Qwest's long distance
service and handle billing of those customers in exchange for a fee. These
agreements would permit the RBOCs to offer their customers a package of local
and long distance services in competition with the Company's offerings even
though the RBOCs are not themselves providing the long distance component.
Certain IXCs, consider these agreements to be an attempt to evade the 1996 Act's
restrictions on RBOC's offering in-region long distance services and have
requested the FCC to block the proposed arrangement and also have initiated
litigation in federal courts, all of which are pending. On June 4, 1998, a
federal court issued a preliminary injunction barring further performance of the
US West agreement but another federal court subsequently refused to similarly
enjoin performance under the Ameritech agreement. Both courts, at the request of
the FCC, have referred the question of the legality of the agreements under the
1996 Act to the FCC. The Company is unable to predict the FCC's ultimate
determination of whether these agreements comply with the 1996 Act or the nature
of any policies the FCC may adopt generally relating to the agreements between
RBOCs and other carriers.
Although passage of the 1996 Act should result in increased opportunities
for companies that are competing with the ILECS, no assurance can be given that
changes in current or future regulations adopted by the FCC or state regulators
or other legislative or judicial initiatives relating to the telecommunications
industry would not have a material adverse effect on the Company.
The regulatory status of telephone service over the Internet is presently
uncertain. The Company is unable to predict what regulations may be adopted in
the future or to what extent existing laws and regulations may be found by state
and federal authorities to be applicable to such services or the impact such new
or existing laws and regulations may have on the business of the Company.
Although specific statutes and regulations addressing this service have not been
adopted at this time, the extent to which current laws and regulations at the
state and federal levels will be interpreted to include such Internet telephone
services has not been determined. The FCC has recently indicated, for example,
that voice telecommunications carried over the Internet between two telephone
sets using the public switched network may be subject to payment of access
charges and Universal Service funding obligations, while voice
telecommunications using computers rather than telephone sets may not be subject
to such obligations. There can be no assurance that new laws or regulations
relating to these services or a determination that existing laws are applicable
to them will not have a material adverse effect on the Company's business.
Regulatory Approval of the May Offering and Prior Offerings. Nine of the
states in which the Company is certificated provide for prior approval or
notification of the issuance of securities by the Company. Because of time
constraints, the Company may not have obtained such approval or completed the
notification process in any of the nine states prior to consummation of the May
Offering. The requirements for these filings may have been preempted by the
National Securities Market Improvement Act of 1996, although there is no case
law on this point. The Company has filed the necessary notifications and
applications for approval of the May Offering in those states. After
consultation with counsel, the Company believes the approvals will be granted
and that seeking such approvals subsequent to the May Offering should not result
in any material adverse consequences to the Company, although there can be no
assurance that such a consequence will not result. With respect to the 1997 debt
and equity offerings by the Company, the notification process has been completed
and approvals obtained from all states except Hawaii where approval remains
pending.
Potential Diminishing Rate of Growth. During the period from 1994 through
1997, the Company's revenues grew at a compound annual growth rate of 158.8%
(including the effect of acquisitions). 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 services. No assurance
can be given that such acceptance will occur; the lack of such acceptance could
have a material adverse effect on the Company.
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<PAGE> 22
Rapid Technological Changes. The telecommunications industry is subject to
rapid and significant changes in technology. While the Company 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 the Company 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, financial
condition and results of operations. 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 are
party to a long-term employment agreement with the Company.
Risk of Termination, Cancellation or Non-Renewal of Interexchange
Agreements, 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. The IRU between the
Company and Williams may be terminated by Williams after a payment default by
the Company and, in the event of a bankruptcy of Williams, the IRU may be
rejected by Williams in a bankruptcy proceeding.
Business Combinations; Change of Control. The Company has from time to
time held, and continues to hold, preliminary discussions with (i) potential
strategic investors who have expressed an interest in making an investment in or
acquiring the Company and (ii) potential joint venture partners looking toward
the formation of strategic alliances that would expand the reach of the
Company's networks or services without necessarily requiring an additional
investment in or by 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
position of, both the Company and the investor within the rapidly consolidating
telecommunications industry. There can be no assurance that agreements for any
of the foregoing will be reached. An investment, business combination or
strategic alliance could constitute a change of control. The Indenture and the
Existing Senior Notes Indentures provide that a change of control would require
the Company to repay the indebtedness outstanding under such instruments. A
change of control also requires the Company to offer to redeem its outstanding
series of preferred stock. If a change of control does occur, there is no
assurance that the Company would have sufficient funds, or could obtain any
additional debt or equity financing necessary, to make such repayments and
redemptions.
Class Action by DIGEX Stockholders. On June 5, 1997, the Company announced
that it had agreed to acquire 100% of the outstanding equity of DIGEX (the
"DIGEX Acquisition"). The DIGEX Acquisition was consummated through a tender
offer for all of the outstanding shares of DIGEX, which closed on July 9, 1997,
followed by a cash merger effective on July 11, 1997 (the "Merger").
On June 20, 1997, two purported class action complaints ("Complaints") were
filed in the Court of Chancery of the State of Delaware in and for New Castle
County respectively by TAAM Associates, Inc. and David and Chaile Steinberg,
purported stockholders of DIGEX, on behalf of all non-affiliated common
stockholders of DIGEX, against Intermedia, DIGEX and the Board of Directors of
DIGEX (the "DIGEX Directors"). The Complaints allege that the DIGEX Directors
violated their fiduciary duties to the public stockholders of DIGEX by agreeing
to vote in favor of the Merger and that Intermedia knowingly aided and
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<PAGE> 23
abetted such violation by offering to retain DIGEX management in their present
positions and consenting to stock option grants to certain executive officers of
DIGEX. The Complaints sought preliminary and permanent injunctions enjoining the
Merger but no applications were made for such injunctions prior to consummation
of the Merger on July 11, 1997. In addition, the Complaints seek cash damages
from the DIGEX Directors. In August 1997, a motion to dismiss the Complaints was
filed on behalf of Intermedia, DIGEX and the DIGEX Directors. The action has
been dormant since that time.
These cases are in their very early stages and no assurance can be given as
to their ultimate outcome. Intermedia, after consultation with its counsel,
believes that there are meritorious factual and legal defenses to the claims in
the Complaints. Intermedia intends to defend vigorously the claims in the
Complaints.
Absence of a Public Market for the Senior Notes. The Senior Notes are a
new issue of securities for which there is currently no public market. The
Company does not intend to apply for listing of the Senior Notes on any
securities exchange or on the Nasdaq National Market. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Senior Notes, they are not obligated to do so and any such market-making
may be discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Senior Notes.
If a market for the Senior Notes were to develop, the Senior Notes may trade at
prices that may be higher or lower than their respective initial offering price
depending upon many factors, including prevailing interest rates, the Company's
operating results and the markets for similar securities. Historically, the
market for securities such as the Senior Notes has been subject to disruptions
that have caused substantial volatility in the prices of similar securities.
There can be no assurance that, if a market for the Senior Notes were to
develop, such a market would not be subject to similar disruptions.
Certain Tax Considerations. For a discussion of certain material federal
income tax considerations which are relevant to holders acquiring Senior Notes
pursuant to the Exchange Offer, see "Certain Federal Income Tax Consequences."
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 Intermedia'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 1998 and statements regarding
development of Intermedia's businesses, the estimate of market sizes and
addressable markets for Intermedia's services and products, Intermedia's
anticipated capital expenditures, regulatory reform and other statements
contained in this Prospectus regarding matters that are not historical facts,
are only estimates and 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 Intermedia or actual events differing from the
assumptions underlying such statements. Such risks and assumptions include, but
are not limited to, Intermedia'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, Intermedia presents certain data contained herein on an
annualized basis, based on quarterly or monthly data, because Intermedia
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, growth or decline. Consequently, readers should not
place undue reliance on the annualized data.
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<PAGE> 24
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold on May 27, 1998 in reliance
upon the exemptions from registration under Rule 144A and Section 4(2) of the
Securities Act. Pursuant to the Note Registration Rights Agreement, the Company
agreed to register with the SEC a series of notes with substantially identical
terms as the Old Notes, to be offered in exchange for the Old Notes. The purpose
of the Exchange Offer is to satisfy the Company's obligations under the Note
Registration Rights Agreement. Holders that are not prohibited from
participating in the Exchange Offer and do not tender all of their Old Notes
will no longer have any registration rights under the Note Registration Rights
Agreement.
TERMS OF THE EXCHANGE
The Company offers to exchange, subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal accompanying this Prospectus, the
same principal amount of Senior Notes for the Old Notes tendered for exchange.
The terms of the Senior Notes are substantially identical to the Old Notes in
all material respects (including interest rate and maturity), except that (i)
the Senior Notes will not be subject to the restrictions on transfer (other than
with respect to holders who are affiliates and as otherwise described below) and
(ii) the Note Registration Rights Agreement covenants regarding registration and
the related Liquidated Damages (other than those that have accrued and were not
paid) with respect to Registration Defaults (as defined) will have been deemed
satisfied. The Senior Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture. See "Description of the
Senior Notes." The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.
The Company believes that Senior Notes received in exchange for Old Notes
may be offered for sale, sold and otherwise transferred by any holder (other
than any holder which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the Senior
Notes are acquired in the ordinary course of the holder's business, the holder
has no arrangement or understanding with any person to participate in the
distribution of the Senior Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the Senior Notes. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
public distribution of the Senior Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
distribution. Broker-dealers may not exchange Old Notes which are part of an
unsold original allotment in the Exchange Offer.
Tendering holders of the Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS, TERMINATION; AMENDMENT
The Exchange Offer will expire on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on July 28, 1998 or such later date
and time, if any, as extended by the Company, in its sole discretion. The
Company may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to holders of the Old Notes and unless otherwise
required by applicable law or regulation, by timely public announcement, by
making a release to the Dow Jones News Service on or before 9:00 a.m. of the
next business day following the Expiration Date. During any extension of the
Exchange Offer, all Old Notes tendered for exchange will remain subject to the
Exchange Offer. In connection with the Exchange Offer, the Company will comply
with all applicable requirements of the federal securities laws, including, but
not limited to, Rule 14e-1 under the Exchange Act.
The Exchange Date will be the first business day following the Expiration
Date. The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if either of the events set
forth under "Conditions to the Exchange Offer" shall have occurred and shall not
have been waived by the Company and (ii) amend the terms of the Exchange Offer
in any manner which, in its good
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<PAGE> 25
faith judgment, is advantageous to the holders of the Old Notes, whether before
or after any tender of the Old Notes. Unless the Company terminates the Exchange
Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the
Company will exchange the Senior Notes for the Old Notes on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The Exchange Offer is subject to the terms and conditions set forth in this
Prospectus and the Letter of Transmittal.
Old Notes may be tendered by properly completing and signing the Letter of
Transmittal and delivering the Letter of Transmittal to the Exchange Agent at
its address set forth in this Prospectus on or prior to the Expiration Date,
together with (i) the certificate or certificates representing the Old Notes
being tendered and any required signature guarantees, (ii) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of the Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility" or "Depository") pursuant to
the procedure for book-entry transfer described below, or (iii) the completion
of the procedures for guaranteed delivery set forth below. See "Guaranteed
Delivery Procedures."
If the Senior Notes are to be issued in the name of the registered holder
and the registered holder has signed the Letter of Transmittal the holder's
signature need not be guaranteed. In any other case, the tendered Old Notes must
be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Exchange Agent and duly executed by the registered holder
and the signature on the endorsement or instrument of transfer must be
guaranteed by a commercial bank or trust company located or having an office or
correspondent in the United States, or by a member firm of a national securities
exchange or of the National Association of Securities Dealers, Inc. (an
"Eligible Institution"). If the Senior Notes and/or Old Notes not exchanged are
to be delivered to an address other than that of the registered holder appearing
on the register for the Old Notes, the signature on the Letter of Transmittal
must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER
INSURANCE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal, the
Old Notes or a Book-Entry Confirmation and all other required documents are
received by the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any or all tenders
not in proper form or the acceptance for exchange of which may, in the opinion
of the Company's counsel, be unlawful. The Company also reserves the right to
waive any of the conditions of the Exchange Offer or any defect, withdrawal,
rejection of tender or irregularity in the tender of any Old Notes. Neither the
Company, the Exchange Agent nor any other person will be under any duty to give
notification of any defects, withdrawals, rejections or irregularities or incur
any liability for failure to give any such notification.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to the Company and irrevocably constitutes and appoints the Exchange Agent
as the holder's agent and attorney-in-fact to cause
21
<PAGE> 26
the Old Notes to be assigned, transferred and exchanged. The holder represents
and warrants that (i) it has full power and authority to tender, exchange,
assign and transfer the Old Notes and to acquire Senior Notes in exchange for
the Old Notes, (ii) when the Old Notes are accepted for exchange, the Company
will acquire good and unencumbered title to the Old Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim and (iii) it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes. The holder further
agrees that acceptance of any tendered Old Notes by the Company and the issuance
of Senior Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Note Registration Rights Agreement and that
the Company shall have no further obligations or liabilities thereunder (except
with respect to accrued and unpaid Liquidated Damages, if any). All authority
conferred by the holder will survive the death or incapacity of the holder and
every obligation of the holder shall be binding upon the heirs, legal
representatives, successors assigns, executors and administrators of the holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or that, if it
is an "affiliate," it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (ii) is acquiring
the Senior Notes offered in the ordinary course of its business and (iii) has no
arrangement with any person to participate in the distribution of the Senior
Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
To be effective, a written notice of withdrawal must be timely received by
the Exchange Agent at its address set forth in this Prospectus by mail, courier,
telegraphic, telex or facsimile transmission. Any notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered Old
Notes to be withdrawn, the certificate numbers of Old Notes to be withdrawn, the
principal amount of Old Notes to be withdrawn, a statement that the holder is
withdrawing its election to tender the Old Notes for exchange, and the name of
the registered holder of the Old Notes, and must be signed by the holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) or be accompanied by evidence satisfactory to
the Exchange Agent that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to a book-entry transfer,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of the Book-Entry Transfer Facility. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Company, and such determination will be final
and binding on all parties. Any Old Notes which have been tendered for exchange
but which are not exchanged will be returned to the holder thereof without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer by
crediting an account maintained with the Book-Entry Transfer Facility for the
Old Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
re-tendered at any time on or prior to the Expiration Date. Any Old Notes so
withdrawn and not re-tendered will not be exchanged for Senior Notes under the
Exchange Offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF SENIOR NOTES
Upon terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and
issuance of the Senior Notes will be made on the Exchange Date. For the purposes
of the Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Old Notes when, as and if the Company has given oral or written
notice thereof to the holders.
22
<PAGE> 27
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purpose of causing the Old Notes to be assigned, transferred and
exchanged for Senior Notes. Upon the terms and subject to the conditions of the
Exchange Offer, delivery of Senior Notes in exchange for Old Notes will be made
by the Exchange Agent promptly after acceptance of the tendered Old Notes by the
Company. Tendered Old Notes not accepted for exchange by the Company will be
returned without expense to the tendering holders (or, in the case of Old Notes
tendered by book-entry transfer crediting an account maintained with the
Depository) promptly following the Expiration Date or, if the Company terminates
the Exchange Offer prior to the Expiration Date, promptly after the Exchange
Offer is terminated.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business days after the
date of this Prospectus, and any financial institution that is a participant in
the Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Notes by causing the Book-Entry Transfer Facility to transfer the Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with the Book-Entry Transfer Facility's procedure for transfer. The Letter of
Transmittal with any required signature guarantees and any other required
documents, must be received by the Exchange Agent on or prior to the Expiration
Date for any book-entry transfers.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes and follow the guaranteed
delivery procedures. Pursuant to such procedures: (i) such tender must be made
by or through an Eligible Institution; (ii) prior to the Expiration Date, the
Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder of the Old Notes, the certificate number or numbers of such Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Old Notes (or a confirmation of electronic
delivery of book-entry delivery into the Exchange Agent's account at the
Depository) and any of the required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by the Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic mail delivery or book-entry delivery into the
Exchange Agent's account at the Depository) must be received by the Exchange
Agent within five business days after Expiration Date. Any holder of Old Notes
who wishes to tender his Old Notes pursuant to the guaranteed delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to issue Senior Notes in exchange for any properly tendered Old
Notes not previously accepted and may terminate the Exchange Offer (by oral or
written notice to the holders and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service), or, at its option, modify or otherwise amend the
Exchange Offer, if any of the following events occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the
23
<PAGE> 28
Exchange Offer, or any statute, rule, regulation, order or injunction shall
be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the
Exchange Offer by any government or governmental authority, domestic or
foreign, or any action shall have been taken, proposed or threatened, by
any government, governmental authority, agency or court, domestic or
foreign, that in the sole judgment of the Company might directly or
indirectly result in any of the consequences referred to in clause (i) or
(ii) above or, in the sole judgment of the Company, might result in the
holders of Senior Notes having obligations with respect to resales and
transfers of Senior Notes which are greater than those described in the
interpretation of the SEC referred to on the cover page of this Prospectus,
or would otherwise make it inadvisable to proceed with the Exchange Offer;
or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
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 Notes or the
Senior Notes; which, in the sole judgment of the Company in any case, and
regardless of the circumstances (including any action by the Company)
giving rise to any such condition, makes it unlawful to proceed with the
Exchange Offer and/or with such acceptance for exchange or with such
exchange.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
These conditions are for the sole benefit of the Company and may be waived
by the Company, in whole or in part, in its sole discretion. Any determination
made by the Company that any of these conditions has occurred will be final and
binding on all holders, absent manifest error.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Senior Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect to
the Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
EXCHANGE AGENT
SunTrust Bank, Central Florida, National Association, the Trustee under the
Indenture, has been appointed as the Exchange Agent for the Exchange Offer. All
executed Letters of Transmittal, questions and requests for assistance and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent, addressed as follows:
SunTrust Bank, Central Florida, National Association
225 East Robinson St.
Suite 250
Orlando, FL 32801
Attention: Alice Springer
Facsimile: (407) 237-5299
Confirm by telephone: (407) 237-5179
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.
24
<PAGE> 29
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and the Letter of Transmittal. If given or made, such
information or representations should not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any
exchange made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the respective
dates as of which information is given herein. The Exchange Offer is not being
made to (nor will tenders be accepted from or on behalf of) holders of Old Notes
in any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. The
Company may, however, at the reasonable request of any holder, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to holders of Old Notes in such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes in exchange for Senior Notes will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Senior Notes in the name of, or request
that Old Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will not have any registration rights under the Note Registration Rights
Agreement with respect to such non-tendered Old Notes and, accordingly such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act and the applicable state securities laws,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not intend
to register the Old Notes under the Securities Act. Based on interpretations by
the staff of the SEC, Senior Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders (other than any holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of
Securities Act provided that the Senior Notes are acquired in the ordinary
course of the holders' business, the holders have no arrangement with any person
to participate in the distribution of the Senior Notes and neither the holder
nor any other person is engaging in or intends to engage in a distribution of
the Senior Notes. If any holder has any arrangement or understanding with
respect to the distribution of the Senior Notes to be acquired pursuant to the
Exchange Offer, the holder (i) could not rely on the applicable interpretations
of the staff of the SEC and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Senior Notes for its own
account in exchange for Old Notes must acknowledge that it will deliver a
prospectus in connection with any resale of the Senior Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Senior Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
The Company has agreed under the Note Registration Rights Agreement to register
or qualify the Senior Notes for resale in any jurisdictions reasonably requested
by any holder, subject to certain limitations.
25
<PAGE> 30
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will not have any registration rights under the Note Registration Rights
Agreement with respect to such non-tendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Notes to be received in the Exchange Offer and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the Senior Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the Senior Notes to be received in the Exchange Offer. In
this regard, the Company will make each person participating in the Exchange
Offer aware (through this Prospectus or otherwise) that if the Exchange Offer is
being registered for the purpose of secondary resale, any holder using the
Exchange Offer to participate in a distribution of Senior Notes to be acquired
in the registered Exchange Offer (1) may not rely on the staff position
enunciated in Morgan Stanley and Co. Inc. (avail. June 5, 1991) and Exxon
Capital Holding Corp. (avail. May 13, 1988) or similar letters and (2) must
comply with registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
The Senior Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be amortized over the term of
the Senior Notes.
26
<PAGE> 31
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer.
CAPITALIZATION
The following table sets forth as of March 31, 1998, the consolidated
capitalization of the Company, the pro forma capitalization, which gives effect
to the acquisition of National, and the pro forma as adjusted capitalization,
which gives effect to the acquisition of National and the May Offering. This
table should be read in conjunction with the "Consolidated Financial Statements
of the Company" and Notes thereto, the "Unaudited Condensed Financial Statements
of the Company" and Notes thereto and the "Unaudited Pro Forma Condensed
Consolidated Financial Statements", which are incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended December 31,
1997, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 and the Company's Current Report on Form 8-K/A filed with the
Commission on June 11, 1998.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 335,260 $ 275,602 $ 763,852
========== ========== ==========
Long-term debt (including current maturities):
12.50% Senior Discount Notes due 2006..................... $ 226,326 $ 226,326 $ 226,326
11.25% Senior Discount Notes due 2007..................... 405,761 405,761 405,761
8.875% Senior Notes due 2007.............................. 260,250 260,250 260,250
8.50% Senior Notes due 2008............................... 400,000 400,000 400,000
8.60% Senior Notes due 2008............................... -- -- 500,000
Other long-term debt...................................... 1,251 1,251 1,251
Capital lease obligations................................. 447,964 447,964 447,964
---------- ---------- ----------
Total long-term debt.............................. 1,741,552 1,741,552 2,241,552
13.50% Series B redeemable exchangeable preferred
stock due 2009............................................ 334,742 334,742 334,742
7% Series D junior convertible preferred stock.............. 169,936 169,936 169,936
7% Series E junior convertible preferred stock.............. 196,759 196,759 196,759
Total stockholders' deficiency.............................. (184,993) (91,144) (91,144)
---------- ---------- ----------
Total capitalization........................................ $2,257,996 $2,351,845 $2,851,845
========== ========== ==========
</TABLE>
27
<PAGE> 32
SELECTED HISTORICAL FINANCIAL AND OTHER OPERATING DATA
The following selected historical financial data for the five years ended
December 31, 1997 are derived from the consolidated financial statements of the
Company, which financial statements have been audited by Ernst & Young, LLP,
independent certified public accountants. The financial data for the three
months ended March 31, 1997 and 1998 are derived from the Company's unaudited
condensed consolidated financial statements. The unaudited condensed
consolidated financial statements include all adjustments, consisting only of
normal recurring accruals, which management of the Company considers necessary
for a fair presentation of the financial position and the results of operations
for these periods. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1998.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", the "Consolidated Financial Statements of the Company" and Notes
thereto, the "Unaudited Condensed Consolidated Financial Statements of the
Company" and Notes thereto and the "Unaudited Pro Forma Condensed Consolidated
Financial Statements", which are incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
the Company's Current Report on Form 8-K/A filed with the Commission on June 11,
1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 8,292 $14,272 $ 38,631 $103,397 $ 247,899 $ 43,938 $ 136,786
Costs and Expenses:
Network expenses, facilities administration
and maintenance costs....................... 2,843 5,396 22,990 81,105 199,139 36,907 100,266
Selling, general and administrative........... 3,893 6,412 14,992 36,610 98,598 19,526 46,347
Depreciation and amortization................. 3,020 5,132 10,196 19,836 53,613 8,294 39,864
Charge for in-process R&D(1).................. -- -- -- -- 60,000 -- 85,000
------- ------- -------- -------- --------- -------- ---------
9,756 16,940 48,178 137,551 411,350 64,727 271,477
------- ------- -------- -------- --------- -------- ---------
Income (loss) from operations................... (1,464) (2,668) (9,547) (34,154) (163,451) (20,789) (134,691)
Interest expense................................ (844) (1,218) (13,767) (35,213) (60,662) (11,089) (49,301)
Interest and other income....................... 234 819 4,060 12,168 26,824 4,474 10,729
Income tax (provision) benefit.................. -- -- 97 -- -- -- --
------- ------- -------- -------- --------- -------- ---------
Loss before extraordinary item.................. (2,074) (3,067) (19,157) (57,199) (197,289) (27,404) (173,263)
Extraordinary loss on early extinguishment of
debt(2)....................................... -- -- (1,592) -- (43,834) -- --
------- ------- -------- -------- --------- -------- ---------
Net loss........................................ (2,074) (3,067) (20,749) (57,199) (241,123) (27,404) (173,263)
Preferred stock dividends and accretions........ -- -- -- -- (43,742) (3,375) (18,594)
------- ------- -------- -------- --------- -------- ---------
Net loss attributable to common stockholders.... $(2,074) $(3,067) $(20,749) $(57,199) $(284,865) $(30,779) $(191,857)
======= ======= ======== ======== ========= ======== =========
Basic and diluted loss per common share:
Loss before extraordinary item................ $ (0.15) $ (0.17) $ (0.96) $ (2.04) $ (7.23) $ (0.95) $ (5.44)
Extraordinary item(2)......................... -- -- (0.08) -- (1.32) -- --
------- ------- -------- -------- --------- -------- ---------
Basic and diluted loss per common share(3).... $ (0.15) $ (0.17) $ (1.04) $ (2.04) $ (8.55) $ (0.95) $ (5.44)
======= ======= ======== ======== ========= ======== =========
Weighted average number of shares
outstanding(3)................................ 14,154 17,912 20,072 28,018 33,340 32,594 35,306
======= ======= ======== ======== ========= ======== =========
OTHER DATA:
EBITDA(4)....................................... $ 1,556 $ 2,464 $ 649 $(14,138) $ (49,838) $(12,495) $ (9,827)
Capital expenditures including cash portion of
acquisitions.................................. $10,486 $13,731 $ 31,915 $143,615 $ 812,061 $ 33,333 $ 464,739
Book value per common share(3).................. $ 2.59 $ 2.70 $ 1.95 $ 3.51 $ (24.28) $ (6.63) $ (21.98)
Insufficiency of earnings to cover combined
fixed charges and preferred stock
dividends(5).................................. $ 2,288 $ 3,324 $ 19,834 $ 59,978 $ 245,685 $ 31,557 $ 193,825
</TABLE>
(Continued on following page)
28
<PAGE> 33
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NETWORK DATA:
Buildings connected(6)............. 234 293 380 487 3,005 1,157 4,071
Route miles........................ 335 378 504 655 757 679 770
Fiber miles........................ 10,239 11,227 17,128 24,122 34,956 29,841 35,999
Number of city-based networks in
service.......................... 5 6 9 9 10 9 10
ENHANCED DATA SERVICES:
Nodes(7)........................... 100 900 2,300 9,777 20,209 12,447 22,789
Cities(8).......................... 37 336 600 2,266 4,104 2,526 4,146
Switches........................... 4 12 31 89 136 100 150
LOCAL AND LONG DISTANCE SERVICES:
Voice switches in operation........ -- 1 1 5 16 6 19
Long distance billable minutes..... -- -- 32,912,501 69,118,148 139,437,921 87,501,080 184,227,094
Access line equivalents............ -- -- -- 7,106 81,349 17,385 220,587
EMPLOYEES............................ 58 146 287 874 2,036 1,026 3,320
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(9).............. $27,954 $10,208 $ 50,997 $189,546 $ 756,923 $ 335,260
Working capital(10)....................... 25,712 9,588 70,353 206,029 747,246 299,074
Total assets.............................. 61,219 74,086 216,018 512,940 1,874,970 2,425,755
Long-term debt (including current
maturities)............................. 11,613 16,526 165,545 358,507 1,252,343 1,741,552
Redeemable preferred stock................ -- -- -- -- 688,876 701,437
Total stockholders' equity (deficiency)... 45,987 52,033 40,254 114,230 (140,009) (184,993)
</TABLE>
- ---------------
(1) Represents a one time charge to earnings as a result of the write-off of
in-process research and development in connection with the acquisitions of
DIGEX and Shared in 1997 and the first quarter of 1998, respectively.
(2) The Company incurred extraordinary charges in 1995 and 1997 related to
early extinguishment of debt.
(3) Represents amounts after giving effect to a 2-for-1 stock split effected
through a stock dividend issued on June 15, 1998 to holders of record on
June 1, 1998.
(4) EBITDA consists of earnings (loss) before interest expense, interest and
other income, income tax (provision) benefit, depreciation, amortization
and non recurring charges (such as charges in 1997 and 1998 for in-process
R&D). EBITDA is presented 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.
(5) For purposes of calculating the insufficiency of earnings to cover combined
fixed charges and preferred stock dividends: (i) earnings consist of loss
before income taxes, plus fixed charges excluding capitalized interest and
preferred stock dividends and (ii) fixed charges consist of interest
expensed and capitalized, plus amortization of deferred financing costs,
preferred stock dividends, plus a portion of rent expense under operating
leases deemed by the Company to represent an interest factor.
(6) Beginning in January 1997, Intermedia changed its definition of "Buildings
connected" to include buildings connected to Intermedia's network via
facilities leased by Intermedia in addition to those connected to
Intermedia's network via facilities constructed by Intermedia. Intermedia
believes the new definition is consistent with industry practice.
(7) Each node represents an individual point of origination and termination of
data served by the Company's enhanced data network. In the opinion of
management of the Company, the number of nodes reported is an accurate
representation of the quantity of enhanced data services provided.
(8) Represents the number of discrete postal cities to which enhanced data
services are provided by the Company.
(9) Cash and cash equivalents excludes investments of $26.7 million, $6.9
million and $7.5 million for the years ended December 31, 1996 and 1997 and
the quarter ended March 31, 1998, respectively, restricted under the terms
of various notes and other agreements.
(10) Working capital includes the restricted investments referred to in Note 9
above whose restrictions either lapse within one year or will be used to
pay current liabilities.
29
<PAGE> 34
BUSINESS
Intermedia is a rapidly growing integrated communications provider
delivering local, long distance and enhanced data services (including
Internet-related services) to business and government customers. Intermedia is
currently the largest domestic independent company among those companies
generally referred to as competitive local exchange carriers (based upon
annualized telecommunications services revenues and assuming the closing of the
announced transaction between AT&T and Teleport Communications Group, Inc.) and
is also the largest provider of shared tenant telecommunications services in the
United States. As a tier-one Internet services provider and the fourth largest
(based on number of nodes) frame relay provider in the United States, Intermedia
is also a leading provider of enhanced data services to business and government
customers. Intermedia provides services to its customers throughout the United
States and in selected international markets through a combination of owned and
leased network facilities. As an ICP with over 10 years experience focusing on
business and government customers, Intermedia believes it is positioned to take
advantage of technical, regulatory and market dynamics which currently promote
demand for a fully integrated set of communications services.
As of May 21, 1998, Intermedia served approximately 95,000 business
customers and had over 560 quota carrying sales personnel operating in 81 cities
serviced by 102 Company sales offices. The Company's annualized first quarter
1998 pro forma revenues were $738.8 million. Intermedia's reported revenues have
grown from $14.3 million in 1994 to $247.9 million in 1997, representing a
compound annual growth rate of 158.8%.
Through a combination of acquisitions, leased infrastructure, expansion of
existing network and asset purchases, Intermedia continues to increase its
customer base and network density. Additionally, the Company continues to pursue
attractive opportunities to complement and support its existing network
infrastructure and service offerings and to expand into new geographic markets.
As of May 21, 1998, Intermedia's network infrastructure included over 238,000
access line equivalents in service, 20 voice switches, 150 data switches, 22,789
frame relay nodes, 433 NNIs, including NNIs with BellSouth, US West, Sprint,
GTE, Bell Atlantic and SNET, and approximately 36,000 miles of nationwide long
distance fiber facilities. This infrastructure is capable of delivering local,
long distance and enhanced data services (including frame relay, asynchronous
transfer mode and Internet services) and enabled Intermedia to address $34
billion of a $222 billion national market opportunity by the end of 1997. The
Company believes that at the end of 1998, its addressable market will be over
$90 billion. Management believes that continuing expansion will enable
Intermedia to (i) increase the size of its addressable market to reach a
significant number of new potential customers, (ii) achieve economies of scale
in network operations and sales and marketing and (iii) more effectively serve
customers having a presence in multiple metropolitan areas.
In order to capitalize on the significant increase in the Company's
addressable market, Intermedia has rapidly expanded, and intends to continue to
expand, its direct sales and support team consisting of highly skilled
engineering and sales professionals. The sales and support team has complete
product knowledge and technical, integration and program or project management
skills. This team approach promotes a close working relationship between
Intermedia and the customers' telecommunications, information services and user
constituencies. Intermedia believes such relationships enable it to sell more of
its services and maintain longer relationships with its customers. During the 16
month period commencing January 1, 1997 and ending April 30, 1998, Intermedia
increased the number of its sales offices from 21 to 102 and substantially
increased its engineering support personnel and sales representatives.
Intermedia believes that the continued deployment of its skilled end user
engineering support and sales teams will allow Intermedia to establish service
in new markets and gain a stronger competitive position in existing markets. By
focusing first on establishing customer relationships in both new and existing
markets, Intermedia believes it can subsequently deploy capital efficiently in
response to customer demand.
Intermedia expects to realize economies of scale on its intercity network:
(i) through the continued deployment of local/long distance voice switches to
serve its rapidly growing customer base, and (ii) by combining long distance
voice traffic between switches with intercity enhanced data and Internet
traffic. In addition, Intermedia plans to introduce a new class of voice
products which utilize data protocols to deliver
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voice traffic over Intermedia's Packet/Cell Switched Network. These services
will provide a competitive service offering to customers seeking a more cost
efficient and flexible alternative to voice services provided over traditional
circuit switched telecommunications networks. Intermedia believes that
Packet/Cell Switched Networks, such as its own, will displace a significant
portion of the national telecommunications market that is currently served over
traditional circuit switched networks. Intermedia believes this new service
offering, when implemented, will accelerate its penetration of the traditional
voice services market and provide improved returns on its network investment.
Enhanced data services, such as those provided over Intermedia's ATM and
frame relay network, include specialized communications services for customers
needing to transport various forms of digital data among multiple locations. An
important category of Intermedia's enhanced data services are its Internet
services, both access to the Internet and various Web hosting and Web site
management services. These Internet services are regularly delivered over
Intermedia's ATM and frame relay network. According to industry sources, the
frame relay services market is projected to grow from $1.3 billion in 1996 to
$2.7 billion in 1999 and Internet Web site management services are estimated to
grow from $450 million in 1997 to $7 billion in 2002. There can be no assurance
that such market growth will be realized or that the assumptions underlying such
projections are reliable. While Intermedia has historically concentrated its
enhanced data sales in the eastern half of the United States, Intermedia is
currently the fourth largest national provider of frame relay networking
services (based on number of nodes) after AT&T, MCI combined with WorldCom and
Sprint. To satisfy its customers' desire for end-to-end enhanced data services
(both networking and Internet services) from a single provider, Intermedia has
deployed its network and made interconnection arrangements with other providers
to offer national and international service.
Intermedia's mission is to become the premier provider of communications
services to business and government customers. Intermedia believes its target
customers have sophisticated communications services requirements, including the
need for reliable network infrastructure, high quality, solutions-oriented and
responsive customer service and continuous focus on service enhancements and new
service development. Intermedia believes it has multiple advantages over its
competitors in serving its targeted customer base as a result of the Company's:
(i) specialized sales and service approach employing engineering and sales
professionals who design and implement integrated, cost-effective
telecommunications solutions; (ii) expertise in developing and operating a
highly reliable, advanced digital fiber optic network offering substantial
transmission capacity for the provision of a full suite of "all distance"
communications services; (iii) emphasis on providing solutions-oriented and
responsive customer service; (iv) network platform capable of servicing
customers throughout the United States and in selected international markets;
(v) network development plan designed to assure an efficient evolution from a
voice-oriented, circuit switched network to a Packet/Cell Switched Network; (vi)
ongoing development and integration of new telecommunications technologies into
its services, especially those technologies that allow the increasing
integration of voice and data applications onto a single Packet/Cell Switched
Network; (vii) ability to deliver local, long-distance and enhanced data
services over a network controlled from end-to-end by Intermedia; and (viii)
long-term contracts with building owners where the Company acts as a shared
tenant telecommunications services provider.
Over the past few years, a portion of Intermedia's growth has been
accomplished through acquisitions and other strategic ventures or selling
relationships. Intermedia continues to examine various acquisitions and other
strategic relationship proposals to accelerate its rate of growth. In addition
to financial considerations, Intermedia assesses each acquisition opportunity to
determine if it provides: (i) an established customer base to whom Intermedia
can cross-sell its other services, (ii) a greater network density in region or
provides needed network connectivity out of region, (iii) accelerated time to
market in a pre-defined target market, (iv) products and services that are
complementary to Intermedia's existing portfolio and (v) skilled staff,
particularly in sales and sales support. While management does not believe that
acquisitions are necessary to achieve Intermedia's strategic goals or to satisfy
its business plan, strategic alliances with or acquisitions of appropriate
companies may accelerate achievement of certain goals by creating financial and
operating synergies, and by providing for more rapid expansion of Intermedia's
network and services. Intermedia is currently evaluating various acquisitions
and strategic relationship opportunities. No assurance can be given that any
potential acquisition or strategic relationship will be consummated.
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<PAGE> 36
Intermedia was incorporated in the state of Delaware on November 9, 1987,
as the successor to a Florida corporation that was founded in 1986. Intermedia's
principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619 and
its telephone number is (813) 829-0011.
RECENT DEVELOPMENTS
US West and Ameritech Agreements. In January 1998, Intermedia entered into
a frame relay services agreement with US West. In May 1998, Intermedia entered
into a similar frame relay services agreement with Ameritech. Pursuant to these
agreements both US West and Ameritech will utilize Intermedia as its preferred
data provider for the provisioning of frame relay networking and Internet
services for all interLATA connections, both inside and outside US West's and
Ameritech's respective regions. The Company believes these agreements will bring
additional traffic onto Intermedia's network and will create cross-selling
opportunities in US West's 14 state territory (where Intermedia currently has no
selling activity) and in Ameritech's five state territory (where Intermedia
intends to substantially expand its selling activities). Intermedia has
undertaken discussions with other incumbent local exchange carriers, including
other regional Bell operating companies, with the intent of establishing similar
agreements, although there is no assurance such additional agreements will be
consummated.
1998 Acquisitions. In March 1998, Intermedia consummated the acquisition
of Shared. The total purchase price for Shared was approximately $769.3 million,
including certain transaction expenses and fees relating to certain agreements.
Shared is the nation's largest provider of shared telecommunications services
and systems. Through its technical infrastructure and 741 employees, Shared acts
as a single point of contact for business telecommunications services at
approximately 500 Class A office buildings throughout the United States and
Canada, and provides turnkey PBX and key system implementation and operation in
other buildings throughout the United States. Shared's revenues for the year
ended December 31, 1997 were approximately $181.8 million. This acquisition is
expected to enhance Intermedia's national presence in the telecommunications
market, enabling it to provide an integrated offering of local, long distance,
data and systems integration services to Shared's existing customer base of
approximately 12,800 customers.
Also in March 1998, Intermedia consummated the acquisition of LDS for
approximately $168.6 million including approximately $137.2 million in
Intermedia's Common Stock and $31.4 million in cash, of which $15.0 million was
used to retire LDS's long-term debt. LDS is an established regional
interexchange carrier, providing long distance services and Internet access to
more than 48,000 business customers and employing approximately 77 quota
carrying sales professionals in Louisiana, Texas, Oklahoma, Mississippi and
Florida. LDS's revenues for the year ended December 31, 1997 were approximately
$122.3 million. The acquisition of LDS provides a significant time-to-market
advantage in a region important to Intermedia's expansion, while also
contributing an experienced regional management team and established sales
organization. Because LDS's service portfolio and footprint complement those of
Intermedia, the Company believes that the acquisition of LDS also presents
significant synergy realization opportunities. By joining forces with an
established operating company having a staff of experienced sales, management
and technical personnel, Intermedia expects to consolidate its position in the
southern markets served by LDS.
In April 1998, Intermedia consummated the acquisition of National. The
total purchase price for National was approximately $151.8 million consisting of
approximately $88.7 million of Intermedia's Common Stock and $63.1 million in
cash, including debt repayment of $2.8 million. National is an emerging
switch-based CLEC and an established interexchange carrier, providing local
exchange and long distance voice services to approximately 11,000 business
customers concentrated in Florida's major metropolitan markets. National had
revenues of approximately $65.2 million for the year ended December 31, 1997.
Intermedia believes that the acquisition of National will help build critical
mass in the State of Florida, one of the top five telecommunications usage
states in the country, and provide an experienced team of sales professionals.
The Company has committed resources to develop and implement a program to
integrate its recently acquired businesses in order to realize maximum synergies
and future costs savings. In connection with the integration and realignment of
the Company's businesses and operating structure, Intermedia expects to
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<PAGE> 37
record a one-time charge later this year, the amount of which is subject to
finalization of a detailed restructuring program. The charge will be excluded
from the Company's EBITDA. Management believes that the implementation of this
program will enhance the Company's ability to realize the maximum synergies from
its acquisitions.
Williams Agreement. In March 1998, Intermedia signed a definitive
agreement with Williams to purchase nationwide transmission capacity on
Williams' fiber optic network. The 20 year indefeasible right of use provides
Intermedia with high capacity transport for its integrated voice and data
services, connecting major markets throughout the continental United States. The
agreement will immediately reduce Intermedia's unit cost for digital, intercity
transmission capacity. Initial implementation of the agreement is expected to
connect approximately 50 cities over the next 12 months, with additional cities
to follow. The capacity provided by Williams will become part of Intermedia's
nationwide network of self-healing rings, over which the Company will deliver
its integrated voice and data services.
Stock Split. On May 20, 1998, the Company announced a 2 for 1 split of its
Common Stock to be effected through a stock dividend payable on June 15, 1998 to
stockholders of record on June 1, 1998.
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DESCRIPTION OF OUTSTANDING INDEBTEDNESS
In addition to the Old Notes, the Company has outstanding the following
indebtedness:
12 1/2% NOTES
The Company has outstanding an aggregate principal amount of $330.0 million
of 12 1/2% Notes, with an aggregate accreted value of $226.3 million as of March
31, 1998. The 12 1/2% Notes were issued at a substantial discount from their
principal amount and mature on May 15, 2006. Cash interest does not accrue on
the 12 1/2% Notes prior to May 15, 2001. Commencing November 15, 2001, cash
interest on the 12 1/2% Notes will be payable semi-annually in arrears on May 15
and November 15 of each year at a rate of 12 1/2% per annum. The 12 1/2% Notes
may be redeemed at the Company's option at any time, in whole or in part, on or
after May 15, 2001 upon payment of the redemption price plus accrued and unpaid
interest, if any, to the date of redemption. The 12 1/2% Notes are unsecured
obligations of the Company ranking pari passu in right of payment of principal
and interest with all other existing and future senior indebtedness of the
Company, including the Existing Senior Notes and the Notes, and rank senior to
any future subordinated indebtedness. In the event of a change of control of the
Company prior to May 15, 2001, holders of the 12 1/2% Notes have the right to
require the Company to repurchase their 12 1/2% Notes, in whole or in part, at a
price equal to 101% of the accreted value thereof or, in the case of any such
purchase on or after May 15, 2001, at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase.
The covenants in the indenture governing the 12 1/2% Notes (the "12 1/2%
Notes Indenture") are substantially similar to the covenants in the other
Existing Senior Notes Indentures. The 12 1/2% Notes Indenture contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to make certain restricted payments, incur additional indebtedness
and issue preferred stock, pay dividends or make other distributions, repurchase
equity interests or subordinated indebtedness, engage in sale and leaseback
transactions, create certain liens, enter 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 the 12 1/2% Notes at
a price equal to 100% of the accreted value thereof, if such circumstances occur
prior to May 15, 2001, or at 100% of the principal amount thereof, if such
circumstances occur on or after May 15, 2001, plus accrued and unpaid interest,
if any, to the date of purchase with the proceeds of certain asset sales. This
description of the 12 1/2% Notes is intended as a summary and is qualified in
its entirety by reference to the 12 1/2% Notes Indenture.
11 1/4% NOTES
The Company has outstanding an aggregate principal amount at maturity of
$649.0 million of 11 1/4% Notes, with an aggregate accreted value of $405.8
million as of March 31, 1998. The 11 1/4% Notes were issued at a substantial
discount from their principal amount and mature on July 15, 2007. Cash interest
does not accrue on the 11 1/4% Notes prior to July 15, 2002. Commencing January
15, 2003, cash interest on the 11 1/4% Notes will be payable semi-annually in
arrears on July 15 and January 15 of each year at a rate of 11 1/4% per annum.
The 11 1/4% Notes may be redeemed at the Company's option at any time, in whole
or in part, on or after July 15, 2002 upon payment of the redemption price plus
accrued and unpaid interest, if any, to the date of redemption. The 11 1/4%
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 Existing Senior Notes and the Notes,
and rank senior to any future subordinated indebtedness. In the event of a
change of control of the Company prior to July 15, 2002, holders of the 11 1/4%
Notes have the right to require the Company to repurchase their 11 1/4% 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 July 15, 2002, at 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.
The covenants in the indenture governing the 11 1/4% Notes (the "11 1/4%
Notes Indenture") are substantially similar to the covenants in the other
Existing Senior Notes Indentures. The 11 1/4% Notes Indenture contains certain
covenants that, among other things, limit the ability of the Company and its
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<PAGE> 39
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 the 11 1/4% Notes at
a price equal to 100% of the accreted value thereof, if such circumstances occur
prior to July 15, 2002, or at 100% of the principal amount thereof, if such
circumstances occur on or after July 15, 2002, plus accrued and unpaid interest,
if any, to the date of purchase with the proceeds of certain asset sales. This
description of the 11 1/4% Notes is intended as a summary and is qualified in
its entirety by reference to the 11 1/4% Notes Indenture.
8 7/8% NOTES
The Company has outstanding an aggregate principal amount of $260.3 million
of 8 7/8% Notes, which will mature on November 1, 2007. Cash interest on the
8 7/8% Notes is payable semi-annually in arrears on May 1 and November 1 of each
year commencing May 1, 1998, at a rate of 8 7/8% per annum. The 8 7/8% Notes may
be redeemed at the Company's option at any time, in whole or in part, on or
after November 1, 2002 upon payment of the redemption price plus accrued and
unpaid interest, if any, to the date of redemption. The 8 7/8% 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 Existing Senior Notes and the Notes, and rank senior
to any future subordinated indebtedness. In the event of a change of control of
the Company, holders of the 8 7/8% Notes have the right to require the Company
to repurchase their 8 7/8% Notes, in whole or in part, at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase.
The covenants in the indenture governing the 8 7/8% Notes (the "8 7/8%
Notes Indenture") are substantially similar to the covenants in the other
Existing Senior Notes Indentures. The 8 7/8% 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 the 8 7/8% Notes at
a price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase with the proceeds of certain asset
sales. This description of the 8 7/8% Notes is intended as a summary and is
qualified in its entirety by reference to the 8 7/8% Notes Indenture.
8 1/2% NOTES
The Company has outstanding an aggregate principal amount of $400.0 million
of 8 1/2% Notes, which will mature on January 15, 2008. Cash interest on the
8 1/2% Notes is payable semi-annually in arrears on January 15 and July 15 of
each year commencing July 15, 1998, at a rate of 8 1/2% per annum. The 8 1/2%
Notes may be redeemed at the Company's option at any time, in whole or in part,
on or after January 15, 2003 upon payment of the redemption price plus accrued
and unpaid interest, if any, to the date of redemption. The 8 1/2% Notes are
unsecured obligations of the Company ranking pari passu in right of payment of
principal and interest with all other existing and future senior indebtedness of
the Company, including the Existing Senior Notes and the Notes, and rank senior
to any future subordinated indebtedness. In the event of a change of control of
the Company, holders of the 8 1/2% Notes have the right to require the Company
to repurchase their 8 1/2% Notes, in whole or in part, at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase.
The covenants in the indenture governing the 8 1/2% Notes (the "8 1/2%
Notes Indenture") are substantially similar to the covenants in the other
Existing Senior Notes Indenture (except that certain of the covenants in the
8 1/2% Notes Indenture are less restrictive to the Company than those contained
in the other indentures,
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<PAGE> 40
including with respect to restricted payments and incurrence of indebtedness by
the Company). The 8 1/2% Notes Indenture contains certain covenants that, among
other things, limit the ability of the Company and its subsidiaries to make
certain restricted payments, incur additional indebtedness and issue preferred
stock, pay dividends or make other distributions, repurchase equity interests or
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company or its subsidiaries, conduct certain lines of business, issue or
sell equity interests of the Company's subsidiaries or enter into certain
mergers and consolidations. In addition, under certain circumstances, the
Company is required to offer to purchase the 8 1/2% Notes at a price equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase with the proceeds of certain asset sales. This
description of the 8 1/2% Notes is intended as a summary and is qualified in its
entirety by reference to the 8 1/2% Notes Indenture.
CAPITAL LEASE OBLIGATIONS
As of March 31, 1998, the Company had outstanding approximately $448.0
million aggregate principal amount of capital lease obligations arising
primarily from 73 agreements for leases of fiber optic cable used in various of
the Company's networks. The effective interest rates under these agreements
range from 6.0% to 19.4% and expire, subject to various Intermedia renewal
options, from 2001 to 2018.
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DESCRIPTION OF THE SENIOR NOTES
GENERAL
Set forth below is a summary of certain provisions of the Senior Notes. The
Senior Notes, like the Old Notes, will be issued pursuant to an Indenture, dated
May 27, 1998 (the "Indenture"), between the Company and SunTrust Bank, Central
Florida, National Association, as trustee (the "Trustee"), a copy of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The terms of the Senior Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Senior Notes are subject to
all such terms, and holders of Senior Notes are referred to the Indenture and
the Trust Indenture Act for a statement thereof. The following summary of
certain provisions of the Indenture and the Note Registration Rights Agreement
does not purport to be complete and is qualified in its entirety by reference to
the Indenture and the Note Registration Rights Agreement, including the
definitions therein of certain terms used below. A copy of the form of Indenture
and Note Registration Rights Agreement has been filed as a exhibit to the
Exchange Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions." As of the date hereof, none of the Company's
Subsidiaries are Unrestricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture. As used
in this section, the term "Company" refers only to Intermedia Communications
Inc. and not to its Subsidiaries. The terms of the Senior Notes are
substantially identical to the Old Notes in all material respects (including
interest rate and maturity), except that (i) the Senior Notes will not be
subject to the restrictions on transfer (other than with respect to holders who
are affiliates) and (ii) the Note Registration Rights Agreement covenants
regarding registration and the related Liquidated Damages (other than those that
have accrued and were not paid) with respect to Registration Defaults will have
been deemed satisfied.
RANKING
The Senior Notes will rank senior in right of payment to all subordinated
Indebtedness of the Company. The Senior Notes will rank pari passu in right of
payment with all existing and future senior borrowings, including the Existing
Senior Notes, the Old Notes and borrowings under a credit facility which may be
established by the Company. Holders of secured Indebtedness of the Company will,
however, have claims that are prior to the claims of the Holders of the Senior
Notes with respect to the assets securing such other Indebtedness.
Certain of the Company's operations are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its Subsidiaries
to meet its obligations, including its obligations under the Senior Notes. The
Senior Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any of
its Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of the Senior Notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would still
be subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company. As of March
31, 1998, on a pro forma basis after giving effect to the May Offering and the
acquisition of National, the Company would have had approximately $2.4 billion
of senior indebtedness outstanding, including trade payables outstanding, which
includes approximately $148.9 million of indebtedness and other liabilities of
the Company's Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $500.0
million and will mature on June 1, 2008. Interest on the Senior Notes will
accrue at a rate of 8.60% per annum and will be payable semi-annually in arrears
on June 1 and December 1 of each year, commencing on December 1, 1998, to
holders of record on
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<PAGE> 42
the immediately preceding May 15 and November 15. Interest on the Senior Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. The Senior Notes will
be issued, in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Prior to June 1, 2003, the Senior Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the Make-Whole Price, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date. On or after June 1, 2003, the Senior Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 104.300%
2004........................................................ 102.867
2005........................................................ 101.433
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, in the event of the sale by the Company
prior to June 1, 2001 of its Capital Stock (other than Disqualified Stock) (i)
to a Strategic Investor in a single transaction or series of related
transactions for an aggregate purchase price equal to or exceeding $50.0 million
or (ii) in one or more Public Offerings (each of clauses (i) and (ii), a
"Qualified Equity Offering"), up to a maximum of 25% of the aggregate principal
amount of the Notes originally issued will, at the option of the Company, be
redeemable from the net cash proceeds of such sale or sales (but only to the
extent such proceeds consist of cash or readily marketable cash equivalents
received in respect of the Capital Stock, other than Disqualified Stock, so
sold) at a redemption price equal to 108.60% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, provided that at least 75% of the aggregate principal amount of
the Notes originally issued remains outstanding immediately after the occurrence
of such redemption and that such redemption occurs within 90 days of the date of
the closing of each such sale.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemption or sinking
fund payments with respect to the Senior Notes.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of Senior Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon 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.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Senior Notes to secured Indebtedness of the Company and
Indebtedness of the Company's Subsidiaries, the Company may
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not have sufficient funds available to purchase the Senior Notes tendered in
response to a Change of Control Offer. In addition, the Existing Senior Notes or
other agreements relating to Indebtedness of the Company's Subsidiaries may
contain prohibitions or restrictions on the Company's ability to effect a Change
of Control Payment.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes to require the Company to repurchase such Senior Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company to another Person may be uncertain.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under
"Certain Covenants -- Asset Sales") exceeds $10.0 million, the Company will make
an offer to all holders of Senior Notes and Pari Passu Notes (an "Excess
Proceeds Offer"), to purchase the maximum principal amount of Notes and Pari
Passu Notes that may be purchased out of such Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the outstanding principal amount of the
Notes and 100% of the accreted value or 100% of the outstanding principal
amount, as applicable, of the Pari Passu Notes, plus accrued and unpaid interest
and Liquidated Damages thereon, if any, to the date fixed for the closing of
such offer, in accordance with the procedures specified in the Indenture.
If the aggregate principal amount and/or accreted value, as the case may
be, of Notes and Pari Passu Notes surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Trustee will select the Notes and Pari Passu
Notes to be purchased on a pro rata basis. To the extent that the aggregate
amount of Notes and Pari Passu Notes tendered pursuant to an Excess Proceeds
Offer is less than the amount of Excess Proceeds, the Company may use such
deficiency for general purposes. Upon completion of an Excess Proceeds Offer,
the amount of Excess Proceeds will be reset at zero.
SELECTION OF NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Notes are to be redeemed or to be purchased
pursuant to any purchase offer required under the Indenture at any time,
selection of Senior Notes for redemption or purchase will be made by the Trustee
in compliance with the requirements of the principal national securities
exchange, if any, on which the Senior Notes are listed, or, if the Senior Notes
are not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate, provided that no Senior Notes with a principal
amount of $1,000 or less shall be redeemed or purchased in part. A new Senior
Note in principal amount equal to the unredeemed or unpurchased portion will be
issued in the name of the holder thereof upon cancellation of the original
Senior Note. On and after the redemption or purchase date, interest will cease
to accrue on the Senior Notes or portions of them called for redemption or
purchase.
NOTICE OF REDEMPTION
Notice of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of Senior Notes
to be redeemed at its registered address. If any Senior Note is to be redeemed
in part only, the notice of redemption that relates to such Senior Note shall
state the portion of the principal amount to be redeemed.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Subsidiaries other than
dividends or distributions payable (A) in Equity Interests of the Company
that are not Disqualified Stock or (B) to the Company or any Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for value
("Retire" and correlatively, a "Retirement") any Equity Interests of the
Company or any of its Subsidiaries or other Affiliate of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that is
subordinate in right of payment to the Senior Notes or (B) any Subsidiary,
except, with respect to clause (A) or (B) above, at final maturity or in
accordance with the mandatory redemption or repayment provisions set forth
in the original documentation governing such Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test described under "-- Incurrence of Indebtedness and
Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the Issue Date (including any Restricted Payments made pursuant to
clauses (i), (v) and (vi) of the next paragraph), is less than the sum
of
(w) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from June 30, 1996 to the end
of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock) after June 30, 1996
(other than any such Equity Interests, the proceeds of which were
used as set forth in clauses (ii) and (viii) 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,
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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 Senior Notes or (C) Indebtedness of a Subsidiary of the
Company, in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity
Interests of the Company (other than Disqualified Stock);
(iii) the Retirement of any Indebtedness of the Company subordinated
in right of payment to the Senior Notes in exchange for, or out of the
proceeds of the substantially concurrent Incurrence of Indebtedness of the
Company (other than Indebtedness to a Subsidiary of the Company), but only
to the extent that such new Indebtedness is permitted under the covenant
described below under the caption, "Incurrence of Indebtedness and Issuance
of Disqualified Stock" and (1) is subordinated in right of payment to the
Senior Notes at least to the same extent as, (2) has a Weighted Average
Life to Maturity at least as long as, and (3) has no scheduled principal
payments due in any amount earlier than, any equivalent amount of principal
under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Subsidiary of the Company
in exchange for, or out of the proceeds of the substantially concurrent
incurrence of Indebtedness of the Company or any Subsidiary but only to the
extent that such incurrence is permitted under the covenant described below
under the caption "Incurrence of Indebtedness and Issuance of Disqualified
Stock" and only to the extent that such Indebtedness (1) is not secured by
any assets of the Company or any Subsidiary to a greater extent than the
Retired Indebtedness was so secured, (2) has a Weighted Average Life to
Maturity at least as long as the Retired Indebtedness and (3) if such
Retired Indebtedness was an obligation of the Company, is pari passu or
subordinated in right of payment to the Senior Notes at least to the same
extent as the Retired Indebtedness;
(v) the Retirement of any Equity Interests of the Company or any
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 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;
(vi) Investments in any Joint Venture; provided that at the time any
such Investment is made, such Investment will not cause the aggregate
amount of Investments at any one time outstanding under this clause (vi) to
exceed the greater of (x) $25 million and (y) 5% of the Total Common Equity
of the Company;
(vii) the payment of cash in lieu of fractional shares (a) payable as
dividends on Equity Interests of the Company or (b) issuable upon
conversion of or in exchange for securities convertible into or
exchangeable for Equity Interests of the Company or (c) issuable as a
result of a corporate reorganization, provided that, in the case of (a) and
(b), the issuance of such Equity Interests or securities and, in the case
of (c), such corporate reorganization, was permitted under the terms of the
Indenture; and
(viii) Investments with the net cash proceeds received by the Company
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) after December 31, 1997;
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provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v), (vi) and
(viii) no Default or Event of Default shall have occurred and be continuing.
The Indenture provides that a Permitted Investment that ceases to be a
Permitted Investment pursuant to the definition thereof, shall become a
Restricted Investment, deemed to have been made on the date that it ceases to be
a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default or an Event of Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Subsidiaries (except to the extent repaid in cash) in such
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation, (y)
the fair market value of such Investments at the time of such designation and
(z) the original fair market value of such Investments at the time they were
made. Such designation will only be permitted if such Restricted Payment would
be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant entitled "Incurrence of Indebtedness and Issuance of Disqualified
Stock," and (ii) no Default or Event of Default would be in existence following
such designation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "-- Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that:
(i) the Company and its Subsidiaries may not, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable for the payment of (collectively, "incur" and,
correlatively, "incurred" and "incurrence") any Indebtedness (including,
without limitation, Acquired Debt) and
(ii) the Company and its Subsidiaries may not issue any Disqualified
Stock,
provided, however, that the Company and/or any of its Subsidiaries may incur
Indebtedness (including, without limitation, Acquired Debt) or issue shares of
Disqualified Stock if, after giving effect to the incurrence of such
Indebtedness or the issuance of such Disqualified Stock, the Consolidated Cash
Flow Leverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence or issuance (A) does not exceed 5.5 to 1
if such incurrence or issuance occurs on or prior to June 1, 1999 and (B) does
not exceed 5.0 to 1 if such occurrence or issuance occurs after June 1, 1999, in
each case, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period. If the Company incurs any Indebtedness or
issues or redeems any Preferred Stock subsequent to the commencement of the
period for which such ratio is being calculated but prior to the event for which
the calculation of the ratio is made, then the ratio will be calculated giving
pro forma effect to any such incurrence of Indebtedness, or such issuance or
redemption of Preferred Stock, as if the same had occurred at the beginning of
the applicable period. In making such calculation on a pro forma basis, interest
attributable to Indebtedness
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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 $150.0 million in
the aggregate at any one time outstanding, less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently reduce the commitments
with respect to such Indebtedness pursuant to the covenant described above
under the caption "Asset Sales;"
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total
cost of the Telecommunications Related Assets financed therewith if such
Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of
the Existing Indebtedness, including the Existing Senior Notes;
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $50.0 million at any one
time outstanding;
(e) the incurrence by the Company of Indebtedness, but only to the
extent that such Indebtedness has a final maturity no earlier than, and a
Weighted Average Life to Maturity equal to or greater than, the final
maturity and Weighted Average Life to Maturity, respectively, of the Senior
Notes, in an aggregate principal amount not to exceed 2.0 times the net
cash proceeds received by the Company after June 30, 1996 from the issuance
and sale of Equity Interests of the Company (that are not Disqualified
Stock) plus the fair market value of Equity Interests (other than
Disqualified Stock) issued after June 30, 1996 in connection with any
acquisition of any Telecommunications Business;
(f) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Subsidiaries of Indebtedness issued in exchange for, or the
proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness, other than Indebtedness incurred pursuant to clause (a)
above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness do not exceed
the principal amount of and premium, if any, and accrued interest on the
Indebtedness so Refinanced (or if such Indebtedness was issued at an
original issue discount, the original issue price plus amortization of
the original issue discount at the time of the repayment of such
Indebtedness) plus the fees, expenses and costs of such Refinancing and
reasonable prepayment premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness shall have a final maturity no
earlier than, and a Weighted Average Life to Maturity equal to or
greater than, the final maturity and Weighted Average Life to Maturity
of the Indebtedness being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinated in right
of payment to the Senior Notes, the Refinancing Indebtedness shall be
subordinated in right of payment to the Senior Notes on terms at least
as favorable to the holders of Senior Notes as those contained in the
documentation governing the Indebtedness being so Refinanced;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; and
(h) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate or foreign currency risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness, Disqualified Stock or Preferred Stock meets the
criteria of more than one of the categories described in clauses (a) through (h)
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item in any
manner that complies with this covenant and such item will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph herein. Accrual of interest or dividends, the accretion of accreted
value or liquidation preference and the payment of interest or dividends in the
form of additional Indebtedness, Common Stock or Preferred Stock will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
Asset Sales
The Indenture provides that the Company and its Subsidiaries may not,
whether in a single transaction or a series of related transactions occurring
within any twelve-month period,
(i) sell, lease, convey, dispose or otherwise transfer any assets
(including by way of a Sale and Leaseback Transaction) other than sales,
leases, conveyances, dispositions or other transfers (A) in the ordinary
course of business, (B) to the Company by any Subsidiary of the Company or
from the Company to any Subsidiary of the Company, (C) that constitute a
Restricted Payment, Investment or dividend or distribution permitted under
the covenant described 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 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 75% of the consideration therefor received by the
Company or such Subsidiary is in the form of cash, provided, however,
that (A) the amount of (x) any liabilities (as shown on the Company's
or such Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Subsidiary of the Company (other than
liabilities that are by their terms subordinated to the Senior Notes)
that are assumed by the transferee of any such assets and (y) any
notes, obligations or other securities received by the Company or any
such Subsidiary from such transferee that are immediately converted
by the Company or such Subsidiary into cash, shall be deemed to be
cash (to the extent of the cash received in the case of subclause
(y)) for purposes of this clause (c); and (B) an amount equal to the
Fair Market Value (determined as set forth in clause (b) above) of
(1) Telecommunications Related Assets received by the Company or any
such Subsidiary from the transferee that will be used by the Company
or any such Subsidiary in the operation of a Telecommunications
Business in the United States and (2) the Voting Stock of any Person
engaged in the Telecommunications Business in the United States
received by the Company or any such Subsidiary (provided that such
Voting Stock is converted to cash within 270 days or such Person
concurrently becomes or is a Subsidiary of the Company) will be
deemed to be cash for purposes of this clause (c).
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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 also provides that within 360 days after the receipt of net
proceeds of any Asset Sale, the Company (or such Subsidiary, as the case may be)
may apply the Net Proceeds from such Asset Sale to (i) permanently reduce the
amounts permitted to be borrowed by the Company under the terms of any of its
Senior Indebtedness or (ii) the purchase of Telecommunications Related Assets or
Voting Stock of any Person engaged in the Telecommunications Business in the
United States (provided that such Person concurrently becomes a Subsidiary of
the Company). Any Net Proceeds from any Asset Sales that are not so applied or
invested will constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company will be required to make an Excess
Proceeds Offer in accordance with the terms set forth under "Offer to Purchase
with Excess Asset Sale Proceeds."
Liens
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except for Permitted
Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, create or otherwise cause to become effective any
consensual encumbrance or restriction on the ability of any Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its Subsidiaries;
or
(iii) transfer any of its properties or assets to the Company or any
of its Subsidiaries; except for such encumbrances or restrictions existing
as of the Issue Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the time
of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
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(g) Indebtedness incurred under clause (a) of the covenant entitled
"Incurrence of Indebtedness and Issuance of Disqualified Stock;"
(h) the Indenture and the Senior Notes or future Indebtedness with
substantially similar restrictions, if any, to the Senior Notes; or
(i) in the case of clauses (a), (c), (e), (g) and (h) above, any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in such instruments as in effect on
the date of their incurrence or, if later, the Issue Date.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, Person or entity unless:
(i) the Company is the surviving entity or the entity or Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all the obligations of the Company under
the Senior Notes and the Indenture pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) except in connection with a Merger with or into a wholly owned
Subsidiary of the Company, the Company, or any entity or Person formed by
or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made,
at the time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable fiscal
quarter (including any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
transactions), either (A) could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Cash Flow Leverage Ratio test
described under "-- Incurrence of Indebtedness and Issuance of Disqualified
Stock" or (B) would have (x) Total Market Capitalization of at least $1.0
billion and (y) total Indebtedness (net of cash and cash equivalents that
are not restricted cash or restricted cash equivalents as reflected on the
Company's consolidated balance sheet as of the time of such event) in an
amount no greater than 40% of its Total Market Capitalization; and
(v) such transaction would not result in the loss, material impairment
or adverse modification or amendment of any authorization or license of the
Company or its Subsidiaries that would have a material adverse effect on
the business or operations of the Company and its Subsidiaries taken as a
whole.
Transactions with Affiliates
The Indenture provides that the Company and its Subsidiaries may not sell,
lease, transfer or otherwise dispose of any of their respective properties or
assets to, or purchase any property or assets from, or enter into
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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,
(c) transactions permitted by the provisions of the Indenture
described above under the covenant "-- Restricted Payments," and
(d) loans and advances to employees and officers of the Company or any
of its Subsidiaries in the ordinary course of business in an aggregate
principal amount not to exceed $1.0 million at any one time outstanding,
shall not be deemed Affiliate Transactions.
Use of Proceeds
The Indenture provides that the Company may use the gross proceeds from the
sale of the Old Notes only for the following purposes:
(i) to pay the fees and expenses of the issuance of the Old Notes
including any discount or commission to the Initial Purchasers of the Old
Notes;
(ii) with respect to any funds remaining after application under
clause (i) above, to fund up to 80% of the cost of the acquisition or
construction of Telecommunications Related Assets, or to the repayment of
the Existing Senior Notes.
Pending application of the proceeds in accordance with clause (ii) above,
the Company will deposit such proceeds into a segregated account in the
Company's name. The Company will deliver to the Trustee an Officer's Certificate
with each annual compliance certificate certifying that the amounts in such
account were applied in accordance with this covenant.
Business Activities
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, engage in any business other than the Telecommunications
Business.
Limitations on Sale and Leaseback Transactions
The Indenture provides that the Company and its Subsidiaries may not,
directly or indirectly, enter into, assume, Guarantee or otherwise become liable
with respect to any Sale and Leaseback Transaction, provided that the Company or
any Subsidiary of the Company may enter into any such transaction if (i) the
Company or such Subsidiary would be permitted under the covenants described
above under "-- Incurrence of Indebtedness and Issuance of Disqualified Stock"
and "-- Liens" to incur secured Indebtedness in an amount equal to the
Attributable Debt with respect to such transaction, (ii) the consideration
received by the
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Company or such Subsidiary from such transaction is at least equal to the Fair
Market Value of the property being transferred, and (iii) the Net Proceeds
received by the Company or such Subsidiary from such transaction are applied in
accordance with the covenant described above under the caption "-- Asset Sales."
Reports
The Indenture provides that the Company will file with the Trustee within
15 days after it files them with the Commission copies of the annual and
quarterly reports and the information, documents, and other reports that the
Company is required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act (as defined) ("SEC Reports"). In the event the Company
is not required or shall cease to be required to file SEC Reports, pursuant to
the Exchange Act, the Company will nevertheless continue to file such reports
with the Commission (unless the Commission will not accept such a filing) and
the Trustee. Whether or not required by the Exchange Act to file SEC Reports
with the Commission, so long as any Senior Notes are outstanding, the Company
will furnish copies of the SEC Reports to the holders of Senior Notes 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 Senior Notes remain outstanding, it
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Payments for Consents
The Indenture provides that neither the Company nor any of its Affiliates
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Senior Notes
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of the Indenture or the Senior Notes unless such consideration is
offered to be paid or agreed to be paid to all holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Notes;
(ii) default in payment when due of principal or premium, if any, on
the Notes at maturity, upon redemption or otherwise;
(iii) failure by the Company to perform or comply with the provisions
of the covenants described above under "-- Offer to Purchase Upon Change of
Control," "-- Asset Sales," "-- Restricted Payments," "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock" or "-- Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company for 30 days after notice from the Trustee
or the holders of at least 25% in principal amount of the Notes then
outstanding to comply with its other agreements in the Indenture or the
Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or Guarantee now exists, or is
created after the Issue Date, which default (x) is caused by a failure to
pay when due principal, premium, if any, or interest on such Indebtedness
within the grace period provided in such Indebtedness (a "Payment
Default"), and the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness of the Company or any
Significant Subsidiary under which there has been a Payment Default or the
maturity of which has been accelerated as provided in clause (y),
aggregates $5.0 million or more or (y) results in the acceleration (which
acceleration has not been rescinded) of such Indebtedness prior to its
express
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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 Notes may declare all the Notes to be due and payable immediately.
Upon such declaration, the principal of, premium, if any, and accrued and unpaid
interest and Liquidated Damages, if any, on the Senior Notes shall be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries, the foregoing amount shall
ipso facto become due and payable without further action or notice. No premium
is payable upon acceleration of the Senior Notes except that in the case of an
Event of Default that is the result of an action or inaction by the Company or
any of its Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Senior Notes contained in the Indenture or the Senior Notes.
The amount declared due and payable will include the premium that would have
been applicable on a voluntary prepayment of the Senior Notes. Holders of the
Senior Notes may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payments of principal or interest)
if it determines that withholding notice is in such holders' interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the holders of all of
the Notes, waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages or premium on, or the principal of,
the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Notes or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each holder of Senior Notes by
accepting a Senior Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Senior Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Senior Notes, except for:
(a) the rights of holders of outstanding Senior Notes to receive from
the trust described below payments in respect of the principal of, premium,
if any, and interest on and Liquidated Damages with respect to such Senior
Notes when such payments are due, or on the redemption date, as the case
may be;
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(b) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes 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 Senior Notes. In the event Covenant Defeasance
occurs, certain events (not including non payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the Senior Notes, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to pay the
principal of, premium, if any, and interest on the outstanding Senior
Notes, on the stated maturity or on the applicable optional redemption
date, as the case may be, of such principal or installment of principal of,
premium, if any, or interest on or Liquidated Damages with respect to the
outstanding Senior Notes;
(ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Senior Notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company must deliver to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
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(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Senior Notes 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 Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Senior Notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Senior Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, however, an amendment or
waiver may not (with respect to any Senior Note held by a non-consenting
holder):
(i) reduce the principal amount of Notes whose holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal or change the fixed maturity of any Senior
Note or alter the provisions with respect to the redemption of the Senior
Notes (other than provisions relating to the covenants described under the
caption "-- Offer to Purchase upon Change of Control" and "-- Offer to
Purchase with Excess Asset Sale Proceeds");
(iii) reduce the rate of or change the time for payment of interest on
any Senior Notes;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Senior Notes (except a rescission
of acceleration of the Senior Notes by the holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(v) make any Senior Note payable in money other than that stated in
the Senior Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Senior Notes to
receive payments of principal of, premium, if any, or interest on the
Senior Notes;
(vii) waive a redemption payment with respect to any Senior Note
(other than a payment required by one of the covenants described above
under the captions "-- Offer to Purchase upon Change of Control" and "Offer
to Purchase with Excess Asset Sale Proceeds"); or
(viii) make any change in the foregoing amendment and waiver
provisions.
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Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Senior Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Senior Notes in the case of a merger or consolidation;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Senior Notes or that does not adversely
affect the legal rights under the Indenture of any such holder; or
(e) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee is 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 Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its powers, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Senior Notes, unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense. No holder of any Senior Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder gives to the Trustee written notice of a continuing Event of
Default, (ii) holders of at least 25% in principal amount of the then
outstanding Notes make a written request to pursue the remedy, (iii) such
holders of the Senior Notes provide to the Trustee satisfactory indemnity and
(iv) the Trustee does not comply within 60 days. Otherwise, no holder of any
Senior Note will have any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, except: (i) a holder of a Senior Note
may institute suit for enforcement of payment of the principal of and premium,
if any, or interest on such Senior Note on or after the respective due dates
expressed in such Senior Note (including upon acceleration thereof) or (ii) the
institution of any proceeding with respect to the Indenture or any remedy
thereunder, including without limitation acceleration, by the Holders of a
majority in principal amount of the outstanding Senior Notes, provided that,
upon institution of any proceeding or exercise of any remedy such Holders
provide the Trustee with prompt notice thereof.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Note Registration
Rights Agreement on May 27, 1998. Pursuant to the Note Registration Rights
Agreement, the Company agreed to file with the Commission the Exchange
Registration Statement of which this Prospectus forms a part with respect to the
Notes. Upon the effectiveness of the Exchange Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities pursuant to
the Exchange Offer who are able to make certain representations the opportunity
to exchange their Transfer Restricted Securities for the Senior Notes. If (i)
the Company is not required to file the Exchange Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any holder of Transfer
Restricted Securities notifies the Company within the specified time period that
(A) it is prohibited by law or Commission policy from participating in the
Exchange Offer, (B) it may not resell the Senior Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
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contained in the Exchange Registration Statement is not appropriate or available
for such resales or (C) it is a broker-dealer and owns Old Notes acquired
directly from the Company or an affiliate of the Company, the Company will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of the Old Notes 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 Old Note until (i) the date on which such Old Note has
been exchanged by a Person other than a broker-dealer for a Senior Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of an Old Note for a Senior Note, the date on which such Senior Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Registration
Statement, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Old Note is distributed to
the public pursuant to Rule 144 under the Act.
The Note Registration Rights Agreement provides that (i) the Company will
file the Exchange Registration Statement with the Commission on or prior to 60
days after May 27, 1998 (the "Closing Date"), (ii) the Company will use its best
efforts to have the Exchange 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
Registration Statement was declared effective by the Commission, Senior Notes in
exchange for all Old Notes 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 60 days after such filing obligation arises (and in any event within
150 days after the Closing Date) and to cause the Shelf Registration Statement
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
Note Registration Rights Agreement on or before the date specified for such
filing, (b) any of such registration statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company fails to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Registration Statement, or (d) the Shelf Registration Statement or
the Exchange 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 Note Registration Rights
Agreement, provided, that the Company will have the option of suspending the
effectiveness of the Shelf Registration Statement, without becoming obligated to
pay Liquidated Damages for periods of up to a total of 60 days in any calendar
year if the Board of Directors of the Company determines that compliance with
the disclosure obligations necessary to maintain the effectiveness of the Shelf
Registration Statement at such time could reasonably be expected to have an
adverse effect on the Company or a pending corporate transaction, (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
Holder of Transfer Restricted Securities, with respect to the first 90-day
period immediately following the occurrence of such Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Old Notes
constituting Transfer Restricted Securities held by such Holder. The amount of
the Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Old Notes constituting Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.50 per week per
$1,000 principal amount of Old Notes constituting Transfer Restricted
Securities. All accrued Liquidated Damages will be paid by the Company on each
Interest Payment Date to the holder of the Global Securities (as defined) by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities (as defined) by mailing checks to their
registered addresses. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
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Holders of Old Notes will be required to make certain representations to
the Company (as described in the Note Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Note Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Senior Notes may be issued
in the form of one or more Global Securities (the "Global Securities"). The
Global Securities will be deposited on the Exchange Date with, or on behalf of,
The Depository Trust Company (the "Depositary") and registered in the name of
Cede & Co., as nominee of the Depositary (such nominee being referred to herein
as the "Global Holder").
Senior Notes that are issued as described below under "-- Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Securities have previously
been exchanged for Certificated Securities, be exchanged for an interest in the
Global Securities representing the principal amount of Senior Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Securities, the Depositary will credit
the accounts of Participants designated by the Exchange Agent with portions of
the principal amount of the Global Securities and (ii) ownership of the Senior
Notes evidenced by the Global Securities will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Senior Notes evidenced by the
Global Securities will be limited to such extent.
So long as the Global Holder is the registered owner of any Senior Notes,
the Global Holder will be considered the sole holder under the Indenture of any
Senior Notes evidenced by the Global Securities. Beneficial owners of Senior
Notes evidenced by the Global Securities will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Senior
Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Notes registered in the name of the
Global Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Holder in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names Senior Notes, including the Global
Securities, are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Senior Notes. The Company believes, however, that
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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 the Senior Notes will be governed by standing instructions and customary
practice and will be the responsibility of the Depositary's Participants or the
Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Securities may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Senior Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Holder of its
Global Security, Senior Notes in such form will be issued to each person that
the Global Holder and the Depositary identify as being the beneficial owner of
the related Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Holder or the Depositary in identifying the beneficial owners of Senior
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Holder or the Depositary
for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Securities (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Holder. With respect to
Certificated Securities in certificated form, the Company will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. The Senior Notes represented by the Global
Securities are expected to be eligible to trade in the Depositary's Same-Day
Funds Settlement System, and any permitted secondary market trading activity in
such Senior Notes will, therefore, be required by the Depositary to be settled
in immediately available funds. The Company expects that secondary trading in
any 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
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ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any 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.
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"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means
the ratio of the Consolidated Indebtedness of such Person to the Consolidated
EBITDA of such Person for the relevant period; provided, however, that (1) if
the Company or any Subsidiary of the Company has incurred any Indebtedness
(including Acquired Debt) or if the Company has issued any Disqualified Stock or
if any Subsidiary of the Company has issued any Preferred Stock since the
beginning of such period that remains outstanding on the date of such
determination or if the transaction giving rise to the need to calculate the
Consolidated Cash Flow Leverage Ratio is an incurrence of Indebtedness
(including Acquired Debt) or the issuance of Disqualified Stock by the Company,
Consolidated EBITDA and Consolidated Indebtedness for such period will be
calculated after giving effect on a pro forma basis to (A) such Indebtedness,
Disqualified Stock or Preferred Stock, as applicable, as if such Indebtedness
had been incurred or such stock had been issued on the first day of such period,
(B) the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness or sale of stock
as if such discharge had occurred on the first day of such period, and (C) the
interest income realized by the Company or its Subsidiaries on the proceeds of
such Indebtedness or of such stock sale, to the extent not yet applied at the
date of determination, assuming such proceeds earned interest at the rate in
effect on the date of determination from the first day of such period through
such date of determination, (2) if since the beginning of such period the
Company or any Subsidiary of the Company has made any sale of assets (including,
without limitation, any Asset Sales or pursuant to any Sale and Leaseback
Transaction), Consolidated EBITDA for such period will be (A) reduced by an
amount equal to Consolidated EBITDA (if positive) directly attributable to the
assets which are the subject of such sale of assets for such period or (B)
increased by an amount equal to Consolidated EBITDA (if negative) directly
attributable thereto for such period and (3) if since the beginning of such
period the Company or any Subsidiary of the Company (by merger 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 (iv) 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
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compute Consolidated EBITDA only to the extent (and in same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary, or
loaned to the Company by any such Subsidiary, without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of such Person and
its Subsidiaries as of such date calculated on a consolidated basis in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP: (a) the amount of interest in
respect of Indebtedness (including amortization of original issue discount,
amortization of debt issuance costs, and non-cash interest payments on any
Indebtedness, the interest portion of any deferred payment obligation and after
taking into account the effect of elections made under any Interest Rate
Agreement however denominated with respect to such Indebtedness), (b) the amount
of Redeemable Dividends (to the extent not already included in Indebtedness in
determining Consolidated Interest Expense for the relevant period) and (c) the
interest component of rentals in respect of any Capital Lease Obligation paid,
in each case whether accrued or scheduled to be paid or accrued by such Person
during such period to the extent such amounts were deducted in computing
Consolidated Net Income, determined on a consolidated basis in accordance with
GAAP. For purposes of this definition interest on a Capital Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by such
Person to be the rate of interest implicit in such Capital Lease Obligation in
accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or other distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded,
(iv) the cumulative effect of a change in accounting principles shall
be excluded, and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Contingent Investment" means, with respect to any Person, any guarantee by
such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a Contingent
Investment shall be deemed made at the time that the guarantee of performance or
the commitment to invest is given, and the amount of such Investment shall be
the maximum monetary obligation under such guarantee of performance or
commitment to invest. To the extent that a Contingent Investment is released or
lapses without payment under the guarantee of performance or the commitment to
invest, such Investment shall be deemed not made to the extent of such release
or lapse. With respect to any Contingent Investment, the payment of the
guarantee of performance or the payment under the commitment to invest shall not
be deemed to be an additional Investment.
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"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means any credit facility entered into by and among the
Company and one or more commercial banks or financial institutions, providing
for senior term or revolving credit borrowings of a type similar to credit
facilities typically entered into by commercial banks and financial
institutions, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facility and related agreements may be amended, extended, refinanced, renewed,
restated, replaced or refunded from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and only
to the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Senior Notes mature,
provided, however, that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control occurring prior to the final maturity of the
Senior Notes shall not constitute Disqualified Stock if the change in control
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions applicable to the Senior Notes
contained in the covenant described under "Offer to Purchase Upon a Change of
Control" and such Capital Stock specifically provides that the Company will not
repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of such Senior Notes as are required to be repurchased
pursuant to the covenant described under "Offer to Purchase Upon Change of
Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivable" means any Receivable not more than 90 days past due
under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"Existing Indebtedness" means the Existing Senior Notes and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 12 1/2% Senior Discount Notes
due 2006, the Company's 11 1/4% Senior Discount Notes due 2007, the Company's
8 7/8% Senior Notes due 2007 and the Company's 8 1/2% Senior Notes due 2008.
"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
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entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases) or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing (other than Hedging Obligations or letters of credit) would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Persons), all
obligations to purchase, redeem, retire, defease or otherwise acquire for value
any Disqualified Stock or any warrants, rights or options to acquire such
Disqualified Stock valued, in the case of Disqualified Stock, at the greatest
amount payable in respect thereof on a liquidation (whether voluntary or
involuntary) plus accrued and unpaid dividends, the liquidation value of any
Preferred Stock issued by Subsidiaries of such Person plus accrued and unpaid
dividends, and also includes, to the extent not otherwise included, the
Guarantee of items that would be included within this definition and any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any of the above; notwithstanding the foregoing, in no event will performance
bonds or similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP;
and provided further, that the amount of any Indebtedness in respect of any
Guarantee shall be the maximum principal amount of the Indebtedness so
guaranteed.
"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 May 27, 1998.
"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
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give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"Make-Whole Amount" means, with respect to any Senior Note, an amount equal
to the excess, if any, of (i) the present value of the remaining principal,
premium and interest payments that would be payable with respect to such Senior
Note if such Senior Note were redeemed on June 1, 2003, computed using a
discount rate equal to the Treasury Rate plus 50 basis points, over (ii) the
outstanding principal amount of such Senior Note.
"Make-Whole Average Life" means, with respect to any date of redemption of
Senior Notes, the number of years (calculated to the nearest one-twelfth) from
such redemption date to June 1, 2003.
"Make-Whole Price" means, with respect to any Senior Note, the greater of
(i) the sum of the principal amount of such Senior Note and the Make-Whole
Amount with respect to such Senior Note and (ii) the redemption price of such
Senior Note on June 1, 2003.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after
the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to Sale and Leaseback Transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that are the subject of such Asset Sale
and any reserve for adjustment in respect of the sale price of such asset or
assets. Net Proceeds shall exclude any non-cash proceeds received from any Asset
Sale, but shall include such proceeds when and as converted by the Company or
any Subsidiary of the Company to cash.
"Note Registration Rights Agreement" means the Note Registration Rights
Agreement between the Company and the Initial Purchasers in respect of the
Notes.
"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.
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"Permitted Investment" means (a) any Investments in the Company or any
Subsidiary of the Company; (b) any Investments in Marketable Securities; (c)
Investments by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Subsidiary of the Company; (d) any Investments in property or
assets to be used in (A) any line of business in which the Company or any of its
Subsidiaries was engaged on the Issue Date or (B) any Telecommunications
Business; (e) Investments in any Person in connection with the acquisition of
such Person or substantially all of the property or assets of such Person by the
Company or any Subsidiary of the Company; provided that within 180 days from the
first date of any such Investment, either (A) such Person becomes a Subsidiary
of the Company or any of its Subsidiaries or (B) the amount of any such
Investment is repaid in full to the Company or any of its Subsidiaries; (f)
Investments pursuant to any agreement or obligation of the Company or a
Subsidiary, in effect on the Issue Date or on the date a Subsidiary becomes a
Subsidiary (provided that any such agreement was not entered into in
contemplation of such Subsidiary becoming a Subsidiary), to make such
Investments; (g) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (h) Hedging Obligations permitted to be incurred by the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;"
and (i) bonds, notes, debentures or other securities received as a result of
Asset Sales permitted under the covenant entitled "Asset Sales."
"Permitted Liens" means (i) Liens securing Indebtedness (including Capital
Lease Obligations) permitted to be incurred pursuant to clauses (a), (b) and (d)
of the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;" (ii) Liens in favor of the Company; (iii) Liens on
property of a Person existing, at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing, on the Issue
Date; (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) Liens on Telecommunications Related
Assets existing during the time of the construction thereof; (x) Liens on
Receivables to secure Indebtedness permitted to be incurred by the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock," but only
to the extent that the outstanding amount of the Indebtedness secured by such
Liens would not represent more than 80% of Eligible Receivables; and (xi) Liens
to secure any Permitted Refinancing of any Indebtedness secured by Liens
referred to in the foregoing clauses (i), (iii), (v) or (x); 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
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<PAGE> 67
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such Person.
"Public Offering" means an underwritten offering of Common Stock of the
Company registered under the Securities Act.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising: (i)
accounts; (ii) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance; (iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit, relating
to any of the foregoing after creation of the foregoing or arising therefrom;
(iv) all rights to any goods or merchandise represented by any of the foregoing,
including, without limitation, returned or repossessed goods; (v) all reserves
and credit balances with respect to any such accounts receivable or account
debtors; (vi) all letters of credit, security, or Guarantees for any of the
foregoing; (vii) all insurance policies or reports relating to any of the
foregoing; (viii) all collection of deposit accounts relating to any of the
foregoing; (ix) all proceeds of any of the foregoing; and (x) all books and
records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Retire" means, with respect to any Indebtedness, to repay, redeem, refund,
purchase or otherwise to acquire for value, such Indebtedness. The terms
"Retired" and "Retirement" shall have correlative meanings.
"S & P" means, Standard and Poor's Corporation and its successors.
"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 Indebtedness" means any Indebtedness permitted to be incurred by
the Company under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to the Senior Notes. Notwithstanding anything to the contrary
in the foregoing, Senior Indebtedness will not include (i) any liability for
federal, state, local or other taxes owed or owing by the Company, (ii) any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates,
(iii) any trade payables or (iv) any Indebtedness that is incurred in violation
of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Strategic Investor" means, with respect to any sale of the Company's
Capital Stock, any Person which, both as of the Trading Day immediately before
the day of such sale and the Trading Day immediately after the day of such sale,
has, or whose parent has, a Total Market Capitalization of at least $1.0 billion
on a consolidated basis. In calculating Total Market Capitalization for the
purpose of this definition, the consolidated Indebtedness of such Person, solely
when calculated as of the Trading Day immediately after the day of such sale,
will be calculated after giving effect to such sale (including any Indebtedness
incurred in connection with such sale). For purposes of this definition, the
term parent means any Person of which the referent Strategic Investor is a
Subsidiary.
"Subsidiary" of any Person means (i) any corporation, association or
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
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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,
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 share of Preferred Stock of such Person on such day less (4) cash
and cash equivalents (other than restricted cash and restricted cash
equivalents) as presented on such Person's consolidated balance sheet on such
date. 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.
"Treasury Rate" means, at any date of computation, the yield to maturity as
of such date (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15 (519), which has become publicly available at least two
business days prior to the date of the redemption notice for which such
computation is being made, or if such Statistical Release is no longer
published, as reported in any publicly available source of similar market data)
of United States Treasury securities with a constant maturity most nearly equal
to the Make-Whole Average Life; provided, however, that if the Make-Whole
Average Life is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Make-Whole Average Life is less
than one year, the weekly average yield on actually traded United States
treasury securities adjusted to a constant maturity of one year shall be used.
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<PAGE> 69
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the
Board of Directors.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred in connection with the acquisition or construction of
Telecommunications Related Assets.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
principal amount of such Indebtedness into (b) the total of the product obtained
by multiplying (x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (y) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment; provided, that with respect to Capital Lease Obligations, that
maturity shall be calculated after giving effect to all renewal options by the
Lessee.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax considerations generally applicable to holders acquiring the Senior
Notes pursuant to the Exchange Offer but does not purport to be a complete
analysis of all potential consequences. The discussion is based upon the United
States Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such changes may be applied retroactively
in a manner that could adversely affect a holder of the Senior Notes. The
discussion assumes that the holders of the Senior Notes will hold them as
"capital assets" within the meaning of Section 1221 of the Code.
The tax treatment of a holder of the Senior Notes may vary depending on
such holder's particular situation or status. Certain holders (including S
corporations, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, taxpayers subject to alternative minimum tax and
persons holding the Senior Notes as part of a straddle, hedging or conversion
transaction) may be subject to special rules not discussed below. The following
discussion does not consider all aspects of United States federal income
taxation that may be relevant to the purchase, ownership and disposition of the
Senior Notes by a holder in light of such holder's personal circumstances. In
addition, the discussion does not consider the effect of any applicable foreign,
state or local tax laws. PERSONS CONSIDERING THE PURCHASE OF SENIOR NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
For purposes of this discussion, a "U.S. Holder" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in the United States or under the laws of the United States
or of any political subdivision thereof, an estate whose income is includible in
gross income for United States federal income tax purposes regardless of its
source or a trust, if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the authority
to control all substantial decisions of the trust. A "Non-U.S. Holder" means a
holder that is not a U.S. Holder.
INTRODUCTION
The exchange of Old Notes for Senior Notes will not constitute a
recognition event for federal income tax purposes. Consequently, no gain or loss
will be recognized by holders upon receipt of the Senior Notes. The Senior Notes
will have the same issue date and issue price as the Old Notes. A holder's
adjusted tax basis in the Senior Notes will be the same as the holder's adjusted
tax basis in the Old Notes exchanged therefor. A holder will be considered to
have held the Senior Notes from the time the holder originally acquired the Old
Notes.
TAX CONSEQUENCES TO U.S. HOLDERS
Interest on the Senior Notes
Interest paid on the Senior Notes will generally be taxable to a U.S.
Holder as ordinary interest income at the time it is accrued or is received in
accordance with the U.S. Holder's method of accounting for federal income tax
purposes.
Sale or Other Taxable Disposition of the Senior Notes
Upon the sale or other taxable disposition of a Senior Note, the difference
between the sum of the amount of cash and the fair market value of other
property received (other than amounts attributable to accrued unpaid interest)
and the holder's adjusted tax basis in the Senior Note will be generally capital
gain or loss. In the case of a holder who acquired an Old Note at a "market
discount", (as that term is defined in the Code) a portion of any gain
recognized on the disposition of the Senior Note received in exchange for such
Old Note will be treated as ordinary income. Any capital gain or loss will be
long-term capital gain or loss if
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<PAGE> 71
the holder's holding period for the Senior Note exceeds one year. The most
favorable tax rate on long-term capital gains of non-corporate holders (20%)
will not be available unless the holding period exceeds 18 months.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
Interest on the Senior Notes
Interest paid by the Company to a Non-U.S. Holder will not be subject to
United States federal income or withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder and such Non-U.S. Holder (i) does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote; (ii) is not a controlled foreign
corporation with respect to which the Company is a "related person" within the
meaning of the Code; and (iii) certifies, under penalties of perjury, that such
holder is not a United States person and provides such holder's name and address
(the "Portfolio Interest Exemption").
Interest paid to a Non-U.S. Holder of the Senior Notes that is effectively
connected with a United States trade or business conducted by such Non-U.S.
Holder will be taxed at the graduated rates applicable to United States
citizens, resident aliens and domestic corporations (the "Regular Federal Income
Tax") and will not be subject to withholding tax if the Non-U.S. Holder gives an
appropriate statement to the Company or its paying agent in advance of the
interest payment. In addition to the Regular Federal Income Tax, effectively
connected interest received by a Non-U.S. Holder that is a corporation may also
be subject to a branch profits tax at a rate of 30% (or such lower rate as may
be specified by an applicable income tax treaty).
Sale or Other Taxable Disposition of the Senior Notes
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale or other disposition of a Senior Note
unless (i) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder or (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds the Senior
Note as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are met.
If a Non-U.S. Holder falls within clause (i) in the preceding paragraph,
the holder will be taxed on the net gain derived from the sale under the Regular
Federal Income Tax and may be subject to withholding under certain circumstances
(and, in the case of a corporate Non-U.S. Holder, may also be subject to the
branch profits tax described above). If an individual Non-U.S. Holder falls
under clause (ii) in the preceding paragraph, the holder generally will be
subject to United States federal income tax at a rate of 30% on the gain derived
from the sale.
Federal Estate Tax
If interest on the Senior Notes is exempt from withholding of United States
federal income tax under the Portfolio Interest Exemption, the Senior Notes will
not be included in the estate of a deceased Non-U.S. Holder for United States
federal estate tax purposes.
New Withholding Regulations
The Treasury Department recently promulgated final regulations regarding
the withholding and information-reporting rules applicable to Non-U.S. Holders
(the "New Withholding Regulations"). In general, the New Withholding Regulations
do not significantly alter the substantive withholding and information-reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. The New Withholding Regulations are generally
effective for payments made after December 31, 1999, subject to certain
transition rules. NON-U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE IMPACT, IF ANY, OF THE NEW WITHHOLDING REGULATIONS.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally interest on and proceeds from the sale of the Senior Notes will
be reported to the IRS with respect to U.S. Holders. Interest on the Senior
Notes will be reported to the IRS with respect to Non-U.S. Holders.
A U.S. Holder of Senior Notes may be subject to backup withholding at the
rate of 31% with respect to interest paid on, or the proceeds of a sale or other
disposition of, the Senior Notes unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
its exemption or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A U.S.
Holder of Senior Notes that does not provide the Company with the holder's
correct taxpayer identification number may be subject to penalties imposed by
the IRS. A Non-U.S. Holder of Senior Notes may also be subject to certain
information reporting or backup withholding if certain requisite certification
is not received or other exemptions do not apply. Any amount paid as backup
withholding would be creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the Senior Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Senior Notes received in exchange for Old Notes
acquired as a result of market-making activities or other trading activities.
The Company has agreed that for a period expiring on the earlier of (i) the date
that all holders of Transfer Restricted Securities have registered such
securities pursuant to the Exchange Offer and (ii) 365 days after the Exchange
Date, it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Senior Notes by
broker-dealers. Senior Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options of the Senior Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any Senior Notes. Any broker-dealer that
resells Senior Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
Senior Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any resale of Senior Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the Senior Notes to be received in the Exchange Offer and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the Senior Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the Senior Notes to be received in the Exchange Offer.
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<PAGE> 74
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 11,490 shares of the Common Stock and
owns a warrant to purchase 200,000 shares of Common Stock at an exercise price
of $20.75 per share (after giving effect to the Stock Split).
EXPERTS
The consolidated financial statements and schedule of the Company and
Shared appearing in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1997, have been audited by Ernst & Young LLP, independent certified
public accountants, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of DIGEX appearing in DIGEX's Annual
Report (Form 10-KSB) for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The December 31, 1996 audited financial statements of Shared incorporated
by reference in this Prospectus and in the Exchange Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The consolidated statements of operations, stockholders' equity and cash
flows of Shared and subsidiaries for the year ended December 31, 1995
incorporated by reference in this Prospectus have been audited by Rothstein,
Kass & Company, P.C., independent certified public accountants, as indicated in
their report, which includes an explanatory paragraph relating to the changing
of the method of accounting for its investment in one of its subsidiaries, with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
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======================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS 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
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT 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 IMPLICATIONS
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
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<S> <C>
Available Information................. ii
Incorporation of Certain Documents by
Reference........................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 11
The Exchange Offer.................... 20
Use of Proceeds....................... 27
Capitalization........................ 27
Selected Historical Consolidated
Financial and Operating Data........ 28
Business.............................. 30
Description of Outstanding
Indebtedness........................ 34
Description of the Senior Notes....... 37
Certain Federal Income
Tax Considerations.................. 66
Plan of Distribution.................. 69
Legal Matters......................... 70
Experts............................... 70
</TABLE>
======================================================
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$500,000,000
[INTERMEDIA COMMUNICATIONS LOGO]
INTERMEDIA
COMMUNICATIONS INC.
8.60% SERIES B
SENIOR NOTES
DUE 2008
------------------------
PROSPECTUS
------------------------
JUNE 29, 1998
======================================================
