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RULE NO. 424(b)(3)
REGISTRATION NO. 333-42999
PROSPECTUS
INTERMEDIA COMMUNICATIONS INC.
8,000,000 DEPOSITARY SHARES EACH REPRESENTING A ONE HUNDREDTH INTEREST IN A
SHARE OF 7% SERIES E JUNIOR CONVERTIBLE PREFERRED STOCK, 80,000 SHARES OF 7%
SERIES E JUNIOR CONVERTIBLE PREFERRED STOCK, 3,307,425 SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE DEPOSITARY SHARES AND/OR THE 7% SERIES E
JUNIOR CONVERTIBLE PREFERRED STOCK, AND COMMON STOCK ISSUABLE AS DIVIDENDS ON
THE 7% SERIES E JUNIOR CONVERTIBLE PREFERRED STOCK
_______________
This Prospectus is being used in connection with the offering from
time to time by certain holders (the "Selling Securityholders") of (1)
depositary shares (the "Depositary Shares") each representing a one hundredth
interest in a share of 7% Series E Junior Convertible Preferred Stock
("Series E Preferred Stock"), liquidation preference $2,500 per share
(equivalent to $25.00 per Depositary Share; the "Liquidation Preference"),
par value $1.00 per share of Intermedia Communications Inc. (the "Company" or
"Intermedia"), and (2) the shares of Series E Preferred Stock and the shares
(the "Common Shares") of common stock, $.01 par value per share, of the
Company (the "Common Stock") issuable upon conversion of the Series E
Preferred Stock and/or the Depositary Shares (the Depositary Shares, Series E
Preferred Stock and Common Shares are collectively referred to herein as the
"Securities"). This Prospectus is also being used in connection with the
issuance by the Company from time to time during the two-year period
commencing on the date of this Prospectus and in accordance with the
Certificate of Designation (as defined herein) of an indeterminate number of
shares of Common Stock issuable by the Company in lieu of cash as dividends
on the Series E Preferred Stock (the "Dividend Shares"). See "Description of
Series E Preferred Stock--Dividends." The Depositary Shares were originally
issued by the Company in a private placement on October 30, 1997 (the "First
Closing") and purchased by Bear Stearns & Co., Inc. and Salomon Brothers Inc
(the "Initial Purchasers") pursuant to a purchase agreement (the "Purchase
Agreement") dated as of October 24, 1997 between the Company and the Initial
Purchasers. Subsequently, the Initial Purchasers exercised the over-
allotment option in connection therewith with respect to 1,000,000 Depositary
Shares. The First Closing and the over-allotment exercise are collectively
referred to herein as the "October 30 Equity Offering". The Initial
Purchasers, in turn, resold the Depositary Shares in private sales pursuant
to exemptions from registration under the Securities Act of 1933, as amended.
(continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS
DISCUSSED UNDER THE CAPTION "RISK FACTORS" ON PAGE 1.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE DATE OF THIS PROSPECTUS IS JANUARY 15, 1998.
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Holders of the Depositary Shares are entitled to all proportional
rights and preferences of the Series E Preferred Stock (including dividend,
voting, redemption and liquidation rights). Dividends on the Series E
Preferred Stock accrue at a rate per annum equal to 7% of the Liquidation
Preference per share of Series E Preferred Stock and are payable quarterly,
in arrears, on January 15, April 15, July 15 and October 15 of each year,
commencing on January 15, 1998. Dividends are payable in cash or at the
option of the Company, in shares of Common Stock, or a combination thereof.
The Depositary Shares are convertible, subject to prior redemption at any
time after December 29, 1997, at the option of the holder thereof into Common
Stock at a conversion price of $60.47 per share, subject to certain
adjustments.
The Series E Preferred Stock and the Depositary Shares are
redeemable, in whole or in part, at the option of the Company at any time on
or after October 18, 2000, at the redemption prices set forth herein, plus
accumulated and unpaid dividends and Preferred Stock Liquidated Damages (as
defined herein), if any, thereon to the redemption date. See "Description of
Series E Preferred Stock" and "Description of Depositary Shares." Upon the
occurrence of a Preferred Stock Change of Control (as defined herein), the
Company will be required to make an offer to repurchase all outstanding
shares of Series E Preferred Stock at a price equal to 100% of the
Liquidation Preference thereof, plus accumulated and unpaid dividends and
Preferred Stock Liquidated Damages, if any, thereon to the repurchase date.
The Series E Preferred Stock ranks (i) senior to all Junior
Securities (as defined herein), including all Common Stock of the Company;
(ii) on a parity with any Parity Securities (as defined herein), including
the Company's outstanding 7% Series D Junior Convertible Preferred Stock (the
"Series D Preferred Stock"); and (iii) junior to each class of Senior
Securities (as defined herein), including the Company's outstanding 13 1/2%
Series B Redeemable Exchangeable Preferred Stock due 2009 ("Series B
Preferred Stock"), and junior to all indebtedness and other obligations of
the Company and its subsidiaries. As of September 30, 1997, on a pro forma
basis after giving effect to the pending acquisition of Shared Technologies
Fairchild Inc. ("Shared Technologies"), the October 30 Equity Offering,
the concurrent private placement of $260.3 million principal amount at
maturity of 8 7/8% Notes on October 30, 1997 (including the exercise of the
over-allotment option in connection therewith) (the "October 30 Debt
Offering", and collectively with the October 30 Equity Offering, the "October
30 Offerings"), the December Offering (as defined herein) and the application
of the proceeds therefrom, the Series E Preferred Stock would have been
junior in right of payment to approximately $1.7 billion of liquidation
preference of Series B Preferred Stock and total indebtedness and other
obligations of the Company and its subsidiaries. See "Description of Series E
Preferred Stock-Ranking."
The Securities may be sold from time to time to purchasers directly
by the Selling Securityholders. Alternatively, the Selling Securityholders
may from time to time offer the Securities through brokers, dealers or agents
who may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the
Securities for whom they may act as agent. The Selling Securityholders and
any such brokers, dealers or agents who participate in the distribution of
the Securities may be deemed to be "underwriters", and any profits on the
sale of the Securities by them and any discounts, commissions or concessions
received by any such brokers, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. To the
extent the Selling Securityholders may be deemed to be underwriters, the
Selling Securityholders may be subject to certain statutory liabilities of
the Securities Act, including, but not limited to, Sections 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Exchange Act. See "Plan of
Distribution." The Selling Securityholders and any other person
participating in such distribution will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which may limit the timing of purchases and
sales of any of the Securities by the Selling Securityholders and any other
such person. All of the foregoing may affect the marketability of the
Securities and the ability of any person or entity to engage in market-making
activities with respect to the Securities.
The Company will not receive any proceeds from the sale of the
Securities or the issuance of the Dividend Shares offered hereby. The
Company has agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
On December 15, 1997, the closing price for the Common Stock as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System National Market ("Nasdaq National Market"), under the symbol
"ICIX", was $53 5/16 per share. The Company has not and does not intend to
apply for the listing of the Depositary Shares or the Series E Preferred
Stock on any securities exchange or for quotation through the Nasdaq National
Market. The Series E Preferred Stock and the Depositary Shares are eligible
for trading in the National Association of Securities Dealers' Private
Offerings, Resales and Trading Through Automative Linkages ("PORTAL") Market.
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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, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, its Midwest
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and at its Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material can also be
inspected at the Web site of the Commission located at http://www.sec.gov.
The Common Stock is listed on the Nasdaq National Market under the symbol
"ICIX". Reports, proxy and information statements, and other information
concerning the Company can also be inspected at the Nasdaq National Market at
1735 17 Street, N.W., Washington, D.C. 20006-1506.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and reference is
made to the copy of such contract or other document filed as an exhibit to
the Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company
with the Commission and are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December 31,
1996.
The Company's Annual Report on Form 10-K/A for the year ended December
31, 1996 filed with the Commission on May 15, 1997.
The portions of the Proxy Statement for the Annual Meeting of
Stockholders of the Company held on May 22, 1997 that have been
incorporated by reference into the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
The Company's Current Report on Form 8-K filed with the Commission on
February 24, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
March 14, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
June 5, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
July 17, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission on
August 4, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
October 27, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
November 6, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
November 25, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission on
December 4, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission on
December 16, 1997.
The Company's Current Report on Form 8-K filed with the Commission on
December 18, 1997.
The Company's Current Report on Form 8-K/A filed with the Commission
on December 22, 1997.
The description of the capital stock contained in the Company's
registration statements on Form 8-A under the Exchange Act, filed
April 7, 1992, April 28, 1992 and April 30, 1992 (File No. 0-20135).
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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 Technologies") appearing in Shared Technologies' Annual Report on
Form 10-K for the year ended December 31, 1996.
The consolidated financial statements and schedule of Shared Technologies
appearing in Shared Technologies' Annual Report on Form 10-K for the year
ended December 31, 1995.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering covered
by this Prospectus will be deemed incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH
PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN
OR ORAL REQUEST OF SUCH PERSON TO INTERMEDIA COMMUNICATIONS, INC., 3625 QUEEN
PALM DRIVE, TAMPA, FLORIDA 33619 (TELEPHONE 813-829-0011), ATTENTION:
INVESTOR RELATIONS, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
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RISK FACTORS
Prospective investors should consider carefully the following
factors relating to the business of the Company and this offering, in
addition to other information set forth elsewhere in this Prospectus and in
the Company's Annual Report on Form 10-K, before purchasing the Securities
offered hereby.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges, Including Dividends on the Series E Preferred Stock. The Company is
highly leveraged. At September 30, 1997, after giving pro forma effect to
the pending acquisition of Shared Technologies, the October 30 Offerings, the
December Offering and the application of the net proceeds of the October 30
Offerings and the December Offering, the Company would have had outstanding
approximately $1.3 billion in aggregate principal amount of indebtedness and
other liabilities on a consolidated basis (including trade payables),
approximately $312.0 million of obligations with respect to dividend payments
and the mandatory redemption of the Series B Preferred Stock, $170.1 million
of obligations with respect to the Series D Preferred Stock and $193.7
million of obligations with respect to the Series E Preferred Stock. The
degree to which the Company is leveraged could have important consequences to
holders of the Series E Preferred Stock, including the following: (i) a
substantial portion of the Company's cash flow from operations will be
dedicated to payment of the principal and interest on its indebtedness, to
payment of dividends on and the redemption of the Series B Preferred Stock
and the payment of dividends on the Series D Preferred Stock 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.
The Company's historical earnings have been insufficient to cover
combined fixed charges and dividends on preferred stock by $0.6 million, $2.3
million, $3.3 million, $19.8 million and $60.0 million for each of the years
ended December 31, 1992, 1993, 1994, 1995 and 1996, respectively. In
addition, insufficiencies of $37.6 million and $187.0 million were
experienced in the nine-month periods ended September 30, 1996 and 1997,
respectively. On a pro forma basis, after giving applicable effect to the
DIGEX, EMI, NetSolve and UTT acquisitions, the pending acquisition of Shared
Technologies and the March 1997 offerings, July 1997 Offerings (as defined
herein), October 30 Offerings and December Offering, the Company's earnings
were insufficient to cover combined fixed charges and dividends on preferred
stock by $269.6 million for the year ended December 31, 1996 and by $317.8
million for the nine months ended September 30, 1997. 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 might be required to raise additional financing
through the issuance of debt or equity securities; however, there can be no
assurance that Intermedia would be successful in raising such financing, or
the terms or timing thereof.
Restrictions on the Company's Ability to Pay Dividends on the
Series E Preferred Stock. To date, the Company has not paid cash dividends on
its shares of capital stock. The ability of Intermedia to pay cash dividends
on the Series E Preferred Stock is substantially restricted under various
covenants and conditions contained in the Indenture (the "12 1/2% Notes
Indenture") governing the Company's 12 1/2% Senior Notes due 2006 (the "12
1/2% Notes"), the Indenture (the "11 1/4% Notes Indenture") governing the
Company's 11 1/4% Senior Discount Notes due 2007 (the "11 1/4% Notes"), and
the Indenture (the "8 7/8% Notes Indenture") governing the Company's 8 7/8%
Notes due 2007 (the "8 7/8% Notes"), the Indenture (the "8 1/2% Notes
Indenture, and together with the 12 1/2% Notes Indenture, the 11 1/4% Notes
Indenture and the 8 7/8% Notes Indenture, the "Existing Senior Notes
Indentures") governing the Company's 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 Certificate of Designation (the
"Series B Certificate of Designation") setting forth the rights of the Series
B Preferred Stock. In addition to the limitations
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imposed on the payment of dividends by the Existing Senior Notes Indentures
and the Series B Certificate of Designation, under Delaware law the Company
is permitted to pay dividends on its capital stock, including the Series E
Preferred Stock, only out of its surplus, or in the event that it has no
surplus, out of its net profits for the year in which a dividend is declared
or for the immediately preceding fiscal year. Surplus is defined as the
excess of a company's total assets over the sum of its total liabilities and
the liquidation preference of its preferred stock plus the par value of its
outstanding capital stock. At September 30, 1997, the Company had
stockholders equity of $(90.8) million and surplus of $(90.9) million. The
Company has had net losses in each of the last five years and expects to
operate at a net loss for the next several years. These net losses will
further reduce stockholders' equity and the surplus of the Company. For the
nine months ended September 30, 1997, the Company had a net loss attributable
to common stockholders of $228.3 million ($359.1 million on a pro forma basis
after giving effect to the DIGEX Acquisition (as defined herein), the pending
acquisition of Shared Technologies and the October 30 Offerings and the
December Offering and the application of proceeds therefrom). In order to pay
dividends in cash, the Company must have surplus or net profits equal to the
full amount of the cash dividend at the time such dividend is declared. The
Company cannot predict what the value of its assets or the amount of its
liabilities will be in the future and, accordingly, there can be no assurance
that the Company will be able to pay cash dividends on the Series E Preferred
Stock.
In the event dividends are paid in shares of Common Stock, the
number of shares of Common Stock to be issued on each dividend payment date
will be determined by dividing the total dividend to be paid on each
Depositary Share by 95% of the average of the high and low sales prices of
the Common Stock as reported by the Nasdaq National Market or any national
securities exchange upon which the Common Stock is then listed, for each of
the ten consecutive trading days immediately preceding the fifth business day
preceding the record date for such dividend. If such average is greater than
5.05% higher than the market value for the Common Stock on the dividend
payment date and the holder sells at such lower price, the holder's actual
dividend yield would be lower than the stated dividend yield on the Series E
Preferred Stock. In addition, the holder is likely to incur commissions and
other transaction costs in connection with the sale of such Common Stock.
The Certificate of Designation provides that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding Series E
Preferred Stock in an amount equal to six quarterly dividends (whether or not
consecutive) and (b) the failure of the Company to make a Preferred Stock
Change of Control Offer or to repurchase the Series E Preferred Stock
tendered in a Preferred Stock Change of Control, the sole remedy to the
holders of the Series E Preferred Stock is the voting rights arising from a
Voting Rights Triggering Event (as defined herein). See "Description of
Series E Preferred Stock-Voting Rights."
Subordination of the Series E Preferred Stock. The Company's
obligations with respect to the Series E Preferred Stock are subordinate and
junior in right of payment to all present and future indebtedness of the
Company and its subsidiaries, including the Existing Senior Notes, to the
Series B Preferred Stock and to all subsequent series of preferred stock of
the Company which by their terms rank senior to the Series E Preferred Stock.
In addition to the substantial dividend restrictions set forth in the
Existing Senior Notes Indentures, no cash dividend payments may be made with
respect to the Series E Preferred Stock if (i) the obligations with respect
to the Existing Senior Notes or Series B Preferred Stock are not paid when
due or (ii) any other event of default has occurred under the Existing Senior
Notes Indentures or Series B Certificate of Designation, and is continuing or
would occur as a consequence of such payment. As of September 30, 1997, on a
pro forma basis after giving effect to the October 30 Offerings and the
December Offering and the application of the net proceeds therefrom, the
Series E Preferred Stock would have been junior in right of payment to $1.7
billion of indebtedness and other liabilities and commitments and liquidation
preference of the Company and its subsidiaries. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will
be available to pay obligations on the Series E Preferred Stock only after
all Senior Securities and all indebtedness of the Company have been paid, and
there may not be sufficient assets remaining to pay amounts due on any or all
of the Series E Preferred Stock then outstanding. The Company has entered
into preliminary discussions with several banks looking toward the
establishment of a $250.0 million senior credit facility. Although there can
be no assurance that such negotiations will be successful, or that the
ultimate amount of the credit line will amount to $250.0 million, the
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credit facility would likely be secured by substantially all of the assets of
the Company. See "Description of Series E Preferred Stock-Ranking."
Risks Associated with Acquisitions. The Company intends to use
the net proceeds of the October 30 Offerings and the December Offering to
expand its networks and service offerings through internal development and
acquisitions. The Company has used a portion of such net proceeds to fund a
pending acquisition of Shared Technologies. On December 17, 1997, the Company
entered into a definitive agreement for the LDS Acquisition (as defined
herein). Such acquisitions, if made, could divert the resources and
management time of the Company and would require integration with the
Company's existing networks and services. There can be no assurance that the
pending acquisitions of Shared Technologies and LDS (as defined herein) will
be consummated or that any other acquisitions will occur or that any such
acquisitions, including the acquisitions of Shared Technologies and LDS, if
made, would be on terms favorable to the Company or would be successfully
integrated into the Company's operations.
Consistent with its strategy, the Company is currently evaluating,
has made offers with respect to, and is engaged in discussions regarding
various acquisition opportunities. These acquisitions could be funded by cash
(including the proceeds of the October 30 Offerings and the December
Offering) and/or the 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 or 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. Under the terms of the purchase agreement with the
Initial Purchasers, the Company is not prohibited from issuing equity
securities in connection with an acquisition during the 90-day "lock-up"
period following the October 30 Offerings.
On November 20, 1997, Intermedia, Moonlight Acquisition Corp., a
wholly-owned subsidiary of Intermedia, and Shared Technologies signed a
definitive merger agreement pursuant to which holders of Shared Technologies'
common stock would receive $15.00 per share in cash upon consummation of the
merger. In connection with the proposed acquisition of Shared Technologies
and in anticipation of Shared Technologies becoming a "Restricted Subsidiary"
within the meaning of the Company's Existing Senior Notes Indentures and the
Series B Certificate of Designation, the Company purchased certain equity
interests and certain notes issued by Shared Technologies. See "Recent
Developments -- Acquisitions." If the proposed acquisition of Shared
Technologies is not consummated before April 22, 1998 and, as a result,
Shared Technologies does not become a Restricted Subsidiary of the Company,
an Event of Default may occur under the terms of each of the Existing Senior
Notes Indentures and the Series B Certificate of Designation unless the
Company disposes of its investment in Shared Technologies without a loss or
holds its investment through an Unrestricted Subsidiary. If such an event of
default occurs, upon receipt of notice from the trustee under any of the
Existing Senior Notes Indentures, or the holders of at least 25% of the
outstanding principal amounts of the 12 1/2% Notes, the 11 1/4% Notes, the
8 7/8% Notes or the 8 1/2% Notes, acceleration of the 12 1/2% Notes, the
11 1/4% Notes, the 8 7/8% Notes or the 8 1/2% Notes, respectively, would
result. The occurrence of an Event of Default would not lead to the
acceleration of the Series B Preferred Stock. If all of the Existing Senior
Notes were accelerated, the Company would not have sufficient funds available
to repay the Existing Senior Notes, unless it could arrange a refinancing of
the Existing Senior Notes.
Effect of Substantial Additional Indebtedness on the Company's
Ability to Make Payments on the Series E Preferred Stock. The Existing Senior
Notes Indentures and the Series B Certificate of Designation limit, but do
not prohibit, the incurrence of additional indebtedness by the Company and
its subsidiaries, and the Company may incur substantial additional
indebtedness during the next few years to finance the construction of
networks and purchase of network electronics, including local/long distance
voice and data switches. The Company may establish a bank credit facility for
up to $250 million. All additional indebtedness of the Company will rank
senior in right of payment to any payment obligations with respect to the
Series E Preferred Stock. The debt service requirements of any additional
indebtedness would make it more difficult for the Company to pay cash
dividends with respect to the Series E Preferred Stock.
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Regulatory Approval of the October 30 Offerings and the December
Offering. 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 did not expect to have obtained such
approval from any of the nine states prior to consummation of the October 30
Offerings or the December Offering. The requirements for these filings may
have been pre-empted by the National Securities Market Improvement Act of
1996, although there is no case law on this point. The Company filed the
necessary notifications and applications for approval in these states prior
to the October 30 Offerings and has obtained approval or been advised that no
formal approval is necessary in six states. The Company has also filed such
notifications and applications with respect to the December Offering. After
consultation with counsel, the Company believes the remaining approvals will
be granted and that obtaining such approvals subsequent to the October 30
Offerings and the December Offering should not result in any material adverse
consequences to the Company, although there can be no assurance that such a
consequence will not result.
Maintenance of Peering Relationships. The Internet is comprised of
many Internet service providers ("ISPs") who operate their own networks and
interconnect with other ISPs at various peering points. The establishment and
maintenance of peering relationships with other ISPs is necessary in order to
exchange traffic with other ISPs without having to pay settlement charges.
Although the Company meets the industry's current standards for peering,
there is no assurance that other national ISPs will maintain peering
relationships with the Company. In addition, there may develop increasing
requirements associated with maintaining peering with the major national ISPs
with which the Company may have to comply. There can be no assurance that the
Company will be able to expand or adapt 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 that enforcement is based upon allegations other than
obscenity or child pornography as an impermissible restriction on the First
Amendment's right of free speech. In addition, numerous states have adopted
or are currently considering similar types of legislation. The imposition
upon ISPs or Web hosting sites of potential liability for materials carried
on or disseminated through its systems could require the Company to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources or the discontinuation of certain
product or service offerings. The Company believes that it is currently
unsettled whether the 1996 Act prohibits and imposes liability for any
services provided by the Company should the content or information
transmitted be subject to the statute. The increased attention focused upon
liability issues as a result of these lawsuits, legislation and legislative
proposals could affect the growth of Internet use. Any such liability or
asserted liability could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence upon Network Infrastructure; Risk of System Failure;
Security Risks. The Company's success in marketing its services to business
and government users requires that the Company provide superior reliability,
capacity and security via its network infrastructure. The Company's networks
are subject to physical damage, power loss, 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.
Absence of a Public Market for the Depositary Shares. The Series E
Preferred Stock and the Depositary Shares were issued by the Company in the
October 30 Equity Offering. The Company does not intend to apply for listing
of the Depositary Shares or the Series E Preferred Stock on any securities
exchange or on the Nasdaq National Market. The Initial Purchasers have
informed the Company that they make a market for the Depositary Shares, but
they are not
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obligated to do so and their market making activity may be discontinued at
any time without notice. Accordingly, there can be no assurance as to the
liquidity or continuation of any market for the Depositary Shares. The
Depositary Shares may trade at prices that may be higher or lower than their
initial offering price depending upon many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
securities. Historically, the market for securities such as the Depositary
Shares has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the Depositary Shares.
There can be no assurance that the market for the Depositary Shares would not
be subject to similar disruptions. The Company does not expect a market for
the Series E Preferred Stock to develop.
Certain Tax Considerations. For a discussion of certain material
federal income tax considerations which are relevant to the purchase,
ownership and disposition of the Depositary Shares and the Series E Preferred
Stock, see "Certain Federal Income Tax Consequences."
Anti-Takeover Provisions. The Company's Certificate of
Incorporation and Bylaws, the provisions of the Delaware General Corporation
Law (the "DCGL"), the Existing Senior Notes Indentures, the Series B
Certificate of Designation, the Series D Certificate of Designation and the
Certificate of Designation (as defined herein) may make it difficult in some
respects to effect a change in control of the Company and replace incumbent
management. In addition, the Company's Board of Directors has adopted a
Stockholder's Rights Plan, pursuant to which rights to acquire a series of
preferred stock, exercisable upon the occurrence of certain events, were
distributed to its stockholders. The existence of these provisions may have a
negative impact on the price of the Common Stock, may discourage third party
bidders from making a bid for the Company, or may reduce any premiums paid to
stockholders for their Common Stock. In addition, the Board has the authority
to fix the rights and preferences of, and to issue shares of, the Company's
preferred stock, which may have the effect of delaying or preventing a change
in control of the Company without action by its stockholders.
Shares Eligible for Future Sale. Future sales of shares by existing
stockholders under Rule 144 of the Securities Act, or through the exercise of
outstanding registration rights or the issuance of shares of Common Stock
upon the exercise of options or warrants or conversion of convertible
securities could materially adversely affect the market price of shares of
Common Stock and could materially impair the Company's future ability to
raise capital through an offering of equity securities. Substantially all of
the Company's outstanding shares, other than those held by affiliates, are
transferable without restriction under the Securities Act. No predictions
can be made as to the effect, if any, that market sales of such shares or the
availability of such shares for future sale will have on the market price of
shares of Common Stock prevailing from time to time.
Limited Operations of Certain Services; History of Net Losses. The
Company's business commenced in 1987. Substantially all of the Company's
revenues are derived from local exchange services, enhanced data services,
long distance services, integration services and certain local network
services. Many of these services have only recently been initiated or their
availability only recently expanded in new market areas. The Company is
expecting to substantially increase the size of its operations in the near
future. Prospective investors, therefore, have limited historical financial
information about the Company upon which to base an evaluation of the
Company's performance. Given the Company's limited operating history, there
is no assurance that it will be able to compete successfully in the
telecommunications business.
The development of the Company's business and the expansion of its
networks require significant capital, operational and administrative
expenditures, a substantial portion of which are incurred before the
realization of revenues. These capital expenditures will result in negative
cash flow until an adequate customer base is established. Although its
revenues have increased in each of the last three years, Intermedia has
incurred significant increases in expenses associated with the installation
of local/long distance voice switches and expansion of its fiber optic
networks, services and customer base. Intermedia reported net losses of
approximately $3.1 million, $20.7 million, $57.2 million
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for the years ended December 31, 1994, 1995 and 1996 and a net loss of $201.2
million for the nine months ended September 30, 1997, respectively. The
Company anticipates recording a significant net loss in 1997 that is expected
to be substantially greater than the loss in 1996 and expects net losses to
continue for the next several years. In addition, the Company expects to have
negative EBITDA in 1997. There can be no assurance that Intermedia will
achieve or sustain profitability or positive EBITDA in the future.
Class Action by DIGEX Stockholders. On June 5, 1997, the Company
announced that it had agreed to acquire 100% of the outstanding equity of
DIGEX, Incorporated ("DIGEX"; the "DIGEX Acquisition"). The acquisition was
consummated through a tender offer for all of the outstanding shares of
DIGEX, which closed on July 9, 1997, followed by a cash merger effective on
July 11, 1997 (the "Merger").
On June 20, 1997, two purported class action complaints were filed
in the Court of Chancery of the State of Delaware in and for New Castle
County respectively by TAAM Associates, Inc. and David and Chaile Steinberg
(the "Complaints"), purported stockholders of DIGEX, on behalf of all non-
affiliated common stockholders of DIGEX, against Intermedia, DIGEX and the
Directors of DIGEX (the "DIGEX Directors"). The Complaints allege that the
DIGEX Directors violated their fiduciary duties to the public stockholders of
DIGEX by agreeing to vote in favor of the Merger and that Intermedia
knowingly aided and abetted such violation by offering to retain DIGEX
management in their present positions and consenting to stock option grants
to certain executive officers of DIGEX. The Complaints sought preliminary and
permanent injunctions enjoining the Merger but no applications were made for
such injunctions prior to the 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.
Significant Capital Requirements and Need for Additional Financing.
Expansion of the Company's existing networks and services and the development
of new networks and services require significant capital expenditures.
Intermedia expects to fund its capital requirements through existing
resources, joint ventures, debt or equity financing (including capital raised
through the October 30 Offerings and the December Offering), 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 Intermedia will be successful in raising sufficient
debt or equity on terms that it will consider acceptable. Moreover, the
Existing Senior Notes Indentures, the Series B Certificate of Designation,
the Series D Certificate of Designation and the Certificate of Designation
impose certain restrictions upon the Company's ability to incur additional
indebtedness or issue additional preferred stock. In addition, the Company's
future capital requirements will depend upon a number of factors, including
marketing expenses, staffing levels and customer growth, as well as other
factors that are not within the Company's control, such as competitive
conditions, government regulation and capital costs. Failure to generate
sufficient funds may require Intermedia to delay or abandon some of its
future expansion or expenditures, which would have a material adverse effect
on its growth and its ability to compete in the telecommunications industry.
Expansion Risk. The Company is experiencing a period of rapid
expansion which management expects will increase in the near future. This
growth has increased the operating complexity of the Company as well as the
level of responsibility for both existing and new management personnel. The
Company's ability to manage its expansion effectively will require it to
continue to implement and improve its operational and financial systems and
to expand, train and manage its employee base. The Company's inability to
effectively manage its expansion could have a material adverse effect on its
business.
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A portion of the Company's expansion may occur through acquisitions
as an alternative to direct investments in the assets required to implement
the expansion. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that the Company's
future acquisitions, if any, will be successful or will not impair the
Company's ability to service its outstanding obligations.
Risks of Implementation; Need to Obtain Permits and Rights of Way.
The Company is continuing to expand its existing networks. The Company has
identified other expansion opportunities in the eastern half of the United
States and is currently extending the reach of its networks to pursue such
opportunities. There can be no assurance that the Company will be able to
expand its existing networks or construct or acquire new networks as
currently planned on a timely basis. The expansion of the Company's existing
networks and its construction or acquisition of new networks will be
dependent, among other things, on its ability to acquire rights-of-way and
any required permits on satisfactory terms and conditions and on its ability
to finance such expansion, acquisition and construction. In addition, the
Company may require pole attachment agreements with utilities and incumbent
local exchange carriers ("ILECs") to operate existing and future networks,
and there can be no assurance that such agreements will be obtained or
obtainable on reasonable terms. These factors and others could adversely
affect the expansion of the Company's customer base on its existing networks
and commencement of operations on new networks. If the Company is not able to
expand, acquire or construct its networks in accordance with its plans, the
growth of its business would be materially adversely affected.
Competition. In each of its markets, the Company faces significant
competition for the local network services, including local exchange
services, it offers from ILECs, which currently dominate their local
telecommunications markets. ILECs have long-standing relationships with their
customers which relationships may create competitive barriers. Furthermore,
ILECs may have the potential to subsidize competitive service from monopoly
service revenues. In addition, a continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to the Company. The Company also faces
competition in most markets in which it operates from one or more integrated
communications services providers ("ICPs") and ILECs operating fiber optic
networks. In addition, the Company faces competition in its integration
services business from equipment manufacturers, the regional Bell operating
companies ("RBOCs") and other ILECs, long distance carriers and systems
integrators, and in its enhanced data services business (including Internet)
from local telephone companies, long distance carriers, very small aperture
terminal ("VSAT") providers, other ISPs and others. In particular, the market
for Internet services is extremely competitive and there are limited barriers
to entry. Many of the Company's existing and potential competitors have
financial, personnel and other resources significantly greater than those of
the Company.
The Company believes that various legislative initiatives,
including the recently enacted 1996 Act, have removed remaining legislative
barriers to local exchange competition. Nevertheless, in light of the passage
of the 1996 Act, regulators are also likely to provide ILECs with increased
pricing flexibility as competition increases. If ILECs are permitted to lower
their rates substantially or engage in excessive volume or term discount
pricing practices for their customers, the net income or cash flow of ICPs
and competitive local exchange carriers ("CLECs"), including the Company,
could be materially adversely affected. In addition, while the Company
currently competes with AT&T, MCI and others in the interexchange services
market, the recent federal legislation permits the RBOCs to provide
interexchange services once certain criteria are met. Once the RBOCs begin to
provide such services, they will be in a position to offer single source
service similar to that being offered by Intermedia. 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. If that decision is permitted to stand, it could result in RBOCs
providing interexchange service in their operating regions sooner than
previously expected. See "The Company - Recent Developments - Regulatory
Changes." In addition, AT&T and MCI have entered and other interexchange
carriers have announced their intent to enter into the local exchange
services market, which is facilitated by the 1996 Act's resale and unbundled
network element provisions. The Company cannot predict the number of
competitors that will emerge as a result of existing or new federal and state
regulatory or legislative actions. Competition from the RBOCs with respect to
interexchange services or from AT&T, MCI or others with respect to local
exchange services could have a material adverse effect on the Company's
business.
Regulation. The Company is subject to varying degrees of federal,
state and local regulation. The Company is not currently subject to price cap
or rate of return regulation at the state or federal level, nor is it
currently required to obtain Federal Communications 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 the Company, are required to withdraw
interstate
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tariffs for domestic long distance service. That order has been stayed by a
federal appeals court and it is not clear at this time whether the
detariffing order will be implemented. Until further action is taken by the
court, the Company will continue to maintain tariffs for these services. In
June 1997, the FCC issued another order stating that non-dominant carriers,
such as the Company, could withdraw their tariffs for interstate access
services. While the Company has no immediate plans to withdraw its tariff,
this FCC order allows the Company to do so. The FCC also requires the Company
to file interstate tariffs on an ongoing basis for international traffic. The
Company is generally subject to certification or registration and tariff or
price list filing requirements for intrastate services by state regulators.
Although passage of the 1996 Act should result in increased opportunities for
companies that are competing with the ILECs, no assurance can be given that
changes in current or future regulations adopted by the FCC or state
regulators or other legislative or judicial initiatives relating to the
telecommunications industry would not have a material adverse effect on the
Company. In addition, although the 1996 Act provides incentives to the ILECs
that are subsidiaries of RBOCs to enter the long distance service market by
requiring ILECs to negotiate interconnection agreements with local
competitors, there can be no assurance that these ILECs will negotiate
quickly with competitors such as the Company for the required interconnection
of the competitor's networks with those of the ILECs or that such agreements
will be favorable.
Potential Diminishing Rate of Growth. During the period from 1994
through 1996, the Company's revenues grew at a compound annual growth rate of
169%. While the Company expects to continue to grow, as its size increases it
is likely that its rate of growth will diminish.
Risk of New Service Acceptance by Customers. The Company has
recently introduced a number of services, primarily local exchange services,
that the Company believes are important to its long-term growth. The success
of these services will be dependent upon, among other things, the willingness
of customers to accept the Company as the provider of such services. No
assurance can be given that such acceptance will occur; the lack of such
acceptance could have a material adverse effect on the Company.
Rapid Technological Changes. The telecommunications industry is
subject to rapid and significant changes in technology. While Intermedia
believes that, for the foreseeable future, these changes will neither
materially affect the continued use of its fiber optic networks nor
materially hinder its ability to acquire necessary technologies, the effect
on the business of Intermedia of technological changes such as changes
relating to emerging wireline and wireless transmission technologies,
including software protocols, cannot be predicted.
Dependence on Key Personnel. The Company's business is managed by a
small number of key management and operating personnel, the loss of certain
of whom could have a material adverse impact on the Company's business. The
Company believes that its future success will depend in large part on its
continued ability to attract and retain highly skilled and qualified
personnel. None of the Company's key executives, other than David C. Ruberg,
President, Chief Executive Officer and Chairman of the Board, is a party to a
long-term employment agreement with the Company.
Risk of Cancellation or Non-Renewal of Network Agreements, Licenses
and Permits. The Company has lease and/or purchase agreements for rights-of-
way, utility pole attachments, conduit and dark fiber for its fiber optic
networks. Although the Company does not believe that any of these agreements
will be cancelled in the near future, cancellation or non-renewal of certain
of such agreements could materially adversely affect the Company's business
in the affected metropolitan area. In addition, the Company has certain
licenses and permits from local government authorities. The 1996 Act requires
that local government authorities treat telecommunications carriers in a
competitively neutral, non-discriminatory manner, and that most utilities,
including most ILECs and electric companies, afford alternative carriers
access to their poles, conduits and rights-of-way at reasonable rates on non-
discriminatory terms and conditions. There can be no assurance that the
Company will be able to maintain its existing franchises, permits and rights
or to obtain and maintain the other franchises, permits and rights needed to
implement its strategy on acceptable terms.
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Dependence on Business from Interexchange Carriers ("IXCs"). For
the year ended December 31, 1996, approximately 10% of the Company's
consolidated revenues were attributable to access services provided to IXCs.
The loss of access revenues from IXCs in general could have a material
adverse effect on the Company's business.
In addition, the Company's growth strategy assumes increased
revenues from IXCs from the deployment of local/long distance voice switches
on its networks and the provision of switched access origination and
termination services. There is no assurance that the IXCs will continue to
increase their utilization of the Company's services, or will not reduce or
cease their utilization of the Company's services, which could have a
material adverse effect on the Company.
Business Combinations; Change of Control. The Company has from time
to time held, and continues to hold, preliminary discussions with (i)
potential strategic investors who have expressed an interest in making an
investment in or acquiring the Company and (ii) potential joint venture
partners looking toward the formation of strategic alliances that would
expand the reach of the Company's networks or services without necessarily
requiring an additional investment in the Company. In addition to providing
additional growth capital, management believes that an alliance with an
appropriate strategic investor would provide operating synergy to, and
enhance the competitive positions of, both Intermedia and the investor within
the rapidly consolidating telecommunications industry. There can be no
assurance that agreements for any of the foregoing will be reached. An
investment, business combination or strategic alliance could constitute a
change of control. The Existing Senior Notes Indentures and the Series B
Certificate of Designation provide that a change of control would require the
Company to repay the indebtedness and redeem the Series B Preferred Stock
outstanding under such instruments. A change of control also requires the
Company to offer to redeem the Series D Preferred Stock and the Series E
Preferred Stock. The terms of the Existing Senior Notes Indentures and the
Series B Certificate of Designation contain provisions that may prohibit the
repurchase of the Series E Preferred Stock. If a change of control does
occur, there is no assurance that the Company would have sufficient funds to
make such repayments and redemption or could obtain any additional debt or
equity financing that could be necessary in order to repay the Existing
Senior Notes and to redeem the Series B Preferred Stock in order to redeem
the Series E Preferred Stock.
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 are only estimates or predictions. No assurance can be
given that future results will be achieved; actual events or results may
differ materially as a result of risks facing the Company or actual results
differing from the assumptions underlying such statements.
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's historical earnings have been insufficient to cover
combined fixed charges and dividends on preferred stock by $0.6 million, $2.3
million, $3.3 million, $19.8 million and $60.0 million for each of the years
ended December 31, 1992, 1993, 1994, 1995 and 1996, respectively. In
addition, insufficiencies of $37.6 million and $187.0 million were
experienced in the nine-month periods ended September 30, 1996 and 1997,
respectively. On a pro forma basis, after giving effect to the DIGEX, EMI,
NetSolve and UTT acquisitions, the pending acquisition of Shared Technologies
and the March 1997 offerings, July 1997 Offerings, October 30, 1997 Offerings
and December Offering, the Company's earnings were insufficient to cover
combined fixed charges and dividends on preferred stock by $269.6 million for
the year ended December 31, 1996 and by $317.8 million for the nine months
ended September 30, 1997.
See "Risk Factors Substantial Indebtedness; Insufficiency of
Earnings to Cover Fixed Charges Including Dividends on the Series E Preferred
Stock" for a further discussion of factors which may have an impact on the
Company's ratio of earnings to combined fixed charges and preferred stock
dividends.
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THE COMPANY
Intermedia is a rapidly growing ICP, offering a full suite of
local, long distance and enhanced data telecommunications services to
business and government end user customers, long distance carriers, ISPs,
resellers and wireless communications companies. Founded in 1987, the Company
is currently the third largest (based on annualized telecommunications
services revenues) among providers generally referred to as CLECs after MFS
Communications Company, Inc. and Teleport Communications Group Inc. As of
September 30, 1997, the Company had sales offices in 43 cities throughout the
eastern half of the United States and offered a full product package of
telecommunications services in 19 metropolitan statistical areas. In April
1996, Intermedia became one of the first ICPs in the United States to provide
integrated switched local and long distance service and as of December 16,
1997 had thirteen switches in service. The Company provides enhanced data
services, including frame relay, asynchronous transfer mode ("ATM") and
Internet access services, primarily to business and government customers
(including over 100 ISPs), in approximately 3,800 cities nationwide,
utilizing approximately 130 Company-owned data switches. Intermedia also
serves as a facilities-based interexchange carrier to approximately 15,000
customers nationwide. Intermedia continues to increase its customer base and
network density in the eastern half of the United States and is pursuing
attractive opportunities to add additional services and expand into
complementary geographic markets.
Intermedia was incorporated in the State of Delaware on November 9,
1987, as the successor to a Florida corporation that was founded in 1986. The
Company's principal offices are located at 3625 Queen Palm Drive, Tampa,
Florida 33619, and its telephone number is (813) 829-0011.
RECENT DEVELOPMENTS
Acquisitions. On December 17, 1997 the Company entered into a
definitive agreement for the acquisition of the Long Distance Savers group of
companies ("LDS") for a purchase price of approximately $151.0 million, of
which $120.0 million is payable in Intermedia common stock and $31.0 million
is payable in cash, in each case, subject to certain adjustments (the "LDS
Acquisition"). Closing of the LDS Acquisition, expected to occur in the
first quarter of 1998, is subject to customary conditions, including
regulatory approvals, and there can be no assurance that the LDS Acquisition
will be consummated.
LDS is a regional interexchange carrier, providing long distance
services and Internet access to more than 45,000 business subscribers and
employing over 100 sales and customer service professional in Louisiana,
Texas, Oklahoma, Mississippi and Florida. LDS had revenues of $101.7 million
and $82.3 million and EBITDA of $15.0 million and $9.9 million for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. The LDS Acquisition will provide a significant time-to-market
advantage in a region important to Intermedia's expansion plan, while also
contributing an experienced regional management team and established sales
platform. Because LDS's service portfolio and footprint complements
Intermedia's, management of the Company believes that the LDS Acquisition
also presents significant synergy realization opportunities. By joining
forces with an established operating company with a staff of experienced
sales, management and technical personnel, Intermedia expects to expedite its
entry into these Southern markets.
On November 20, 1997, Intermedia, through Moonlight Acquisition
Corp., a wholly-owned subsidiary of Intermedia, entered into a definitive
merger agreement with Shared Technologies. The total deemed purchase price
for Shared Technologies is estimated to be approximately $640 million,
excluding certain transaction expenses and fees relating to certain
agreements. In addition, Intermedia agreed to settle certain litigation. As
part of the agreement, Intermedia was granted irrevocable options, which
together with other common stock of Shared Technologies owned by Intermedia,
gives Intermedia control of over 50% of Shared Technologies common stock on
a fully diluted basis. Intermedia made a tender offer for four million
additional shares of Shared Technologies at $15 per share in cash, which
expired on December 26, 1997. More than 16 million shares were tendered
pursuant to the tender offer. In order to avoid the purchase of fractional
shares, 4,000,064 shares were accepted.
Shared Technologies is the nation's largest provider of shared
telecommunications services and systems. Through its technical
infrastructure and 800 employees, Shared Technologies acts as a single point
of contact for business
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telecommunications services at more than 465 buildings throughout the United
States and Canada. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, Shared Technologies' revenues were approximately
$157.2 million and $141.8 million, respectively, and its EBITDA for such
periods were approximately $34.9 million and $33.4 million, respectively.
This acquisition is expected to enhance Intermedia's national presence in
telecommunications markets, enabling it to provide a bundled offering of
local, long distance, data, Internet and systems integration services to
Shared Technologies' existing 15,000 business customers. If this acquisition
is consummated, the Company will have approximately 160,000 CLEC access
lines, serving more than 2,000 buildings.
The merger agreement is expected to be consummated during the first
quarter of 1998. Consummation of the merger agreement is subject to various
customary conditions, including approval by Shared Technologies's
stockholders and receipt of necessary regulatory approvals.
On July 11, 1997, the Company consummated the final step in the
DIGEX Acquisition through the merger of Daylight Acquisition Corp.
("Daylight"), a wholly-owned subsidiary of the Company, with DIGEX. The
aggregate consideration for the DIGEX Acquisition, which was funded with the
Company's then existing cash reserves, was approximately $160 million. DIGEX,
headquartered in suburban Washington, D.C., is a national ISP, which provides
a comprehensive range of industrial strength Internet solutions, including
high speed dedicated business Internet connectivity, Web site management and
private network solutions, primarily to business and government customers.
For the nine months ended September 30, 1997, DIGEX's revenues were
approximately $33.5 million.
The Company is currently evaluating, has made offers with respect
to and is engaged in discussions regarding various acquisition opportunities.
These acquisitions could be funded by cash (including the proceeds of the
October 30 Offerings and the December Offering) and/or the Company's
securities. Except as described in this Registration Statement, Intermedia
is not a party to any agreement for any material acquisition nor can there be
any assurance that any such acquisition will be consummated. Under the terms
of the Purchase Agreement with the Initial Purchasers, the Company is not
prohibited from issuing equity securities, including common stock, in
connection with an acquisition during the 90-day "lock-up" period following
the October 30 Offerings.
Offerings. On December 23, 1997, the Company completed a private
placement (the "December Offering") of $350.0 million of 8 1/2% Senior Notes
due 2008 (the "8 1/2% Senior Notes"). The Initial Purchasers were also
granted an over-allotment option with respect to $50.0 million of 8 1/2%
Notes.
On October 30, 1997, the Company completed private placements of
the Depositary Shares and the 8 7/8% Notes. The aggregate gross proceeds from
the October 30 Offerings (including the subsequent exercise of the over-
allotment options with respect to the Depositary Shares and the 8 7/8%
Notes in connection therewith) were $460.3 million.
In July 1997, the Company completed private placements (the "July
1997 Offerings") of 6,900,000 Depositary Shares (including the exercise of
the over-allotment option with respect to such Depositary Shares) (the
"Series D Depositary Shares"), each representing a one-hundredth interest
in a share of Series D Preferred Stock, and $649.0 million principal amount
at maturity of 11/1//4% Notes (including the exercise of the over-allotment
option with respect to such Notes). The aggregate gross proceeds from the
July 1997 Offerings were approximately $547.3 million.
Regulatory Changes. 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 local exchange markets. On July 18, 1997, the U.S. Court of Appeals for
the Eighth Circuit issued a final 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 Court issued
an order
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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 and
other parties have requested the Supreme Court to review these decisions.
These issues also remain subject to scrutiny and oversight by state
regulatory commissions. Although the Company is not able to predict the
impact of these decisions on future efforts to negotiate interconnection
agreements with ILECs, the Company's analysis shows that interconnection
arrangements that have been approved or mandated by state regulatory
commissions have been consistent with the intent of the 1996 Act and the
Company's business plan. These regulatory developments create opportunities
for new entrants offering local exchange services to capture a portion of the
ILECs' nearly 100% market share. Due to the rapid development and continuing
growth of the Company's sales force and its competitive advantages in
providing integrated telecommunications services, the Company believes that
it is well positioned to capitalize on the new market opportunities emerging
in the local exchange market.
On December 31, 1997, 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. The United States and
some long distance companies have requested a stay of this decision and it is
expected that they, and others, will seek its reversal on appeal. If the
District Court's decision is permitted to stand, it could result in the RBOCs
providing interexchange service in their operating regions sooner than
previously expected.
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.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Securities by the Selling Securityholders or the issuance of the Dividend
Shares by the Company.
DESCRIPTION OF CAPITAL STOCK
Intermedia's authorized capital stock consists of 50,000,000 shares
of Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred
Stock, par value $1.00 per share ("Preferred Stock"). As of November 30,
1997, there were 17,315,317 shares of Common Stock, 323,499.1404 shares of
Series B Preferred Stock, 69,000 shares of Series D Preferred Stock and
80,000 shares of Series E Preferred Stock issued and outstanding. On a fully-
diluted basis, at that date, the Company had outstanding 32,643,661 shares of
Common Stock assuming (a) the exercise of the Public Warrants (defined
below), (b) the exercise of all outstanding options issued pursuant to the
Company's employee stock option plans and (c) conversions of the Depositary
Shares, the Series D Preferred Stock and the Series E Preferred Stock. As of
November 30, 1997, the Company has reserved (i) 4,364,410 shares of Common
Stock for issuance pursuant to the Company's employee stock option plans,
(ii) 350,400 shares of Common Stock for issuance upon exercise of the Public
Warrants, (iii) 276,500.8596 shares of Series B Preferred Stock for issuance
as dividends on the outstanding shares of Series B Preferred Stock, (iv)
40,000 shares of Series C Preferred Stock for issuance in connection with the
Stockholder's Rights Plan, (v) 4,434,448 shares of Common Stock for issuance
on conversion of the Series D Preferred Stock, (vi) 1,938,728 shares of
Common Stock for issuance as dividends on the outstanding shares of Series D
Preferred Stock, (vii) 3,307,425 shares of Common Stock for issuance on
conversion of the Series E Preferred Stock and (viii) 933,334 shares of
Common Stock for issuance as dividends on the outstanding shares of Series E
Preferred Stock. All outstanding shares of Common Stock, Series B Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock are fully paid
and non-assessable.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders.
Holders of Common Stock do not have cumulative rights, so that holders of
more than 50% of the shares of Common Stock are able to elect all of
Intermedia's directors eligible for election in a given year. For a
description of the classification of the Board, see "-Delaware Law and
Certain Provisions of Intermedia's Certificate of Incorporation and Bylaws."
Subject to the preferences that may be applicable to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. See "-Dividend Restrictions." Upon any
liquidation, dissolution or winding up, whether voluntary or involuntary, of
Intermedia, holders of Common Stock are entitled to receive pro rata all
assets available for distribution to stockholders after payment or provision
for payment of the debts and other liabilities of Intermedia and the
liquidation preferences of any then outstanding Preferred Stock. There are no
preemptive or other subscription rights, conversion rights, or redemption or
sinking fund provisions with respect to shares of Common Stock. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon exercise of the Public Warrants and conversion of the
Depositary Shares or shares of Series D Preferred Stock or Series E Preferred
Stock will be, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued at any time or from time to time
in one or more classes or series with such designations, powers, preferences,
rights, qualifications, limitations and restrictions (including dividend,
conversion and voting rights) as may be fixed by the Board, without any
further vote or action by the stockholders. As of November 30, 1997, the
Company had outstanding 323,499.1404 shares of Series B Preferred Stock
(aggregate liquidation preference of approximately $323.5 million). Dividends
on the Series B Preferred Stock accumulate at a rate of 13 1/2% of the
aggregate liquidation preference thereof and are payable quarterly, in
arrears. Dividends are
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payable in cash or, at the Company's option, by the issuance of additional
Series B Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends. The Series B Preferred Stock is subject to
mandatory redemption at a liquidation preference of $1,000 per share, plus
accumulated and unpaid dividends on March 31, 2009. The Series B Preferred
Stock will be redeemable at the option of the Company at any time after March
31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007. The Series B Certificate of Designation contains certain covenants
that, among other things, limit the ability of the Company and its
subsidiaries to make certain restricted payments, incur additional
indebtedness and issue additional preferred stock, pay dividends or make
other distributions, repurchase equity interests, conduct certain lines of
business or enter into certain mergers and consolidations. In the event of a
change of control of the Company, holders of the Series B Preferred Stock
have the right to require the Company to purchase their shares of Series B
Preferred Stock at a price equal to 101% of the aggregate liquidation
preference with respect thereto, plus accumulated and unpaid dividends, if
any, to the date of purchase. This description is intended as a summary and
is qualified in its entirety by reference to the Series B Certificate of
Designation.
The Company may, at its option, exchange some or all of the Series
B Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures,
due 2009 (the "Exchange Debentures"). The Exchange Debentures would mature
on March 31, 2009. Interest on the Exchange Debentures would be payable semi-
annually, and could be paid in the form of additional Exchange Debentures at
the Company's option. Exchange Debentures would be redeemable by the Company
at any time after March 31, 2002 at rates commencing with 106.75%, declining
to 100% on March 31, 2007. The Exchange Debentures contain covenants similar
to those contained in the Indenture.
As of November 30, 1997, the Company had outstanding 69,000 shares
of Series D Preferred Stock (aggregate liquidation preference approximately
$172.5 million). Dividends on the Series D Preferred Stock accumulate at a
rate of 7% of the aggregate liquidation preference thereof and are payable
quarterly, in arrears on each January 15, April 15, July 15 and October 15.
Dividends are payable in cash or, at the Company's option, by the issuance of
shares of Common Stock. The Series D Preferred Stock will be redeemable at
the option of the Company at any time on or after July 19, 2000 at rates
commencing with 104%, declining to 100% on July 19, 2004. The Series D
Preferred Stock is convertible (since October 7, 1997), at the option of the
holder, into Common Stock at a conversion price of $38.90 per share of Common
Stock, subject to certain adjustments.
See "Description of Series E Preferred Stock" for a description of
the terms of Series E Preferred Stock.
DELAWARE LAW AND CERTAIN PROVISIONS OF INTERMEDIA'S CERTIFICATE OF
INCORPORATION AND BYLAWS
General. The Certificate of Incorporation and the Bylaws of
Intermedia contain certain provisions that could make more difficult the
acquisition of Intermedia by means of a tender offer, a proxy contest or
otherwise. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of Intermedia first to negotiate with
Intermedia. Although such provisions may have the effect of delaying,
deferring or preventing a change in control of Intermedia, the Company
believes that the benefits of increased protection of Intermedia's potential
ability to negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure the Company outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms. The description set
forth below is intended as a summary only and is qualified in its entirety by
reference to the Certificate of Incorporation and Bylaws of Intermedia.
Board of Directors. Intermedia's Certificate of Incorporation
provides that (i) the Board be divided into three classes of directors, with
each class having a number as nearly equal as possible and with the term of
each class expiring in a different year and (ii) the Board shall consist of
not less than three nor more than seven members, the exact number to be
determined from time to time by the Board. The Board has set the number of
directors at four.
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Subject to any rights of holders of Preferred Stock, a majority of the Board
then in office will have the sole authority to fill any vacancies on the
Board. Stockholders can remove members of the Board only for cause.
Stockholder Action and Special Meetings. Intermedia's Certificate
of Incorporation provides that (i) any action required or permitted to be
taken by Intermedia's stockholders must be effected at a duly called annual
or special meeting of Stockholders and may not be effected by any consent in
writing and (ii) the authorized number of directors may be changed only by
resolution of the Board. The Company's Bylaws provide that, subject to any
rights of holders of any series of Preferred Stock, special meetings of
stockholders may be called only by the Chairman of the Board or the President
of Intermedia, by a majority of the Board or by stockholders owning shares
representing at least a majority of the capital stock of Intermedia issued
and outstanding and entitled to vote.
Stockholder's Rights Plan. Intermedia's Board of Directors has
adopted a Stockholder's Rights Plan, pursuant to which rights to acquire a
newly created series of Preferred Stock, exercisable upon the occurrence of
certain events, including the acquisition by a person or group of a specified
percentage of the Common Stock, were distributed to its stockholders.
Anti-Takeover Statute. Subject to certain exceptions, Section 203
of the DGCL prohibits a publicly held Delaware corporation, such as
Intermedia, from engaging in any "business combination" with an "interested
stockholder" for a three-year period following the date on which such person
became an interested stockholder, unless (i) prior to such date, the board of
directors of the corporation approved either such business combination or the
transaction that resulted in such person becoming an interested stockholder,
(ii) upon consummation of the transaction that resulted in such person
becoming an interested stockholder, such person owned at least 85% of the
voting stock of the corporation outstanding immediately prior to such
transaction (excluding certain shares) or (iii) on or subsequent to such
date, such business combination is approved by the board of directors of the
corporation and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder. A
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is essentially a person who, together with
affiliates and associates, owns (or within the past three years has owned)
15% or more of the corporation's voting stock. It is anticipated that the
provisions of Section 203 of the DGCL may encourage any person interested in
acquiring Intermedia to negotiate in advance with the Board since the
stockholder approval requirement would be avoided if a majority of
Intermedia's directors then in office approved either the business
combination or the transaction that resulted in such person becoming an
interested stockholder.
DIVIDEND RESTRICTIONS
The terms of the Existing Senior Note Indentures restrict the
Company's ability to pay cash dividends on the Series B Preferred Stock. The
existing Senior Note Indentures and the Series B Certificate of Designation
restrict Intermedia's ability to pay cash dividends on the Common Stock, the
Series D Preferred Stock and the Series E Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, Series B
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock is
Continental Stock Transfer & Trust Company.
OUTSTANDING WARRANTS
160,000 warrants (the "Public Warrants"), each to purchase 2.19
shares of Common Stock, at an exercise price of $10.86 per share (subject to
anti-dilution adjustments) were issued as part of a June 1995 private
placement. The Public Warrants are currently exercisable. Unless exercised,
the Public Warrants will expire on June 1, 2000.
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RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of
Common Shares as will be issuable upon the conversion of all Depositary
Shares (or all shares of the Series D Preferred Stock and Series E Preferred
Stock). Such Common Shares, when issued, will be duly and validly issued,
fully paid and non-assessable, free of preemptive rights and free from all
taxes, liens, charges and security interests with respect to the issue
thereof.
REGISTRATION RIGHTS.
In addition to the rights granted under the Preferred Stock
Registration Rights Agreement, dated October 30, 1997, among the Company and
the Initial Purchasers (the "Preferred Stock Registration Rights Agreement"),
the Company is a party to several agreements pursuant to which certain
stockholders have the right, among other matters, to require the Company to
register their shares of Common Stock under the Securities Act under certain
circumstances. As a result, upon the effectiveness of this Registration
Statement, substantially all of the Company's outstanding shares, other than
those held by affiliates, will be transferable without restriction under the
Securities Act.
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DESCRIPTION OF SERIES E PREFERRED STOCK
GENERAL
The terms of the Series E Preferred Stock are set forth in the
Certificate of Designation of Voting Power, Designation Preferences and
Relative, Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions (the "Certificate of Designation"). The
following summary of the Series E Preferred Stock, the Certificate of
Designation and the Preferred Stock Registration Rights Agreement is not
intended to be complete and is subject to, and qualified in its entirety by
reference to, the Company's Certificate of Incorporation, the Certificate of
Designation and the Preferred Stock Registration Rights Agreement, including
the definitions therein of certain terms used below. Copies of the form of
Certificate of Designation and Preferred Stock Registration Rights Agreement
are available from the Company, upon request. As used in this Description of
Series E Preferred Stock, the term "Company" refers to Intermedia
Communications Inc., excluding its Subsidiaries.
Certain of the Company's operations are conducted through its
Subsidiaries and, therefore, the Company is dependent upon the cash flow of
its Subsidiaries to meet its obligations, including its obligations under the
Series E Preferred Stock. Any right of the Company to receive assets of any
of its Subsidiaries is effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations)
of the Company's Subsidiaries. As of September 30, 1997 on a pro forma basis
after giving effect to the pending acquisition of Shared Technologies, and
the October 30 Offerings and the December Offering and the application of the
proceeds therefrom, the aggregate amount of liquidation preference of Senior
Securities and indebtedness and other obligations of the Company and its
Subsidiaries that would effectively rank senior in right of payment to the
obligations of the Company under the Series E Preferred Stock would have been
approximately $1.7 billion. See "Risk Factors."
Pursuant to the Certificate of Designation, 87,500 shares
(including 17,500 shares which the Initial Purchasers had the option to
purchase to cover over-allotments) of Series E Preferred Stock with the
Liquidation Preference were authorized. Eighty thousand of such shares are
issued and outstanding and are fully paid and non-assessable. The Initial
Purchasers did not exercise their option to purchase the remaining 7,500
shares. The holders of the Series E Preferred Stock have no preemptive
rights.
The transfer agent for the Series E Preferred Stock is Continental
Stock Transfer & Trust Co. unless and until a successor is selected by the
Company (the "Transfer Agent").
RANKING
The Series E Preferred Stock, with respect to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, ranks (i) senior to all classes of common stock
of the Company and to each other class of capital stock or series of
preferred stock established after October 24, 1997 by the Board of Directors,
the terms of which do not expressly provide that it ranks senior to or on a
parity with the Series E Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company
(collectively referred to with the common stock of the Company as "Junior
Securities"); (ii) on a parity with the Series D Preferred Stock, any
additional shares of Series D Preferred Stock or Series E Preferred Stock
issued by the Company in the future and any other class of capital stock or
series of preferred stock issued by the Company established after October 24,
1997 by the Board of Directors, the terms of which expressly provide that
such class or series will rank on a parity with the Series E Preferred Stock
as to dividend distributions and distributions upon the liquidation, winding-
up and dissolution of the Company (collectively referred to as "Parity
Securities"); and (iii) junior to the Series B Preferred Stock ($323.5
million aggregate liquidation preference outstanding at November 30, 1997)
and to each class of capital stock or series of preferred stock issued by the
Company established after October 24, 1997 by the Board of Directors the
terms of which expressly provide that such class or series will rank senior
to the Series E Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Securities").
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No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Series E Preferred Stock with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividend,
upon all outstanding shares of Senior Securities.
DIVIDENDS
The holders of shares of the Series E Preferred Stock are entitled
to receive, when, as and if dividends are declared by the Board of Directors
out of funds of the Company legally available therefor, cumulative dividends
from October 30, 1997 accruing at the rate per annum of 7% of the Liquidation
Preference per share, payable quarterly in arrears on each January 15, April
15, July 15 and October 15, commencing on January 15, 1998 (each, a "Dividend
Payment Date"). If any such date is not a Business Day, such payment shall be
made on the next succeeding Business Day, to the holders of record as of the
next preceding January 1, April 1, July 1 and October 1 (each, a "Record
Date"). Dividends will be payable (i) in cash, (ii) by delivery of shares of
Common Stock to holders (based upon 95% of the Average Stock Price (as
defined below)) or (iii) through any combination of the foregoing. The
Company intends to pay dividends in shares of Common Stock on each Dividend
Payment Date to the extent that it is unable to pay dividends in cash. If the
dividends are paid in shares of Common Stock, the number of shares of Common
Stock to be issued on each Dividend Payment Date will be determined by
dividing the total dividend to be paid on each share of Series E Preferred
Stock by 95% of the average of the high and low sales prices of the Common
Stock as reported by the Nasdaq National Market or any national securities
exchange upon which the Common Stock is then listed, for each of the ten
consecutive trading days immediately preceding the fifth business day
preceding the Record Date (the "Average Stock Price"). The Transfer Agent is
authorized and directed in the Certificate of Designation to aggregate any
fractional shares of Common Stock that are issued as dividends, sell them at
the best available price and distribute the proceeds to the holders in
proportion to their respective interests therein. The Company will pay the
expenses of the Transfer Agent with respect to such sale, including brokerage
commissions. In the event the sale by the Transfer Agent of such aggregated
fractional interests would be restricted, the Company and the Transfer Agent
will agree upon other appropriate arrangements for the cash realization of
fractional interests. Dividends payable on the Series E Preferred Stock will
be computed on the basis of a 360-day year consisting of twelve 30-day months
and will be deemed to accrue on a daily basis.
Dividends on the Series E Preferred Stock will accrue whether or
not the Company has earnings or profits, whether or not there are funds
legally available for the payment of such dividends and whether or not
dividends are declared. Dividends will accumulate to the extent they are not
paid on the Dividend Payment Date for the period to which they relate. The
Certificate of Designation provides that the Company will take all actions
required or permitted under the DGCL to permit the payment of dividends on
the Series E Preferred Stock, including, without limitation, through the
revaluation of its assets in accordance with the DGCL, to make or keep funds
legally available for the payment of dividends.
No dividend whatsoever shall be declared or paid upon, or any sum
set apart for the payment of dividends upon, any outstanding share of the
Series E Preferred Stock with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividend,
upon all outstanding shares of Series E Preferred Stock. Unless full
cumulative dividends on all outstanding shares of Series E Preferred Stock
for all past dividend periods shall have been declared and paid, or declared
and a sufficient sum for the payment thereof set apart: (i) no dividend
(other than a dividend payable solely in shares of any Junior Securities)
shall be declared or paid upon, or any sum set apart for the payment of
dividends upon, any shares of Junior Securities; (ii) no other distribution
shall be declared or made upon, or any sum set apart for the payment of any
distribution upon, any shares of Junior Securities, other than a distribution
consisting solely of Junior Securities; (iii) no shares of Junior Securities
shall be purchased, redeemed or otherwise acquired or retired for value
(excluding an exchange for shares of other Junior Securities) by the Company
or any of its Subsidiaries; and (iv) no monies shall be paid into or set
apart or made available for a sinking or other like fund for the
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purchase, redemption or other acquisition or retirement for value of any
shares of Junior Securities by the Company or any of its Subsidiaries.
Holders of the Series E Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends as herein described.
The Existing Senior Notes Indentures contain, and any future credit
agreements or other agreements relating to Indebtedness to which the Company
becomes a party may contain, restrictions on the ability of the Company to
pay dividends on the Series E Preferred Stock.
OPTIONAL REDEMPTION
The Series E Preferred Stock may not be redeemed at the option of
the Company prior to October 18, 2000. The Series E Preferred Stock may be
redeemed for cash, in whole or in part, at the option of the Company on or
after October 18, 2000, at the redemption prices specified below (expressed
as percentages of the Liquidation Preference thereof), in each case, together
with accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for any partial dividend period) and Preferred Stock
Liquidated Damages, if any, to the date of redemption, upon not less than 30
nor more than 60 days' prior written notice, if redeemed during the 12-month
period commencing on October 18 of each of the years set forth below:
Year Percentage
---- ----------
2000.........................................................104.00%
2001.........................................................103.00%
2002.........................................................102.00%
2003.........................................................101.00%
2004 and thereafter..........................................100.00%
No optional redemption may be authorized or made unless, prior to giving the
applicable redemption notice, all accumulated and unpaid dividends for
periods ended prior to the date of such redemption notice shall have been
paid in cash or Common Stock. In the event of partial redemptions of Series E
Preferred Stock, the shares to be redeemed will be determined pro rata or by
lot, as determined by the Company.
CONVERSION RIGHTS
Each share of Series E Preferred Stock will be convertible at any
time after December 29, 1997, unless previously redeemed, at the option of
the holder thereof into Common Stock of the Company, at a conversion rate
equal to the Liquidation Preference divided by the conversion price then
applicable, except that the right to convert shares of Series E Preferred
Stock called for redemption will terminate at the close of business on the
business day preceding the redemption date and will be lost if not exercised
prior to that time, unless the Company defaults in making the payment due
upon redemption.
The initial conversion price is $60.47 per share. The conversion
price will be subject to adjustment in certain events, including: (i) the
payment of dividends (and other distributions) in Common Stock on any class
of capital stock of the Company other than the payment of dividends in Common
Stock on the Series E Preferred Stock or any other regularly scheduled
dividend on any other preferred stock which does not trigger any anti-
dilution provisions in any other security; (ii) the issuance to all holders
of Common Stock of rights, warrants or options entitling them to subscribe
for or purchase Common Stock at less than the current market price (as
calculated pursuant to the Certificate of Designation); (iii) subdivisions,
combinations and reclassifications of Common Stock; (iv) distributions to all
holders of Common Stock of evidences of indebtedness of the Company, shares
of any class of capital stock, cash or other assets (including securities,
but excluding those dividends, rights, warrants, options and distributions
referred to in clauses (i) through (iii) above and dividends and
distributions paid in cash out of the retained earnings of the Company,
unless the sum of all such cash dividends and distributions made and the
amount of cash and the fair market value of other consideration paid in
respect of any repurchases of Common Stock by the Company or any of its
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Subsidiaries, in each case within the preceding 12 months in respect of which
no adjustment has been made, exceeds 20% of the product of the then current
market price of the Common Stock times the aggregate number of shares of
Common Stock outstanding on the record date for such dividend or
distribution).
No adjustment of the conversion price will be required to be made
until cumulative adjustments amount to 1% or more of the conversion price as
last adjusted. Notwithstanding the foregoing, no adjustment to the conversion
price shall reduce the conversion price below the then applicable par value
per share of the Common Stock. In addition to the foregoing adjustments, the
Company will be permitted to make such reductions in the conversion price as
it considers to be advisable in order that any event treated for federal
income tax purposes as a dividend of stock or stock rights will not be
taxable to the holders of the Common Stock.
In the case of certain consolidations or mergers to which the
Company is a party or the transfer of substantially all of the assets of the
Company, each share of Series E Preferred Stock then outstanding would become
convertible only into the kind and amount of securities, cash and other
property receivable upon the consolidation, merger or transfer by a holder of
the number of shares of Common Stock into which such share of Series E
Preferred Stock might have been converted immediately prior to such
consolidation, merger or transfer (assuming such holder of Common Stock
failed to exercise any rights of election and received per share the kind and
amount receivable per share by a plurality of non-electing shares).
The holder of record of a share of Series E Preferred Stock at the
close of business on a record date with respect to the payment of dividends
on the Series E Preferred Stock will be entitled to receive such dividends
with respect to such share of Series E Preferred Stock on the corresponding
Dividend Payment Date, notwithstanding the conversion of such share after
such Record Date and prior to such Dividend Payment Date. A share of Series E
Preferred Stock surrendered for conversion during the period from the close
of business on any Record Date for the payment of dividends to the opening of
business of the corresponding Dividend Payment Date must be accompanied by a
payment in cash, Common Stock or a combination thereof, depending on the
method of payment that the Company has chosen to pay the dividend, in an
amount equal to the dividend payable on such Dividend Payment Date, unless
such share of Series E Preferred Stock has been called for redemption on a
redemption date occurring during the period from the close of business on any
Record Date for the payment of dividends to the close of business on the
business day immediately following the corresponding Dividend Payment Date.
The dividend payment with respect to a share of Series E Preferred Stock
called for redemption on a date during the period from the close of business
on any Record Date for the payment of dividends to the close of business on
the business day immediately following the corresponding Dividend Payment
Date will be payable on such Dividend Payment Date to the record holder of
such share on such Record Date, notwithstanding the conversion of such share
after such Record Date and prior to such Dividend Payment Date. No payment or
adjustment will be made upon conversion of shares of Series E Preferred Stock
for accumulated and unpaid dividends or for dividends with respect to the
Common Stock issued upon such conversion.
CHANGE OF CONTROL
Upon the occurrence of a Preferred Stock Change of Control and
subject to restrictions on repurchase contained in the instruments governing
Company's outstanding indebtedness and the Series B Preferred Stock
Certificate of Designation and subject to the participation of any Parity
Securities, the Company will be required to make an offer (a "Preferred Stock
Change of Control Offer") to repurchase all or any part of each holder's
Series E Preferred Stock at an offer price in cash equal to 100% of the
aggregate Liquidation Preference thereof, plus accumulated and unpaid
dividends and Preferred Stock Liquidated Damages, if any, thereon to the date
of repurchase. Within 30 days following a Preferred Stock Change of Control,
the Company will mail a notice to each holder of Series E Preferred Stock
describing the transaction that constitutes the Preferred Stock Change of
Control and offering to repurchase the Series E Preferred Stock pursuant to
the procedures required by the Certificate of Designation and described in
such notice; provided that, prior to complying with the provisions of this
covenant, but in any event within 90 days following a Preferred Stock Change
of Control, the Company will either repay all outstanding indebtedness or
obtain the requisite consents, if any, under all agreements governing
outstanding indebtedness to permit the repurchase of the Series E
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Preferred Stock required by this covenant. The Company will comply with the
requirements of the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Series E Preferred Stock as a result
of a Preferred Stock Change of Control.
A "Preferred Stock Change of Control" will be deemed to have
occurred upon the occurrence of any of the following: (a) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries, taken as
a whole, (b) the adoption of a plan relating to the liquidation or
dissolution of the Company, (c) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" or "group" (as such terms are used in Section
13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly through one or more intermediaries, of more than 50% of the voting
power of the outstanding voting stock of the Company, unless (i) the closing
price per share of Common Stock for any five trading days within the period
of ten consecutive trading days ending immediately after the announcement of
such Preferred Stock Change of Control equals or exceeds 105% of the
conversion price of the Series E Preferred Stock in effect on each such
trading day or (ii) at least 90% of the consideration in the transaction or
transactions constituting a Preferred Stock Change of Control pursuant to
clause (c) consists of shares of Common Stock traded or to be traded
immediately following such Preferred Stock Change of Control on a national
securities exchange or the Nasdaq National Market and, as a result of such
transaction or transactions, the Series E Preferred Stock becomes convertible
solely into such Common Stock (and any rights attached thereto), or (d) the
first day on which more than a majority of the members of the Board of
Directors of the Company are not Preferred Stock Continuing Directors;
provided, however, that a transaction in which the Company becomes a
subsidiary of another entity shall not constitute a Preferred Stock Change of
Control if (i) the stockholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly through one or
more intermediaries, at least a majority of the voting power of the
outstanding voting stock of the Company immediately following the
consummation of such transaction and (ii) immediately following the
consummation of such transaction, no "person" or "group" (as such terms are
defined above), other than such other entity (but including holders of equity
interests of such other entity), "beneficially owns" (as such term is defined
above), directly or indirectly through one or more intermediaries, more than
50% of the voting power of the outstanding voting stock of the Company.
"Preferred Stock Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (a)
was a member of the Board of Directors on the date of original issuance of
the Series E Preferred Stock or (b) was nominated for election to the Board
of Directors with the approval of, or whose election was ratified by, at
least two-thirds of the Preferred Stock Continuing Directors who were members
of the Board of Directors at the time of such nomination or election.
Except as described above with respect to a Preferred Stock Change
of Control, the Certificate of Designation does not contain provisions that
permit the holders of the Series E Preferred Stock to require that the
Company repurchase or redeem the Series E Preferred Stock in the event of a
takeover, recapitalization or similar transaction. In addition, the Company
could enter into certain transactions, including acquisitions, refinancings
or other recapitalization, that could affect the Company's capital structure
or the value of the Series E Preferred Stock or the Common Stock, but that
would not constitute a Preferred Stock Change of Control.
The Existing Senior Notes or other indebtedness and the Series B
Preferred Stock could restrict the Company's ability to repurchase the Series
E Preferred Stock upon a Preferred Stock Change of Control. In the event a
Preferred Stock Change of Control occurs at a time when the Company is
prohibited from repurchasing the Series E Preferred Stock, the Company could
either (i) repay in full or refinance all such outstanding indebtedness or
Preferred Stock or (ii) obtain the requisite consents, if any, under all
agreements governing outstanding indebtedness or Preferred Stock to permit
the repurchase of Series E Preferred Stock required by this covenant. The
Company must first comply with the covenants in its outstanding indebtedness
or take the actions described in the preceding sentence before it will be
required to repurchase shares of Series E Preferred Stock in the event of a
Preferred Stock Change of Control; provided, that if the Company fails to
repurchase shares of Series E Preferred Stock, the sole remedy to holders of
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Series E Preferred Stock will be the voting rights arising from a Voting
Rights Triggering Event. Moreover, the Company will not repurchase or redeem
any Series E Preferred Stock pursuant to this Preferred Stock Change of
Control provision prior to the Company's repurchase of the Series B Preferred
Stock pursuant to the change of control covenants in the Series B Preferred
Stock. As a result of the foregoing, a holder of the Series E Preferred Stock
may not be able to compel the Company to purchase the Series E Preferred
Stock unless the Company is able at the time to refinance all such
indebtedness and the Series B Preferred Stock. See "Risk Factors-Business
Combinations; Change of Control."
The Company will not be required to make a Preferred Stock Change
of Control Offer to the holders of Series E Preferred Stock upon a Preferred
Stock Change of Control if a third party makes the Preferred Stock Change of
Control Offer described above in the manner, at the times and otherwise in
compliance with the requirements set forth in the Certificate of Designation
applicable to a Preferred Stock Change of Control Offer made by the Company
and purchases all shares of Series E Preferred Stock validly tendered and not
withdrawn under such Preferred Stock Change of Control Offer.
VOTING RIGHTS
Holders of record of shares of the Series E Preferred Stock have no
voting rights, except as required by law and as provided in the Certificate
of Designation. The Certificate of Designation provides that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding Series E
Preferred Stock in an amount equal to six quarterly dividends (whether or not
consecutive) or (b) the failure of the Company to make a Preferred Stock
Change of Control Offer or to repurchase all of the Series E Preferred Stock
tendered in a Preferred Stock Change of Control Offer (each of the events
described in clauses (a) and (b) being referred to herein as a "Voting Rights
Triggering Event"), then the holders of a majority of the outstanding shares
of Series E Preferred Stock voting together with any other subsequently
issued Parity Securities then entitled to voting rights will be entitled to
elect such number of members to the Board of Directors of the Company
constituting at least 20% of the then existing Board of Directors before such
election (rounded to the nearest whole number), provided, however, that such
number shall be no less than one nor greater than two, and the number of
members of the Company's Board of Directors will be immediately and
automatically increased by one or two, as the case may be. Voting rights
arising as a result of a Voting Rights Triggering Event will continue until
such time as all dividends in arrears on the Series E Preferred Stock are
paid in full and all other Voting Rights Triggering Events have been cured or
waived, at which time the term of office of any such members of the Board of
Directors so elected shall terminate and such directors shall be deemed to
have resigned.
In addition, the Certificate of Designation provides that the
Company will not authorize any class of Senior Securities or any obligation
or security convertible or exchangeable into or evidencing a right to
purchase shares of any class or series of Senior Securities, without the
approval of holders of at least a majority of the shares of Series E
Preferred Stock then outstanding, voting or consenting, as the case may be,
as one class. The Certificate of Designation also provides that the Company
may not amend the Certificate of Designation so as to affect adversely the
specified rights, preferences, privileges or voting rights of holders of
shares of the Series E Preferred Stock or authorize the issuance of any
additional shares of Series E Preferred Stock, without the approval of the
holders of at least a majority of the then outstanding shares of Series E
Preferred Stock voting or consenting, as the case may be, as one class;
provided, however, that the Company may not amend the Preferred Stock Change
of Control provisions of the Certificate of Designation (including the
related definitions) without the approval of the holders of at least 66 2/3%
of the then outstanding shares of Series E Preferred Stock voting or
consenting, as the case may be, as one class. The Certificate of Designation
also provides that, except as set forth above with respect to Senior
Securities, (a) the creation, authorization or issuance of any shares of
Junior Securities, Parity Securities or Senior Securities or (b) the increase
or decrease in the amount of authorized capital stock of any class, including
any preferred stock, shall not require the consent of the holders of Series E
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges, special rights or voting rights of holders of shares
of Series E Preferred Stock. The consent of the holders
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of Series E Preferred Stock will not be required for the Company to
authorize, create (by way of reclassification or otherwise) or issue any
Parity Securities or any obligation or security convertible or exchangeable
into or evidencing a right to purchase, shares of any class or series of
Parity Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the
then outstanding shares of Series E Preferred Stock, the Company may not
consolidate or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, any person
unless (a) the entity formed by such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (in any such case, the "resulting
entity") is a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia; (b) if the Company
is not the resulting entity, the Series E Preferred Stock is converted into
or exchanged for and becomes shares of such resulting entity, having in
respect of such resulting entity the same (or more favorable) powers,
preferences and relative, participating, optional or other special rights
thereof that the Series E Preferred Stock had immediately prior to such
transaction; and (c) immediately after giving effect to such transaction, no
Voting Rights Triggering Event has occurred and is continuing. The resulting
entity of such transaction shall thereafter be deemed to be the "Company" for
all purposes of the Certificate of Designation.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of any class or series
of the Company's capital stock, each holder of shares of the Series E
Preferred Stock will be entitled to payment out of the assets of the Company
available for distribution of an amount equal to the Liquidation Preference
per share of Series E Preferred Stock held by such holder, plus accrued and
unpaid dividends and Preferred Stock Liquidated Damages, if any, to the date
fixed for liquidation, dissolution, winding-up or reduction or decrease in
capital stock, before any distribution is made on any Junior Securities,
including, without limitation, Common Stock. After payment in full of the
Liquidation Preference and all accrued dividends and Preferred Stock
Liquidated Damages, if any, to which holders of Series E Preferred Stock are
entitled, such holders will not be entitled to any further participation in
any distribution of assets of the Company. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, the
amounts payable with respect to the Series E Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Series E Preferred
Stock and the Parity Securities will share equally and ratably in any
distribution of assets of the Company in proportion to the full liquidation
preference and accumulated and unpaid dividends and Preferred Stock
Liquidated Damages, if any, to which each is entitled. However, neither the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the
Company with or into one or more persons will be deemed to be a voluntary or
involuntary liquidation, dissolution or winding-up of the Company or
reduction or decrease in capital stock, unless such sale, conveyance,
exchange or transfer shall be in connection with a liquidation, dissolution
or winding-up of the business of the Company or reduction or decrease in
capital stock.
REPORTS
The Certificate of Designation provides that the Company will file
all annual and quarterly reports and the information, documents, and other
reports that the Company is required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act ("SEC Reports") with the Transfer
Agent within 15 days after it files them with the Commission. In the event
the Company is not required or shall cease to be required to file SEC
Reports, pursuant to the Exchange Act, the Company will nevertheless continue
to file such reports with the Commission (unless the Commission will not
accept such a filing). Whether or not required by the Exchange Act to file
SEC Reports with the Commission, so long as any Series E Preferred Stock are
outstanding, the Company will furnish copies of the SEC Reports to the
holders of Series E Preferred Stock at the time the Company is required to
make such information available to the Transfer Agent and to investors who
request it in writing. In addition, the Company has agreed that,
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for so long as any shares of Series E Preferred Stock remain outstanding, it
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Preferred Stock Registration Rights Agreement, the
Company agreed to file a shelf registration statement (the "Shelf
Registration Statement") with the Commission covering resales of Preferred
Stock Transfer Restricted Securities (as defined below) by holders thereof
(who satisfied certain conditions relating to the provision of information to
the registrant) on or prior to December 29, 1997, and to use its reasonable
best efforts to cause such shelf registration statement to become effective
on or prior to 120 days after such date.
"Preferred Stock Transfer Restricted Securities" for this purpose,
means each Depositary Share, each share of Series E Preferred Stock and each
Common Share until (a) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (b) the date on which such security is
distributed to the public pursuant to Rule 144 under the Securities Act or
may be distributed to the public pursuant to Rule 144(k) under the Securities
Act.
The Registration Statement of which this Prospectus forms a part
constitutes the Shelf Registration statement. The Company is obligated to
use its best efforts to maintain the effectiveness of the Shelf Registration
Statement for a period ending on the earlier of October 30, 1999 and the date
when all Preferred Stock Transfer Restricted Securities covered by the Shelf
Registration Statement are sold. If the Shelf Registration Statement ceases
to be effective or usable for any period of ten consecutive days or for any
20 days in any 180-day period in connection with resales of Preferred Stock
Transfer Restricted Securities (provided, that the Company will have the
option of suspending the effectiveness of the Shelf Registration Statement,
without becoming obligated to pay Preferred Stock Liquidated Damages for
periods of up to a total of 60 days in any calendar year if the Board of
Directors of the Company determines that compliance with the disclosure
obligations necessary to maintain the effectiveness of the Shelf Registration
Statement at such time could reasonably be expected to have an adverse effect
on the Company or a pending corporate transaction) (a "Registration
Default"), then the Company will pay to each holder of Preferred Stock
Transfer Restricted Securities liquidated damages ("Preferred Stock
Liquidated Damages") at a rate of 0.25% per year of the Liquidation
Preference of the Series E Preferred Stock constituting Preferred Stock
Transfer Restricted Securities, which shall accrue from the date of the
Registration Default until such Registration Default is cured. All accrued
Preferred Stock Liquidated Damages will be paid in shares of Common Stock
valued at the Average Stock Price by the Company on each Dividend Payment
Date specified in the Certificate of Designation. Following the cure of all
Registration Defaults, the accrual of Preferred Stock Liquidated Damages will
cease.
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DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share represents a one-hundredth interest in a
share of Series E Preferred Stock deposited under the Deposit Agreement
("Deposit Agreement"), entered into among Intermedia, Continental Stock
Transfer & Trust Company, as depositary agent ("Continental"), and the
holders from time to time of Depositary Receipts issued thereunder. Subject
to the terms of the Deposit Agreement, each owner of a Depositary Share is
entitled proportionately to all of the rights and preferences of the shares
of Series E Preferred Stock represented thereby (including dividend, voting,
redemption and liquidation rights) contained in the Company's Certificate of
Incorporation and the Certificate of Designation and summarized above under
"Description of Series E Preferred Stock." The Company does not expect that
there will be any public trading market for the Series E Preferred Stock
except as represented by the Depositary Shares.
The Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of Depositary Shares does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the Deposit
Agreement (which contains the form of Depositary Receipt), a copy of which is
available from the Company, upon request.
ISSUANCE OF DEPOSITARY RECEIPTS
The Series E Preferred Stock was deposited with Continental
immediately preceding the October 30 Offerings, and Continental in turn
executed and delivered the Depositary Receipts to the Company. The Company
delivered the Depositary Receipts to the Initial Purchasers.
WITHDRAWAL OF SERIES E PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust
office of Continental, the owner of the Depositary Shares evidenced thereby
is entitled to delivery at such office of the number of whole shares of
Series E Preferred Stock represented by such Depositary Shares. Owners of
Depositary Shares are entitled to receive only whole shares of Series E
Preferred Stock on the basis of one share of Series E Preferred Stock for
each one hundred Depositary Shares. In no event will fractional shares of
Series E Preferred Stock (or cash in lieu thereof) be distributed by
Continental. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of whole shares of Series E Preferred Stock to be
withdrawn, Continental will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
The Company has not applied and does not intend to apply for the
listing of the Depositary Shares or the Series E Preferred Stock on any
securities exchange or for quotation through the Nasdaq National Market.
CONVERSION AND CALL PROVISION
Conversion at the Option of Holder. As described under "Description
of Series E Preferred Stock- Conversion Rights," the Series E Preferred Stock
may be converted, in whole or in part, into shares of Common Stock at the
option of the holders of Series E Preferred Stock at any time after December
29, 1997, unless previously redeemed. The Depositary Shares held by any
holder may, at the option of such holders, be converted in whole or from time
to time in part (but only in lots of 100 Depositary Shares or integral
multiples thereof), into shares of Common Stock upon the same terms and
conditions as the Series E Preferred Stock, except that the number of shares
of Common Stock received upon conversion of each Depositary Share will be
equal to the number of shares of Common Stock received upon conversion of one
share of Series E Preferred Stock divided by one hundred. To effect such an
optional conversion, a holder of Depositary Shares must deliver Depositary
Receipts evidencing the Depositary Shares to be converted, together with a
written notice of conversion and a proper assignment of the Depositary
Receipts to the Company or in blank, to Continental or its agent. A
Depositary Share surrendered for conversion during the period
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from the close of business on any Record Date for the payment of dividends to
the opening of business of the corresponding Dividend Payment Date must be
accompanied by a payment in cash, Common Stock or a combination thereof,
depending on the method of payment that the Company has chosen to pay the
dividend, in an amount equal to the dividend payable on such Dividend Payment
Date, unless such Depositary Share has been called for redemption on a
redemption date occurring during the period from the close of business on any
Record Date for the payment of dividends to the close of business on the
Business Day immediately following the corresponding Dividend Payment Date.
The dividend payment with respect to a Depositary Share called for redemption
on a date during the period from the close of business on any Record Date for
the payment of dividends to the close of business on the Business Day
immediately following the corresponding Dividend Payment Date will be payable
on such Dividend Payment Date to the record holder of such share on such
Record Date, notwithstanding the conversion of such share after such Record
Date and prior to such Dividend Payment Date. Each optional conversion of
Depositary Shares shall be deemed to have been effected immediately before
the close of business on the date on which the foregoing requirements shall
have been satisfied.
If only a portion of the Depositary Shares evidenced by a
Depositary Receipt is to be converted, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not converted. No fractional shares
of Common Stock will be issued upon conversion of Depositary Shares, and, if
such conversion would otherwise result in a fractional share of Common Stock
being issued, the number of shares of Common Stock to be issued upon such
conversion shall be rounded up to the nearest whole share.
After the date fixed for conversion or redemption, the Depositary
Shares so converted or called for redemption will no longer be deemed to be
outstanding and all rights of the holders of such Depositary Shares will
cease, except the holder of such Depositary Shares shall be entitled to
receive any money or other property to which the holders of such Depositary
Shares were entitled upon such conversion or redemption, upon surrender to
Continental of the Depositary Receipt or Receipts evidencing such Depositary
Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
Continental will distribute all dividends or other distributions in
respect of the Series E Preferred Stock to the record holders of Depositary
Receipts in proportion to the number of Depositary Shares owned by such
holders. See "Description of Series E Preferred Stock - Dividends."
The amount distributed in any of the foregoing cases will be
reduced by any amount required to be withheld by the Company or Continental
on account of taxes.
RECORD DATE
Whenever (i) any dividend or other distribution shall become
payable, any distribution shall be made, or any rights, preferences or
privileges shall be offered with respect to the Series E Preferred Stock, or
(ii) Continental shall receive notice of any meeting at which holders of
Series E Preferred Stock are entitled to vote or of which holders of Series E
Preferred Stock are entitled to notice, or of any election on the part of the
Company to call for redemption any Series E Preferred Stock, Continental
shall in each such instance fix a record date (which shall be the same date
as the record date for the Series E Preferred Stock) for the determination of
the holders of Depositary Receipts (x) who shall be entitled to receive such
dividend, distribution, rights, preference or privileges or the net proceeds
of the sale thereof, (y) who shall be entitled to give instructions for the
exercise of voting rights at any such meeting or to receive notice of such
meeting, or (z) who shall be subject to such redemption, subject to the
provisions of the Deposit Agreement.
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VOTING OF DEPOSITARY SHARES
Holders of record of Depositary Shares have no voting rights,
except as required by law and as provided in the Certificate of Designation
in respect of the Series E Preferred Stock, as described under "Description
of Series E Preferred Stock - Voting Rights."
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipts and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and
Continental. However, any amendment that imposes any fees, taxes or other
charges payable by holders of Depositary Receipts (other than taxes and other
governmental charges, fees and other expenses payable by such holders as
stated under "Charges of Continental"), or that otherwise prejudices any
substantial existing right of holders of Depositary Receipts, will not take
effect as to outstanding Depositary Receipts until the expiration of 90 days
after notice of such amendment has been mailed to the record holders of
outstanding Depositary Receipts. Every holder of Depositary Receipts at the
time any such amendment becomes effective shall be deemed to consent and
agree to such amendment and to be bound by the Deposit Agreement, as so
amended. In no event may any amendment impair the right of any owner of
Depositary Shares, subject to the conditions specified in the Deposit
Agreement, upon surrender of the Depositary Receipts evidencing such
Depositary Shares, to receive Series E Preferred Stock or, upon conversion of
the Series E Preferred Stock represented by the Depositary Receipts, to
receive shares of Common Stock, and in each case any money or other property
represented thereby, except in order to comply with mandatory provisions of
applicable law.
Whenever so directed by the Company, Continental will terminate the
Deposit Agreement after mailing notice of such termination to the record
holders of all Depositary Receipts then outstanding at least 30 days before
the date fixed in such notice for such termination. Continental may likewise
terminate the Deposit Agreement if at any time 45 days shall have expired
after Continental shall have delivered to the Company a written notice of its
election to resign and a successor depositary shall not have been appointed
and accepted its appointment. If any Depositary Receipts remain outstanding
after the date of termination, Continental thereafter will discontinue the
transfer of Depositary Receipts, will suspend the distribution of dividends
to the holders thereof, and will not give any further notices (other than
notice of such termination) or perform any further acts under the Deposit
Agreement except as provided below and except that Continental will continue
(i) to collect dividends on the Series E Preferred Stock and any other
distributions with respect thereto and (ii) to deliver the Series E Preferred
Stock together with such dividends and distributions and the net proceeds of
any sales or rights, preferences, privileges or other property, without
liability for interest thereon, in exchange for Depositary Receipts
surrendered. At any time after the expiration of two years from the date of
termination, Continental may sell the Series E Preferred Stock then held by
it at public or private sale, at such place or places and upon such terms as
it deems proper and may thereafter hold the net proceeds of any such sale,
together with any money and other property then held by it, without liability
for interest thereon, for the pro rata benefit of the holders of Depositary
Receipts which have not been surrendered. The Company does not intend to
terminate the Deposit Agreement or to permit the resignation of Continental
without appointing a successor depositary.
CHARGES OF CONTINENTAL
The Company will pay all charges of Continental including the
distribution of information to the holders of Depositary Receipts with
respect to matters on which Series E Preferred Stock are entitled to vote,
withdrawals of the Series E Preferred Stock by the holders of Depositary
Receipts or redemption or conversion of the Depositary Receipts, except for
taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are provided in the Deposit Agreement to be at the
expense of the holders of Depositary Receipts or persons depositing Series E
Preferred Stock.
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GENERAL
Continental will make available for inspection by holders of
Depositary Receipts at its corporate trust office all reports and
communications from the Company that are delivered to Continental and made
generally available to the holders of the Series E Preferred Stock.
Neither Continental nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its control from or in
performing its obligations under the Deposit Agreement.
FORM AND DENOMINATION
Global Shares; Book-Entry Form. Depositary Shares sold in
offshore transactions in reliance on Regulation S ("Regulation S") under
the Securities Act will initially be represented by one or more global
certificates in definitive, fully registered form (the "Regulation S
Temporary Global Certificate") and will be deposited with the Trustee as
custodian for, and registered in the name of, Cede & Co., as nominee of The
Depository Trust Company (the "Depositary") (such nominee being referred to
herein as the "Global Security Holder"). On or prior to the end of the 40
day restricted period (the "Restricted Period") within the meaning of
Regulation S, beneficial interests in Depositary Shares sold in offshore
transactions in reliance on Regulation S may only be held through the
Regulation S Temporary Global Certificate, held by the Depositary. Upon the
conclusion of the Restricted Period, interests in the Regulation S Temporary
Global Certificate may be transferred for interests in a permanent Regulation
S global certificate (the "Regulation S Global Certificate") or otherwise
as provided below. Shares of Depositary Shares sold in reliance on Rule 144A
or to other Accredited Investors will be evidenced initially by one or more
global certificates (the "Restricted Global Certificate" and, together with
the Regulation S Global Certificate, the "Depositary Share Global
Certificate") which will be deposited with, or on behalf of, the Depositary
and registered in the name of Cede & Co., as nominee of the Depositary (the
"Global Certificate Holder"). Except as set forth below, record ownership
of the Depositary Share Global Certificate may be transferred, in whole or in
part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee.
Owners of a beneficial interest in the Depositary Share Global
Certificate may hold their interest in the Depositary Share Global
Certificate directly through the Depositary if such holder is a Participant
in the Depositary or indirectly through organizations that are Participants
in the Depositary. Persons who are not Participants may beneficially own
interests in the Depositary Share Global Certificate held by the Depositary
only through Participants or certain banks, brokers, dealers, trust companies
and other parties that clear though or maintain a custodial relationship with
a Participant, either directly or indirectly. So long as Cede & Co., as the
nominee of the Depositary, is the registered owner of the Depositary Share
Global Certificate, Cede & Co. for all purposes will be considered the sole
holder of the Depositary Share Global Certificate. Owners of beneficial
interest in the Depositary Share Global Certificate will be entitled to have
certificates registered in their names and to receive physical delivery of
certificates in definitive form (the "Definitive Securities").
Payment of dividends on and any redemption price with respect to
the Depositary Share Global Certificate will be made to the Global
Certificate Holder, as registered owner of the Depositary Share Global
Certificate, by wire transfer of immediately available funds on each Dividend
Payment Date or redemption date, as applicable. Neither the Company nor the
Transfer Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Depositary Share Global Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company has been informed by the Depositary that, with respect
to any payment of dividends on, or the redemption price with respect to, the
Depositary Share Global Certificate, the Depositary's practice is to credit
Participants' accounts on the payment date therefor, with payments in amounts
proportionate to their respective beneficial interests in the Depositary
Shares represented by the Depositary Share Global Certificate as shown on the
29
<PAGE>
records of the Depositary, unless the Depositary has reason to believe that
it will not receive payment on such payment date. Payments by Participants to
owners of beneficial interests in the Depositary Shares represented by the
Depositary Share Global Certificate held through such Participants will be
the responsibility of such Participants, as is now the case with securities
held for the accounts of customers registered in "street name."
Transfers between Participants will be effected in the ordinary way
in accordance with the Depositary's rules and will be settled in immediately
available funds. The laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability
to transfer beneficial interests in the Depositary Share Global Certificate
to such persons may be limited. Because the Depositary can only act on behalf
of Participants, who in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having a beneficial interest in the
Depositary Shares represented by the Depositary Share Global Certificate to
pledge such interest to persons or entities that do not participate in the
Depositary system, or otherwise take actions in respect of such interest, may
be affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Transfer Agent will have responsibility
for the performance of the Depositary or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations. The Depositary has advised the Company that it
will take any action permitted to be taken by a holder of Depositary Shares
(including, without limitation, the presentation of Depositary Shares for
exchange) only at the direction of one or more Participants to whose account
with the Depositary interests in the Depositary Share Global Certificate are
credited, and only in respect of the Depositary Shares represented by the
Depositary Share Global Certificate as to which such Participant or
Participants has or have given such direction.
The Depositary has also advised the Company that the Depositary is
a limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes to accounts of its Participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations such as
the Initial Purchasers. Certain of such Participants (or their
representatives), together with other entities, own the Depositary. Indirect
access to the Depositary system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
Although the Depositary has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Depositary Share Global
Certificate among Participants, it is under no obligation to perform or
continue to perform such procedures, and such procedures may be discontinued
at any time. If the Depositary is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the Company
within 90 days, the Company will cause the Depositary Shares to be issued in
definitive form in exchange for the Depositary Share Global Certificate.
Certificated Depositary Shares. Investors in the Depositary Shares
may request that Definitive Securities be issued in exchange for Depositary
Shares represented by the Depositary Share Global Certificate. Furthermore,
Definitive Securities may be issued in exchange for Depositary Shares
represented by the Depositary Share Global Certificate if no successor
depositary is appointed by the Company as set forth above.
Unless determined otherwise by the Company in accordance with
applicable law, Definitive Securities issued upon transfer or exchange of
beneficial interests in Depositary Shares represented by the Depositary Share
Global Certificate will bear a legend setting forth transfer restrictions
under the Securities Act. Any request for the transfer of Definitive
Securities bearing the legend, or for removal of the legend from Definitive
Securities, must be accompanied by satisfactory evidence, in the form of an
opinion of counsel, that such transfer complies with the Securities Act or
30
<PAGE>
that neither the legend nor the restrictions on transfer set forth therein
are required to ensure compliance with the provisions of the Securities Act,
as the case may be.
31
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States
federal income tax considerations generally applicable to persons acquiring
the Depositary Shares, but does not purport to be a complete analysis of all
potential consequences. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, Internal Revenue
Service ("IRS") rulings and judicial decisions now in effect, all of which
are subject to change at any time by legislative, judicial or administrative
action. Any such changes may be applied retroactively in a manner that could
adversely affect a holder of the Depositary Shares and Common Stock.
The discussion assumes that the holders of the Depositary Shares
and Common Stock will hold them as "capital assets" within the meaning of
Section 1221 of the Code. The discussion is not binding on the IRS or the
courts. The Company has not sought and will not seek any rulings from the IRS
with respect to the positions of the Company discussed herein, and there can
be no assurance that the IRS will not take a different position concerning
the tax consequences of the purchase, ownership or disposition of the
Depositary Shares or Common Stock or that any such position would not be
sustained.
The tax treatment of a holder of the Depositary Shares and Common
Stock may vary depending on such holder's particular situation or status.
Certain holders (including S corporations, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, taxpayers subject to
alternative minimum tax and persons holding Depositary Shares or Common Stock
as part of a straddle, hedging or conversion transaction) may be subject to
special rules not discussed below. The following discussion does not
consider all aspects of United States federal income tax that may be relevant
to the purchase, ownership and disposition of the Depositary Shares and
Common Stock by a holder in light of such holder's personal circumstances. In
addition, the discussion does not consider the effect of any applicable
foreign, state, local or other tax laws, or estate or gift tax
considerations. PERSONS CONSIDERING THE PURCHASE OF THE DEPOSITARY SHARES
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR
FOREIGN TAXING JURISDICTION.
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 who is not a U.S. Holder.
INTRODUCTION
Holders of Depositary Shares will be treated for United States
federal income tax purposes as if they were owners of the Series E Preferred
Stock represented by such Depositary Shares. Accordingly, holders of
Depositary Shares will recognize the items of income, gain, loss and
deduction that they would recognize if they directly held the Series E
Preferred Stock. References in this "Certain Federal Income Tax Consequences"
section to holders of Series E Preferred Stock include holders of Depositary
Shares, and references to Depositary Shares include Series E Preferred Stock.
32
<PAGE>
TAX CONSEQUENCES TO U.S. HOLDERS
DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK
A distribution on the Depositary Shares, whether paid in cash or in
shares of Common Stock, or a cash distribution on Common Stock will be
taxable to the U.S. Holder as ordinary dividend income to the extent that the
amount of the distribution (i.e., the amount of cash and/or the fair market
value of the Common Stock on the date of distribution) does not exceed the
Company's current or accumulated earnings and profits allocable to such
distribution (as determined for federal income tax purposes). To the extent
that the amount of the distribution exceeds the Company's current or
accumulated earnings and profits allocable to such distribution, the
distribution will be treated as a return of capital, thus reducing the
holder's adjusted tax basis in the Depositary Shares or Common Stock with
respect to which such distribution is made. The amount of any such excess
distribution that exceeds the U.S. Holder's adjusted tax basis in the
Depositary Shares or Common Stock will be taxed as capital gain and will be
long-term capital gain if the U.S. Holder's holding period for the Depositary
Shares or Common Stock 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. A U.S. Holder's initial tax
basis in Common Stock received as a distribution on the Depositary Shares
will equal the fair market value of the Common Stock on the date of the
distribution. The holding period for the Common Stock will commence on the
day following the distribution. There can be no assurance that the Company
will have sufficient earnings and profits to cause distributions on the
Series E Preferred Stock or Common Stock to be treated as dividends for
federal income tax purposes. For purposes of the remainder of this
discussion, the term "dividend" refers to a distribution paid out of current
or accumulated earnings and profits, unless the context indicates otherwise.
Preferred Stock Liquidated Damages should be taxed in the same manner as
dividend distributions, except that it is possible that Preferred Stock
Liquidated Damages might be treated as payment of a fee and hence as ordinary
income with respect to which no dividends-received deduction is available.
Dividends received by corporate U.S. Holders will generally be
eligible for the 70% dividends-received deduction under Section 243 of the
Code. There are, however, many exceptions and restrictions relating to the
availability of the dividends-received deduction, such as restrictions
relating to (i) the holding period of the stock on which the dividends are
received, (ii) debt-financed portfolio stock, (iii) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (iv)
taxpayers that pay alternative minimum tax. Corporate U.S. Holders should
consult their own tax advisors regarding the extent, if any, to which such
exceptions and restrictions may apply to their particular factual situations.
Recently enacted legislation requires a corporate holder to satisfy a
separate 46 day (91-day, in the case of certain preferred stock dividends)
holding period requirement with respect to each dividend in order to be
eligible for the dividends-received deduction with respect to such dividend.
REDEMPTION PREMIUM
Under certain circumstances, Section 305(c) of the Code requires
that any excess of the redemption price of preferred stock over its issue
price be treated as constructively distributed on a periodic basis prior to
actual receipt. However, the Company believes that a U.S. Holder of the
Depositary Shares should not be required to include any redemption premium in
income under Section 305(c).
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations issued under Section 305 of the Code treat
certain adjustments to conversion provisions of stock such as the Series E
Preferred Stock as constructive distributions of stock with respect to
preferred stock. Such constructive distributions of stock would be taxable to
U.S. Holders of Depositary Shares as described above under the caption
"Distributions on Depositary Shares and Common Stock." In general, any
adjustment increasing the number of shares of Common Stock into which the
Depositary Shares can be converted could constitute a constructive
distribution of stock to U.S. Holders of Depositary Shares unless made
pursuant to a bona fide, reasonable adjustment formula that has the effect of
preventing dilution of the interest of the holders of Depositary Shares. Any
adjustment in the conversion price to compensate the holders of Depositary
Shares for taxable distributions of cash or property on any of
33
<PAGE>
the outstanding Common Stock of the Company may be treated as a constructive
distribution of stock to U.S. Holders of Depositary Shares. The Company is
unable to predict whether any such adjustment will be made.
CONVERSION OF SERIES E PREFERRED STOCK
No gain or loss will generally be recognized for United States
federal income tax purposes on conversion of the Series E Preferred Stock
solely into Common Stock. However, if the conversion takes place when there
is a dividend arrearage on the Series E Preferred Stock, a portion of the
Common Stock received may be treated as a taxable dividend to the extent of
such dividend arrearage. Except for any Common Stock treated as payment of a
dividend, the tax basis for the Common Stock received upon conversion
(including any fractional share deemed received) will be the tax basis of the
Series E Preferred Stock converted, and the holding period of the Common
Stock received upon conversion (including any fractional share deemed
received) will include the holding period of the Series E Preferred Stock
converted into such Common Stock. The receipt of cash in lieu of a fractional
share upon conversion of Series E Preferred Stock into Common Stock will
generally be treated as a sale of such fractional share of Common Stock in
which the U.S. Holder will recognize taxable gain or loss equal to the
difference between the amount of cash received and the U.S. Holder's adjusted
tax basis in the fractional share redeemed. Such gain or loss will be capital
gain or loss and will be long-term if the U.S. Holder's holding period for
the fractional share 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.
CONVERSION OF SERIES E PREFERRED STOCK AFTER DIVIDEND RECORD DATE
If a holder whose Series E Preferred Stock has not been called for
redemption surrenders such Series E Preferred Stock for conversion into
shares of Common Stock after a dividend record date for the Series E
Preferred Stock but before payment of the dividend, such holder will be
required to pay the Company an amount equal to such dividend upon conversion.
A U.S. Holder will likely recognize the dividend payment as ordinary dividend
income when it is received and increase the basis of the Common Stock
received by the amount paid to the Company.
REDEMPTION, SALE OR OTHER TAXABLE DISPOSITION OF SERIES E PREFERRED STOCK AND
SALE OR OTHER TAXABLE DISPOSITION OF COMMON STOCK
A redemption of shares of Series E Preferred Stock for cash will be
a taxable event.
A redemption of shares of Series E Preferred Stock for cash will
generally be treated as a sale or exchange if the holder does not own,
actually or constructively within the meaning of Section 318 of the Code, any
stock of the Company other than the Series E Preferred Stock redeemed. If a
holder does own, actually or constructively, other stock of the Company, a
redemption of Series E Preferred Stock may be treated as a dividend to the
extent of the Company's allocable current or accumulated earnings and profits
(as determined for federal income tax purposes). Such dividend treatment will
not be applied if the redemption is "not essentially equivalent to a
dividend" with respect to the holder under Section 302(b)(1) of the Code. A
distribution to a holder will be "not essentially equivalent to a dividend"
if it results in a "meaningful reduction" in the holder's stock interest in
the Company. For this purpose, a redemption of Series E Preferred Stock that
results in a reduction in the proportionate interest in the Company (taking
into account any actual ownership of Common Stock and any stock
constructively owned) of a holder whose relative stock interest in the
Company is minimal and who exercises no control over corporate affairs should
be regarded as a meaningful reduction in the holder's stock interest in the
Company.
If a redemption of the Series E Preferred Stock for cash is treated
as a sale or exchange, the redemption will result in capital gain or loss
equal to the difference between the amount of cash received and the holder's
adjusted tax basis in the Series E Preferred Stock redeemed, except to the
extent that the redemption price includes dividends that have been declared
by the Board of Directors of the Company prior to the redemption. Similarly,
upon the sale or exchange of the Series E Preferred Stock or Common Stock
(other than in a redemption, on conversion or pursuant to
34
<PAGE>
a tax-free exchange), the difference between the sum of the amount of cash
and the fair market value of other property received and the holder's
adjusted tax basis in the Series E Preferred Stock or Common Stock will be
capital gain or loss. This gain or loss will be long-term capital gain or
loss if the holder's holding period for the Series E Preferred Stock or
Common Stock exceeds one year. The most favorable tax rate on long-term
capital gains of individual holders (20%) will not be available unless the
holding period exceeds 18 months.
If a redemption of Series E Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be the amount of cash received by the holder. The holder's adjusted tax
basis in the redeemed Series E Preferred Stock will be transferred to any
remaining stock holdings in the Company, subject to reduction or possible
gain recognition under Section 1059 of the Code with respect to the non-taxed
portion of such dividend. If the holder does not retain any actual stock
ownership in the Company (having a stock interest only constructively by
attribution), the holder may lose the benefit of the basis in the Series E
Preferred Stock.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK
Dividends paid to a Non-U.S. Holder of Series E Preferred Stock or
Common Stock that are not effectively connected with the conduct of a trade
or business within the United States by the Non-U.S. Holder will be subject
to United States federal income tax, which generally will be withheld at a
rate of 30% of the gross amount of the dividends unless the rate is reduced
by an applicable income tax treaty. Under the currently applicable Treasury
regulations, dividends paid to an address in a country other than the United
States are subject to withholding (unless the payor has knowledge to the
contrary).
Dividends paid to a Non-U.S. Holder of Series E Preferred Stock or
Common Stock that are effectively connected with a United States trade or
business conducted by such Non-U.S. Holder are taxed at the graduated rates
applicable to United States citizens, resident aliens and domestic
corporations (the "Regular Federal Income Tax"), and are not 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 dividend payment. In addition
to the Regular Federal Income Tax, effectively connected dividends received
by a Non-U.S. Holder that is a corporation may also be subject to an
additional branch profits tax at a rate of 30% (or such lower rate as may be
specified by an applicable income tax treaty).
REDEMPTION, SALE OR OTHER TAXABLE DISPOSITION OF SERIES E PREFERRED STOCK AND
SALE OR OTHER TAXABLE DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States
federal income tax or withholding on gain recognized upon the sale or other
disposition of Series E Preferred Stock or Common Stock 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 (in which case the branch profits tax
also may apply if the Non-U.S. Holder is a corporation); (ii) in the case of
a Non-U.S. Holder who is a non-resident alien individual and holds the Series
E Preferred Stock or Common Stock as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year and certain
other conditions are met; or (iii) the Series E Preferred Stock or Common
Stock constitutes a United States real property interest by reason of the
Company's status as a "United States real property holding corporation"
("USRPHC") for federal income tax purposes at any time within the shorter
of the five-year period preceding such disposition or such Non-U.S. Holder's
holding period for such Series E Preferred Stock or Common Stock. The Company
does not believe that it is or will become a USRPHC for federal income tax
purposes.
If a Non-U.S. Holder falls within clause (i) or (iii) 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, with respect to corporate Non-
U.S. Holders, may also be subject to the branch profits tax). If an
35
<PAGE>
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 TAXES
An individual Non-U.S. Holder who owns, or is treated as owning,
Series E Preferred Stock or Common Stock at the time of his or her death or
has made certain lifetime transfers of an interest in Series E Preferred
Stock or Common Stock will be required to include the value of such Series E
Preferred Stock or Common Stock in his gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
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, 1998, 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.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A U.S. Holder of Depositary Shares or Common Stock may be subject
to backup withholding at the rate of 31% with respect to dividends paid on,
or the proceeds of a redemption, sale or exchange of, the Depositary Shares
or Common Stock, unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates its
exemption or (b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies
with applicable requirements of the backup withholding rules. A U.S. Holder
of Depositary Shares or Common Stock who does not provide the Company with
the holder's correct taxpayer identification number may be subject to
penalties imposed by the IRS. A Non-U.S. Holder of Depositary Shares or
Common Stock 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.
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<PAGE>
THE SELLING SECURITYHOLDERS
The following table sets forth, as of January 13, 1998 certain
information regarding the Selling Securityholders' ownership of the Company's
Depositary Shares, Series E Preferred Stock and Common Stock. Unless
otherwise disclosed in the footnotes to the table, no Selling Securityholder
has held any position, office or had any other material relationship with the
Company, its predecessors or affiliates during the past three years. All of
the Depositary Shares and shares of Series E Preferred Stock are registered
in the name of "Cede & Co." on the books of the Company's Transfer Agent. To
the knowledge of the Company, except as disclosed in the table below, the
Selling Securityholders did not own, nor have any rights to acquire, any
other Depositary Shares, shares of Series E Preferred Stock or Common Stock
as of the date of this Prospectus.
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Aim High Yield 239,789 1.3848 239,789 0 580,000 7.2500 580,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Allstate Insurance Company 49,612 * 49,612 0 120,000 1.5000 120,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
American Travellers Life 5,458 * 5,458 0 13,200 * 13,200 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of America Pension 49,612 * 49,612 0 120,000 1.5000 120,000 0
Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Bankers Life and Casualty 10,688 * 10,688 0 25,850 * 25,850 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 184,974 1.0683 184,974 0 447,415 5.5927 447,415 0
(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Standard Life 13,189 * 13,189 0 31,900 * 31,900 0
Insurance Co. -
Convertible
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Aim High Yield 5,800 7.2500 5,800 0
- ------------------------------------------------------------------------------
Allstate Insurance Company 1,200 1.5000 1,200 0
- ------------------------------------------------------------------------------
American Travellers Life 132 * 132 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------
Bank of America Pension 1,200 1.5000 1,200 0
Plan
- ------------------------------------------------------------------------------
Bankers Life and Casualty 259 * 259 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------
Bear Stearns & Co., Inc. 4,474.15 5.5927 4,474.15 0
(6)
- ------------------------------------------------------------------------------
Beneficial Standard Life 319 * 319 0
Insurance Co. -
Convertible
- ------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
BNP Arbitrage SNC (7) 41,343 * 41,343 0 100,00 1.2500 100,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Markets 45,478 * 45,478 0 110,000 1.3750 110,000 0
Transactions, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Capitol American Life 5,458 * 5,458 0 13,200 * 13,200 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Chrysler Corporation 41,385 * 41,385 0 100,100 1.2513 100,100 0
Master Retirement Trust
- ------------------------------------------------------------------------------------------------------------------------------------
CNA Income Shares, Inc. 16,538 * 16,538 0 40,000 * 40,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Combined Insurance Company 8,931 * 8,931 0 21,600 * 21,600 0
of America
- ------------------------------------------------------------------------------------------------------------------------------------
Commonwealth Life 20,672 * 20,672 0 50,000 * 50,000 0
Insurance Company - Stock
TRAC (Teamsters I)
- ------------------------------------------------------------------------------------------------------------------------------------
Commonwealth Life 31,008 * 31,008 0 75,000 * 75,000 0
Insurance Company -
(Teamsters - Camden
Non-Enhanced)
- ------------------------------------------------------------------------------------------------------------------------------------
Conseco Fund Group - Asset 4,962 * 4,962 0 12,000 * 12,000 0
Allocation (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Conseco Series Trust 11,576 * 11,576 0 28,000 * 28,000 0
-Asset Allocation (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware PERS 8,269 * 8,269 0 20,000 * 20,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
DeMoss Foundation (8) 2,068 * 2,068 0 5,000 * 5,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank A.G. 160,535 * 160,535 0 388,300 4.8538 388,300 0
- ------------------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & 110,592 * 110,592 0 267,500 3.3438 267,500 0
Jenrette Sec. Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
BNP Arbitrage SNC (7) 1,000 1.2500 1,000 0
- ------------------------------------------------------------------------------
Capital Markets 1,100 1.3750 1,100 0
Transactions, Inc.
- ------------------------------------------------------------------------------
Capitol American Life 132 * 132 0
Insurance Co. -
Convertible (5)
- ------------------------------------------------------------------------------
Chrysler Corporation 1,001 1.2513 1.001 0
Master Retirement Trust
- ------------------------------------------------------------------------------
CNA Income Shares, Inc. 400 * 400 0
- ------------------------------------------------------------------------------
Combined Insurance Company 216 * 216 0
of America
- ------------------------------------------------------------------------------
Commonwealth Life 500 * 500 0
Insurance Company - Stock
TRAC (Teamsters I)
- ------------------------------------------------------------------------------
Commonwealth Life 750 * 750 0
Insurance Company -
(Teamsters - Camden
Non-Enhanced)
- ------------------------------------------------------------------------------
Conseco Fund Group - Asset 120 * 120 0
Allocation (5)
- ------------------------------------------------------------------------------
Conseco Series Trust 280 * 280 0
-Asset Allocation (5)
- ------------------------------------------------------------------------------
Delaware PERS 200 * 200 0
- ------------------------------------------------------------------------------
DeMoss Foundation (8) 50 * 50 0
- ------------------------------------------------------------------------------
Deutsche Bank A.G. 3,883 4.8538 3,883 0
- ------------------------------------------------------------------------------
Donaldson, Lufkin & 2,675 3.3438 2,675 0
Jenrette Sec. Corp.
- ------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Eaton Vance High Income
Portfolio 76,485 * 76,485 0 185,000 2.3125 185,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Eaton Vance Income Fund of 18,605 * 18,605 0 45,000 * 45,000 0
Boston
- ------------------------------------------------------------------------------------------------------------------------------------
Enhanced Select
Fund Limited(9) 41,343 * 41,343 0 100,000 * 100,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Enterprise Accum Trust HY(8) 3,101(8) * 3,101 0 7,500 * 7,500 0
- ------------------------------------------------------------------------------------------------------------------------------------
Enterprise High Yield Bd.(8) 3,101(8) * 3,101 0 7,500 * 7,500 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forehooks & Co. 22,739 * 22,739 0 55,000 * 55,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Convertible 621 * 621 0 1,500 * 1,500 0
Opportunity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Fulcrum Fd LP 5,127 * 5,127 0 12,400 * 12,400 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Global Convert B2 621 * 621 0 1,500 * 1,500 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Global Convert Fund 290 * 290 0 700 * 700 0
B-3
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Global Convert Fund 5,292 * 5,292 0 12,800 * 12,800 0
Ser A-5
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Global Convert Fund 827 * 827 0 2,000 * 2,000 0
Ser B-5
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Performance Fund 703 * 703 0 1,700 * 1,700 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Eaton Vance High Income
Portfolio 1,850 2.3125 1,850 0
- ------------------------------------------------------------------------------
Eaton Vance Income Fund of 450 * 450 0
Boston
- ------------------------------------------------------------------------------
Enhanced Select Fund
Limited(9) 1,000 * 1,000 0
- ------------------------------------------------------------------------------
Enterprise Accum Trust HY(8) 75 * 75 0
- ------------------------------------------------------------------------------
Enterprise High Yield Bd.(8) 75 * 75 0
- ------------------------------------------------------------------------------
Forehooks & Co. 550 * 550 0
- ------------------------------------------------------------------------------
Forest Convertible 15 * 15 0
Opportunity Fund
- ------------------------------------------------------------------------------
Forest Fulcrum Fd LP 124 * 124 0
- ------------------------------------------------------------------------------
Forest Global Convert B2 15 * 15 0
- ------------------------------------------------------------------------------
Forest Global Convert Fund 7 * 7 0
B-3
- ------------------------------------------------------------------------------
Forest Global Convert Fund 128 * 128 0
Ser A-5
- ------------------------------------------------------------------------------
Forest Global Convert Fund 20 * 20 0
Ser B-5
- ------------------------------------------------------------------------------
Forest Performance Fund 17 * 17 0
- ------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Performance
Greyhound 827 * 827 0 2,000 * 2,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Global Convert B-1 703 * 703 0 1,700 * 1,700 0
- ------------------------------------------------------------------------------------------------------------------------------------
Forum Capital Markets LLC 3,101 * 3,101 0 7,500 * 7,500 0
- ------------------------------------------------------------------------------------------------------------------------------------
Fox Family Foundation 497 * 497 0 1,200 * 1,200 0
10/10/87 c/o Forest
Investment Management Co.
- ------------------------------------------------------------------------------------------------------------------------------------
Fox Family Portfolio 1,654 * 1,654 0 4,000 * 4,000 0
Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
General Motors Employees 16,538 * 16,538 0 40,000 * 40,000 0
Domestic Group Pension
Trust(10)
- ------------------------------------------------------------------------------------------------------------------------------------
Golden Rule Insurance HY(8) 4,135 * 4,135 0 10,000 * 10,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs & Company 72,262 * 72,262 0 174,785 2.1848 174,785 0
- ------------------------------------------------------------------------------------------------------------------------------------
Great American Reserve 10,688 * 10,688 0 25,850 * 25,850 0
Insurance Co. -
Convertible(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Highbridge 37,002 * 37,002 0 89,500 1.1188 89,500 0
International LDC(11)
- ------------------------------------------------------------------------------------------------------------------------------------
ICI American Holdings 3,308 * 3,308 0 8,000 * 8,000 0
Pension Trust
- ------------------------------------------------------------------------------------------------------------------------------------
JMG Convertible 41,343 * 41,343 0 100,000 1.2500 100,000 0
Investments L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
===================================================================================
Series E Preferred Stock
------------------------
- ---------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
Forest Performance
Greyhound 20 * 20 0
- ---------------------------------------------------------------------------------
Forest Global Convert B-1 17 * 17 0
- ---------------------------------------------------------------------------------
Forum Capital Markets LLC 75 * 75 0
- ---------------------------------------------------------------------------------
Fox Family Foundation 12 * 12 0
10/10/87 c/o Forest
Investment Management Co.
- ---------------------------------------------------------------------------------
Fox Family Portfolio 40 * 40 0
Partnership
- ---------------------------------------------------------------------------------
General Motors Employees 400 * 400 0
Domestic Group Pension
Trust(10)
- ---------------------------------------------------------------------------------
Golden Rule Insurance HY(8) 100 * 100 0
- ---------------------------------------------------------------------------------
Goldman Sachs & Company 1,747.85 2.1848 1,747.85 0
- ---------------------------------------------------------------------------------
Great American Reserve 259 * 259 0
Insurance Co. -
Convertible(5)
- ---------------------------------------------------------------------------------
Highbridge 895 1.1188 895 0
International LDC(11)
- ---------------------------------------------------------------------------------
ICI American Holdings 80 * 80 0
Pension Trust
- ---------------------------------------------------------------------------------
JMG Convertible 1,000 1.2500 1,000 0
Investments L.P.
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. Morgan & Co., Inc.(12) 285,266 1.6475 285,266 0 690,000 8.6250 690,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
KA Management Ltd. 45,478 * 45,478 0 110,000 1.3750 110,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
KA Trading L.P. 45,478 * 45,478 0 110,000 1.3750 110,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Landing & Co. 22,739 * 22,739 0 55,000 * 55,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
LB Series Fund, Inc. -High 20,672 * 20,672 0 50,000 * 50,000 0
Yield Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Lincoln National 8,779 * 8,779 0 21,235 * 21,235 0
Convertible Securities
Fund(13)
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Convertibles, L.P. 144,700 * 144,700 0 350,000 4.3750 350,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
LLT Limited(14) 414 * 414 0 1,000 * 1,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Lutheran Brother High 12,403 * 12,403 0 30,000 * 30,000 0
Yield Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Millennium Trading L.P. 53,746 * 53,746 0 130,000 1.6250 130,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Moore Global Investments, 255,954 1.4782 255,954 0 619,100 7.7388 619,100 0
Ltd.(15)
- ------------------------------------------------------------------------------------------------------------------------------------
Nalco Chemical Retirement 1,654 * 1,654 0 4,000 * 4,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Northstar Balance Sheet 16,538 * 16,538 0 40,000 * 40,000 0
Opportunities
- ------------------------------------------------------------------------------------------------------------------------------------
The Northwestern Mutual 33,075 * 33,075 0 80,000 1.0000 80,000 0
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
J.P. Morgan & Co., Inc.(12) 6,900 8.6250 6,900 0
- ------------------------------------------------------------------------------
KA Management Ltd. 1,100 1.3750 1,100 0
- ------------------------------------------------------------------------------
KA Trading L.P. 1,100 1.3750 1,100 0
- ------------------------------------------------------------------------------
Landing & Co. 550 * 550 0
- ------------------------------------------------------------------------------
LB Series Fund, Inc. -High 500 * 500 0
Yield Portfolio
- ------------------------------------------------------------------------------
Lincoln National 213 * 213 0
Convertible Securities
Fund(13)
- ------------------------------------------------------------------------------
Lipper Convertibles, L.P. 3,500 4.3750 3,500 0
- ------------------------------------------------------------------------------
LLT Limited(14) 10 * 10 0
- ------------------------------------------------------------------------------
Lutheran Brother High 300 * 300 0
Yield Fund
- ------------------------------------------------------------------------------
Millennium Trading L.P. 1,300 1.6250 1,300 0
- ------------------------------------------------------------------------------
Nalco Chemical Retirement 40 * 40 0
- ------------------------------------------------------------------------------
Moore Global Investments, 6,191 7.7388 6,191 0
Ltd.(15)
- ------------------------------------------------------------------------------
Northstar Balance Sheet 400 * 400 0
Opportunities
- ------------------------------------------------------------------------------
The Northwestern Mutual 800 1.0000 800 0
Life Insurance Company
- ------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
OCM Convertible Trust 60,113 * 60,113 0 145,400 1.8175 145,400 0
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific Life Insurance 43,410 * 43,410 0 105,000 1.3125 105,000 0
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Remington Investment 56,185 * 56,185 0 135,900 1.6988 135,900 0
Strategies, L.P.(15)
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Warburg Dillon Read 33,902 * 33,902 0 82,000 1.025 82,000 0
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
The Select High
Yield Investment
Fund Ltd(9) 41,343 * 41,343 0 100,000 * 100,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
State Employees' 14,801 * 14,801 0 35,800 * 35,800 0
Retirement Fund of the
State of Delaware
- ------------------------------------------------------------------------------------------------------------------------------------
State of Connecticut 54,614 * 54,614 0 132,100 1.6513 132,100 0
Combined Investment Funds
- ------------------------------------------------------------------------------------------------------------------------------------
SunAmerica Inc.(16) 144,700 144,700 0 350,000 4.375 350,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Surfboard & Co. 49,612 * 49,612 0 120,000 1.5000 120,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Susquehanna Capital Group 42,170 * 42,170 0 102,000 1.275 102,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corporation 12,403 * 12,403 0 30,000 * 30,000 0
London Branch(17)
- ------------------------------------------------------------------------------------------------------------------------------------
Tribeca Investments, L.L.C 176,741 1.0207 176,741 0 427,500 5.3438 427,500 0
- ------------------------------------------------------------------------------------------------------------------------------------
Triton Capital Investments 49,612 * 49,612 0 120,000 1.5000 120,000 0
Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
OCM Convertible Trust 1,454 1.8175 1,454 0
- ------------------------------------------------------------------------------
Pacific Life Insurance 1,050 1.3125 1,050 0
Company
- ------------------------------------------------------------------------------
Remington Investment 1,359 1.6988 1,359 0
Strategies, L.P.(15)
- ------------------------------------------------------------------------------
SBC Warburg Dillon Read 820 1.025 820 0
Inc.
- ------------------------------------------------------------------------------
The Select High
Yield Investment
Fund Ltd(9) 1,000 * 1,000 0
- ------------------------------------------------------------------------------
State Employees' 358 * 358 0
Retirement Fund of the
State of Delaware
- ------------------------------------------------------------------------------
State of Connecticut 1,321 1.6513 1,321 0
Combined Investment Funds
- ------------------------------------------------------------------------------
SunAmerica Inc. 3,500 4.375 3,500 0
- ------------------------------------------------------------------------------
Surfboard & Co. 1,200 1.5000 1,200 0
- ------------------------------------------------------------------------------
Susquehanna Capital Group 1,020 1.275 1,020 0
- ------------------------------------------------------------------------------
Swiss Bank Corporation 300 * 300 0
London Branch(17)
- ------------------------------------------------------------------------------
Tribeca Investments, L.L.C. 4,275 5.3438 4,275 0
- ------------------------------------------------------------------------------
Triton Capital Investments 1,200 1.5000 1,200 0
Ltd.
- ------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Common Stock Depositary Shares
------------ ---------------------------------------------------
- ------------------------- --------------------------------------------------- ---------------------------------------------------
Beneficially Beneficially
Name of Selling Owned Owned After
Security- Beneficially Owned Prior Offered After This Beneficially Owned Offered This Offering
holder(1) to This Offering(2)(3) for Sale Offering(2)(3) Prior to This Offering(2) for Sale (2)
--------- ---------------------- -------- -------------- ---------------------------- -------- -------------
------------------------ -------- -------------- ---------------------------- -------- -------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
United National Insurance (13) 614 * 614 0 1,485 * 1,485 0
- ------------------------------------------------------------------------------------------------------------------------------------
Vanguard Convertible 37,209 * 37,209 0 90,000 1.125 90,000 0
Securities Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Walker Art Center (13) 1,499 * 1,499 0 3,625 * 3,625 0
- ------------------------------------------------------------------------------------------------------------------------------------
Weirton Trust (13) 3,734 * 3,734 0 9,370 * 9,370 0
- ------------------------------------------------------------------------------------------------------------------------------------
Wm. M. Keck Jr. Foundation (18) 4,135 * 4,135 0 10,000 * 10,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Zeneca Holdings Pension 3,308 * 3,308 0 8,000 * 8,000 0
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
================================================================================
Series E Preferred Stock
------------------------
- ------------------------- ---------------------------------------------------
Beneficially
Owned After
Name of Selling Beneficially Owned This
Security- Prior to This Offered Offering
holder(1) Offering(2)(4) for Sale (2)(4)
--------- -------------- -------- ---------
------------------------ -------- --------------
Number
of shares Percent
of Series of
E Series E
Preferred Preferred
Stock Stock
----- -----
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
United National Insurance (13) 15 * 15 0
- ------------------------------------------------------------------------------
Vanguard Convertible 900 1.125 900 0
Securities Fund, Inc.
- ------------------------------------------------------------------------------
Walker Art Center (13) 37 * 37 0
- ------------------------------------------------------------------------------
Weirton Trust (13) 94 * 94 0
- ------------------------------------------------------------------------------
Wm. M. Keck Jr. Foundation (18) 100 * 100 0
- ------------------------------------------------------------------------------
Zeneca Holdings Pension 80 * 80 0
Trust
- ------------------------------------------------------------------------------
</TABLE>
* Less than one percent. Based on 17,315,317 shares of common stock
outstanding on November 30, 1998, 8,000,000 Depositary Shares outstanding
on January 13, 1998 and 80,000 shares of Series E Preferred Stock
outstanding on January 13, 1998.
(1)The names of additional Selling Securityholders may be provided
subsequent hereto pursuant to Section 424(c) of the Securities Act of 1933,
as amended.
(2)Under the rules of the Commission, a person is deemed to be the
beneficial owner of a security if such person has or shares the power to
vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person may
be deemed to be a beneficial owner of the same securities. Unless
otherwise indicated by footnote, the named individuals have sole voting and
investment power with respect to the securities beneficially owned.
(3)Assuming the conversion of all Depositary Shares and/or shares of Series
E Preferred Stock.
43
<PAGE>
(4) Assuming the conversion of all Depositary Shares into shares of Series
E Preferred Stock on the basis of one share of Series E Preferred
Stock for each one hundred Depositary Shares.
(5) Conseco Capital Management is the investment advisor to the Selling
Securityholder and as such has shared voting power and investment
power with respect to the Securities owned by the Selling
Securityholder.
(6) Bear Stearns & Co., Inc. provides investment banking services to the
Company and was one of two initial purchasers in a private placement
by the Company of the Securities. The Securities held by Bear, Stearns
& Co. Inc. were acquired from time to time after the initial placement
of the Securities in its capacity as a broker dealer or market maker.
Bear, Stearns & Co. Inc. is a registered broker dealer and may be
deemed to be an underwriter within the meaning of the Securities Act
of 1933, as amended, with respect to any Securities sold by it
hereunder. Additionally, Bear Stearns & Co., Inc. has acted as lead
manager in connection with the initial offering of other securities of
the Company, including the Company's Series D Preferred Stock of which
Bear Stearns & Co., Inc. holds 243,960 shares.
(7) BNP/Cooper Neff Advisors, Inc. is the investment adviser to the
Selling Shareholder and as such has shared voting power and investment
power with respect to the Securities owned by the Selling
Securityholder.
(8) Caywood Scholl Capital Management is the investment adviser to the
Selling Shareholder and as such has shared investment power with
respect to the Securities owned by the Selling Securityholder.
(9) The United Bank of Kuwait PLC acts as investment manager to the
Selling Securityholder and as such has shared voting and investment
power with respect to the Securities owned by the Selling
Securityholder.
(10) General Motors Investment Management Corporation ("GMIMCo"), a
registered investment advisor and a wholly-owned subsidiary of General
Motors Corporation, provides investment advice and investment
management services with respect to the assets of certain employee
benefit plans of GM and its subsidiaries including the Selling
Securityholder. In its capacity as investment manager to the Selling
Securityholder, GMIMCo is authorized to vote and dispose of the
Securities beneficially owned by the Selling Securityholder.
(11) Highbridge Capital Management, Inc. is the trading manager for the
Selling Securityholder and as such has shared investment power with
respect to the Securities owned by the Selling Securityholder.
(12) The Selling Securityholder holds the Securities as a fiduciary on
behalf of its clients. The Selling Securityholder has sole voting
power with respect to 690,000 Depository Shares and sole investment
power with respect to 620,950 Depository Shares. In addition, the
Selling Securityholder currently holds more than one percent of the
shares of Common Stock of the Company. Those shares of Common Stock
are not subject to this Registration Statement.
(13) Lynch & Mayer, Inc. is the investment manager for the Selling
Securityholder and as such has shared investment power with respect to
the Securities owned by the Selling Securityholder.
(14) Forest Investment Management, L.P. has shared investment power with
respect to the Securities owned by the Selling Securityholder.
(15) Moore Capital Management Inc. ("MCM") is the trading advisor to the
Selling Securityholder and as such has shared voting and investment
power. Louis Moore Bacon is the majority owner of MCM and, as such,
may be deemed to be the beneficial owner of the Securities owned by
the Selling Securityholder. Mr. Bacon disclaims beneficial ownership
of such Securities.
(16) The Selling Securityholder is the beneficial owner of 14,490 shares of
the Company's Series B Preferred Stock.
(17) SBC Warburg Dillon Read Inc. acts as an investment advisor for the
Selling Securityholder.
(18) Caywood-Scholl Capital Management is the investment adviser to the
Selling Shareholder and as such has shared voting and investment power
with respect to the Securities owned by the Selling Securityholder.
The Common Stock and Depositary Shares owned by the Selling
Securityholders and the Dividend Shares issuable by the Company represent
all of the securities covered by the Registration Statement. The
Depositary Shares were originally issued by the Company and purchased by
the Initial Purchasers in the October 30 Equity Offering. The Initial
Purchasers, in turn, resold the Depositary Shares in private sales pursuant
to exemption from registration under the Securities Act of 1933, as
amended.
44
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the
Securities or the issuance of the Dividend Shares offered hereby. The
Dividend Shares may be issued by the Company in lieu of cash from time to
time to holders of record of the Series E Preferred Stock, all in
accordance with the Certificate of Designation, during the two year period
commencing on the date of this Prospectus. See "Description of Series E
Preferred Stock--Dividends." The Securities may be sold from time to time
to purchasers directly by the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer the Securities through
brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of the Securities for whom they may act as agent. The
Selling Securityholders and any such brokers, dealers or agents who
participate in the distribution of the Securities may be deemed to be
"underwriters", and any profits on the sale of the Securities by them and
any discounts, commissions or concessions received by any such brokers,
dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling
Securityholders may be deemed to be underwriters, the Selling
Securityholders may be subject to certain statutory liabilities under the
Securities Act, including, but not limited to, Sections 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Exchange Act.
The Securities offered hereby may be sold by the Selling Securityholders
from time to time in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined
at the time of sale or at negotiated prices. The Securities may be sold by
one or more of the following methods, without limitation: (a) a block trade
in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of such exchange; (e) face-to-
face transactions between sellers and purchasers without a broker-dealer;
(f) through the writing of options; and (g) other. At any time a particular
offer of the Securities is made, a revised Prospectus or Prospectus
Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or
agents, any discounts, commissions and other items constituting
compensation from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. Such
Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part, will be filed
with the Commission to reflect the disclosure of additional information
with respect to the distribution of the Securities. In addition, the
Securities covered by this Prospectus may be sold in private transactions
or under Rule 144 rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities
by the Selling Securityholders. There is no assurance that any Selling
Securityholder will sell any or all of the Securities offered by it
hereunder or that any such Selling Securityholder will not transfer, devise
or gift such Securities by other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of
the Securities by the Selling Securityholders and any other such person.
All of the foregoing may affect the marketability of the Securities and the
ability of any person or entity to engage in market-making activities with
respect to the Securities.
Pursuant to the Preferred Stock Registration Rights Agreement entered
into in connection with the offer and sale of the Depositary Shares by the
Company, each of the Company and the applicable Selling Securityholders
will be indemnified by the other against certain liabilities, including
certain liabilities under the Securities Act, or
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will be entitled to contribution in connection therewith. The Company has
agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
the Company by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the
Americas, New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of
Kronish, Lieb, Weiner & Hellman LLP, beneficially owns 5,745 shares of the
Common Stock and a warrant to purchase 100,000 shares of Common Stock
at an exercise price of $41.50 per share.
EXPERTS
The consolidated financial statements and schedule of Intermedia
Communications Inc. appearing in Intermedia Communication Inc.'s Annual
Report (Form 10-K) for the year ended December 31, 1996, have been audited
by Ernst & Young LLP, independent certified public accountants, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of DIGEX, Incorporated, appearing
in DIGEX, Incorporated's Annual Report (Form 10-KSB) for the year ended
December 31, 1996, have been audited by Ernst & Young, LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements
are incorporated herein by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The December 31, 1996 audited financial statements of Shared
Technologies Fairchild Inc. incorporated by reference in this Prospectus
and in the 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 financial statements and schedule of Shared
Technologies Fairchild Inc. and subsidiaries at December 31, 1995 and for
each of the two years in the period 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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