<PAGE>
As filed with the Securities and Exchange Commission on January 14, 1998
Registration No. 333-42999
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
INTERMEDIA COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
_____________________
Delaware 59-29-13586
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3625 Queen Palm Drive
Tampa, Florida 33619
(813) 829-0011
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
_____________________
David C. Ruberg, Chairman of the Board,
President and Chief Executive Officer
Intermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
(813) 829-0011
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_____________________
Copy to:
Ralph J. Sutcliffe, Esq.
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
_____________________
Approximate date of commencement of proposed sale to public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend on interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<PAGE>
_____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Amount to be Price Aggregate Amount of
to be Registered Registered Per Share Price Registration Fee
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depositary Shares 8,000,000 $26.75 (1) $ 214,000,000 $63,130
each representing a
one hundredth
interest in a share
of 7% Series E
Junior Convertible
Preferred Stock
(liquidation
preference $25.00
per share)
- ---------------------------------------------------------------------------------------
7% Series E Junior 80,000 N.A. N.A. (2)
Convertible
Preferred Stock,
liquidation
preference $2,500
per share, $1.00
par value per share
- ---------------------------------------------------------------------------------------
Common Stock, 3,307,425 (3)(4) N.A. N.A. (2)
$.01 par value per
share issuable upon
conversion of the
Depositary Shares
and 7% Series E
Junior Convertible
Preferred Stock
- ---------------------------------------------------------------------------------------
Common Stock, (5) (5) $31,030,137 (5) $ 9,154
$.01 par value
issuable as
dividends on the
7% Series E Junior
Convertible
Preferred Stock
- ---------------------------------------------------------------------------------------
Total: $72,284(6)
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Average of the bid and asked prices on December 17, 1997, pursuant to Rule
457(c).
(2) Pursuant to Rule 457(i), a registration fee is not required in connection
with the registration of the Series E Preferred Stock or the Common Stock
issuable upon conversion of the Depositary Shares or shares of the Series E
Preferred Stock.
(3) An indeterminate number of additional shares of Common Stock are registered
hereunder which may be issued in the event that fractional shares of Depositary
Shares or Series E Preferred Stock are rounded up to the nearest whole share in
connection with the conversion of Depositary Shares or shares of Series E
Preferred Stock.
(4) Pursuant to Rule 416, an indeterminate number of additional shares of Common
Stock are registered hereunder which may be issued in the event that applicable
antidilution provisions with respect to conversion of the Depositary Shares and
Series E Preferred Stock become operative.
(5) Pursuant to Rule 457(o), an indeterminate number of shares of Common Stock
are registered hereunder which may be issued by the Company from time to time in
lieu of cash during the two year period commencing on the effective date of this
Registration Statement as dividends on the 7% Series E Junior Convertible
Preferred Stock.
(6) $71,390 was previously paid on December 22, 1997.
_____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE OR DATES AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
AMENDMENT NO. 1 TO PRELIMINARY 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.
--------------------
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.
--------------------
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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE INWHICH 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 ___, 1998.
<PAGE>
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.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, 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).
ii
<PAGE>
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.
iii
<PAGE>
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
1
<PAGE>
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
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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
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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.
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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.
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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
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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
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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
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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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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. 90,004 * 90,004 0 217,700 2.7213 217,700 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. 2,177 2.7213 2,177 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 33,116 * 33,116 0 80,100 1.0013 80,100 0
Master Retirement Trust
- ------------------------------------------------------------------------------------------------------------------------------------
CNA Income Shares, Inc. 16,538 * 16,538 0 40,000 * 40,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Combined Insurance Company 8,104 * 8,104 0 19,600 * 19,600 0
of America
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
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 8,010 1.0013 8,010 0
Master Retirement Trust
- ------------------------------------------------------------------------------
CNA Income Shares, Inc. 400 * 400 0
- ------------------------------------------------------------------------------
Combined Insurance Company 196 * 196 0
of America
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
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 48,454 * 48,454 0 117,200 1.4650 117,200 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 19,432 * 19,432 0 47,000 * 47,000 0
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
The Select High
Yield Investment
Fund Ltd(9) 41,343 * 41,343 0 100,000 * 100,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
State Employees' 12,401 * 12,401 0 30,000 * 30,000 0
Retirement Fund of the
State of Delaware
- ------------------------------------------------------------------------------------------------------------------------------------
State of Connecticut 43,782 * 43,782 0 105,900 1.3238 105,900 0
Combined Investment Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Surfboard & Co. 49,612 * 49,612 0 120,000 1.5000 120,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Susquehanna Capital Group 31,834 * 31,834 0 77,000 * 77,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corporation 12,403 * 12,403 0 30,000 * 30,000 0
London Branch(16)
- ------------------------------------------------------------------------------------------------------------------------------------
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 1,172 1.4650 1,172 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 470 * 470 0
Inc.
- ------------------------------------------------------------------------------
The Select High
Yield Investment
Fund Ltd(9) 1,000 * 1,000 0
- ------------------------------------------------------------------------------
State Employees' 300 * 300 0
Retirement Fund of the
State of Delaware
- ------------------------------------------------------------------------------
State of Connecticut 1,059 1.3238 1,059 0
Combined Investment Funds
- ------------------------------------------------------------------------------
Surfboard & Co. 1,200 1.5000 1,200 0
- ------------------------------------------------------------------------------
Susquehanna Capital Group 770 * 770 0
- ------------------------------------------------------------------------------
Swiss Bank Corporation 300 * 300 0
London Branch(16)
- ------------------------------------------------------------------------------
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 29,850 * 29,850 0 72,200 * 72,200 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 (17)4,135 * 4,135 0 10,000 * 10,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Zeneca Holdings Pension 3,308 * 3,308 0 8,000 * 8,000 0
Trust
- ------------------------------------------------------------------------------------------------------------------------------------
</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>
- ------------------------------------------------------------------------------
United National Insurance (13) 15 * 15 0
- ------------------------------------------------------------------------------
Vanguard Convertible 722 * 722 0
Securities Fund, Inc.
- ------------------------------------------------------------------------------
Walker Art Center (13) 37 * 37 0
- ------------------------------------------------------------------------------
Weirton Trust (13) 94 * 94 0
- ------------------------------------------------------------------------------
Wm. M. Keck Jr. Foundation (17) 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.
(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) SBC Warburg Dillon Read Inc. acts as an investment advisor for the
Selling Securityholder.
(17) 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
s
<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
45
<PAGE>
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.
46
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following statement sets forth the expenses payable in connection
with this Registration Statement (estimated except for the registration
fee), all of which will be borne by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee...............................$ 71,390.00
Legal fees and expenses.....................................................$ 25,000.00
Accountant's fees and expenses payable to Ernst & Young LLP.................$ 15,000.00
Accountant's fees and expenses payable to Arthur Andersen LLP...............$ 3,000.00
Accountant's fees and expenses payable to Rothstein, Kass & Company, P.C....$ 2,100.00
Miscellaneous...............................................................$ 8,510.00
- --------------------------------------------------------------------------------------------
Total.......................................................................$ 125,000.00
==========
- -------------------------------------------------------------------------------------------
</TABLE>
ITEM 15. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation provides that the Company
will to the fullest extent permitted by the DGCL indemnify all persons whom
it may indemnify pursuant thereto. The Company's By-laws contain a similar
provision requiring indemnification of the Company's directors and officers
to the fullest extent authorized by the DGCL. The DGCL permits a
corporation to indemnify its directors and officers (among others) against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with any
action, suit or proceeding brought (or threatened to be brought) by third
parties, if such directors or officers acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification
----
may be made for expenses (including attorneys' fees) actually and
reasonably incurred by directors and officers in connection with the
defense or settlement of such action if they had acted in good faith and in
a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged liable to the Company unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses. The DGCL
further provides that, to the extent any director or officer has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in this paragraph, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. In addition, the Company's Certificate of
Incorporation contains a provision limiting the personal liability of the
Company's directors for monetary damages for certain breaches of their
fiduciary duty. The Company has indemnification insurance under which
directors and officers are insured against certain liability that may occur
in their capacity as such.
<PAGE>
ITEM 16. Exhibits and Financial Data Schedules.
(a) Exhibits
1.1 -- Purchase Agreement, dated as of October 24, 1997, among the
Company and the Initial Purchasers.
2.1 -- Agreement and Plan of Merger, dated as of June 4, 1997, among the
Company, Daylight Acquisition Corp. and DIGEX, Incorporated.
Exhibit 99(c)(1) to the Company's Schedule 14D-1 filed with the
Commission on June 11, 1997 is incorporated herein by reference.
2.2 -- Agreement and Plan of Merger, dated as of November 20, 1997, by
and among the Company, Moonlight Acquisition Corp. and Shared
Technologies Fairchild Inc. Exhibit 99(c)(1) to the Company's
Schedule 14D-1 and Schedule 13D filed with the Commission on
November 26, 1997 is incorporated herein by reference.
2.3* -- Acquisition Agreement, dated as of December 17, 1997, among the
Company and the holders of interest in the Long Distance Savers
companies.
4.1 -- Indenture, dated as of June 2, 1995, between the Company and
SunBank National Association, as trustee. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
Commission on June 20, 1995 (No. 33-93622) is incorporated herein
by reference.
4.1(a) -- Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13 1/2% Series B Senior Notes due 2005,
between the Company and SunTrust Bank, Central Florida, National
Association, as trustee. Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with the Commission on April 29, 1996 is
incorporated herein by reference.
4.2 -- Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (Commission File No. 33-34738) filed with
the Commission on April 18, 1996 is incorporated herein by
reference.
4.3 -- Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on July 17, 1997 is incorporated herein by
reference.
4.4 -- Indenture, dated as of October 30, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on November 6, 1997 is incorporated herein by
reference.
4.5 -- Preferred Stock Registration Rights Agreement, dated as of
October 30, 1997, among the Company and the Initial Purchasers.
4.6 -- Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions
of 7% Series E Junior Convertible Preferred Stock of the Company,
filed with the Secretary of State of the State of Delaware on
October 29, 1997. Exhibit 4.2 to the Company's Current Report on
Form 8-K filed with the Commission on November 6, 1997 is
incorporated herein by reference.
4.7 -- Deposit Agreement, dated as of October 30, 1997, between the
Company and Continental Stock Transfer & Trust Company. Exhibit
4.3 to the Company's Current Report on Form 8-K filed with the
Commission on November 6, 1997 is incorporated herein by
reference.
<PAGE>
5.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters
is contained in their opinion filed as Exhibit 5.1 to this
Registration Statement.
12.1* -- Statement Re: Computation of Ratios.
23.1* -- Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in
their opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Ernst & Young LLP.
23.4* -- Consent of Arthur Andersen LLP
23.5* -- Consent of Rothstein, Kass & Company, P.C.
24.1 -- Power of Attorney is set forth on the signature page of this
Registration Statement.
- ---------------
* Filed herewith. All other exhibits have been previously filed.
(b) Financial Data Schedules
Financial Data Schedules are not required to be filed since all
financial statements have been previously included in filings with the
Commission.
<PAGE>
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
-------- -------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida, on this 13th day of January, 1998.
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
-----------------------------------------
Robert M. Manning,
Chief Financial Officer and Senior Vice
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
Principal Executive Officers:
<S> <C> <C>
Chairman of the Board, January 13, 1998
/s/ * President and Chief
- ---------------------------------------------- Executive Officer
David C. Ruberg
Principal Financial and Accounting Officers:
Chief Financial Officer January 13, 1998
/s/ Robert M. Manning and
- ---------------------------------------------- Senior Vice President
Robert M. Manning
/s/ * Controller and Chief January 13, 1998
- ---------------------------------------------- Accounting Officer
Jeanne M. Walters
Other Directors:
/s/ * Director January 13, 1998
- ----------------------------------------------
John C. Baker
/s/ * Director January 13, 1998
- ----------------------------------------------
George F. Knapp
/s/ * Director January 13, 1998
- ----------------------------------------------
Philip A. Campbell
</TABLE>
* By: /s/ Robert M. Manning
----------------------
Robert M. Manning,
As attorney-in-fact
<PAGE>
EXHIBIT INDEX
Number Exhibit Page
------ ------- ----
1.1 -- Purchase Agreement, dated as of October 24, 1997, among the
Company and the Initial Purchasers.
2.1 -- Agreement and Plan of Merger, dated as of June 4, 1997, among the
Company, Daylight Acquisition Corp. and DIGEX, Incorporated.
Exhibit 99(c)(1) to the Company's Schedule 14D-1 filed with the
Commission on June 11, 1997 is incorporated herein by reference.
2.2 -- Agreement and Plan of Merger, dated as of November 20, 1997, by
and among the Company, Moonlight Acquisition Corp. and Shared
Technologies Fairchild Inc. Exhibit 99(c)(1) to the Company's
Schedule 14D-1 and Schedule 13D filed with the Commission on
November 26, 1997 is incorporated herein by reference.
2.3* -- Acquisition Agreement, dated as of December 17, 1997, among the
Company and the holders of interest in the Long Distance Savers
companies.
4.1 -- Indenture, dated as of June 2, 1995, between the Company and
SunBank National Association, as trustee. Exhibit 4.1 to the
Company's Registration Statement on Form S-4 filed with the
Commission on June 20, 1995 (No. 33-93622) is incorporated herein
by reference.
4.1(a) -- Amended and Restated Indenture, dated as of April 26, 1996,
governing the Company's 13 1/2% Series B Senior Notes due 2005,
between the Company and SunTrust Bank, Central Florida, National
Association, as trustee. Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with the Commission on April 29, 1996 is
incorporated herein by reference.
4.2 -- Indenture, dated as of May 14, 1996, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form S-3 (Commission File No. 33-34738) filed with
the Commission on April 18, 1996 is incorporated herein by
reference.
4.3 -- Indenture, dated as of July 9, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on July 17, 1997 is incorporated herein by
reference.
4.4 -- Indenture, dated as of October 30, 1997, between the Company and
SunTrust Bank, Central Florida, National Association, as trustee.
Exhibit 4.1 to the Company's Current Report on Form 8-K filed
with the Commission on November 6, 1997 is incorporated herein by
reference.
4.5 -- Preferred Stock Registration Rights Agreement, dated as of
October 30, 1997, among the Company and the Initial Purchasers.
4.6 -- Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and Restrictions
of 7% Series E Junior Convertible Preferred Stock of the Company,
filed with the Secretary of State of the State of Delaware on
October 29, 1997. Exhibit 4.2 to the Company's Current Report on
Form 8-K filed with the Commission on November 6, 1997 is
incorporated herein by reference.
4.7 -- Deposit Agreement, dated as of October 30, 1997, between the
Company and Continental Stock Transfer & Trust Company. Exhibit
4.3 to the Company's Current Report on Form 8-K filed with the
Commission on November 6, 1997 is incorporated herein by
reference.
<PAGE>
5.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters
is contained in their opinion filed as Exhibit 5.1 to this
Registration Statement.
12.1* -- Statement Re: Computation of Ratios.
23.1* -- Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in
their opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Ernst & Young LLP.
23.4* -- Consent of Arthur Andersen LLP
23.5* -- Consent of Rothstein, Kass & Company, P.C.
24.1 -- Power of Attorney is set forth on the signature page of this
Registration Statement.
- ---------------
* Filed herewith. All other exhibits have been previously filed.
<PAGE>
EXHIBIT 2.3
EXECUTION COPY
ACQUISITION AGREEMENT
---------------------
ACQUISITION AGREEMENT (this "Agreement"), dated as of December 17,
---------
1997, among INTERMEDIA COMMUNICATIONS INC., a Delaware corporation ("Buyer") and
-----
each of the individuals and entities listed on Schedule A hereto (collectively,
the "Sellers").
-------
R E C I T A L S :
- - - - - - - -
Sellers collectively own 100% of the outstanding equity interests in
each of the entities forming part of the affiliated group known as LONG DISTANCE
SAVERS (each such entity individually, a "Group Member" and, collectively, the
------------
"Group").
-----
Sellers desire to sell to Buyer and Buyer desires to purchase from
Sellers, all right, title and interest of Sellers in and to the Group
(collectively, the "Shares"), which Shares constitute 100% of the outstanding
------
equity interests in each Group Member, all upon the terms and subject to
conditions contained herein.
The parties desire to qualify the acquisition of certain Group Members
as reorganizations under 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE
-----------------
1.1 Purchase and Sale. Buyer agrees to purchase from the Sellers,
-----------------
and the Sellers agree to sell to the Buyer, for the consideration specified in
Section 1.2, the Shares, which constitute all of the issued and outstanding
equity interests of the Group.
1.2 Purchase Price. The aggregate purchase price for the Shares (the
--------------
"Aggregate Purchase Price") shall be the sum of the purchase price for the
------------------------
equity interests of each Group Member (each a "Member Purchase Price") as set
---------------------
forth on Schedule 1.2, subject to the adjustments set forth in Sections 1.3 and
1.4. The Aggregate Purchase Price shall be payable as provided in Section 2.1.
<PAGE>
1.3 CLOSING STATEMENT; CLOSING DATE PURCHASE PRICE ADJUSTMENTS; POST-
----------------------------------------------------------------
CLOSING STATEMENT. (a) Two business days prior to the Closing, the Sellers
- -----------------
shall deliver to Buyer a statement signed by the chief executive officer of each
Group Member (the "Closing Statement") certifying such persons' best good faith
-----------------
estimate as of the Closing Date of (w) the aggregate Working Capital of each
Group Member (including a statement setting forth any short-term indebtedness
(other than trade and tax (including sales and payroll tax) payables) included
in the computation thereof), (x) Other Assets for each Group Member as of
September 30, 1997, (y) the cost of fixed assets and leasehold improvements
acquired by each Group Member after September 1, 1997 having a cost of more than
$50,000 individually (but not to exceed, in the aggregate for the Group,
$5,000,000) and (z) the aggregate long-term liabilities and other indebtedness
of each Group Member. The estimates of Working Capital, Other Assets and long-
term liabilities and other indebtedness on the Closing Statement shall, except
as provided below, be based upon, and prepared in accordance with, generally
accepted accounting principles. Each Member Purchase Price payable to the
Sellers on the Closing Date, shall be increased by an amount equal to (i) the
Working Capital of such Group Member as set forth on the Closing Statement plus
----
(ii) Other Assets for such Group Member as set forth on the Closing Statement
plus (iii) the cost of fixed assets and leasehold improvements acquired by such
- ----
Group Member after September 1, 1997 having a cost of more than $50,000
individually (but not to exceed, in the aggregate for the Group, $5,000,000)
less (iv) the sum of all long-term liabilities and other indebtedness of such
- ----
Group Member (each a "Member Purchase Price Adjustment" and, collectively for
--------------------------------
all Group Members, the "Aggregate Purchase Price Adjustment"). If such amount
-----------------------------------
is a negative number, the Member Purchase Price shall be decreased by the
absolute value of such number. If the Closing Statement indicates that a Group
Member has outstanding long-term liabilities and other indebtedness or short-
term indebtedness (other than trade and tax (including sales and payroll tax)
payables), then, in addition to the adjustment required by the preceding
sentence, the Cash Purchase Price shall be reduced (and the Stock Purchase Price
increased) by an amount equal to the aggregate amount of such long-term
liabilities and other indebtedness and short-term indebtedness (other than trade
and tax (including sales and payroll tax) payables). In the event that the
adjustments required by this Section would result in the Member Purchase Price
for any Group Member being reduced below $100.00, the Member Purchase Price for
such Group Member shall be $100.00 and Buyer shall be entitled to deduct from
any other amounts payable pursuant to this Agreement to the Sellers who are
holders of the equity interests of such Group Member an amount (a "Member
------
Purchase Price Offset") equal to the absolute value of the Member Purchase Price
- ---------------------
Adjustment for such Group Member less the Member Purchase Price plus $100.00.
---- ----
In the event that Buyer makes a Member Purchase Price Offset with respect to a
Group
2
<PAGE>
Member and such Member Purchase Price Offset is not pro rata in proportion to
the equity interest of each Seller who is a holder of equity interest in such
Group Member, any holder with respect to which such Member Purchase Price Offset
was taken shall be entitled to contribution from all other Sellers who are
holders of equity interest in such Group Member in proportion to each such
holder's equity interests, provided that if the equity interests of such Group
Member are held by another Group Member (a "Group Member Shareholder"), such
------------------------
contribution shall be pro rata from the holders of the equity interests of such
Group Member Shareholder. As used herein, "Working Capital" as of any date shall
---------------
mean the excess of current assets over current liabilities, as such current
assets and current liabilities would be reflected on a consolidated balance
sheet prepared in accordance with generally accepted accounting principles as of
such date, provided, however, for purposes of computing Working Capital, all
-------- -------
costs incurred by any Group Member in connection with the acquisition of any
Internet related acquisition consented to by Buyer in accordance with Section
5.1 hereof shall be treated as current assets. In computing any of the items
included on the Closing Statement or Post-Closing Statement (as defined below)
for any Group Member which has a Group Member Shareholder, the portion of such
item attributable to the equity interests of the Group Member Shareholder shall
be attributed to such Group Member Shareholder. As used herein, the phrase
"other indebtedness" shall not include any indebtedness included in the
- -------------------
computation of either Working Capital or long-term liabilities.
(b) Sixty days after the Closing Date, the Buyers shall deliver to
Sellers a statement signed by the chief executive officer of each Group Member
(the "Post-Closing Statement") certifying as of the Closing Date (w) the
----------------------
aggregate Working Capital of each Group Member as of the Closing Date, (x) Other
Assets for each Group Member as of September 30, 1997, (y) the cost of fixed
assets and leasehold improvements acquired by each Group Member after September
1, 1997 and prior to the Closing Date having a cost of more than $50,000
individually (but not to exceed, in the aggregate for the Group, $5,000,000) and
(z) the aggregate long-term liabilities and other indebtedness of each Group
Member as of the Closing Date. The calculation of Working Capital, Other Assets
and long-term liabilities and other indebtedness on the Post-Closing Statement
shall, except as provided in Section 1.3(a), be based upon, and prepared in
accordance with, generally accepted accounting principles. Each Member Purchase
Price shall be increased by an amount equal to (i) the Working Capital of such
Group Member as set forth on the Post-Closing Statement plus (ii) Other Assets
----
for such Group Member as set forth on the Post-Closing Statement plus (iii) the
----
cost of fixed assets and leasehold improvements acquired by such Group Member
after September 1, 1997 and prior to the Closing Date having a cost of more than
$50,000 individually (but not to exceed, in the aggregate for the Group,
$5,000,000) as set forth
3
<PAGE>
on the Post-Closing Statement less (iv) the sum of all long-term liabilities and
----
other indebtedness of such Group Member as set forth on the Post-Closing
Statement (each a "Member Post-Closing Purchase Price Adjustment" and,
---------------------------------------------
collectively for all Group Members, the "Aggregate Post-Closing Purchase Price
-------------------------------------
Adjustment"). If such amount is a negative number, the Member Purchase Price
- ----------
shall be decreased by the absolute value of such number.
1.4 Resolution of Disputes; Post-Closing Purchase Price Adjustment.
--------------------------------------------------------------
The Post-Closing Statement delivered by the Buyer shall be final, binding and
conclusive on the parties unless Sellers submit to the Buyer a written notice of
any dispute (setting forth in reasonable detail the basis for such dispute)
within 90 days after the receipt of the Post-Closing Statement. If Seller
delivers a timely notice of dispute, the Sellers' Accountants (as defined below)
and the Buyer's Accountants (as defined below) shall confer to determine the
nature and scope of any disagreement among the parties and shall submit such
issues to the parties for resolution. If Buyer and the Sellers are unable to
reach a resolution within 30 days, the dispute shall be submitted to an Arbiter
(as defined below) for its determination of the dispute, which determination
shall be a final and binding determination on the parties hereto. The cost and
expenses incurred in connection with a determination by the Arbiter shall be
allocated by the Arbiter, in its discretion, in proportion to the relative
success of the parties as to the dispute. Within five days after the later of
final resolution of all disputes relating to the Post-Closing Statement or 90
days after receipt by Sellers of the Post-Closing Statement, Buyer and the
Sellers shall readjust each Member Purchase Price in the manner provided in
Section 1.3(b). If any Member Purchase Price, as previously adjusted by the
Member Purchase Price Adjustment, paid at Closing by Buyer was greater than the
amount that should have been paid as finally determined by this Section 1.4, the
Sellers shall immediately refund such amount (less any amount that may have been
paid to Buyer from the Indemnity Escrow Amount relating to such dispute or from
the Purchase Price Escrow Amount relating to such Aggregate Post-Closing
Purchase Price Adjustment) to Buyer by delivery of shares of Common Stock (as
defined below) and/or cash, in the same proportion as such Member Purchase Price
is payable in accordance with Schedule 1.2, sufficient to cover such amount. If
any Member Purchase Price, as previously adjusted by the Member Purchase Price
Adjustment, paid at Closing by Buyer was less than the amount that should have
been paid as finally determined by this Section 1.4, Buyer shall immediately pay
such amount to the Sellers by delivery of shares of Common Stock and/or cash, in
the same proportion as such Member Purchase Price is payable in accordance with
Schedule 1.2, sufficient to cover such amount. In the event that the adjustment
required by this provision would result in the Member Purchase Price for any
Group Member being reduced below $100.00, the Member Purchase Price for such
Group Member shall be $100.00
4
<PAGE>
and Buyer shall be entitled to deduct from any other amounts payable pursuant to
this Agreement to the Sellers who are holders of the equity interests of such
Group Member an amount (a "Post-Closing Member Purchase Price Offset") equal to
-----------------------------------------
the absolute value of the Member Post-Closing Purchase Price Adjustment for such
Group Member less the Member Purchase Price plus $100.00. In the event that
---- ----
Buyer makes a Post-Closing Member Purchase Price Offset with respect to a Group
Member and such Post-Closing Member Purchase Price Offset is not pro rata in
proportion to the equity interest of each Seller who is a holder of equity
interest in such Group Member, any holder with respect to which such Post-
Closing Member Purchase Price Offset was taken shall be entitled to contribution
from all other Sellers who are holders of equity interest in such Group Member
in proportion to each such holder's equity interests, provided that if the
equity interests of such Group Member are held by a Group Member Shareholder,
such contribution shall be pro rata from the holders of the equity interests of
such Group Member Shareholder. As used herein, "Seller's Accountants" shall
--------------------
mean the accounting firm of Little & Company, Monroe, LA and "Buyer's
-------
Accountants" shall mean the accounting firm of Ernst & Young LLP. As used
- -----------
herein "Arbiter" shall mean an independent certified public accounting firm
-------
reasonably acceptable to Buyer and Seller.
1.5. COMPLETION OF SCHEDULE 1.2. Two business days prior to the
--------------------------
Closing, the Sellers shall deliver to Buyer a completed Schedule 1.2, which in
addition to the information set forth on such schedule on the date hereof shall
include the following information: (i) each Member Purchase Price, as adjusted
in accordance with Section 1.3, (ii) the cash portion and the stock portion of
each Member Purchase Price; provided, (x) the sum of the cash portion of each
--------
Member Purchase Price as set forth on Schedule 1.2 (the "Cash Purchase Price")
-------------------
shall not exceed $31,000,000 less the aggregate amount of long-term indebtedness
and other liabilities and short-term liabilities (other than trade and tax
(including sales and payroll tax) payables) reflected on the Closing Statement
and (y) the Cash Purchase Price may only be allocated to Group Members listed on
Schedule 1.5, (iii) the cash portion and the Common Stock portion of each of the
Indemnity Escrow Amount and the Purchase Price Escrow Amount for each Group
Member, provided, the cash portion and Common Stock portions of each of the
--------
Indemnity Escrow Amount and the Purchase Price Escrow Amount for each Group
Member shall be in the same proportion as the cash portion and the Common Stock
portion of the Member Purchase price for such Group Member.
1.6. CLOSING. Subject to the terms and conditions of this
-------
Agreement, the sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the offices of
-------
Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New
York 10036-7798
5
<PAGE>
at 10:00 a.m., New York time, on a date no later than the third business day
following the satisfaction or waiver of all of the conditions to the obligations
of the parties set forth in Section 6, (the day on which the Closing takes place
being the "Closing Date").
------------
1.7. CLOSING DELIVERIES. At the Closing, Sellers shall deliver to
------------------
Buyer free and clear of all Liens, certificates representing the Shares, duly
endorsed in blank or accompanied by stock powers or other instruments of
transfer duly endorsed in blank (including, without limitation, any documents
required to transfer any partnership interests and to effect the withdrawal of
each partner transferring partnership interests from such partnerships and the
substitution of the Buyer as a partner in such partnerships), and bearing or
accompanied by all requisite stock transfer stamps and Buyer shall (i) deliver
the Aggregate Purchase Price in the manner set forth in Section 2 and (ii) pay
all long-term liabilities and other indebtedness and short-term indebtedness
(other than trade and tax (including sales and payroll tax) payables) reflected
on the Closing Statement and included in the Aggregate Purchase Price
Adjustment.
2. PAYMENT OF PURCHASE PRICE; ESCROW ARRANGEMENTS.
----------------------------------------------
2.1. PAYMENT OF AGGREGATE PURCHASE PRICE. (a) At the Closing, Buyer
-----------------------------------
shall pay to the Sellers the Aggregate Purchase Price (as adjusted to reflect
the adjustments specified in Section 1.3(a)) (but subject to post-Closing
adjustment as provided in Section 1.4), less the Indemnity Escrow Amount and the
Purchase Price Escrow Amount.
(b) Payment of the Aggregate Purchase Price pursuant to this Section
2.1 shall be made by delivery to Sellers of shares of common stock, par value
$.01 per share ("Common Stock") of Buyer having an aggregate value equal to the
------------
sum of the stock purchase price for each Group Member as set forth on Schedule
1.2 (the "Stock Purchase Price"), in such names and in such denominations as the
--------------------
Sellers shall request in writing two days prior to the Closing and an amount
equal to the Cash Purchase Price by certified or bank check or by wire transfer
of immediately available funds to such accounts as Sellers may designate in
writing at least two days prior to the Closing Date. Each Seller hereby agrees
and confirms that the Cash Purchase Price and the Stock Purchase Price shall be
allocated among the Sellers, and among the Shares of the Group Members held by
the Sellers, in accordance with Schedule 1.2.
2.2. INDEMNITY ESCROW AND PURCHASE PRICE ESCROW. (a) At the Closing,
------------------------------------------
Buyer and the Sellers shall execute and deliver an escrow agreement
substantially in the form of Exhibit A hereto (the "Escrow Agreement") under
----------------
which a person mutually satisfactory to Buyer and the Sellers shall act as
escrow agent
6
<PAGE>
(the "Escrow Agent") with respect to the shares of Common Stock and cash
------------
deposited with the Escrow Agent. Buyer shall deposit with the Escrow Agent
shares of Common Stock having an aggregate value equal to the sum of the stock
indemnity escrow amount for each Group Member as set forth on Schedule 1.2 (the
"Stock Indemnity Escrow Amount") and cash in an amount equal to the sum of the
-----------------------------
cash indemnity escrow amount for each Group Member as set forth on Schedule 1.2
(the "Cash Indemnity Escrow Amount" and, together with the Stock Indemnity
----------------------------
Escrow Amount, the "Indemnity Escrow Amount") and shares of Common Stock having
-----------------------
an aggregate value equal to the sum of the stock purchase price escrow amount
for each Group Member as set forth on Schedule 1.2 (the "Stock Purchase Price
--------------------
Escrow Amount") and cash in an amount equal to the sum of the cash purchase
- -------------
price escrow amount for each Group Member as set forth on Schedule 1.2 (the
"Cash Purchase Price Escrow Amount" and, together with the Stock Purchase Price
- ----------------------------------
Escrow Amount, the "Purchase Price Escrow Amount"), which shall be withheld from
----------------------------
the Aggregate Purchase Price payable to the Sellers at the Closing as provided
in Section 2.1.
(b) Subject to the provisions of this Section 2.2 and the Escrow
Agreement, the Purchase Price Escrow Amount (less any amount paid to the Buyer
in satisfaction of any amounts due as a result of any Aggregate Post-Closing
Purchase Price Adjustment pursuant to Section 1.4) shall be paid to the Sellers
within five days after the later of final resolution of all disputes relating to
the Post-Closing Statement or 90 days after receipt by Sellers of the Post-
Closing Statement.
(c) Subject to the provisions of this Section 2.2 and the Escrow
Agreement, the Indemnity Escrow Amount less the amount of all asserted claims
for indemnification under Section 8.1 as of the third anniversary of the Closing
Date shall be paid to the Sellers on such date.
(d) Without limiting any other remedies under this Agreement or
otherwise available to Buyer, the Indemnity Escrow Amount shall be available to
satisfy claims for indemnification under Section 8.
(e) After the final resolution of all claims against the Sellers for
indemnification pursuant to Section 8, all unclaimed portions of the Indemnity
Escrow Amount shall be released promptly to the Sellers pursuant to the terms of
the Escrow Agreement.
2.3. VALUE OF SHARES OF COMMON STOCK. For all purposes of this
-------------------------------
Agreement and the Escrow Agreement, whenever shares of Common Stock shall be
required to be delivered to satisfy a payment or indemnity obligation of any
party hereto, the shares of Common Stock shall be deemed to be valued at
$51.1875 per share, notwithstanding the actual market or other
7
<PAGE>
value of the shares of Common Stock at the time of the delivery of such shares.
In the event of any stock split, reverse stock split, stock combination or
reclassification of the shares of Common Stock or any merger, consolidation or
combination of Buyer with any other entity or entities, the deemed value
specified above for the shares of Common Stock shall be proportionally adjusted
so that the deemed value of the shares of Common Stock after such event shall be
the same as the deemed value of the shares of Common Stock prior to such event.
All such adjustments shall be made successively.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
-----------------------------------------
Each of the Sellers hereby jointly and severally represents and
warrants to Buyer as follows:
3.1. ORGANIZATION AND QUALIFICATION. Schedule 3.1 sets forth a
------------------------------
complete list of the entities forming any part of the affiliated group known as
Long Distance Savers. Except as set forth on Schedule 3.1, each Group Member
and each Seller which is not an individual is duly organized, validly existing
and (to the extent the concept of good standing is applicable to the
organizational form) in good standing under the laws of its respective
jurisdiction of organization and is qualified to do business as foreign
corporations in each jurisdiction in which the failure to be so qualified might
have a material adverse effect on the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of it or
the consummation of the transactions contemplated hereby or the ability of Buyer
to operate the Group after the Closing Date (each, a "Material Adverse Effect").
-----------------------
Except as set forth on Schedule 3.1, each Seller and Group Member has the power
and authority to own, lease and operate the assets and properties it currently
owns and to carry on its businesses as they are now being conducted and as
proposed to be conducted. Schedule 3.1 sets forth the jurisdictions in which
each Group Member is duly qualified, registered or licensed to do business.
Each Group Member with respect to which the "Type of Entity" column on Schedule
3.1 indicates "S" has made an election under section 1362(a)(1) of the Code
which is currently valid and which has been valid at all times since and
including the date on which such Group Member made such election. The Sellers
have provided to the Buyer complete and correct copies of the certificates of
incorporation and by-laws (or equivalent constituent documents), as amended to
date, of each Group Member.
3.2. AUTHORIZED CAPITAL. The authorized capital stock or equity
------------------
interests of each Group Member is as set forth on Schedule 3.2. Schedule 3.2
also sets forth the number of shares of capital stock or other equity interests
that are issued and outstanding for each Group Member and the record owner of
such interests. The Shares, in the aggregate, constitute all the
8
<PAGE>
issued and outstanding capital stock or other equity interests of the Group.
The Shares have been duly authorized and validly issued and are free of
preemptive rights and are fully paid and nonassessable. The Sellers
collectively own all the Shares beneficially and of record, free and clear of
all liens, pledges, security interests, claims, voting restrictions and
agreements, proxies or other encumbrances ("Liens"). There are no outstanding
-----
subscriptions, options, warrants, rights, convertible securities, or other
agreements or commitments (whether contingent or not) of any character relating
to the capital stock or other securities of any Group Member obligating any
Group Member to issue any shares, or securities or rights convertible into or
exchangeable for shares, of the capital stock or any other securities of any
Group Member. Except as set forth on Schedule 3.2 and as set forth in this
Agreement, there are no agreements or understandings with respect to the voting,
sale, transfer or registration of any shares of capital stock of any Group
Member. Except as set forth on Schedule 3.2, all of the Sellers who are
individuals are married. Except as set forth on Schedule 3.2, no Group Member
has any subsidiaries or owns any equity interest in any other entity.
3.3. EXECUTION, BINDING NATURE, ETC. Except as set forth on
------------------------------
Schedule 3.3, each of the Sellers has all requisite power and authority and
legal capacity to enter into this Agreement and each agreement contemplated
hereby, to carry out its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. At the Closing, each of the
Sellers will have all requisite power and authority and legal capacity to enter
into each agreement contemplated hereby, to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by each party has been duly
authorized by all required action on the part of such party. This Agreement has
been duly and validly executed and delivered by each Seller and constitutes the
legal, valid and binding agreement of each Seller enforceable against each of
them in accordance with its terms. Upon consummation of this Agreement, Buyer
will acquire good and marketable title to the Shares, free and clear of any
Liens.
3.4. NON-CONTRAVENTION. Except as set forth on Schedule 3.4, none
-----------------
of the execution and delivery of this Agreement or the documents contemplated
hereby, the performance of the obligations hereunder, or the consummation of the
transactions contemplated hereby will contravene or violate the certificate of
incorporation or by-laws (or equivalent constituent documents) of any Seller or
Group Member or will, with or without notice, the passage of time or both,
constitute a breach or violation of, be in conflict with, create a default under
or result in the creation or imposition of any Liens upon
9
<PAGE>
any property of any Seller or Group Member pursuant to (a) any contract,
indenture, agreement, instrument, mortgage, lease or commitment to which any
Seller or Group Member is a party or by which any of their respective properties
are bound, or to which any of them is subject or (b) any law or statute or any
judgment, decree, order, regulation or rule of any court or governmental or
regulatory authority relating to any Seller or Group Member, except, in each
case, for any breach, violation or default, which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
3.5. COMPLIANCE WITH LAWS; LICENSES. Except as set forth on Schedule
------------------------------
3.5, each of the businesses of the Group has been and is being conducted in
compliance with all applicable laws, rules, ordinances, regulations, Licenses
(as defined below), judgments, orders or decrees of any court or governmental or
regulatory authority relating to any Seller or Group Member, except for possible
violations which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. Each Group Member holds all
permits, licenses, certificates, variances, exemptions, orders and approvals
from any governmental or regulatory authorities (collectively, "Licenses") which
--------
are necessary to own, lease and operate the assets and properties they currently
own, lease and operate and to conduct their respective businesses and operations
in the manner heretofore conducted and as proposed to be conducted, except where
the failure to hold such Licenses, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. Schedule 3.5 sets
forth all Licenses issued by the Federal Communication Commission ("FCC") or any
---
state public utility commission and all other material Licenses held by each
Group Member. To the best knowledge of each of the Sellers and the Group, no
event has occurred with respect to any such License which would permit the
revocation, termination or suspension thereof or would result in any impairment
of the rights of the holder thereof. No notice has been received and, to the
best knowledge of each of the Sellers and the Group, no investigation or review
is pending or threatened by any governmental or regulatory agency with regard to
(i) any alleged violation by any Group Member of any law, rule, regulation,
ordinance, License, judgment, order or decree or (ii) any alleged failure by any
Group Member to have any License.
3.6. FINANCIAL STATEMENTS. (a) Sellers have delivered to Buyer (i)
--------------------
audited consolidated balance sheets for the Group for each of the fiscal years
ended December 31, 1994, 1995 and 1996, and audited statements of income and
cash flow for each of the fiscal years then ended, together with all footnotes,
audited by the Group's independent auditors (collectively, the "Audited
-------
Statements"), and (ii) an unaudited consolidated balance sheet for the Group as
- ----------
of September 30, 1997 and unaudited consolidated statements of income and cash
flow for the period
10
<PAGE>
then ended, together with all footnotes (collectively, the "Interim
-------
Statements"). The Audited Statements and the Interim Statements present fairly,
on a consolidated basis, the financial position, results of operations and cash
flows, the changes in stockholders' equity and other included information of the
Group, as of the respective dates of such balance sheets and for each of the
respective periods then ended, in conformity with generally accepted accounting
principles, applied on a consistent basis throughout the reported periods
(subject, in the case of the Interim Statements, to adjustments (consisting only
of normal, recurring adjustments) necessary for a fair presentation of results
for the periods covered thereby).
3.7. UNDISCLOSED LIABILITIES. Except as disclosed in the Audited
-----------------------
Statements and the Interim Statements (collectively, the "Financial Statements")
--------------------
or on Schedule 3.7, each Group Member has no, and will not on the Closing Date
have any, material undisclosed liabilities or obligations, including Contingent
Liabilities (as defined below), excluding liabilities for accounts payable and
employee compensation incurred in the ordinary course of business and excluding
liabilities included in the calculation of the Aggregate Purchase Price
Adjustment pursuant to clause (z) of Section 1.3(a). "Contingent Liabilities"
----------------------
shall include, without limitation, any obligation or liability on account of or
for (i) any unpaid federal, state or local taxes of any type whatsoever,
including sales, use, income, franchise, employment and withholding taxes, (ii)
liabilities for breach of contract whether or not now asserted, (iii)
liabilities arising by reason of any existing state of facts which could be
deemed to violate the rights of others, such as liabilities for patent
infringement, violation of proprietary rights or creation of personal injury,
(iv) liabilities for violation of any law or regulation applicable to any Group
Member or its business, including laws relating to environmental matters, and
(v) liabilities under guaranty or other hold harmless arrangements.
3.8. GOVERNMENTAL FILINGS AND CONSENTS. Except for any notification
---------------------------------
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), any FCC and state regulatory commission approvals set
-------
forth on Schedule 3.8 and any other notices, reports or filings set forth on
Schedule 3.8, no notices, reports or other filings are required to be made by
any Seller or Group Member with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained from, any governmental or
regulatory authority in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby.
3.9. LITIGATION, ETC. Except as set forth on Schedule 3.9, there is
----------------
no action, suit, proceeding or investigation, either at law or in equity, at or
before any court, governmental
11
<PAGE>
or regulatory authority, of any kind now pending or, to the best knowledge of
each Seller and Group Member, threatened (or proposed in any manner or any
circumstances which could reasonably likely form the basis thereof), involving
any Seller, any Group Member or any of the respective properties or assets of
any Seller or Group Member that (i) if asserted and decided adversely to such
Seller or Group Member could reasonably be expected to result in a Material
Adverse Effect, (ii) questions the validity of this Agreement or the
transactions contemplated hereby, or (iii) seeks to delay, prohibit or restrict
in any manner any action taken or to be taken by any Seller or Group Member
under this Agreement. Except as set forth on Schedule 3.9, no Group Member nor
any of their respective properties or assets is subject to any judicial,
administrative or arbitral judgment, order, decree, injunction or restraint.
Except as set forth on Schedule 3.9, no Group Member has agreed to, or is bound
by, any extension or waiver of the statute of limitations relating to any
pending or potential action, suit, claim, proceeding or investigation.
3.10. LABOR AND EMPLOYMENT MATTERS. (a) None of the employees of
----------------------------
any Group Member is covered by any collective bargaining agreement, no
collective bargaining agreement is currently being negotiated and no attempt is
currently being made or has been made during the past three years to organize
any employees of any Group Member to form or enter into a labor union or similar
organization. The relationship of the Group with its employees is good and
there is, and during the past five years there has been, no labor strike,
dispute, slowdown, work stoppage or other labor difficulty pending, threatened
against or involving the Group.
(b) Schedule 3.10 sets forth a true and complete list of all employee
benefit plans and all material bonus, stock option, stock purchase, incentive,
deferred compensation, retiree medical or life insurance, supplemental
retirement, severance or other employee benefit plans, programs or arrangements,
and all material employment or compensation agreements, in each case for the
benefit of, or relating to, current employees and former employees of the Group
Members (collectively, the "Plans"). The Group Members have made available to
-----
Buyer, with respect to each Plan, a copy of the plan document, summary plan
description and the most recent annual report and Internal Revenue Service
determination letter. To the best knowledge of the Group and the Sellers,
except as disclosed in Schedule 3.10, there are no other employee benefit plans,
programs, arrangements or agreements, whether formal or informal, whether in
writing or not, to which any Group Member has or may have any obligation or
which are maintained or sponsored for the benefit of any current or former
employee of any Group Member.
12
<PAGE>
3.11. ACCOUNTS RECEIVABLE. All accounts and notes receivable of any
-------------------
Group Member reflected in the Financial Statements or subsequently arising prior
to the Closing Date have been or will be (i) valid and existing and resulting
from transactions in the ordinary course of business of such Group Member and
(ii) are or will be collectible in the full amount thereof, within 90 days of
the Closing Date, net of any reserve therefor not in excess of such reserves
used in the computation of Working Capital at the Closing.
3.12. INVENTORIES. All items of inventory shown in the Financial
-----------
Statements or subsequently acquired on or before the Closing Date consist, or
will consist, of items of a quality and quantity usable or salable in the
ordinary course of business. Without limitation of the generality of the
foregoing, all inventory shown on the Financial Statements is carried at the
lower of cost or market and is usable by the Group or saleable in the ordinary
course of business for the amount carried on the books of the Group plus a
customary profit margin.
3.13. CONDUCT OF THE BUSINESS. Since September 30, 1997, except for
-----------------------
the execution and delivery of this Agreement and any changes in its properties
or business attributable to the transactions contemplated by this Agreement,
each Group Member has conducted its business only in the usual, regular and
ordinary manner, consistent with past practice.
3.14. ASSETS. (a) Each Group Member owns, leases or has the legal
------
right to use all the properties and assets used or intended to be used in the
conduct of its business or otherwise owned, leased or used by it, and, with
respect to contract rights, each Group Member is a party to and enjoys the right
to the benefits of all contracts, agreements and other arrangements used or
intended to be used by it in or relating to the conduct of its business
(collectively, the "Assets"). Each Group Member has good and marketable title
------
to, or, in the case of leased or subleased Assets, valid and subsisting
leasehold interests in, all its Assets, and, at the Closing, such interests will
be free and clear of all Liens, except for (i) a first mortgage encumbering that
certain property owned by Long Distance Savers, Inc. and located at 724 McNiel
Street in Shreveport, Louisiana, (ii) vendor's liens on equipment which has been
purchased but not yet paid for, in each case provided that the liabilities
secured by such Liens are reflected in the Aggregate Purchase Price Adjustment
and (iii) liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature (including
materialman liens and paving liens) incurred in the ordinary course of business,
in each case provided that either (x) the liabilities secured by such Liens are
reflected in the Aggregate Purchase Price Adjustment or (y) such liens do not,
and cannot reasonably be expected to, either individually or in the aggregate,
materially
13
<PAGE>
detract from the value of the Assets or materially impair the use thereof in the
operation of business.
3.15. PATENTS, COPYRIGHTS, SERVICE MARKS AND TRADEMARKS. No Group
-------------------------------------------------
Member owns or licenses any patent, copyright, service mark, trademark or other
intellectual property right, other than those described in Schedule 3.15. Each
Group Member owns or licenses all patents, copyrights, service marks, trademarks
and other intellectual property rights that are necessary to the conduct of its
business. All names under which any Group Member has conducted or currently
conducts business are set forth on Schedule 3.15. No claim has been made, and
no basis for any such claim exists, that any Group Member has infringed on any
patent, copyright, service mark, trademark or other intellectual property right
of any other person. No claim has been made, and no basis for any such claim
exists, that any person has infringed on any patent, copyright, service mark,
trademark or other intellectual property right of the Group.
3.16. TAXES. Each Group Member has filed all federal, state and
-----
other income, sales, use and other tax returns or reports which are required to
be filed, all such tax returns or reports are true, correct and complete in all
material respects and each Group Member has paid all taxes as shown on said
returns and on all assessments received by it to the extent that such taxes have
become due and are payable by it, except as any of the foregoing are being
contested in good faith by appropriate proceedings for which adequate reserves
on the Financial Statements have been established in accordance with generally
accepted accounting principles or where such failure could not reasonably be
expected to have a Material Adverse Effect.
3.17. COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.17,
--------------------
Sellers and the Group Members have conducted and continue to conduct the
business of the Group in accordance with all laws and statutes and rules,
regulations, judgments, orders or decrees of any court or governmental or
regulatory authority applicable to the Seller or the Group or any of their
properties or Assets and no Seller or Group Member is in violation of any such
laws, statutes, rules, regulations, judgments, orders or decrees, except where
the failure to so comply could not reasonably be expected to result in a
Material Adverse Effect.
3.18. LOANS TO SHAREHOLDERS. Except as set forth on Schedule 3.18,
---------------------
there are no outstanding loans from any Group Member to any Seller. At the
Closing Date, there will be no outstanding loans from any Group Member to any
Seller.
3.19. BROKERS, FINDERS, ETC. All negotiations relating to this
---------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any person or entity acting on behalf of any Sellers or
Group Member
14
<PAGE>
in such manner as to give rise to any valid claim against Buyer for any
brokerage or finder's fee, commission or similar compensation other than
Daniel's & Associates, L.P., whose fees shall be paid by Sellers.
3.20. NO MISSTATEMENTS OR OMISSIONS. No representation or warranty
-----------------------------
made in this Agreement by any Seller is false or misleading as to any material
fact, or omits to state a material fact required to make any of the statements
made herein not misleading in any material respect.
3.21. INVESTMENT PURPOSES, ETC.. (a) Sellers (i) understand that the
-------------------------
shares of Common Stock to be issued to Sellers pursuant to this Agreement have
not been registered for sale under any federal or state securities laws and that
such shares of Common Stock are being offered and sold to Sellers pursuant to an
exemption from registration provided under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), (ii) agree that Sellers are acquiring
--------------
such shares of Common Stock for their own account for investment purposes and
without a view to any distribution thereof, (iii) acknowledge that the
representations and warranties set forth in this Section 3.21 are given with the
intention that Buyer rely on them for purposes of claiming such exemption, and
(iv) understand that they must bear the economic risk of the investment in such
shares of Common Stock for an indefinite period of time as such shares of Common
Stock cannot be sold unless subsequently registered under such laws or unless an
exemption from registration is available.
(b) Sellers agree that the shares of Common Stock issued to Sellers
pursuant to this Agreement will not be sold or otherwise transferred for value
unless (i) a registration statement with respect thereto has become effective
under the Securities Act or (ii) there is presented to Buyer an opinion of
counsel reasonably satisfactory to Buyer that such registration is not required,
and consent that any transfer agent of Buyer may be instructed not to transfer
any such shares of Common Stock unless it receives satisfactory evidence of
compliance with the foregoing provisions, and that there may be endorsed upon
any certificate evidencing such shares of Common Stock an appropriate legend
calling attention to the foregoing restrictions on transferability of such
shares of Common Stock.
(c) Sellers (i) are aware of Buyer's business and affairs and
financial condition and have acquired sufficient information about Buyer to
reach an informed and knowledgeable decision to acquire the shares of Common
Stock issued to Sellers pursuant to this Agreement, (ii) have reviewed Buyer's
latest annual report on form 10-K and all filings subsequent thereto made by
Buyer with the Securities and Exchange Commission ("SEC") pursuant to the
---
federal securities laws, (iii) have discussed
15
<PAGE>
Buyer and its plans, operations and financial condition with Buyer's officers,
(iv) have received all such information as they have deemed necessary and
appropriate to enable them to evaluate the financial risk inherent in making an
investment in the shares of Common Stock, (v) have received satisfactory and
complete information concerning the business and financial condition of Buyer in
response to all inquiries in respect thereof, (vi) have sufficient knowledge and
experience in financial and business matters and the telecommunications business
so as to be capable of evaluating the merits and risks of their investment in
the shares of Common Stock, and (vii) are capable of bearing the economic risks
of such investment, including a complete loss of their investment in the shares
of Common Stock.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
---------------------------------------
Buyer represents and warrants to Sellers as follows:
4.1. ORGANIZATION OF BUYER. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of Delaware.
4.2. AUTHORITY. Buyer has all requisite power and authority to
---------
execute and deliver this Agreement, to carry out its obligations hereunder, and
to consummate the transactions contemplated hereby. Buyer has obtained all
necessary corporate approvals for the execution and delivery of this Agreement,
the performance of its obligations hereunder, and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and (assuming due authorization, execution and delivery by
the other parties hereto) constitutes Buyer's legal, valid and binding
obligation, enforceable against it in accordance with its terms.
4.3. NON-CONTRAVENTION. None of the execution and delivery of this
-----------------
Agreement by Buyer, the performance of its obligations hereunder, or the
consummation by Buyer of the transactions contemplated hereby will constitute a
violation of, or be in conflict with, Buyer's Certificate of Incorporation and
By-laws or will, with or without notice, the passage of time or both, constitute
a breach or violation of, be in conflict with, create a default under or result
in the creation or imposition of any Liens upon any property of Buyer pursuant
to (a) any contract, indenture, agreement, instrument, mortgage, lease or
commitment to which Buyer is a party or by which any of its properties are
bound, or to which Buyer is subject or (b) any law or statute or any judgment,
decree, order, regulation or rule of any court or governmental or regulatory
authority relating to Buyer.
4.4. GOVERNMENTAL CONSENTS. Except for any notification required
---------------------
under the HSR Act and any FCC or State
16
<PAGE>
regulatory commission approvals, there are no consents, approvals or
authorizations of, or registrations, qualifications or filings with,
governmental or regulatory agencies or authorities necessary in connection with
the execution and delivery of this Agreement by Buyer, the performance of its
obligations hereunder, or the consummation by Buyer of the transactions
contemplated hereby.
4.5. LITIGATION, ETC. There are no actions, suits, proceedings or
----------------
investigations pending or threatened against Buyer which question the validity
of this Agreement or challenge any of the transactions contemplated hereby.
4.6. SHARES OF COMMON STOCK. At the Closing, the shares of Common
-----------------------
Stock to be issued to Sellers hereby will be duly authorized, validly issued,
fully paid and non-assessable.
4.7. EXCHANGE ACT REPORTS.
--------------------
(a) Buyer has timely filed all forms, reports and documents required
to be filed by it with the United States Securities and Exchange Commission (the
"SEC") (which together with all other forms, reports and documents filed by
Buyer are referred to collectively as the "SEC Reports"). The SEC Reports,
including any SEC Reports filed with the SEC after the date of this Agreement
and on or prior to the Closing Date (i) at the time filed, complied in all
material respects with the requirements of all applicable securities laws and
other applicable laws and (ii) did not, at the time they were filed (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact
required to be stated in such SEC Reports or necessary in order to make the
statements in such SEC Reports, in light of the circumstances under which they
were made, not misleading.
(b) Each of the financial statements of Buyer (including in each case
any related notes) contained in the SEC Reports, including any SEC Reports filed
after the date of this Agreement and on or prior to the Closing Date, complied
as to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles, applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited interim statements, as
permitted by Form 10-Q of the SEC), and fairly presented in all material
respects the consolidated financial position of Buyer and its subsidiaries as at
the respective dates and the consolidated results of operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to
17
<PAGE>
normal and recurring year-end adjustments which were not or are not expected to
be material in amount or effect.
4.8. KNOWLEDGE OF LONG DISTANCE INDUSTRY. Buyer has sufficient
-----------------------------------
knowledge and experience in financial and business matters and the long distance
industry so as to be capable of evaluating the merits and risks of its
investment in the Shares. Buyer acknowledges that Sellers made no and will make
no representation or warranty in connection with any forecasts or projections.
4.9. BROKERS, FINDERS, ETC. All negotiations relating to this
----------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any person or entity acting on behalf of Buyer in such
manner as to give rise to any valid claim against Seller for any brokerage or
finder's fee, commission or similar compensation, other than Bear, Stearns & Co.
Inc., whose fees shall be paid by Buyer.
4.10. NO MISSTATEMENTS OR OMISSIONS. No representation or warranty
-----------------------------
made in this Agreement by Buyer is false or misleading as to any material fact
stated therein, or omits to state a material fact required to make any of the
statements made therein not misleading in any material respect.
5. ADDITIONAL AGREEMENTS
---------------------
5.1. CONDUCT OF THE BUSINESS. Except as set forth on Schedule 5.1,
-----------------------
from the date hereof until the Closing Date, Sellers shall cause each Group
Member to (a) conduct the business only in the ordinary course and consistent
with past practices, (b) not declare or pay any dividend or distribution on the
Shares, (c) not sell or otherwise dispose of any tangible assets of any Group
Member, (d) not enter into any employment contract not terminable on 30-days
notice without penalty or grant any raises other than those granted in the
ordinary course of business consistent with past practice and (e) not issue any
additional shares of capital stock or other equity interests of any Group Member
or any options, warrants or other rights to acquire capital stock or other
equity interests of any Group Member, or securities convertible into shares of
capital stock or other equity interests of the any Group Member.
Notwithstanding the foregoing, Buyer and Sellers agree that, with the written
consent of Buyer, Sellers may cause the Group to consummate certain currently
contemplated Internet related acquisitions.
5.2. ACCESS TO INFORMATION. (a) From the date hereof until the
---------------------
Closing, upon reasonable notice, the Sellers shall, and shall cause the Group
and the Group's officers, employees, auditors and agents to, (i) afford the
officers, employees and authorized agents and representatives of Buyer
reasonable access,
18
<PAGE>
during normal business hours, to the offices, personnel, properties, books and
records of the Group and (ii) furnish to the officers, employees and authorized
agents and representatives of Buyer (including the representatives of any
financing sources) such additional financial and operating data and other
information regarding the assets, properties, goodwill and business of the Group
as Buyer may from time to reasonably request; provided, however, that such
-------- -------
investigation shall not unreasonably interfere with any of the business or
operations of the Group.
5.3. NOTICE OF DEVELOPMENTS. (a) Prior to the Closing Date, Sellers
----------------------
shall promptly notify Buyer in writing of (i) all events, circumstances, facts
and occurrences arising subsequent to the date of this Agreement which could
result in any breach of a representation or warranty or covenant of any Seller
in this Agreement or which could have the effect of making any representation or
warranty of any Seller in this Agreement untrue or incorrect in any respect and
(ii) all other material developments affecting the assets, liabilities or
obligations, business, financial condition, operations, results of operations,
customer or supplier relations, employee relations, projections or prospects of
any Group Member.
(b) Prior to the Closing Date, Buyer shall promptly notify Sellers in
writing of (i) all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which could result in any breach of a
representation or warranty or covenant of Buyer in this Agreement or which could
have the effect of making any representation or warranty of Buyer in this
Agreement untrue or incorrect in any respect and (ii) all other material
developments affecting the assets, liabilities or obligations, business,
financial condition, operations, results of operations, customer or supplier
relations, employee relations, projections or prospects of the Buyer.
5.4. CONFIDENTIALITY. Each Seller agrees to, and shall cause each
---------------
Group Member and their respective agents, representatives, affiliates, officers
and directors to, treat and hold as confidential all confidential information
relating to Buyer and the Group, including, without limitation, any information
relating to trade secrets, customer and supplier lists, pricing and marketing
plans and details of customer contracts. Buyer agrees to, and shall cause its
agents, representatives, affiliates, officers and directors to treat and hold as
confidential all confidential information relating to Seller and the Business,
including, without limitation, any information relating to trade secrets,
customer and supplier lists, pricing and marketing plans and details of customer
contracts. In the event that the transaction is terminated in accordance with
the provisions of Section 7, Buyer shall use its best efforts to return to
Sellers all confidential information
19
<PAGE>
delivered to Buyer in connection herewith, including, without limitation, all
copies of the schedules to this Agreement. Notwithstanding the foregoing, the
obligations of Buyer under this Section 6.5 with respect to confidential
information relating to the Group Members shall terminate as of the Closing
Date.
5.5. NO SOLICITATION OR NEGOTIATION. (a) Until the earlier of
------------------------------
Closing Date or the termination of this Agreement in accordance with its terms,
no Seller shall, directly or indirectly, through any officer, director, agent or
otherwise, and the Sellers shall cause each Group Member not to, (a) solicit,
initiate, consider, encourage or accept any proposal or offer from any person
(i) relating to any acquisition or purchase of all or any portion of the assets
of, or any equity interest in, the Group or (ii) to enter into any business
combination with any Group Member or (iii) to enter into any other extraordinary
business transaction involving or otherwise relating to any Group Member or (b)
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek to do any of the foregoing. Each Seller shall immediately
cease and cause to be terminated all existing agreements, arrangements,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. The Sellers shall notify Buyer promptly if any such
proposal or offer, or any inquiry or contact with any person with respect
thereto, is made and shall, in any such notice to Buyer, indicate in reasonable
detail the identity of the person making such proposal, offer, inquiry or
contact and the terms and conditions of such proposal, offer, inquiry or
contact. No Seller shall, and the Sellers shall cause the Group Members not to,
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which any Seller or Group Member is a party. Without
limiting any remedy that may otherwise be available to the Buyer (including an
action for damages), the Buyer shall be entitled to injunctive relief in the
event of any breach or threatened breach of the provisions of this Paragraph 5.5
(b) In the event of any breach by any Seller of their respective
obligations under Section 5.5(a), Buyer, without limiting any other remedy
available to it, shall be entitled, if the transactions contemplated hereby are
not consummated, to reimbursement of its expenses incurred in connection with
the execution of this Agreement (including reasonable legal fees).
5.6. PUBLIC ANNOUNCEMENTS. Sellers and Buyer will consult in advance
--------------------
on the timing and content of announcements and disclosures regarding the
transactions contemplated hereby to the Group's employees, customers, the
financial community,
20
<PAGE>
governmental agencies and the public generally. All such announcements and
disclosures shall require the consent of both Seller and Buyer, unless the other
party is required by law to make such announcement or disclosure.
5.7. NON-COMPETE. Each of the Sellers agrees that for a period of
-----------
three years after the Closing Date (the "Restricted Period"), the Sellers and
-----------------
their respective officers, directors, agents and shareholders shall not,
directly or indirectly, (i) be or become interested in or associated with or
represent or otherwise render assistance or services to or manage, operate,
control or engage in (as an officer, director, stockholder, partner, consultant,
owner, employee, agent, creditor or otherwise) any business, person or entity
that is then, or which then proposes to become, a competitor of Buyer in the
telecommunications business in the United States, including, without limitation,
each of the parishes in Louisiana listed on Schedule 5.7; provided, that the
--------
foregoing shall not restrict the ownership, solely as an investment, of
securities of any business, person or entity if such ownership is (A) not as a
controlling person of such business, person or entity, (B) not as a member of a
group that controls such business, person or entity and (C) not as a direct or
indirect beneficial owner of 1% or more of any class of securities of such
business, person or entity, (ii) induce or seek to influence any employee of (or
consultant to) Buyer engaged in the telecommunications business or related
activities to leave its employ (or terminate such consultancy) or to become
financially interested in a similar business, (iii) aid a competitor or supplier
of Buyer in the telecommunications business in any attempt to hire a person who
shall have been employed by, or who was a consultant to, Buyer and who was
engaged in the telecommunications business or related activities within the one-
year period preceding the date of any such aid, or (iv) induce or attempt to
influence any person who is or was a customer of or supplier to Buyer in the
telecommunications business during such period to transact business with a
competitor of Buyer or not to do business with Buyer. Notwithstanding the
foregoing, (x) the provisions of Section 5.7(i) shall not apply to the following
Sellers and their respective officers, directors, agents and shareholders: Bixby
Telephone Investment Co., Pat O. Daily Revocable Trust, Mary Lee Daily Prout
Revocable Trust, Morgan Family Revocable Trust, Lawrence D. Ferk, Gary L.
Findley, Gary L. Woodruff, Lyn D. Johnson, John R. Hollis 1988 Revocable Trust,
Deanna V. Johnson, Wesley R. Johnson, Kenneth Doughty Revocable Trust, Florene
Doughty Revocable Trust, Jason Doughty, Thomas A. Winkler, James A. Scilla and
each of the individuals listed on Schedule 5.12 and (y) the Restricted Period
with respect to the State of Louisiana shall terminate on the second anniversary
of the Closing Date.
5.8. ALLOCATIONS. For all tax purposes, Buyer and Seller agree to
-----------
report the transactions contemplated in this
21
<PAGE>
Agreement in a manner consistent with the terms of this Agreement, and that none
of them will take any position inconsistent therewith in any tax return, refund
claim or in any litigation related thereto. Notwithstanding the foregoing, any
allocation agreed to by the parties shall in no manner prejudice any claim by
any party arising out of or relating to any breach of any representation,
warranty or covenant herein and no such allocation shall be deemed to be
indicative of any damages incurred as a result of such breach.
5.9. ACCOUNTANTS' COOPERATION. Both before and after the Closing,
------------------------
Sellers shall provide, or cause to be provided, to Buyer access to all audited
financial statements and work papers of the internal and external accountants of
each Group Member and shall procure from such external accountants all consents
necessary for such access and otherwise necessary for Buyer to comply with any
reporting requirements that Buyer, in its sole discretion, determines that it
may have under the Securities Exchange Act of 1934, as amended, or under the
terms of any indenture or other instrument of Buyer or any of its affiliates and
all consents necessary to permit Buyer to use such audited financial statements
in any filings under the Securities Act that Buyer may desire to make. After
the Closing, Buyers shall cause each Group Member and their respective internal
and external accountants to assist the Sellers in preparing any federal and
state tax returns relating to any Group Member and any related tax forms, in
preparing for and responding to any audit of any federal or state tax return
relating to any Group Member and in reviewing any documentation relating to the
calculations on the Post-Closing Statement.
5.10. RELEASE OF GUARANTIES. Buyers shall use all reasonable efforts
---------------------
to do, or cause to be done, all things necessary, proper or advisable under
applicable law to cause Freddy Nolan, William L. Montgomery and William D.
Hoover to be released as guarantors of the liabilities of the Group.
5.11. SECTION 338(H)(10) ELECTION. Sellers and Buyer shall make
---------------------------
elections under Section 338(h)(10) of the Code with respect to each Group Member
with respect to which, in accordance with Schedule 1.2, Buyer is delivering cash
as payment of any portion of the Member Purchase Price. Sellers shall prepare
IRS Form 8023-A: Corporate Qualified Stock Purchases, including any required
amendments or supplements thereto ("Form 8023-A") with respect to each election.
Sellers shall deliver such Forms 8023-A to Buyer so that Buyer may review and
approve such Forms 8023-A (which approval shall not be unreasonably withheld or
delayed). After Buyer approves such Forms 8023-A, Buyer and Sellers shall each
execute the approved Form 8023-A and file the executed Form 8023-A with their
respective federal income tax returns. The Member Purchase Price with respect
to each Group Member with respect to which, in accordance with Schedule 1.2,
Buyer is
22
<PAGE>
delivering cash as payment of any portion of the Member Purchase Price shall be
allocated among the assets of such Group Member in a manner consistent with
Treasury Regulation (S) 1.1060-1T(f), which allocation shall be agreed to by the
Buyer and the Sellers prior to the Closing Date. For all tax purposes, Buyer
and Sellers agree to report the transactions contemplated in this Agreement in a
manner consistent with the terms of this Agreement and that none of them will
take any position inconsistent therewith in any tax return, in any refund claim,
in any litigation, or otherwise.
5.12. EMPLOYEES. Buyer shall offer employment to each of the
---------
employees of Seller listed on Schedule 5.12 on such terms and at such
compensation rates at least equal to their respective current terms and
compensation rates.
5.13. WAIVER OF TRANSFER RESTRICTIONS. Each Seller hereby consents to
-------------------------------
the transfer of any of the Shares by the other Sellers and waives any rights
under any transfer restrictions relating to the Shares.
6. CONDITIONS TO CLOSING
---------------------
6.1. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligation of
----------------------------------------
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct as
of the Closing, with the same force and effect as if made as of the Closing,
other than such representations and warranties as are made as of another date,
which shall be true and correct as of such other date, and all the covenants
contained in this Agreement to be complied with by Buyer on or before the
Closing shall have been complied with in all material respects, and Sellers
shall have received a certificate of Buyer to such effect signed by a duly
authorized officer of Buyer.
(b) No Order. No governmental or regulatory authority or other agency
--------
or commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent),
which is in effect restricting, preventing or prohibiting consummation of the
transactions contemplated by this Agreement (nor shall any proceeding for any
such statute, rule, regulation, order, decree or injunction be pending), nor
shall there be any proceeding initiated by any such governmental or regulatory
authority, agency, commission or court, pending or threatened, seeking money
damages; provided that the provisions of this Section 6.1(b)
--------
23
<PAGE>
shall not apply if any Seller, Group Member or any of their respective
affiliates or shareholders shall have directly or indirectly solicited or
encouraged any such action.
(c) Other Governmental and Regulatory Consents. All notifications
------------------------------------------
required pursuant to the HSR Act, to carry out the transactions contemplated by
this Agreement shall have been made, and the applicable waiting period and any
extensions thereof shall have expired or been terminated.
(d) Resolutions; Incumbency. Sellers shall have received a
-----------------------
certificate of the Secretary or Assistant Secretary of Buyer certifying (i) a
true and complete copy of the resolutions duly and validly adopted by the Board
of Directors of Buyer evidencing its authorization of the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) the names and signatures of the officers of Buyer authorized to sign
this Agreement and the other documents to be delivered hereunder.
(e) Escrow Agreement. Buyer shall have delivered to Sellers executed
----------------
counterparts of the Escrow Agreement.
(f) Price of Common Stock. The average of the Closing Price per share
---------------------
of Common Stock for the 10 trading days preceding the Closing Date shall be not
less than $37.50 per share; provided, however, if the average of the Closing
-------- -------
Price per share of Common Stock for the 10 trading days preceding the Closing
Date is less than $37.50 per share but not less than $30.00 per share, Buyer may
elect to pay the Stock Purchase Price, the Stock Indemnity Escrow Amount and the
Stock Purchase Price Escrow Amount by delivery of shares of Common Stock having
an aggregate value (computed by multiplying the average of the Closing Price per
share of Common Stock for the 10 trading days preceding the Closing Date by the
number of shares of Common Stock so delivered) equal to the aggregate value of
the Stock Purchase Price, the Stock Indemnity Escrow Amount and the Stock
Purchase Price Escrow Amount, respectively (in each case, computed by
multiplying the number of shares of Common Stock which would have been delivered
in accordance with Section 2.3 by $39.00), and if Buyer so elects, (x) this
condition shall be deemed satisfied and (y) the price per share set forth in
Section 2.3 hereof shall for all purposes be deemed to equal the average of the
Closing Price per share of Common Stock for the 10 trading days preceding the
Closing Date. The Closing Price for any day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case (1) on the principal national securities exchange on which the shares of
Common Stock are listed or to which such shares are admitted to trading or (2)
if the Common Stock is not listed or admitted to trading on a national
securities exchange, in the over-the-
24
<PAGE>
counter market as reported by Nasdaq National Market or any comparable system or
(3) if the Common Stock is not listed on Nasdaq National Market or a comparable
system, as furnished by two members of the National Association of Securities
Dealers selected from time to time in good faith by the Board of Directors of
the Company for that purpose. In the absence of all of the foregoing, or if for
any other reason the Closing Price cannot be determined pursuant to the
foregoing provisions of this paragraph (f), the Closing Price shall be the fair
market value thereof as determined in good faith by the Board of Directors of
the Company.
(g) Opinion of Counsel to Buyer. Buyer shall have caused to be
---------------------------
delivered to Sellers an opinion of counsel substantially in the form attached
hereto as Exhibit B.
6.2. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
----------------------------------
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of each Seller contained in this Agreement shall be true and
correct as of the Closing, with the same force and effect as if made as of the
Closing, other than such representations and warranties as are made as of
another date, which shall be true and correct as of such other date, and all the
covenants contained in this Agreement to be complied with by each Seller on or
before the Closing shall have been complied with in all material respects, and
Buyer shall have received a certificate of each of the Sellers to such effect.
(b) No Order. No governmental or regulatory authority or other agency
--------
or commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent),
which is in effect restricting, preventing or prohibiting consummation of the
transactions contemplated by this Agreement (nor shall any proceeding for any
such statute, rule, regulation, order, decree or injunction be pending) nor
shall there be any proceeding initiated by any such governmental or regulatory
authority, agency, commission or court, pending or threatened, seeking money
damages; provided that the provisions of this Section 6.2(b) shall not apply if
--------
Buyer shall have directly or indirectly solicited or encouraged any such action.
(c) Other Governmental and Regulatory Consents. All notifications
------------------------------------------
required pursuant to the HSR Act, to carry out the transactions contemplated by
this Agreement shall have been made, and the applicable waiting period and any
extensions thereof
25
<PAGE>
shall have expired or been terminated and all required FCC and State regulatory
consents shall have been obtained.
(d) Resolutions; Incumbency of the Sellers. Buyer shall have received
--------------------------------------
a certificate of the Secretary or Assistant Secretary of each Seller which is
not an individual certifying (i) a true and complete copy of the resolutions
duly and validly adopted by the Board of Directors and the shareholders of such
Seller (or other governing body) evidencing their authorization of the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) the names and signatures of the officers of such
Sellers authorized to sign this Agreement and the other documents to be
delivered hereunder.
(e) Opinion of Counsel to Sellers. Sellers shall have caused to be
-----------------------------
delivered to Buyer an opinion of counsel substantially in the form attached
hereto as Exhibit C.
(f) Escrow Agreement. The Sellers shall have delivered to Buyer an
----------------
executed counterpart of the Escrow Agreement.
(g) Section 338(h)(10) Election. Sellers shall have delivered to
---------------------------
Buyer executed copies of Form 8023-A with respect to each Group Member with
respect to which, in accordance with Schedule 1.2, Buyer is delivering cash as
payment of any portion of the Member Purchase Price.
(h) Spousal Consents. Each married Seller shall have delivered an
----------------
executed spousal consent in the form attached hereto as Exhibit D.
(i) Employees. Each of the employees listed on Schedule 5.12 shall
---------
have executed a non-compete agreement in the form and for the term customarily
obtained by Buyer from its key employees.
(j) No Material Adverse Effect. No event or events shall have
--------------------------
occurred, or be reasonably likely to occur, which, individually or in the
aggregate, have, or are reasonably likely to have, a Material Adverse Effect.
(k) Schedule 1.2. Seller shall have delivered to Buyer a completed
------------
Schedule 1.2, in form and substance reasonably acceptable to Buyer.
(l) Allocations. Buyer and Seller shall have agreed on an allocation
-----------
of the Member Purchase Price with respect to each Group Member with respect to
which, in accordance with Schedule 1.2, Buyer is delivering cash as payment of
any portion of the Member Purchase Price.
26
<PAGE>
7. TERMINATION OF AGREEMENT
------------------------
7.1. TERMINATION. This Agreement may be terminated at any time prior
-----------
to the Closing:
(a) by the mutual written consent of Buyer and Sellers; or
(b) by either Buyer or Sellers if the Closing shall not have occurred
on or prior to the later to occur of (i) 90 days after the date this agreement
is executed by each of the parties hereto or (ii) five days after the date all
FCC and State regulatory approvals have been obtained; provided, however, that
-------- -------
the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur on or prior to such date; or
(c) by Buyer if, between the date hereof and the time scheduled for
the Closing: (i) an event or condition occurs that has resulted in or that may
reasonably be expected to result in a Material Adverse Effect, (ii) any
representation or warranty of Sellers contained in this Agreement shall not have
been true and correct when made, (iii) Sellers shall not have complied in all
material respects with any covenant or agreement to be complied with by any of
them and contained in this Agreement; or (iv) any of the Sellers or any of their
respective shareholders makes a general assignment for the benefit of creditors,
or any proceeding shall be instituted by or against any of the Sellers or any of
their respective shareholders seeking to adjudicate any of them a bankrupt or
insolvent, or seeking liquidation, winding up or reorganization, arrangement,
adjustment, protection, relief or composition of its debts under any law
relating to bankruptcy, insolvency or reorganization;
(d) by Buyer or Sellers in the event that prior to the Closing any
governmental or regulatory authority shall have issued an order, decree or
ruling or taken any other action which has the effect of restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable; or
(e) by Buyer or Sellers in the event that the Closing has not occurred
prior to the fifth business day following the satisfaction or waiver of all of
the conditions to the obligations of the parties set forth in Section 6;
provided, however, that the right to terminate this Agreement under this Section
- -------- -------
7.1(e) shall not be available to any party whose failure to fulfill its
obligation to consummate the transactions contemplated hereby upon satisfaction
or waiver of all of the
27
<PAGE>
conditions to the obligations of the parties set forth in Section 6 shall have
been the cause of, or shall have resulted in, the failure of the Closing to
occur on or prior to such date.
7.2. EFFECT OF TERMINATION. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Sections 5.4 (excluding the last sentence), 5.5(b) and 10.1, provided,
--------
however, that nothing herein shall limit the right of any party hereto to seek
- -------
damages for breach of this Agreement.
8. INDEMNIFICATION
---------------
8.1. INDEMNIFICATION BY SELLER. (a) The Sellers, jointly and
-------------------------
severally, agree to defend, indemnify and hold harmless Buyer, any subsidiary or
affiliate thereof and its officers, directors, agents, successors and assigns
(the "Indemnified Buyer Group") from and against any and all liabilities,
-----------------------
losses, damages, claims, costs, expenses, judgments, interest and penalties
(including, without limitation, attorneys', accountants' and outside advisors'
fees and disbursements) (collectively, "Losses") incurred as a result of,
------
arising out of or resulting from (i) the breach of any representation or
warranty made by the Sellers and contained in this Agreement (it being
understood and agreed that, notwithstanding anything to the contrary contained
herein, to determine if there has been a breach of a representation or warranty
of the Sellers and the Losses arising from such breach, such representation and
warranty shall be read as if it were not qualified by materiality, including,
without limitation, qualifications indicating the accuracy in all material
respects or accuracy except to the extent the inaccuracy would not have a
Material Adverse Effect) or (ii) the breach of any covenant or agreement made by
Sellers and contained in this Agreement.
(b) Except for inaccuracies in the representations and warranties
contained in Sections 3.1, 3.2, 3.3 and 3.17, Sellers shall not be required to
indemnify the Indemnified Buyer Group with respect to any claim for
indemnification pursuant to Section 8.1(a)(i), unless and until the aggregate
amount of all such claims against the Sellers under this Section 8.1 exceed
$1,000,000, and only for amounts in excess of such amount, provided that the
aggregate liability of Sellers to the Indemnified Buyer Group hereunder shall
not exceed the Aggregate Purchase Price and the aggregate liability of each
Seller other than Freddy Nolan and William D. Hoover shall not exceed the
Aggregate Purchase Price paid to such Seller.
8.2. INDEMNIFICATION BY BUYER. (a) Buyer agrees to defend, indemnify
------------------------
and hold harmless Sellers, any subsidiary or
28
<PAGE>
affiliate thereof and their officers, directors, shareholders and controlling
persons, employees, agents, successors and assigns (the "Indemnified Seller
------------------
Group") from and against any and all Losses incurred as a result of, arising out
- -----
of or resulting from (i) the breach of any representation or warranty made by
Buyer and contained in this Agreement (it being understood and agreed that,
notwithstanding anything to the contrary contained herein, to determine if there
has been a breach of a representation or warranty of Buyer and the Losses
arising from such breach, such representation and warranty shall be read as if
it were not qualified by materiality, including, without limitation,
qualifications indicating the accuracy in all material respects or accuracy
except to the extent the inaccuracy would not have a Material Adverse Effect) or
(ii) the breach of any covenant or agreement made by Buyer and contained in this
Agreement.
(b) Except for inaccuracies in the representations and warranties
contained in Sections 4.1 and 4.2, the Buyer shall not be required to indemnify
the Indemnified Seller Group with respect to any claim for indemnification
pursuant to Section 8.2(a)(i), unless and until the aggregate amount of all such
claims against the Buyer under this Section 9.1 exceed $1,000,000, and only for
amounts in excess of such amount, provided that the aggregate liability of the
Buyer to the Indemnified Sellers Group hereunder shall not exceed the Aggregate
Purchase Price.
8.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set forth
------------------------------------------
below, an indemnifying party shall be liable for Losses arising under Section
8.1(a)(i) or 8.2(a)(i) only if written notice of a claim for indemnity in
respect of such subject matter is given to the indemnifying parties on or prior
to the third anniversary of the Closing Date (except that (i) such day shall be
the day of expiration of the applicable statute of limitations in respect of
breaches of the representations and warranties in Sections 3.5 (first sentence
only) and 3.17 (ii) such day shall be 180 days after the indemnified party has
discovered facts or circumstances that indicate a reasonable likelihood that a
breach of the representations and warranties set forth in Sections 3.1, 3.2,
3.3, 4.1, 4.2 and 4.6 has occurred and (iii) other than the time limits for
accrual of a cause of action under applicable law, there shall be no time limit
on the ability of any party to bring a claim for any loss arising from
intentional misrepresentation or fraud). All representations, covenants and
warranties made by or on behalf of Sellers in this Agreement will be deemed to
have been relied upon by Buyer (notwithstanding any investigation by Buyer).
All representations, covenants and warranties made by or on behalf of Buyer in
this Agreement will be deemed to have been relied upon by Sellers
(notwithstanding any investigation by Sellers).
29
<PAGE>
8.4. NOTICE OF CLAIMS. An indemnified party shall give prompt
----------------
written notice to the indemnifying party of any claim against the indemnified
party which might give rise to a claim by the indemnified party against the
indemnifying party under the indemnification provisions contained herein,
stating the nature and basis of the claim and the actual or estimated amount
thereof, provided, however, that failure to give such notice will not effect the
-------- -------
obligation of the indemnifying party to provide indemnification in accordance
with the terms of Section 8.1 or 8.2 unless, and only to the extent that, the
indemnifying party is actually prejudiced thereby. In the event that any
action, suit or proceeding is brought against any indemnified party with respect
to which the indemnifying party may have liability under the indemnification
provisions contained herein, the indemnifying party shall, upon written
acknowledgement by the indemnifying party that such action, suit or proceeding
is an indemnifiable Loss pursuant to Section 8.1 or 8.2, have the right, at the
cost and expense of the indemnifying party, to defend such action in the name
and on behalf of the indemnified party (using counsel satisfactory to the
indemnified party), and, in connection with any such action, the indemnified
party and the indemnifying party agree to render to each other such assistance
as may reasonably be required in order to ensure proper and adequate defense of
such action, provided, however, that an indemnified party shall have the right
-------- -------
to retain its own counsel, with fees and expenses paid by the indemnifying
party, if representation of such indemnified party by counsel retained by the
indemnifying party would be inappropriate because of actual or potential
differing interests between such indemnified party and the indemnifying party.
If the indemnifying party shall fail to defend such action, suit or proceeding,
then the indemnified party shall have the right to defend such action without
prejudice to its rights to indemnification under Section 8.1 or 8.2 and, in
connection therewith, the indemnified party and the indemnifying party agree to
render to each other such assistance as may reasonably be required in order to
ensure proper and adequate defense of such action. Neither the indemnified
party nor the indemnifying party shall make any settlement of any claim which
might give rise to Liability of the indemnifying party under the indemnification
provisions contained herein without the written consent of each party, which
consent shall not be unreasonably withheld, delayed or conditioned.
8.5. INDEMNITY NOT EXCLUSIVE. The lack of availability of the
-----------------------
Indemnity Escrow Amount or Buyer's decision not to make a claim against the
Indemnity Escrow Amount shall not limit any claims for indemnification by Buyer
under this Agreement. Buyer agrees that it will make a claim only against the
Indemnity Escrow Amount unless either (i) the balance of the Indemnity Escrow
Amount is less than $1,000,000 or (ii) there are other claims pending or
threatened which, if paid, would reduce the balance of the Indemnity Escrow
Amount to less than $500,000. If
30
<PAGE>
Sellers elect in writing to pay any claim directly and, promptly thereafter (but
in no event later than 30 days after such election), deliver to Sellers an
amount sufficient to satisfy such claim, Buyer shall not assert such claim
against the Escrow Amount.
8.6. CONTRIBUTION BY SELLERS. In the event that any Seller makes
-----------------------
payments pursuant to the provisions of this Section 8 as a result of a breach of
representation or warranty or a breach of covenant by another Seller (a
"Breaching Seller") or with respect to a Group Member if such payment is not
- -----------------
made pro rata in proportion to the equity interest of each Seller who is a
holder of equity interest in such Group Member, such Seller shall be entitled to
contribution from the Breaching Seller or from all Sellers who are holders of
equity interest in such Group Member in proportion to each such holder's equity
interests, provided that if the equity interests of such Group Member are held
by a Group Member Shareholder, such contribution shall be pro rata from the
holders of the equity interests of such Group Member Shareholder.
9. REGISTRATION RIGHTS
-------------------
9.1. SHELF REGISTRATION. Buyer shall cause a "shelf" registration
------------------
statement covering the Common Stock issued to the Sellers on any appropriate
form pursuant to Rule 415 under the Securities Act to become effective on the
day next following the Closing Date. Buyer shall use its reasonable efforts to
keep such registration statement continuously effective for a period of two
years following the date on which it is declared effective (or, except as
otherwise provided herein, to immediately file a new shelf registration
statement in the event such effectiveness lapses at any time during said two-
year period). If necessary, Buyer shall cause to be filed, and shall use its
reasonable efforts to have declared effective as soon as practicable following
filing, additional shelf registration statements or amendments as necessary to
maintain such effectiveness for such two-year period. Buyer shall perform such
other procedures, from time to time, as may be necessary to permit Sellers to
effect a "draw-down" of any securities registered on such shelf registration
statement, provided that in no event may the Sellers draw-down for the purpose
of sale more than 1/12th of the shares of Common Stock issued to the Sellers
during each of the 12 months following the Closing Date (calculated on a
cumulative basis); provided further, however, that (i) the provisions of this
-------- -------
9.1 shall not limit the ability of any bona fide pledgee to foreclose upon such
pledge and thereafter freely sell the Common Stock so pledged and (ii) upon the
announcement by Buyer of a change in control, the foregoing limitation in
respect of draw-downs shall immediately cease to apply. No shelf registration
statement shall include any securities of Buyer other than the Common Stock
issued to the Sellers.
31
<PAGE>
9.2. SUSPENSION OF EFFECTIVENESS. In the event that Buyer, solely
---------------------------
for its own account, proposes to register shares of its common stock prior to
the second anniversary of the Closing Date on any registration statement on Form
S-1, S-2 or S-3, their successor forms or any other appropriate form under the
Securities Act for a primary public offering by Buyer (other than for the
purpose of making an acquisition or in connection with option plans) and Buyer
has offered to Sellers a piggy-back registration in accordance with Section 9.3,
Buyer may suspend the effectiveness of any shelf registration statement for a
period commencing thirty days prior to the effectiveness of such registration
statement and ending 90 days after the effective date thereof by providing the
Sellers with written notice of such suspension.
9.3. PIGGY-BACK REGISTRATION. Buyer shall advise the Sellers by
-----------------------
written notice at least ten days prior to the commencement of any such
suspension and/or the filing of any registration statement involving an
underwritten offering of the common stock being registered by Buyer, whether for
the account of Buyer or any other person, and will, in the case of any such
offering by the Buyer during the two years following the Closing Date, upon
request of any Seller made by written notice to Buyer within fifteen days
following receipt of Buyer's notice of intention to file such registration
statement, include in any such registration statement all or any portion of such
Seller's Common Stock prior to the second anniversary of the Closing Date,
without regard to the limitation on the number of shares contained in Section
9.1, but subject to the provision by the Sellers of such information as may be
required to permit a public offering of the Common Stock; provided, however,
-------- -------
that if the managing underwriter of such underwritten offering shall inform
Buyer of its belief that the number of securities requested to be included in
such registration by all persons exercising registration rights exceeds the
number which can be sold in (or during the time of) such offering or that the
inclusion would materially adversely affect the marketing of the securities to
be sold by the Buyer therein, then the securities to be registered shall be
decreased in the following order to the extent necessary to reduce the number of
securities to be included in the registration to the level recommended by the
managing underwriter: (i) first, the securities requested to be registered by
all persons other than Sellers exercising registration rights shall be decreased
until no such securities are included in the registration and (ii) second, the
securities requested to be registered by Buyer and by Sellers shall be decreased
(pro rata on the basis of the number of shares of Common Stock or other
--- ----
securities requested to be sold by the Buyer and each of the Sellers).
32
<PAGE>
9.4. REGISTRATION PROCEDURES. The following provisions shall be
-----------------------
applicable to any registration pursuant to this Section 9:
(i) Buyer will use its reasonable efforts to cause any registration
statement covering all or any portion of the Common Stock to become effective as
promptly as possible and, if any stop order shall be issued by the SEC in
connection therewith, to use its reasonable efforts to obtain the removal of
such order. Each Seller agrees to cooperate in all respects with Buyer in
effectuating the foregoing. Following the effective date of any post-effective
amendment or registration, Buyer shall, upon the request of any Seller,
forthwith supply such number of registration statements, preliminary
prospectuses and prospectuses meeting the requirements of the Securities Act and
other documents deemed necessary by such Seller to permit such Seller to make a
public distribution of all shares of Common Stock from time to time offered or
sold by it. The obligations of Buyer hereunder with respect to the registration
of the Common Stock are expressly conditioned on each Seller's furnishing to
Buyer such appropriate information concerning the intentions of such Seller and
the terms of such Seller's offering of such Common Stock as Buyer may reasonably
request.
(ii) Buyer shall bear the entire cost and expense of any registration
of securities pursuant to Section 9.
(iii) Buyer shall indemnify and hold harmless each Seller and each
underwriter, within the meaning of the Securities Act, who may purchase from or
sell for such Seller any Common Stock, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement under the Securities Act or any
post-effective amendment to such registration statement, or any prospectus
included therein required to be filed or furnished by reason of this Section 9
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to Buyer by such Seller or such underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls such
Seller or any such underwriter within the meaning of the Securities Act and each
officer, director, employee and agent of such Seller or such underwriter. Each
Seller or underwriter or other person, as the case may be, shall indemnify
Buyer, its directors, each officer signing the registration statement and each
person, if any, who controls Buyer within the meaning of the Act, from and
against any and all losses, claims, damages and liabilities caused by any untrue
33
<PAGE>
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section 9 or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission based
upon information furnished in writing to Buyer by such Seller or underwriter
expressly for use therein.
(iv) Buyer shall use reasonable good faith efforts to register or
qualify all Common Stock covered by any registration statement under such other
securities or blue sky laws of such jurisdictions as the Sellers shall
reasonably request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable the Seller to
consummate the disposition in such jurisdictions of their Common Stock covered
by such registration statement, except that Buyer shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section
9.4(iv) be obligated to be so qualified or to consent to general service of
process or to the imposition of taxes on, or measured by, all or any part of the
income of Buyer, in any such jurisdiction.
(v) Buyer shall immediately notify the Sellers at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in any registration statement covering all or any
part of the Common Stock, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the Sellers
promptly (but in no event later than 30 days after such request) prepare and
furnish to the Sellers a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vi) Buyer shall use its reasonable best efforts to qualify the
Common Stock on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, on The NASDAQ Stock Market.
34
<PAGE>
9.5. CURRENT INFORMATION. Buyer shall use its best efforts to cause
-------------------
"adequate current public information" to be available within the meaning of Rule
144 of the Securities Act.
10. GENERAL
-------
10.1. EXPENSES. Except as set forth in Section 5.5(b), all expenses
--------
of the preparation, execution and consummation of this Agreement and of the
transactions contemplated hereby including, without limitation, attorneys',
accountants' and outside advisors' fees and disbursements, shall be borne by the
party incurring such expense.
10.2. ENTIRE AGREEMENT. This Agreement, together with the Schedules
----------------
and Exhibits hereto and the Escrow Agreement, contain the entire understanding
of the parties and supersede all prior agreements and understandings relating to
the subject matter hereof and this Agreement shall not be amended except by a
written instrument hereafter signed by all of the parties hereto.
10.3. ASSIGNMENT. None of the parties hereto may assign its rights
----------
or delegate its obligations under this Agreement without the written consent of
the other parties hereto, except that Buyer may assign any part or all of its
interest hereunder to any wholly-owned subsidiary of Buyer, in which case, Buyer
and such subsidiary shall be jointly and severally liable for all obligations so
assigned. This Agreement and all of the provisions hereof shall be binding upon
and inure only to the benefit of the parties hereto and their respective heirs,
executors, personal representatives, successors and permitted assignees.
10.4. FURTHER ACTION. Each of the parties hereto shall use all
--------------
reasonable efforts to do, or cause to be done, all things necessary, proper or
advisable under applicable law to carry out the provisions of this Agreement and
shall execute and deliver such documents and other papers as may be required to
carry out the provisions of this Agreement.
10.5. NOTICES; POWER OF ATTORNEY. (a) All notices, consents,
--------------------------
instructions and other communications required or permitted under this Agreement
(collectively, "Notice") shall be effective only if given in writing and shall
------
be considered to have been duly given when (i) delivered by hand, (ii) sent by
telecopier (with receipt confirmed), provided that a copy is mailed (on the same
date) by certified or registered mail, return receipt requested, postage
prepaid, or (iii) received by the addressee, if sent by Express Mail, Federal
Express or other reputable express delivery service (receipt requested), or by
first class certified or registered mail, return receipt requested, postage
prepaid. Notice shall be sent in each case to the appropriate addresses or
telecopier numbers set forth below
35
<PAGE>
(or to such other addresses and telecopier numbers as a party may from time to
time designate as to itself by notice similarly given to the other parties in
accordance herewith, which shall not be deemed given until received by the
addressee). Notice shall be given:
(1) to Buyer at:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attn: Chief Financial Officer
Telecopier: (813) 829-2470
copy to: Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attn: Ralph J. Sutcliffe, Esq.
Telecopier: (212) 997-3527
(2) to the Sellers (or any of them) at:
Long Distance Savers
801 North 31st Street
Monroe, Louisiana 71201
Attn: Freddy Nolan
Telecopier: (318) 323-1591
and
Long Distance Savers
801 North 31st Street
Monroe, Louisiana 71201
Attn: William D. Hoover
Telecopier: (318) 323-1591
copy to: John L. Luffey, Jr.
Attorney-At-Law
1101 Royal Ave.
Monroe, Louisiana 71201
Attn: John L. Luffey, Jr.
36
<PAGE>
Telecopier: (318) 325-8357
(b) Each Seller hereby irrevocably constitutes and appoints Freddy
Nolan and William D. Hoover, acting jointly, as its true and lawful agent and
attorney-in-fact with full power and authority to act, including full power of
substitution, in its name and on its behalf with respect to all matters arising
from or in any way relating to this Agreement or the transactions contemplated
hereby, including, without limitation, to do all things and to perform all acts
required or deemed advisable, in their sole discretion, in connection with the
transactions contemplated by this Agreement as fully as each Seller could if
then personally present and acting alone. Each Seller hereby irrevocably
constitutes and appoints Freddy Nolan and William D. Hoover or either of them as
its true and lawful agent and attorney-in-fact with full power and authority to
act, including full power of substitution, in its name and on its behalf with
respect to the acceptance of delivery of any amounts, whether in cash or in
shares of Common Stock, required to be delivered hereunder as fully as each
Seller could if then personally present and acting alone. Without limitation,
(i) any Notice or other delivery (other than any delivery of any portion of the
Aggregate Purchase Price) validly delivered to Freddy Nolan and William D.
Hoover shall be deemed to have been validly delivered to each of the Sellers and
any delivery of any portion of the Aggregate Purchase Price validly delivered to
either Freddy Nolan or William D. Hoover shall be deemed to have been validly
delivered to each of the Sellers, (ii) any waiver of any provision of this
Agreement or consent, or compromise of any claim arising from or relating to
this Agreement, by Freddy Nolan and William D. Hoover shall be binding upon each
and every Seller, and (iii) Freddy Nolan and William D. Hoover are hereby
authorized to execute for and on behalf of each Seller (x) any amendment to this
Agreement or (y) any agreement contemplated hereby. Buyer shall be entitled to
rely (without investigation) on any action taken by Freddy Nolan and William D.
Hoover as being taken by Freddy Nolan and William D. Hoover for themselves and
on behalf of each of the Sellers, and fully authorized by each of the Sellers.
This appointment of agency and this power of attorney is coupled with an
interest and shall be irrevocable and shall not be terminated by any Seller or
by operation of law, whether by the death or incapacity of any Seller that is a
natural person, the termination of any trust or estate, the dissolution,
liquidation or bankruptcy of any corporation, partnership or other entity or the
occurrence of any other event, and any action taken by Freddy Nolan and William
D. Hoover shall be as valid as if such death, incapacity, termination,
dissolution, liquidation, bankruptcy or other event had not occurred, regardless
of whether or not Freddy Nolan or William D. Hoover shall have received any
notice thereof. Except as otherwise expressly provided in this Agreement the
Sellers shall be jointly and severally liable for all obligations of the
37
<PAGE>
Sellers (or any of them) under this Agreement. Freddy Nolan and William D.
Hoover, jointly and not severally, shall indemnify, defend and hold harmless the
Indemnified Buyer Group from and against all Losses arising out of or relating
to any dispute among the Sellers or any challenge by any Seller other than
Freddy Nolan or William D. Hoover to the validity, propriety or enforceability
of any action taken by Freddy Nolan and William D. Hoover pursuant to the powers
granted to Freddy Nolan and William D. Hoover by this Section 10.5(b).
10.6. SPECIFIC PERFORMANCE. The parties agree that due to the unique
--------------------
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to which it may be
entitled) to an appropriate decree of specific performance, or an injunction
restraining any violation of this Agreement or other equitable remedies to
enforce this Agreement (without establishing the likelihood of irreparable
injury or posting bond or other security), and the breaching party waives in any
action or proceeding brought to enforce this Agreement the defense that there
exists an adequate remedy at law.
10.7. SEVERABILITY. If any one or more of the provisions contained
------------
in this Agreement or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not (to the full extent permitted by law) in any way be affected or
impaired.
10.8. ATTORNEY'S FEES. In any action, proceeding or counterclaim
---------------
arising out of or in any way connected with this Agreement, the prevailing
parties shall be entitled to recover reasonable attorneys' fees and
disbursements incurred in connection therewith.
10.9. HEADINGS. The headings of Sections and Subsections are for
--------
reference only and shall not limit or control the meaning thereof.
10.10. COUNTERPARTS; WAIVERS AND AMENDMENTS; ETC. This Agreement may
------------------------------------------
be executed in multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Agreement may be amended, modified, superseded, cancelled, renewed or extended,
and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by the party or
parties waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder, nor any single or partial exercise of any
38
<PAGE>
right, power or privilege hereunder, precludes any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
Nothing in this Agreement is intended to confer any rights or remedies under or
by reason of this Agreement on any persons (including, without limitation, any
employees of any Group Member) other than Sellers and Buyer and their respective
successors and permitted assigns.
10.11. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS
-------------
AGREEMENT AND ALL RELATED AGREEMENTS AND DOCUMENTS (COLLECTIVELY, THE "RELATED
-------
AGREEMENTS") REFERRED TO HEREIN SHALL BE GOVERNED BY THE INTERNAL LAWS (AND NOT
- ----------
THE PRINCIPLES OF CONFLICT OF LAWS) OF THE STATE OF DELAWARE.
10.12. VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
-----
AGREEMENT OR ANY RELATED AGREEMENTS SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS
OF THE STATE OF DELAWARE OR OF THE UNITED STATES OF AMERICA RESIDING IN THE
STATE OF DELAWARE AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BUYER AND
EACH SELLER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. BUYER
AND EACH SELLER MEMBER HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT OF THIS
AGREEMENT OR ANY RELATED AGREEMENT, THAT IT IS NOT SUBJECT THERETO OR THAT SUCH
ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID
COURTS OR THAT THIS AGREEMENT OR ANY RELATED AGREEMENT MAY NOT BE ENFORCED IN OR
BY SAID COURTS OR THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM EXECUTION, THAT THE
SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE
OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR (PROVIDED THAT PROCESS SHALL BE
SERVED IN ANY MANNER REFERRED TO IN THE FOLLOWING SENTENCE) THAT SERVICE OF
PROCESS UPON SUCH PARTY IS INEFFECTIVE. BUYER AND EACH SELLER AGREES THAT
SERVICE OF PROCESS IN ANY SUCH ACTION, SUIT OR PROCEEDING AGAINST IT WITH
RESPECT TO THIS AGREEMENT OR ANY RELATED AGREEMENT MAY BE MADE UPON IT IN ANY
MANNER PERMITTED BY THE LAWS OF THE STATE OF DELAWARE OR THE FEDERAL LAWS OF THE
UNITED STATES. SERVICE OF PROCESS IN ANY MANNER REFERRED TO IN THE PRECEDING
SENTENCE SHALL BE DEEMED, IN EVERY RESPECT, EFFECTIVE SERVICE OF PROCESS UPON
SUCH PARTY.
[SIGNATURE PAGES FOLLOWS]
39
<PAGE>
10.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL
--------------------
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT ON
ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
IN WITNESS WHEREOF, and intending to be legally bound thereby, the
parties hereto have duly executed and delivered this Agreement or caused this
Agreement to be duly executed and delivered by their duly authorized officers as
of the date and year first above written.
INTERMEDIA COMMUNICATIONS INC.
By:
_____________________________
Name:
Title:
------------------------
Albert D. Burson
------------------------
Robert J. Calibani
------------------------
Christopher B. Chelette
------------------------
Emily Debnam
------------------------
Mallory Debnam
------------------------
Mathew Debnam
------------------------
Terri Hoover Debnam
------------------------
Jason Doughty
<PAGE>
[SIGNATURE PAGE CONTINUATION]
------------------------
Lawrence D. Ferk
------------------------
Gary L. Findley
------------------------
Arvil L. Fowler, Jr.
------------------------
Gary D. Hoover
------------------------
Madeline Hoover
------------------------
William D. Hoover
------------------------
Deanna V. Johnson
------------------------
Lyn D. Johnson
------------------------
Wesley R. Johnson
------------------------
Alicia Nolan
------------------------
Ashley Nolan
------------------------
Freddy Nolan
<PAGE>
[SIGNATURE PAGE CONTINUATION]
------------------------
Reba Nolan
------------------------
Michael Todd Montgomery
------------------------
William L. Montgomery
------------------------
William Neil Montgomery
------------------------
Freddy Nolan
------------------------
James A. Scilla
------------------------
Michael T. Tinnerello
------------------------
Thomas A. Winkler
------------------------
Gary L. Woodruff
Pat O. Daily Revocable Trust
By: _____________________________
Name:
Title:
<PAGE>
[SIGNATURE PAGE CONTINUATION]
Kenneth Doughty Revocable Trust
By: _____________________________
Name:
Title:
Florene Doughty Revocable Trust
By: _____________________________
Name:
Title:
John R. Hollis 1988 Revocable Trust
By: _____________________________
Name:
Title:
Gayle D. Hoover Trust - 1991
By: _____________________________
Name:
Title:
Stephanie A. Hoover Trust - 1991
By: _____________________________
Name:
Title:
Morgan Family Revocable Trust
By: _____________________________
Name:
Title:
Mary Lee Daily Prout Revocable Trust
By: _____________________________
Name:
Title:
<PAGE>
[SIGNATURE PAGE CONTINUATION]
Bixby Telephone Investment Co.
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE A
Albert D. Burson
Robert J. Calibani
Christopher B. Chelette
a/k/a Chris Chelette
Emily Debnam
Mallory Debnam
Mathew Debnam
a/k/a Matthew Debnam
Terri Hoover Debnam
a/k/a Terri H. Debnam
a/k/a Terri Debnam
Jason Doughty
Lawrence D. Ferk
a/k/a Larry Ferk
Gary L. Findley
a/k/a Garry L. Findley
a/k/a Gary Findley
Arvil L. Fowler, Jr.
a/k/a Arvil Fowler, Jr.
Gary D. Hoover
a/k/a Gary Hoover
Madeline Hoover
William D. Hoover
a/k/a William Hoover
Deanna V. Johnson
Lyn D. Johnson
a/k/a Lyn Johnson
Wesley R. Johnson
a/k/a Wesley Johnson
Alicia Nolan
Ashley Nolan
Freddy Nolan
Reba Nolan
Michael Todd Montgomery
a/k/a Michael T. Montgomery
a/k/a M. Todd Montgomery
William L. Montgomery
a/k/a William Montgomery
William Neil Montgomery
a/k/a William N. Montgomery
a/k/a W. Neil Montgomery
James A. Scilla
Michael T. Tinnerello
Thomas A. Winkler
Gary L. Woodruff
a/k/a Gary Woodruff
Pat O. Daily Revocable Trust
a/k/a Pat O. Daily Revocable Trust
<PAGE>
Pat O. Daily, Trustee
Kenneth Doughty Revocable Trust
a/k/a Kenneth Doughty Revocable Trust
under Agreement dated April 7, 1994
Kenneth Doughty, Trustee
a/k/a Kenneth Doughty, Trustee of the Kenneth Doughty
Revocable Trust uad 04-07-1994
Florene Doughty Revocable Trust
a/k/a Kenneth and Florene Doughty, Trustees of the
Florene Doughty Trust uad 04-07-94
a/k/a Florene Doughty Revocable Trust
under Agreement dated April 7, 1994
Kenneth and Florence Doughty, Trustees
John R. Hollis 1988 Revocable Trust
a/k/a John R. Hollis Trust
a/k/a John R. Hollis 1988 Revocable Trust
under Agreement dated February 26, 1988
John R. Hollis, Trustee
Gayle D. Hoover Trust - 1991
a/k/a Gayle D. Hoover Trust
a/k/a Gayle D. Hoover, Trust
a/k/a Gayle Hoover, Trust
a/k/a Gayle Hoover Trust
a/k/a Gayle D. Hoover, Trust
Gary D. Hoover, Trustee
Stephanie A. Hoover Trust - 1991
a/k/a Stephanie A. Hoover, Trust
a/k/a Stephanie A. Hoover Trust
a/k/a Stephanie Hoover, Trust
a/k/a Stephanie Hoover Trust
a/k/a Stephanie A. Hoover, Trust
Gary D. Hoover, Trustee
Morgan Family Revocable Trust
a/k/a Morgan Family Revocable Trust
Joseph B. Morgan, III and Paula K. Morgan, Trustee
Mary Lee Daily Prout Revocable Trust
a/k/a Mary Lee Daily Prout Revocable Trust
Mary L. Prout, Trustee
Bixby Telephone Investment Co.
<PAGE>
SCHEDULE 5.12
Albert D. Burson
Robert J. Calibani
Christopher B. Chelette
Arvil L. Fowler, Jr.
Michael T. Tinnerello
<PAGE>
EXHIBIT A
FORM OF
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ______________, 1997 (this
"Agreement"), among INTERMEDIA COMMUNICATIONS INC., a Delaware corporation
---------
("Buyer"), each of the individuals and entities listed on Schedule A hereto
-----
(collectively, the "Sellers") and SunTrust Bank, Central Florida, National
-------
Association, as escrow agent (the "Escrow Agent").
------------
R E C I T A L S :
Buyer and Sellers have entered into an Acquisition Agreement
dated as of December __, 1997 (the "Acquisition Agreement"; all capitalized
terms used herein without definition have the same meanings herein as in the
Acquisition Agreement), which sets forth the definitive terms of the purchase by
Buyer of the Shares.
Pursuant to and in accordance with Section 2.2 of the Acquisition
Agreement, Buyer has deposited in escrow _________ shares of Common Stock of
Buyer and $_______ in cash to be held and disbursed by the Escrow Agent in
accordance with the provisions of this Agreement.
A copy of the Acquisition Agreement has been delivered to the
Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent
hereunder.
Buyer and the Sellers desire that the Escrow Agent hold the
Indemnity Escrow Amount and the Purchase Price Escrow Amount in escrow upon the
terms and subject to the conditions of this Agreement.
In consideration of the mutual agreements and covenants set forth
herein and in the Acquisition Agreement, the parties hereby agree as follows:
1. Appointment and Agreement of Escrow Agent. Buyer and the
-----------------------------------------
Sellers hereby appoint the Escrow Agent to serve as, and the Escrow Agent hereby
agrees to act as, Escrow Agent upon the terms and conditions of this Agreement.
2. Establishment of the Escrow Account. (a) Pursuant
-----------------------------------
1
<PAGE>
to Section 2.2 of the Acquisition Agreement, Buyer has delivered to the Escrow
Agent on the date hereof (i) shares of Common Stock having an aggregate value
equal to the sum of the stock indemnity escrow amount for each Group Member as
set forth on Schedule 1.2 to the Acquisition Agreement (each a "Member Stock
------------
Indemnity Escrow Amount" and, collectively, the "Stock Indemnity Escrow
- ----------------------- ----------------------
Amount"), evidenced by certificates numbered ICF ____ through ICF ______, and
- ------
cash in an amount equal to the sum of the cash indemnity escrow amount for each
Group Member as set forth on Schedule 1.2 to the Acquisition Agreement (each a
"Member Cash Indemnity Escrow Amount" and, collectively the "Cash Indemnity
----------------------------------- --------------
Escrow Amount") and (ii) shares of Common Stock having an aggregate value equal
- -------------
to the sum of the stock purchase price escrow amount for each Group Member as
set forth on Schedule 1.2 to the Acquisition Agreement (each a "Member Stock
------------
Purchase Price Escrow Amount" and, collectively, the "Stock Purchase Price
- ---------------------------- --------------------
Escrow Amount"), evidenced by certificates numbered ICF ____ through ICF ______,
- -------------
and cash in an amount equal to the sum of the cash purchase price escrow amount
for each Group Member as set forth on Schedule 1.2 to the Acquisition Agreement
(each a "Member Cash Purchase Price Escrow Amount" and, collectively the "Cash
---------------------------------------- ----
Purchase Price Escrow Amount"). The Stock Indemnity Escrow Amount and the Cash
- ----------------------------
Indemnity Escrow Amount are hereafter collectively referred to as the "Indemnity
---------
Escrow Amount"; the Stock Purchase Price Escrow Amount and the Cash Purchase
- -------------
Price Escrow Amount are hereafter collectively referred to as the "Purchase
--------
Price Escrow Amount"; and the Indemnity Escrow Amount and the Purchase Price
- -------------------
Escrow Amount are hereafter collectively referred to as the "Escrow Amounts."
--------------
The certificates evidencing the shares of Common Stock constituting the Escrow
Amounts are in the name of "SunTrust Bank, Central Florida, National
Association, as Escrow Agent, on behalf of the Sellers and Buyer under that
certain Acquisition Agreement dated December __, 1997 (the "Acquisition
Agreement") between Buyer and Sellers." The Escrow Agent shall hold the Escrow
Amounts in escrow pursuant to this Agreement.
(b) Each of Buyer and the Sellers confirms to the Escrow Agent
and to each other that each of the Indemnity Escrow Amount and the Purchase
Price Escrow Amount is free and clear of all Liens except as may be created by
this Agreement and the Acquisition Agreement.
(c) The Sellers hereby irrevocably agree that the delivery of
cash and shares of Common Stock by Buyer to the Escrow Agent in the amount
required by the Acquisition Agreement has satisfied Buyer's obligation to fund
the Indemnity Escrow Amount and the Purchase Price Escrow Amount pursuant to
Section 2.2 of the Acquisition Agreement.
2
<PAGE>
3. Payments from the Purchase Price Escrow Amount.
----------------------------------------------
(a) Within five Business Days after the final determination of
each Member Purchase Price in accordance with Section 1.4 of the Acquisition
Agreement, Buyer and Sellers shall deliver to the Escrow Agent written
instructions specifying the number of shares of Common Stock to be distributed
to Sellers and to Buyer from each Member Stock Purchase Price Escrow Amount and
the amount in cash to be distributed to Sellers and to Buyer from each Member
Cash Purchase Price Escrow Amount. Promptly after receipt of such joint
notification, the Escrow Agent shall deliver the number of shares of Common
Stock and the amount in cash specified in such notice from each Member Stock
Purchase Price Escrow Amount and each Member Cash Purchase Price Escrow Amount
to the Buyer or the Sellers as the case may be.
(b) If the Sellers receive a payment from any Member Stock
Purchase Price Escrow Amount or any Member Cash Purchase Price Escrow Amount,
then the Sellers shall solely be responsible for allocating and distributing
such amounts among themselves in proportion to the percentage of equity
interests of the Group Member to which such Member Stock Purchase Price Escrow
Amount or Member Cash Purchase Price Escrow Amount relates held by each Seller,
and each of the Sellers hereby agrees that the Escrow Agent's sole
responsibility for payments from any Member Stock Purchase Price Escrow Amount
or Member Cash Purchase Price Escrow Amount shall be to deliver the specified
number of shares of Common Stock and/or the specified amount in cash to the
Sellers. Each of the Sellers hereby irrevocably waives any rights it may have
against the Escrow Agent relating to the allocation of any Member Cash Purchase
Price Escrow Amount or any Member Stock Purchase Price Escrow Amount or the
distribution thereof and shall indemnify, defend and hold harmless the Escrow
Agent from and against any Losses that the Escrow Agent may suffer arising from
such allocation or the distribution of any Member Stock Purchase Price Escrow
Amount or any Member Cash Purchase Price Escrow Amount among the Sellers.
(c) If the Buyer and the Sellers, within 30 days after the final
determination of each Member Purchase Price in accordance with Section 1.4 of
the Acquisition Agreement, cannot agree as to the appropriate distribution of
the shares of Common Stock and cash in the Purchase Price Escrow Amount, such
dispute shall be submitted to one Arbiter for its determination of the dispute,
which determination shall be a final and binding determination on the parties
hereto. The cost and expenses incurred in connection with a determination by the
Arbiter shall be allocated by the Arbiter, in its discretion, in proportion to
the relative success of the parties as to the dispute. Any award rendered by the
Arbiter shall be final and binding upon the parties. Judgment upon the award may
be entered by any court of competent jurisdiction, including, but not limited
to, any court
3
<PAGE>
in the State of Delaware having jurisdiction over the parties.
4. Payments from the Indemnity Escrow Amount.
-----------------------------------------
(a) During the three year period immediately following the
Closing, Buyer may make claims for payment from the Indemnity Escrow Amount by
delivering to the Escrow Agent a certificate of Buyer (a "Buyer's Certificate")
-------------------
which shall:
(i) state that one or more members of the Indemnified Buyer
Group has paid or incurred a Loss and is entitled to an indemnification
payment from the Indemnity Escrow Amount under Section 8 of the
Acquisition Agreement as a result of such payment or incurrence of such
a Loss (a "Buyer Indemnity Escrow Indemnification Item");
-------------------------------------------
(ii) state the Group Member to which such Buyer Indemnity Escrow
Indemnification Item relates, the aggregate amount of such Buyer
Indemnity Escrow Indemnification Item and the number of shares of Common
Stock and amount in cash required to cover such Buyer Indemnity Escrow
Indemnification Item; and
(iii) specify in reasonable detail the nature and amount of each
individual Buyer Indemnity Escrow Indemnification Item.
Buyer shall deliver a copy of such Buyer's Certificate to the Sellers and
provide to the Escrow Agent evidence of delivery of copies of such Buyer's
Certificate to the Sellers.
(b) During the three year period immediately following the
Closing, Sellers may make claims for payment from the Indemnity Escrow Amount,
in an amount not to exceed an aggregate of $500,000, by delivering to the Escrow
Agent a certificate of Sellers (a "Sellers' Certificate") which shall:
--------------------
(i) state that Sellers have incurred (x) legal fees in
connection with the defense of claims pursuant to Section 8.4 of the
Acquisition Agreement or (y) accounting or legal fees in connection with
any tax audit of any Group Member (a "Seller Indemnity Escrow Release
-------------------------------
Item");
----
(ii) state the Group Member to which such Seller Indemnity
Escrow Release Item relates, the aggregate amount of such Seller
Indemnity Escrow Release Item and the number of shares of Common Stock
and amount in cash required to cover such Seller Indemnity Escrow
Release Item; and
(iii) specify in reasonable detail the nature and amount of each
individual Seller Indemnity Escrow Release Item.
4
<PAGE>
Sellers shall deliver a copy of such Sellers' Certificate to the Buyer and
provide to the Escrow Agent evidence of delivery of copies of such Sellers'
Certificate to the Buyer.
(c) If Sellers shall object to any amount claimed in connection
with any Buyer Indemnity Escrow Indemnification Item specified in any Buyer's
Certificate or Buyer shall object to any amount claimed in any Seller Indemnity
Escrow Release Item specified in any Sellers' Certificate, the objecting party
shall, within seven Business Days after delivery to such party of such Buyer's
Certificate or Sellers' Certificate, as the case may be, deliver to the Escrow
Agent and to Buyer or Sellers, as the case may be, a certificate (an "Objection
---------
Certificate") (i) specifying each such amount to which such party objects and
- -----------
(ii) specifying in reasonable detail the nature and basis for each such
objection. If the Escrow Agent shall not have received an Objection Certificate
objecting to the amount claimed with respect to a Buyer Indemnity Escrow
Indemnification Item or Seller Indemnity Escrow Release Item (collectively,
referred to hereinafter as an "Indemnity Escrow Indemnification Item") within
-------------------------------------
seven Business Days after delivery to the Sellers of a Buyer's Certificate or to
the Buyer of a Sellers' Certificate specifying such Indemnity Escrow
Indemnification Item, the parties shall be deemed to have acknowledged the
correctness of the amount claimed with respect to such Indemnity Escrow
Indemnification Item, and the Escrow Agent shall promptly thereafter transfer to
the requesting party out of the Member Stock Indemnity Escrow Amount for the
Group Member to whom the Indemnity Escrow Indemnification Item relates the
number of shares of Common Stock and out of the Member Cash Indemnity Escrow
Amount for the Group Member to whom the Indemnity Escrow Indemnification Item
relates the amount in cash claimed in the Buyer's Certificate or Sellers'
Certificate, as the case may be, with respect to such Indemnity Escrow
Indemnification Item.
(d) If the Escrow Agent shall receive, within seven Business Days
after delivery to a party of a Buyer's Certificate or a Sellers' Certificate, an
Objection Certificate objecting to the amount claimed with respect to any
Indemnity Escrow Indemnification Item specified in such Buyer's Certificate or
Sellers' Certificate, the amount so objected to and the related number of shares
of Common Stock and amount in cash (the "Objected Funds") shall be held by the
--------------
Escrow Agent and shall not be released from the Indemnity Escrow Amount except
in accordance with either (i) written instructions executed by Buyer and by the
Sellers or (ii) a final judgement of a court of competent jurisdiction directing
the Escrow Agent with respect to the matters relating to such claim.
(e) On the third anniversary of the Closing Date, the Escrow
Agent shall pay to the Sellers all shares of Common Stock and all cash remaining
in the Indemnity Escrow Amount at such
5
<PAGE>
time less the aggregate amount of all unsatisfied Escrow Indemnification Items
claimed by Buyer (including all Objected Funds) which have not previously been
satisfied by payments from the Indemnity Escrow Amount as of such date along
with a statement specifying the Member Stock Indemnity Escrow Amount and/or
Member Cash Indemnity Escrow Amount to which the shares of Common Stock or cash
distributed pursuant to this Section 4(e) relate.
(f) If any Sellers receive a payment from any Member Stock
Indemnity Escrow Amount or any Member Cash Indemnity Escrow Amount, then the
Sellers shall solely be responsible for allocating and distributing such amounts
among themselves in proportion to the percentage of equity interests of the
Group Member to which such Member Stock Indemnity Escrow Amount or Member Cash
Indemnity Escrow Amount relates held by each Seller, and each of the Sellers
hereby agrees that the Escrow Agent's sole responsibility for payments from any
Member Stock Indemnity Escrow Amount or Member Cash Indemnity Escrow Amount
shall be to deliver the specified number of shares of Common Stock and/or the
specified amount in cash to the Sellers. Each of the Sellers hereby irrevocably
waives any rights it may have against the Escrow Agent relating to the
allocation of any Member Cash Indemnity Escrow Amount or any Member Stock
Indemnity Escrow Amount or the distribution thereof and shall indemnify, defend
and hold harmless the Escrow Agent from and against any Losses that the Escrow
Agent may suffer arising from such allocation or the distribution of any Member
Stock Indemnity Escrow Amount or any Member Cash Indemnity Escrow Amount among
the Sellers.
(g) Any dispute with respect to the Objected Funds which can not
be resolved by the parties shall be submitted to one Arbiter for its
determination of the dispute, which determination shall be a final and binding
determination on the parties hereto. The cost and expenses incurred in
connection with a determination by the Arbiter shall be allocated by the
Arbiter, in its discretion, in proportion to the relative success of the parties
as to the dispute. Any award rendered by the arbitrator shall be final and
binding upon the parties. Judgment upon the award may be entered by any court of
competent jurisdiction, including, but not limited to, any court in the State of
Delaware having jurisdiction over the parties.
5. Liquidation of the Indemnity Escrow Amount.
------------------------------------------
(a) Whenever the Escrow Agent shall be required to make payment
from a Member Stock Indemnity Escrow Amount or a Member Stock Purchase Price
Escrow Amount, the Escrow Agent shall pay such amounts by delivering shares of
Common Stock from such Member Stock Indemnity Escrow Amount or such Member Stock
Purchase Price Escrow Account, as the case may be. Whenever the Escrow Agent
shall be required to make payment from a Member Cash
6
<PAGE>
Indemnity Escrow Amount or a Member Cash Purchase Price Escrow Amount, the
Escrow Agent shall pay such amounts by liquidating the investments of such
Member Cash Indemnity Escrow Amount or such Member Cash Purchase Price Escrow
Account, as the case may be, to the extent necessary to pay such amounts in
full.
(b) For all purposes of this Agreement, whenever shares of Common
Stock shall be required to be delivered to satisfy a payment, the shares of
Common Stock shall be deemed to be valued at $_____ per share, notwithstanding
the actual market or other value of the shares of Common Stock at the time of
the delivery of such shares. In the event of any stock split, reverse stock
split, stock combination or reclassification of the shares of Common Stock or
any merger, consolidation or combination of Buyer with any other entity or
entities, the deemed value specified above for the shares of Common Stock shall
be proportionally adjusted so that the deemed value of the shares of Common
Stock after such event shall be the same as the deemed value of the shares of
Common Stock prior to such event. All such adjustments shall be made
successively.
(c) Whenever the Escrow Agent shall be required to make payment
from a Member Stock Indemnity Escrow Amount and no shares of Common Stock remain
in such Member Stock Indemnity Escrow Amount, the Escrow Agent shall pay such
amounts by delivering shares of Common Stock or cash from any other Member Stock
Indemnity Escrow Amount or Member Cash Indemnity Escrow Amount in which shares
of Common Stock or cash remain in the following order: (i) first, out of any
Member Cash Indemnity Escrow Amount attributable to the Group Member whose
Member Stock Indemnity Escrow Amount has been depleted (the "Depleted Stock
--------------
Indemnity Escrow Member"), (ii) second, out of the portion of any other Member
- -----------------------
Stock Indemnity Escrow Amount attributable to Sellers who are holders of equity
interests in the Depleted Stock Indemnity Escrow Member (the "Stock Indemnifying
------------------
Sellers") pro rata in proportion to the percentage of the equity interests of
- -------
the Depleted Stock Indemnity Escrow Member each such Stock Indemnifying Seller
owns until all shares of Common Stock attributable to any Stock Indemnifying
Seller have been depleted, (iii) third, out of the portion of any Member Cash
Indemnity Escrow Amount attributable to the Stock Indemnifying Sellers pro rata
in proportion to the percentage of the equity interests of the Depleted Stock
Indemnity Escrow Member each such Stock Indemnifying Seller owns until all the
cash attributable to any Stock Indemnifying Seller has been depleted, (iv)
fourth, out of any other Member Stock Indemnity Escrow Amount and (v) last, out
of any other Member Cash Indemnity Escrow Amount. In the event that the Escrow
Agent makes payment pursuant to this paragraph and the shares of Common Stock
and/or cash used to make such payment are not selected pro rata in proportion to
the equity interest of each Stock Indemnifying Seller in the Depleted Stock
Indemnity Escrow Member, any Seller with respect to which shares
7
<PAGE>
of Common Stock or cash were used to make such payment shall be entitled to
contribution from all Stock Indemnifying Sellers in proportion to each Stock
Indemnifying Seller's equity interests in the Depleted Stock Indemnity Escrow
Member.
(d) Whenever the Escrow Agent shall be required to make payment
from a Member Stock Purchase Price Escrow Amount and no shares of Common Stock
remain in such Member Stock Purchase Price Escrow Amount, the Escrow Agent shall
pay such amounts by delivering shares of Common Stock or cash from any other
Member Stock Purchase Price Escrow Amount or Member Cash Purchase Price Escrow
Amount in which shares of Common Stock or cash remain in the following order:
(i) first, out of any Member Cash Purchase Price Escrow Amount attributable to
the Group Member whose Member Stock Purchase Price Escrow Amount has been
depleted (the "Depleted Stock Purchase Price Escrow Member"), (ii) second, out
-------------------------------------------
of the portion of any other Member Stock Purchase Price Escrow Amount
attributable to Sellers who are holders of equity interests in the Depleted
Stock Purchase Price Escrow Member (the "Stock Purchase Price Adjustment
-------------------------------
Sellers") pro rata in proportion to the percentage of the equity interests of
- -------
the Depleted Stock Purchase Price Escrow Member each such Stock Purchase Price
Adjustment Seller owns until all shares of Common Stock attributable to any
Stock Purchase Price Adjustment Seller have been depleted, (iii) third, out of
the portion of any Member Cash Purchase Price Escrow Amount attributable to the
Stock Purchase Price Adjustment Sellers pro rata in proportion to the percentage
of the equity interests of the Depleted Stock Purchase Price Escrow Member each
such Stock Purchase Price Adjustment Seller owns until all the cash attributable
to any Stock Purchase Price Adjustment Seller has been depleted, (iv) fourth,
out of any other Member Stock Purchase Price Escrow Amount and (v) last, out of
any other Member Cash Purchase Price Escrow Amount. In the event that the Escrow
Agent makes payments pursuant to this paragraph and the shares of Common Stock
and/or cash used to make such payments are not selected pro rata in proportion
to the equity interest of each Stock Purchase Price Adjustment Seller in the
Depleted Stock Purchase Price Escrow Member, any Seller with respect to which
shares of Common Stock or cash were used to make such payment shall be entitled
to contribution from all Stock Purchase Price Adjustment Sellers in proportion
to each Stock Purchase Price Adjustment Seller's equity interests in the
Depleted Stock Purchase Price Escrow Member.
(e) Whenever the Escrow Agent shall be required to make payment
from a Member Cash Indemnity Escrow Amount and no cash remains in such Member
Cash Indemnity Escrow Amount, the Escrow Agent shall pay such amounts by
delivering shares of Common Stock or cash from any other Member Stock Indemnity
Escrow Amount or Member Cash Indemnity Escrow Amount in which shares of Common
Stock or cash remain in the following order: (i) first, out of any Member Stock
Indemnity Escrow Amount attributable to
8
<PAGE>
the Group Member whose Member Cash Indemnity Escrow Amount has been depleted
(the "Depleted Cash Indemnity Escrow Member"), (ii) second, out of the portion
-------------------------------------
of any other Member Cash Indemnity Escrow Amount attributable to Sellers who are
holders of equity interests in the Depleted Cash Indemnity Escrow Member (the
"Cash Indemnifying Sellers") pro rata in proportion to the percentage of the
-------------------------
equity interests of the Depleted Cash Indemnity Escrow Member each such Cash
Indemnifying Seller owns until all cash attributable to any Cash Indemnifying
Seller has been depleted, (iii) third, out of the portion of any Member Stock
Indemnity Escrow Amount attributable to the Cash Indemnifying Sellers pro rata
in proportion to the percentage of the equity interests of the Depleted Cash
Indemnity Escrow Member each such Cash Indemnifying Seller owns until all the
shares of Common Stock attributable to any Cash Indemnifying Seller have been
depleted, (iv) fourth, out of any other Member Cash Indemnity Escrow Amount and
(v) last, out of any other Member Stock Indemnity Escrow Amount. In the event
that the Escrow Agent makes payment pursuant to this paragraph and the shares of
Common Stock and/or cash used to make such payment are not selected pro rata in
proportion to the equity interest of each Cash Indemnifying Seller in the
Depleted Cash Indemnity Escrow Member, any Seller with respect to which shares
of Common Stock or cash were used to make such payment shall be entitled to
contribution from all Cash Indemnifying Sellers in proportion to each Cash
Indemnifying Seller's equity interests in the Depleted Cash Indemnity Escrow
Member.
(f) Whenever the Escrow Agent shall be required to make payment
from a Member Cash Purchase Price Escrow Amount and no cash remains in such
Member Cash Purchase Price Escrow Amount, the Escrow Agent shall pay such
amounts by delivering shares of Common Stock or cash from any other Member Stock
Purchase Price Escrow Amount or Member Cash Purchase Price Escrow Amount in
which shares of Common Stock or cash remain in the following order: (i) first,
out of any Member Stock Purchase Price Escrow Amount attributable to the Group
Member whose Member Cash Purchase Price Escrow Amount has been depleted (the
"Depleted Cash Purchase Price Escrow Member"), (ii) second, out of the portion
------------------------------------------
of any other Member Cash Purchase Price Escrow Amount attributable to Sellers
who are holders of equity interests in the Depleted Cash Purchase Price Escrow
Member (the "Cash Purchase Price Adjustment Sellers") pro rata in proportion to
--------------------------------------
the percentage of the equity interests of the Depleted Cash Purchase Price
Escrow Member each such Cash Purchase Price Adjustment Seller owns until all
cash attributable to any Cash Purchase Price Adjustment Seller has been
depleted, (iii) third, out of the portion of any Member Stock Purchase Price
Escrow Amount attributable to the Cash Purchase Price Adjustment Sellers pro
rata in proportion to the percentage of the equity interests of the Depleted
Cash Purchase Price Escrow Member each such Cash Purchase Price Adjustment
Seller owns until all the shares of
9
<PAGE>
Common Stock attributable to any Cash Purchase Price Adjustment Seller have been
depleted, (iv) fourth, out of any other Member Cash Purchase Price Escrow Amount
and (v) last, out of any other Member Stock Purchase Price Escrow Amount. In the
event that the Escrow Agent makes payments pursuant to this paragraph and the
shares of Common Stock and/or cash used to make such payments are not selected
pro rata in proportion to the equity interest of each Cash Purchase Price
Adjustment Seller in the Depleted Cash Purchase Price Escrow Member, any Seller
with respect to which shares of Common Stock or cash were used to make such
payment shall be entitled to contribution from all Cash Purchase Price
Adjustment Sellers in proportion to each Cash Purchase Price Adjustment Seller's
equity interests in the Depleted Cash Purchase Price Escrow Member.
(g) In determining the holders of equity interests in any Group
Member or the proportion of any such equity interests attributable to any
Seller, (a) the Escrow agent shall be entitled to rely on the information set
forth on Schedule 3.2 to the Acquisition Agreement and (b) if the equity
interests of such Group Member are held by a Group Member Shareholder, the
holders of the equity interests of such Group Member Shareholder shall be deemed
to be holders of the equity interests of such Group Member. Each of the Sellers
hereby irrevocably waives any rights it may have against the Escrow Agent
relating to any allocation made by the Escrow Agent in accordance with this
Section 5 and in reliance upon the information set forth on Schedule 3.2 to the
Acquisition Agreement and shall indemnify, defend and hold harmless the Escrow
Agent from and against any Losses that the Escrow Agent may suffer arising from
such allocation or reliance.
6. Maintenance of the Escrow Amounts; Termination of the Escrow
------------------------------------------------------------
Amounts; Proceeds from the Escrow Amounts; Voting.
- -------------------------------------------------
(a) The Escrow Agent shall continue to maintain the Escrow
Amounts until the earlier of (i) the time at which there shall be no shares of
Common Stock and no cash remaining in the Escrow Amounts and (ii) the
termination of this Agreement.
(b) Notwithstanding any other provision of this Agreement to the
contrary, any time prior to the termination of the Escrow Amounts, the Escrow
Agent shall, if so instructed in a writing executed by Buyer and Sellers,
deliver to Sellers or Buyer, as directed in such writing, the number of shares
of Common Stock and amounts in cash as so instructed, provided, however, any
-------- -------
such notice shall specify the Group Member(s) against whose accounts any such
distribution is being made.
(c) All cash dividends or distributions on the shares of Common
Stock being held in the Escrow Amounts shall be the property of Sellers and
shall be forwarded directly to Sellers. All stock dividends or distributions on
the shares of Common
10
<PAGE>
Stock being held in the Escrow Amounts, including, without limitation, pursuant
to any stock split, reverse stock split, stock combination or reclassification
of the shares of Common Stock or any merger, consolidation or combination of
Buyer with any other entity or entities, shall become part of the Escrow Amounts
and shall be held in escrow in accordance with the terms of this Agreement.
(d) Sellers shall have the right to direct the voting of all
shares of Common Stock in the Escrow Amounts and the Escrow Agent shall vote
such shares of Common Stock as directed by Sellers.
7. Investment of the Cash Portion of the Escrow Amounts. The
----------------------------------------------------
Escrow Agent shall invest and reinvest the cash portion of the Escrow Amounts in
any combination of the following: (a) time deposits at the Escrow Agent, (b)
certificates of deposit maturing within 180 days from the purchase date thereof
issued by the Escrow Agent or by other United States commercial banks having
capital and surplus in excess of $1,000,000,000 and having (or its parent
having) one of the three highest debt ratings by Standard & Poor's Corporation
or Moody's Investors Service and (c) readily marketable direct obligations of
the government of the United States or any agency or instrumentality thereof or
readily marketable obligations unconditionally guaranteed by the full faith and
credit of the government of the United States, in each case, having a maturity
date no later than 180 days from the purchase date thereof. It is expressly
agreed and understood by the parties hereto that Escrow Agent shall not in
anyway whatsoever be liable for losses on any investments, including, but not
limited to, losses from market risks due to premature liquidation or resulting
from other actions taken pursuant to this Escrow Agent.
Receipt, investment and reinvestment of the Escrow Amount shall
be confirmed by Escrow Agent as soon as practicable by account statement, and
any discrepancies in any such account statement shall be noted by Sellers and
Buyer to Escrow Agent within 60 calendar days after receipt thereof. Failure to
inform Escrow Agent in writing of any discrepancies in any such account
statement within said 60-day period shall conclusively be deemed confirmation of
such account statement in its entirety. For purposes of this paragraph, each
account statement shall be deemed to have been received by the party to whom
directed on the earlier to occur of (i) actual receipt thereof and (ii) five
Business Days after the deposit thereof in the United States Mail, postage
prepaid. As used herein, "Business Day" shall mean any day that is not a
------------
Saturday or Sunday or a day on which banks located in the City of New York are
authorized or required to be closed.
8. Assignment; Successors. This Agreement may not be
----------------------
11
<PAGE>
assigned by operation of law or otherwise without the express written consent of
the other parties hereto (which consent may be granted or withheld in the sole
discretion of such other parties); provided, however, that Buyer may assign its
-------- -------
rights under this Agreement to an affiliate of Buyer without the consent of the
other parties. This Agreement and all of the provisions hereof shall be binding
upon and inure only to the benefit of the parties hereto and their respective
heirs, executors, personal representatives, successors and permitted assignees.
9. Escrow Agent. (a) Except as expressly contemplated by this
------------
Agreement or by written instructions executed by both Buyer and the Sellers, the
Escrow Agent shall not sell, transfer or otherwise dispose of in any manner all
or any portion of the Indemnity Escrow Amount or Purchase Price Escrow Amount,
except pursuant to an order of a court of competent jurisdiction.
(b) The duties and obligations of the Escrow Agent shall be
determined solely by this Agreement, and the Escrow Agent shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Agreement. No implied duties or obligations shall be read into
this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by
the provisions of any agreement among the other parties hereto except this
Agreement.
(c) The Escrow Agent shall not be under any duty to give the
Indemnity Escrow Amount or the Purchase Price Escrow Amount held by it hereunder
any greater degree of care than it gives its own similar property.
(d) In the performance of its duties hereunder, the Escrow Agent
shall be entitled to rely upon any order, judgment, certification, demand,
notice, instrument or other document delivered to it hereunder without being
required to determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The Escrow Agent
may act in reliance upon any instrument or signature believed by it in good
faith to be genuine and may assume that any person purporting to make any
statement or execute any document in connection with the provisions hereof has
been duly authorized to do so.
(e) The Escrow Agent shall not be liable for any error of
judgment, or any action taken, suffered or omitted to be taken, hereunder except
in the case of its gross negligence or willful misconduct. The Escrow Agent may
consult with counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel.
12
<PAGE>
(f) As compensation for its services to be rendered under this
Agreement, for each year or any portion thereof, the Escrow Agent shall receive
a fee in the amount specified in Schedule B to this Agreement and shall be
reimbursed upon request for all expenses, disbursements and advances, including
reasonable fees of outside counsel, if any, incurred or made by it in connection
with the preparation of this Agreement and the carrying out of its duties under
this Agreement. All such fees and expenses shall be shared equally by the
Sellers and Buyer.
(g) Buyer and the Sellers shall reimburse and indemnify the
Escrow Agent for, and hold it harmless against, any loss, liability or expense,
including, without limitation, reasonable attorneys' fees, incurred without
gross negligence, bad faith or willful misconduct on the part of the Escrow
Agent arising out of, or in connection with the acceptance of, or the
performance of, its duties and obligations under this Agreement.
(h) The Escrow Agent may at any time resign by giving 20 Business
Days' prior written notice of resignation to the Sellers and Buyer. The Sellers
and Buyer may at any time jointly remove the Escrow Agent by giving 20 Business
Days' written notice signed by each of them to the Escrow Agent.
(i) If the Escrow Agent shall resign or be removed, a successor
Escrow Agent, which shall be a bank or trust company having assets in excess of
$1 billion, and reasonably acceptable to the parties, shall be appointed by the
parties by written instrument executed by the Sellers and Buyer and delivered to
the Escrow Agent and to such successor Escrow Agent and, thereupon, the
resignation or removal of the predecessor Escrow Agent shall become effective
and such successor Escrow Agent, without any further act, deed or conveyance,
shall become vested with all right, title and interest to all cash and property
held hereunder of such predecessor Escrow Agent, and such predecessor Escrow
Agent shall, on the written request of the Sellers, Buyer or the successor
Escrow Agent, execute and deliver to such successor Escrow Agent all the right,
title and interest hereunder in and to the Indemnity Escrow Amount and the
Purchase Price Escrow Amount of such predecessor Escrow Agent and all other
rights hereunder of such predecessor Escrow Agent. If no successor Escrow Agent
shall have been appointed within 20 Business Days of a notice of resignation by
the Escrow Agent, the Escrow Agent's sole responsibility shall thereafter be to
hold the Indemnity Escrow Amount and the Purchase Price Escrow Amount until the
earlier of receipt of designation of a successor Escrow Agent or termination of
this Agreement in accordance with its terms.
(j) Should any controversy arise involving the parties hereto or
any of them or any other person, firm or entity with respect to this Escrow
Agreement, the Indemnity Escrow Amount or the Purchase Price Escrow Amount, or
should a substitute Escrow
13
<PAGE>
Agent fail to be designated as provided in Section 9(i) hereof, of if Escrow
Agent should be in doubt as to what action to take, Escrow Agent shall have the
right, but not the obligation, either to (a) withhold delivery of any amounts
until the controversy is resolved, the conflicting demands are withdrawn or its
doubt is resolved or (b) institute a petition for interpleader in any court of
competent jurisdiction to determine the rights of the parties hereto. Should a
petition for interpleader be instituted, or should Escrow Agent be threatened
with litigation or become involved in litigation in any manner whatsoever in
connection with this Escrow Agreement, the Indemnity Escrow Amount or the
Purchase Price Escrow Amount, subject to the provisions of 9(g) herein, the
other parties hereby jointly and severally agree to reimburse Escrow Agent for
its attorneys' fees and any and all other expenses, losses, costs and damages
incurred by Escrow Agent in connection with or resulting from such threatened or
actual litigation prior to any disbursement hereunder.
10. Termination. This Agreement shall terminate on the date on
-----------
which there are no shares of Common Stock and no cash remaining in either the
Indemnity Escrow Amount or the Purchase Price Escrow Amount.
11. Notices. (a) All notices, consents, instructions and other
-------
communications required or permitted under this Agreement (collectively,
"Notice") shall be effective only if given in writing and shall be considered to
have been duly given when (i) delivered by hand, (ii) sent by telecopier (with
receipt confirmed), provided that a copy is mailed (on the same date) by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) received by the addressee, if sent by Express Mail, Federal Express or
other reputable express delivery service (receipt requested), or by first class
certified or registered mail, return receipt requested, postage prepaid. Notice
shall be sent in each case to the appropriate addresses or telecopier numbers
set forth below (or to such other addresses and telecopier numbers as a party
may from time to time designate as to itself by notice similarly given to the
other parties in accordance herewith, which shall not be deemed given until
received by the addressee). Notice shall be given:
(1) to Buyer at:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attn: Chief Financial Officer
Telecopier: (813) 829-2470
copy to: Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
14
<PAGE>
New York, New York 10036-7798
Attn: Ralph J. Sutcliffe, Esq.
Telecopier: (212) 997-3527
(2) to the Sellers (or any of them) at:
Long Distance Savers
801 North 31st Street
Monroe, Louisiana 71201
Attn: Freddy Nolan
Telecopier: (318) 323-1591
and
Long Distance Savers
801 North 31st Street
Monroe, Louisiana 71201
Attn: William D. Hoover
Telecopier: (318) 323-1591
copy to: John L. Luffey, Jr.
Attorney-At-Law
1101 Royal Ave.
Monroe, Louisiana 71201
Attn: John L. Luffey, Jr.
Telecopier: (318) 325-8357
(3) to the Escrow Agent at:
SunTrust Bank, Central Florida,
National Association
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Attn:
Telecopier:
(b) Each Seller hereby irrevocably constitutes and appoints
Freddy Nolan and William D. Hoover, acting jointly, as its true and lawful agent
and attorney-in-fact with full power and authority to act, including full power
of substitution, in its name and on its behalf with respect to all matters
arising from or in any way relating to this Agreement or the transactions
contemplated hereby, including, without limitation, to do all things and to
perform all acts required or deemed advisable, in their sole discretion, in
connection with the transactions contemplated by this Agreement as fully as each
Seller could if then personally present and acting alone. Each Seller hereby
irrevocably constitutes and appoints Freddy Nolan and William D. Hoover or
either of them as its true and lawful agent and attorney-in-fact with full power
and authority to act, including full power of substitution, in its name and on
its behalf with respect to the acceptance of delivery of any amounts, whether in
15
<PAGE>
cash or in shares of Common Stock, required to be delivered hereunder as fully
as each Seller could if then personally present and acting alone. Without
limitation, (i) any Notice or other delivery (other than any delivery of any
portion of the Indemnity Escrow Amount or Purchase Price Escrow Amount) validly
delivered to Freddy Nolan and William D. Hoover shall be deemed to have been
validly delivered to each of the Sellers and any delivery of any portion of the
Indemnity Escrow Amount or the Purchase Price Escrow Amount validly delivered to
either Freddy Nolan or William D. Hoover shall be deemed to have been validly
delivered to each of the Sellers, (ii) any waiver of any provision of this
Agreement or consent, or compromise of any claim arising from or relating to
this Agreement, by Freddy Nolan and William D. Hoover shall be binding upon each
and every Seller, (iii) any claim or demand for payment from the Indemnity
Escrow Amount or Purchase Price Escrow Amount by Freddy Nolan and William D.
Hoover shall be binding upon each and every Seller and (iv) Freddy Nolan and
William D. Hoover are hereby authorized to execute for and on behalf of each
Seller (x) any amendment to this Agreement or (y) any agreement contemplated
hereby. The Escrow Agent shall be entitled to rely (without investigation) on
any action taken by Freddy Nolan and William D. Hoover as being taken by Freddy
Nolan and William D. Hoover for themselves and on behalf of each of the Sellers,
and fully authorized by each of the Sellers. This appointment of agency and this
power of attorney is coupled with an interest and shall be irrevocable and shall
not be terminated by any Seller or by operation of law, whether by the death or
incapacity of any Seller that is a natural person, the termination of any trust
or estate, the dissolution, liquidation or bankruptcy of any corporation,
partnership or other entity or the occurrence of any other event, and any action
taken by Freddy Nolan and William D. Hoover shall be as valid as if such death,
incapacity, termination, dissolution, liquidation, bankruptcy or other event had
not occurred, regardless of whether or not Freddy Nolan or William D. Hoover
shall have received any notice thereof. Except as otherwise expressly provided
in this Agreement, the Sellers shall be jointly and severally liable for all
obligations of the Sellers (or any of them) under this Agreement. Freddy Nolan
and William D. Hoover, jointly and not severally, shall indemnify, defend and
hold the Escrow Agent harmless from and against all Losses arising out of or
relating to any dispute among the Sellers or any challenge by any Seller other
than Freddy Nolan or William D. Hoover to the validity, propriety or
enforceability of any action taken by Freddy Nolan and William D. Hoover
pursuant to the powers granted to Freddy Nolan and William D. Hoover by this
Section 10(b).
12. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed and to be performed entirely within that State.
16
<PAGE>
13. Amendments. This Agreement may not be amended or modified
----------
except (a) by an instrument in writing signed by, or on behalf of, the Sellers,
Buyer and the Escrow Agent or (b) by a waiver in accordance with Section 13 of
this Agreement.
14. Waiver. Any party hereto may (i) extend the time for the
------
performance of any obligation or other act of any other party hereto or (ii)
waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. Any waiver of any term or
condition shall not be construed as a waiver of any subsequent breach or a
subsequent waiver of the same term or condition, or a waiver of any other term
or condition, of this Agreement. The failure of any party to assert any of its
rights hereunder shall not constitute a waiver of any of such rights.
15. Tax Matters. Sellers and Buyer shall provide Escrow Agent
-----------
with their respective taxpayer identification numbers, in each case documented
by an appropriate Form W8 or Form W9 upon execution of this Escrow Agreement.
Failure to so provide such forms may prevent or delay disbursements from the
Indemnity Escrow Amount or Purchase Price Escrow Amount and may also result in
the assessment of a penalty and Escrow Agent's being required to withhold tax on
any interest or other income earned on the Indemnity Escrow Amount or Purchase
Price Escrow Amount. Any payments of income shall be subject to applicable
withholding regulations then in force in the United States or any other
jurisdiction, as applicable.
16. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated by this Agreement is not affected in
any manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement be
consummated as originally contemplated to the fullest extent possible.
17. Entire Agreement. This Agreement and the Acquisition
----------------
Agreement constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all prior agreements and undertakings,
both written and oral, among the Sellers, Buyer and the Escrow Agent with
respect to the subject matter hereof.
17
<PAGE>
18. No Third-Party Beneficiaries. This Agreement is for the sole
----------------------------
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
19. Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by different parties hereto in separate counterparts, each of
which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
18
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound thereby,
the parties hereto have duly executed and delivered this Agreement or caused
this Agreement to be duly executed and delivered by their duly authorized
officers as of the date and year first above written.
INTERMEDIA COMMUNICATIONS INC.
By: _____________________________
Name:
Title:
------------------------------
Albert D. Burson
------------------------------
Robert J. Calibani
------------------------------
Christopher B. Chelette
------------------------------
Emily Debnam
------------------------------
Mallory Debnam
------------------------------
Mathew Debnam
------------------------------
Terri Hoover Debnam
------------------------------
Jason Doughty
------------------------------
Lawrence D. Ferk
<PAGE>
[SIGNATURE PAGE CONTINUATION]
------------------------------
Gary L. Findley
------------------------------
Arvil L. Fowler, Jr.
------------------------------
Gary D. Hoover
------------------------------
Madeline Hoover
------------------------------
William D. Hoover
------------------------------
Deanna V. Johnson
------------------------------
Lyn D. Johnson
------------------------------
Wesley R. Johnson
------------------------------
Alicia Nolan
------------------------------
Ashley Nolan
------------------------------
Freddy Nolan
------------------------------
Reba Nolan
------------------------------
Michael Todd Montgomery
<PAGE>
[SIGNATURE PAGE CONTINUATION]
------------------------------
William L. Montgomery
------------------------------
William Neil Montgomery
------------------------------
Freddy Nolan
------------------------------
James A. Scilla
------------------------------
Michael T. Tinnerello
------------------------------
Thomas A. Winkler
------------------------------
Gary L. Woodruff
Pat O. Daily Revocable Trust
By: _____________________________
Name:
Title:
Kenneth Doughty Revocable Trust
By: _____________________________
Name:
Title:
<PAGE>
[SIGNATURE PAGE CONTINUATION]
Florene Doughty Revocable Trust
By: _____________________________
Name:
Title:
John R. Hollis 1988 Revocable Trust
By: _____________________________
Name:
Title:
Gayle D. Hoover Trust - 1991
By: _____________________________
Name:
Title:
Stephanie A. Hoover Trust - 1991
By: _____________________________
Name:
Title:
Morgan Family Revocable Trust
By: _____________________________
Name:
Title:
Mary Lee Daily Prout Revocable Trust
By: _____________________________
Name:
Title:
Bixby Telephone Investment Co.
By: _____________________________
Name:
Title:
<PAGE>
[SIGNATURE PAGE CONTINUATION]
SunTrust Bank, Central Florida,
National Association, as Escrow Agent
By:
- ------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Albert D. Burson
Robert J. Calibani
Christopher B. Chelette
a/k/a Chris Chelette
Emily Debnam
Mallory Debnam
Mathew Debnam
a/k/a Matthew Debnam
Terri Hoover Debnam
a/k/a Terri H. Debnam
a/k/a Terri Debnam
Jason Doughty
Lawrence D. Ferk
a/k/a Larry Ferk
Gary L. Findley
a/k/a Garry L. Findley
a/k/a Gary Findley
Arvil L. Fowler, Jr.
a/k/a Arvil Fowler, Jr.
Gary D. Hoover
a/k/a Gary Hoover
Madeline Hoover
William D. Hoover
a/k/a William Hoover
Deanna V. Johnson
Lyn D. Johnson
a/k/a Lyn Johnson
Wesley R. Johnson
a/k/a Wesley Johnson
Alicia Nolan
Ashley Nolan
Freddy Nolan
Reba Nolan
Michael Todd Montgomery
a/k/a Michael T. Montgomery
a/k/a M. Todd Montgomery
William L. Montgomery
a/k/a William Montgomery
William Neil Montgomery
a/k/a William N. Montgomery
a/k/a W. Neil Montgomery
James A. Scilla
Michael T. Tinnerello
Thomas A. Winkler
Gary L. Woodruff
a/k/a Gary Woodruff
Pat O. Daily Revocable Trust
a/k/a Pat O. Daily Revocable Trust
Pat O. Daily, Trustee
Kenneth Doughty Revocable Trust
<PAGE>
a/k/a Kenneth Doughty Revocable Trust
under Agreement dated April 7, 1994
Kenneth Doughty, Trustee
a/k/a Kenneth Doughty, Trustee of the Kenneth Doughty
Revocable Trust dated 04-07-1994
Florene Doughty Revocable Trust
a/k/a Kenneth and Florene Doughty, Trustees of the
Florene Doughty Trust uad 04-07-94
a/k/a Florene Doughty Revocable Trust
under Agreement dated April 7, 1994
Kenneth and Florence Doughty, Trustees
John R. Hollis 1988 Revocable Trust
a/k/a John R. Hollis Trust
a/k/a John R. Hollis 1988 Revocable Trust
under Agreement dated February 26, 1988
John R. Hollis, Trustee
Gayle D. Hoover Trust - 1991
a/k/a Gayle D. Hoover Trust
a/k/a Gayle D. Hoover, Trust
a/k/a Gayle Hoover, Trust
a/k/a Gayle Hoover Trust
a/k/a Gayle D. Hoover, Trust
Gary D. Hoover, Trustee
Stephanie A. Hoover Trust - 1991
a/k/a Stephanie A. Hoover, Trust
a/k/a Stephanie A. Hoover Trust
a/k/a Stephanie Hoover, Trust
a/k/a Stephanie Hoover Trust
a/k/a Stephanie A. Hoover, Trust
Gary D. Hoover, Trustee
Morgan Family Revocable Trust
a/k/a Morgan Family Revocable Trust
Joseph B. Morgan, III and Paula K. Morgan, Trustee
Mary Lee Daily Prout Revocable Trust
a/k/a Mary Lee Daily Prout Revocable Trust
Mary L. Prout, Trustee
Bixby Telephone Investment Co.
<PAGE>
SCHEDULE B
Fees for the Escrow Agent's standard services shall be as follows:
Fee.................................................$13,000 per annum
<PAGE>
EXHIBIT B
FORM OF
OPINION OF KRONISH, LIEB, WEINER & HELLMAN LLP
All capitalized terms used herein without definition have the respective
meanings specified in the Agreement.
1. Buyer is duly organized, validly existing and in good standing under
the laws of the State of Delaware and is qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified might
reasonably be expected to have a Material Adverse Effect.
2. Buyer has all requisite power and authority and legal capacity to enter
into the Agreement and each agreement contemplated thereby, to carry out its
obligations thereunder and to consummate the transactions contemplated thereby.
The execution, delivery and performance of the Agreement and the consummation of
the transactions contemplated thereby has been duly authorized by all required
action on the part of Buyer. The Agreement has been duly and validly executed
and delivered by Buyer and constitutes the legal, valid and binding agreement of
Buyer enforceable against Buyer in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
that we express no opinion as to the validity or enforceability of rights to
indemnification.
3. None of the execution and delivery of the Agreement or the documents
contemplated thereby, the performance of the obligations thereunder, or the
consummation of the transactions contemplated thereby will contravene or violate
the certificate of incorporation or by-laws of Buyer or will, with or without
notice, the passage of time or both, constitute a breach or violation of, be in
conflict with, create a default under or result in the creation or imposition of
any Liens upon any property of Buyer pursuant to (a) any material contract,
indenture, agreement, instrument, mortgage, lease or commitment to which Buyer
is a party or by which any of its properties are bound, or to which it is
subject of which we are aware, after due inquiry (assuming all of such
agreements are governed by New York law) or (b) any law or statute or any
judgment, decree, order,
<PAGE>
regulation or rule of any court or governmental or regulatory authority relating
to Buyer, except, in each case, for any breach, violation or default, which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
4. The Common Stock has been duly and validly authorized for issuance and
sale by the Company and, when issued in accordance with the terms of the
Agreement will be validly issued, fully paid and non-assessable, and free of any
preemptive or similar rights under Delaware General Corporation Law.
5. No registration under the Act of the Common Stock is required for the
issuance of the Common Stock as contemplated by the Agreement assuming the
accuracy of the representations of the Sellers in Section 3.20 of the Agreement.
We are members of the Bar of the State of New York and do not purport to be
experts or give any opinion except as to matters involving the law of such
State, the corporate laws of the State of Delaware and federal law.
<PAGE>
EXHIBIT C
FORM OF
OPINION OF LAW OFFICES OF JOHN L. LUFFEY, JR.
All capitalized terms used herein without definition have the respective
meanings specified in the Agreement.
1. Each Group Member and each Seller which is not an individual is duly
organized, validly existing and (to the extent the concept of good standing is
applicable to the organizational form) in good standing under the laws of its
respective jurisdiction of organization and, except as set forth on Schedule 3.1
to the Agreement, is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified might have a Material
Adverse Effect. Except as set forth on Schedule 3.1, each Seller and Group
Member has the power and authority to own, lease and operate the assets and
properties it currently owns and to carry on its businesses as they are now
being conducted and as proposed to be conducted.
2. Each of the Sellers has all requisite power and authority and legal
capacity to enter into the Agreement and each agreement contemplated thereby, to
carry out its obligations thereunder and to consummate the transactions
contemplated thereby. The execution, delivery and performance of the Agreement
and the consummation of the transactions contemplated thereby by each Seller has
been duly authorized by all required action on the part of such Seller. The
Agreement has been duly and validly executed and delivered by each Seller and
constitutes the legal, valid and binding agreement of each Seller enforceable
against each of them in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except to the
extent that rights to indemnification thereunder may be limited by federal or
state securities laws or public policy relating thereto. Upon consummation of
the Agreement, Buyer will acquire good and marketable title to the Shares, free
and clear of any Liens (assuming Buyer does not have notice of any adverse
Liens).
3. The authorized capital stock or equity interests of each Group Member
is accurately set forth on Schedule 3.2 to the Agreement. Schedule 3.2 to the
Agreement also accurately sets forth the number of shares of capital stock or
other equity interests that are issued and outstanding for each Group Member
<PAGE>
and the record owner of such interests. To the best of our knowledge the Shares,
in the aggregate, constitute all the issued and outstanding capital stock or
other equity interests of the Group. The Shares have been duly authorized and
validly issued and are free of preemptive rights and are fully paid and
nonassessable. To the best of our knowledge, there are no outstanding
subscriptions, options, warrants, rights, convertible securities, or other
agreements or commitments (whether contingent or not) of any character relating
to the capital stock or other securities of any Group Member obligating any
Group Member to issue any shares, or securities or rights convertible into or
exchangeable for shares of the capital stock or any other securities of any
Group Member. To the best of our knowledge, except for the Agreement, there are
no agreements or understandings with respect to the voting, sale, transfer or
registration of any shares of capital stock of any Group Member. To the best of
our knowledge, except as set forth on Schedule 3.2, no Group Member has any
subsidiaries or owns any equity interest in any other entity.
4. Except as set forth on Schedule 3.4 to the Agreement, none of the
execution and delivery of the Agreement or the documents contemplated thereby,
the performance of the obligations thereunder, or the consummation of the
transactions contemplated thereby will contravene or violate the certificate of
incorporation or by-laws (or equivalent constituent documents) of any Seller or
Group Member or will, with or without notice, the passage of time or both,
constitute a breach or violation of, be in conflict with, create a default under
or result in the creation or imposition of any Liens upon any property of any
Seller or Group Member pursuant to (a) any contract, indenture, agreement,
instrument, mortgage, lease or commitment to which any Seller or Group Member is
a party or by which any of their respective properties are bound, or to which
any of them is subject of which we are aware, after due inquiry, or (b) any law
or statute or any judgment, decree, order, regulation or rule of any court or
governmental or regulatory authority relating to any Seller or Group Member,
except, in each case, for any breach, violation or default, which, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
5. Except as set forth on Schedule 3.5 to the Agreement, to the best of
our knowledge, each of the businesses of the Group has been conducted in
compliance with all applicable laws, rules, ordinances, regulations, Licenses,
judgments, orders or decrees of any court or governmental or regulatory
authority relating to any Seller or Group Member, except for possible violations
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. To the best of our knowledge, each Group Member
holds all Licenses which are necessary to own, lease and operate the assets and
properties they currently own, lease and operate and to conduct their respective
businesses and operations in the manner heretofore
<PAGE>
conducted, except where the failure to hold such Licenses, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect. To the best of our knowledge, Schedule 3.5 to the Agreement sets forth
all Licenses issued by the FCC or any state public utility commission and all
other material Licenses held by each Group Member. To the best of our knowledge,
no event has occurred with respect to any such License which would permit the
revocation, termination or suspension thereof or would result in any impairment
of the rights of the holder thereof. To the best of our knowledge, no notice has
been received and no investigation or review is pending or threatened by any
governmental or regulatory agency with regard to (i) any alleged violation by
any Group Member of any law, rule, regulation, ordinance, License, judgment,
order or decree or (ii) any alleged failure by any Group Member to have any
License.
6. To the best of our knowledge, except as disclosed on Schedule 3.9 to
the Agreement, there is no action, suit, proceeding or investigation, either at
law or in equity, at or before any court, governmental or regulatory authority,
of any kind now pending or threatened (or proposed in any manner or any
circumstances which could reasonably likely form the basis thereof), involving
any Seller, any Group Member or any of the respective properties or assets of
any Seller or Group Member that (i) if asserted and decided adversely to such
Seller or Group Member could reasonably be expected to result in a Material
Adverse Effect, (ii) questions the validity of the Agreement or the transactions
contemplated thereby, or (iii) seeks to delay, prohibit or restrict in any
manner any action taken or to be taken by any Seller or Group Member under the
Agreement. To the best of our knowledge, except as set forth on Schedule 3.9 to
the Agreement, neither any Group Member nor any of their respective properties
or assets is subject to any judicial, administrative or arbitral judgment,
order, decree, injunction or restraint. To the best of our knowledge, except as
set forth on Schedule 3.9 to the Agreement, no Group Member has agreed to, or is
bound by, any extension or waiver of the statute of limitations relating to any
pending or potential action, suit, claim, proceeding or investigation.
7. None of the Sellers or Group Members is (i) an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding company" or a
"subsidiary company" or an "affiliate" of a holding company within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
We are members of the Bar of the State of Louisiana and do not purport to
be experts or give any opinion except as to matters involving the law of such
State and federal law.
<PAGE>
Exhibit D
Form of Spousal Consent
-----------------------
Now intervenes, _________________ ("Spouse"), spouse of
___________________ ("Seller"), who acknowledges that the securities that are
subject to that certain Acquisition Agreement, dated ___________, 1997, between
Intermedia Communications Inc., Seller and certain other parties (the
"Agreement") are registered solely in the name of Seller and that Seller is duly
authorized to sell and transfer all right, title and interest of Seller and
Spouse in and to said shares, irrespective of whether Spouse's interest is (i)
Spouse's separate and paraphernal property jointly held with Seller or (ii)
Spouse's interest arises because the shares form part of the community of
acquets and gains between Spouse and Seller existing under Louisiana law. To
the extent necessary, Spouse takes cognizance of all of the terms and conditions
of the Agreement and hereby consents to and ratifies the Agreement.
<PAGE>
EXHIBIT 5.1
January 13, 1998
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Ladies and Gentlemen:
We have acted as counsel to Intermedia Communications Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-3 (Registration No. 333-42999) (the "Registration Statement"), filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
relating to (i) the offering from time to time by certain holders (the "Selling
Securityholders") of (1) 8,000,000 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, par value $1.00 per share, of the Company, (2) 80,000 shares
of Series E Preferred Stock, and (3) 3,307,425 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, and (ii) the issuance from time to time by the Company of shares of
Common Stock in lieu of cash as dividends on the Series E Preferred Stock (the
"Dividend Shares"). The Depositary Shares were originally issued by the Company
in a private placement on October 30, 1997, and were subsequently resold by the
initial purchasers thereof in private sales pursuant to exemptions from
registration under the Securities Act of 1933, as amended.
We have reviewed the Registration Statement, all amendments thereto, and
such other documents and instruments as we have deemed appropriate. In such
review, we have assumed the genuineness of all signatures, the authenticity of
all documents submitted as originals and the conformity to the original
documents of all documents submitted to us as copies.
On the basis of such review, and having regard to such legal
consideration as we have deemed relevant, it is our opinion that:
<PAGE>
Intermedia Communications Inc.
January 13, 1998
Page 2
1. The Depositary Shares to be offered by the Selling Securityholders
are duly authorized and duly and validly issued, fully paid and nonassessable.
2. Upon conversion of (a) the Depositary Shares into shares of Series
E Preferred Stock and/or Common Shares and (b) shares of Series E Preferred
Stock into Common Shares, the shares of Series E Preferred Stock and the Common
Shares to be offered by the Selling Securityholders, shall be duly authorized
and duly and validly issued, fully paid and nonassessable.
3. Upon the issuance of the Dividend Shares in accordance with the
Certificate of Designation governing the Series E Preferred Stock, the Dividend
Shares will be duly authorized and validly issued, full paid and nonassessable.
4. The statements under the caption "Certain Federal Income Tax
Considerations" in the preliminary prospectus relating to the Depositary Shares
included in the Registration Statement, insofar as such statements constitute
summaries of federal income tax law, fairly summarize the matters referred to
therein.
We are members of the Bar of the State of New York and do not purport to
be experts or give any opinion except as to matters involving the laws of such
State, the general corporation laws of the State of Delaware and the federal
laws of the United States.
We hereby consent to the use of our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement and to the use
of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Kronish, Lieb, Weiner & Hellman LLP
<PAGE>
EXHIBIT 12.1
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Intermedia Communications Inc.
<TABLE>
<CAPTION>
Pro forma(1) Pro forma(1)
Year Nine months ended Nine months
Years ended December 31, Ended September 30, Ended
------------------------------------------------- December 31, ------------------ September 30,
1992 1993 1994 1995 1996 1996 1996 1997 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before extraordinary items (235) (2,074) (3,067) (19,157) (57,198) (194,967) (35,642) (157,385) (262,136)
Income tax benefit - - - (97) - 783 - - 214
--------------------------------------------------------------------------------------------------
Loss before income taxes (235) (2,074) (3,067) (19,254) (57,198) (194,184) (35,642) (157,385) (261,922)
===================================================================================================
Fixed charges:
Interest expensed 1,031 844 1,219 13,355 35,213 125,303 24,179 39,895 104,304
Capitalized interest 120 213 257 677 2,780 2,780 1,940 2,528 2,528
Amortization of deferred
financing costs (3) 67 78 69 412 1,252 - - - -
Estimated interest factor on
operating leases (4) 275 313 200 428 1,598 3,940 897 2,422 3,742
Dividends on redeemable
preferred stock 267 - - - - 71,851 - 27,118 53,135
--------------------------------------------------------------------------------------------------
Total fixed charges 1,760 1,448 1,745 14,872 40,843 203,874 27,016 71,963 163,709
==================================================================================================
Earnings:
Loss before income tax (235) (2,074) (3,067) (19,157) (57,198) (194,967) (35,642) (157,385) (262,136)
Fixed charges excluding
capitalized interest and
preferred stock dividends 1,373 1,235 1,488 14,195 38,063 129,243 25,076 42,317 108,046
--------------------------------------------------------------------------------------------------
Total earnings 1,138 (839) (1,579) (4,962) (19,135) (65,724) (10,566) (115,068) (154,090)
==================================================================================================
Ratio of earnings to fixed
charges and preferred stock
dividends 0.65 (0.58) (0.90) (0.33) (0.47) (0.32) (0.39) (1.60) (0.94)
==================================================================================================
Insufficiency of earnings to
cover fixed charges and
preferred stock dividends 622 2,287 3,324 19,834 59,978 269,598 37,582 187,031 317,799
==================================================================================================
</TABLE>
(1) Gives effect to the pending acquisition of Shared Technologies, the October
1997 Offerings and the December Offering and the application of the net
proceeds therefrom.
(2) Deferred financing costs are included in interest expense for proforma
amounts and the 9 months ended September 30, 1997 and 1996.
(3) Estimated interest factor on operating leases represents an estimated 1/3 of
total operating lease expense for the period.
<PAGE>
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the captions "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No.333-42999) and
related Prospectus of Intermedia Communications Inc. for the registration of
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 7% Series E Junior Convertible Preferred Stock
and Common Stock issuable as dividends on the 7% Series E Junior Convertible
Preferred Stock, and to the incorporation by reference therein of our report
dated February 10, 1997, except for Note 13, as to which the date is March 7,
1997, with respect to the consolidated financial statements and schedule of
Intermedia Communications Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Tampa, Florida
January 13, 1998
<PAGE>
EXHIBIT 23.3
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-42999) and related
Prospectus of Intermedia Communications Inc. for the registration of 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 7% Series E Junior Convertible Preferred Stock and Common
Stock issuable as dividends on the 7% Series E Junior Convertible Preferred
Stock, and to the incorporation by reference therein of our report dated
February 24, 1997, with respect to the consolidated financial statements of
DIGEX, Incorporated included in its Annual Report (Form 10-KSB) for the year
ended December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 13, 1998
<PAGE>
Exhibit 23.4
Consent of Independent Certified Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference in this Amendment No. 1 to Form S-3 Registration Statement of
our report dated March 7, 1997 incorporated by reference in the Shared
Technologies Fairchild Inc. Form 10-K for the year ended December 31, 1996
and to all references to our Firm included in this Form S-3 Registration
Statement.
/s/ Arthur Andersen LLP
Washington, D.C.
January 12, 1998
<PAGE>
Exhibit 23.5
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement on Form S-3 of Intermedia Communications Inc. for
the registration of 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 7% Series
E Junior Convertible Preferred Stock and Common Stock issuable as dividends
on the 7% Series E Junior Convertible Preferred Stock, of our report, which
contains an explanatory paragraph relating to the changing of the method of
accounting for Shared Technologies Fairchild Inc.'s investment in one of
its subsidiaries, dated March 1, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Shared
Technologies Fairchild Inc. as of December 31, 1995 and for the years ended
December 31, 1995 and 1994. We also consent to the reference to our firm
under the caption "Experts".
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
January 12, 1998
