<PAGE>
As filed with the Securities and Exchange Commission on February 13, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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. | |
1
<PAGE>
---------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================================
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Title of Securities Amount to be Aggregate Price Aggregate Amount of
to be Registered Registered Per Share (1) Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.01 par value per
share 2,549,381 shares $63.25 $161,248,348.25 $47,569
========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. The
aggregate offering price has been determined pursuant to Rule 457(c)
promulgated under the Securities Act of 1933, as amended, on the basis of
the average of the high and low sale prices of the Registrant's common
stock as reported on the National Association of Securities Dealers, Inc.
Automated Quotation System on February 11, 1998.
---------------------
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 this 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, DATED FEBRUARY 13, 1998
PRELIMINARY PROSPECTUS
INTERMEDIA COMMUNICATIONS INC.
2,549,381 Shares of Common Stock
This Prospectus is being used in connection with the offering from time to
time by certain holders (the "Selling Securityholders") of shares (the "Shares")
of common stock, par value $.01 per share (the "Common Stock"), of Intermedia
Communications Inc., a Delaware corporation ("Intermedia"). The Selling
Securityholders will have acquired 2,549,381 shares of Common Stock from
Intermedia as a portion of the consideration for the acquisition by Intermedia
of the Long Distance Savers group of companies ("LDS").
The Shares may be sold from time to time in accordance with the transfer
restrictions set forth in the LDS Merger Agreement (as defined herein) to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time in accordance with the transfer
restrictions set forth in the LDS Merger Agreement offer the Shares 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 Shares for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Shares may be deemed to be "underwriters", and any profits
on the sale of the Shares 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 of 1933, as
amended (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 Securities
Exchange Act of 1934, as amended (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
Shares by the Selling Securityholders and any other such person. All of the
foregoing may affect the marketability of the Shares and the ability of any
person or entity to engage in market-making activities with respect to the
Shares.
Intermedia will not receive any proceeds from the sale of the Shares.
Intermedia has agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Shares to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
On February 11, 1998, the closing price for the Common Stock as quoted on
the National Association of Securities Dealers, Inc. Automated Quotation System
Nasdaq Market (the "Nasdaq National Market"), under the symbol "ICIX", was
$63.75 per share.
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES 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 Intermedia. 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 Intermedia since
the date hereof.
i
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time this Registration Statement becomes
effective. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
The date of this Prospectus is ____________, 1998.
ii
<PAGE>
AVAILABLE INFORMATION
Intermedia is subject to the informational requirements of 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 Intermedia 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 this 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 Intermedia with
the Commission and are incorporated herein by reference:
Intermedia's Annual Report on Form 10-K for the year ended December 31,
1996.
Intermedia'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 Intermedia held on May 22, 1997 that have been incorporated by
reference into Intermedia's Annual Report on Form 10-K for the year
ended December 31, 1996.
Intermedia's Current Report on Form 8-K filed with the Commission on
February 24, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on March
14, 1997.
Intermedia's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
Intermedia's Current Report on Form 8-K filed with the Commission on June
5, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on July
9, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on July
17, 1997.
Intermedia's Current Report on Form 8-K/A filed with the Commission on
August 4, 1997.
Intermedia's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997.
Intermedia's Current Report on Form 8-K filed with the Commission on
October 27, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on
November 6, 1997.
Intermedia's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on
November 25, 1997.
Intermedia's Current Report on Form 8-K/A filed with the Commission on
December 4, 1997.
Intermedia's Current Report on Form 8-K/A filed with the Commission on
December 16, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on
December 18, 1997.
Intermedia's Current Report on Form 8-K/A filed with the Commission on
December 22, 1997.
Intermedia's Current Report on Form 8-K filed with the Commission on
January 21, 1998.
Intermedia's Current Report on Form 8-K filed with the Commission on
February 12, 1998.
The description of the capital stock contained in Intermedia'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).
iii
<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.
All documents subsequently filed by Intermedia 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.
Intermedia 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.
iv
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the business of Intermedia and this offering, in addition to other
information set forth elsewhere in this Prospectus and in Intermedia's Annual
Report on Form 10-K, before purchasing the Shares offered hereby.
Limited Operations of Certain Services; History of Net Losses. Intermedia's
business commenced in 1987. Substantially all of Intermedia'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. Intermedia is expecting to substantially increase
the size of its operations in the near future. Prospective investors, therefore,
have limited historical financial information about Intermedia upon which to
base an evaluation of Intermedia's performance. Given Intermedia's limited
operating history, there is no assurance that it will be able to compete
successfully in the telecommunications business.
The development of Intermedia'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
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. Intermedia
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, Intermedia 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.
Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed
Charges. Intermedia is highly leveraged. At September 30, 1997, after giving
pro forma effect to the pending acquisition of Shared Technologies, the
October 30, 1997 offerings (the "October Offerings") of Intermedia's 7% Junior
Convertible Series E Preferred Stock (the "Series E Preferred Stock") and
Intermedia's 8 7/8% Senior Notes due 2007 (the "8 7/8% Notes), the December 23,
1997 offering (the "December Offering") of Intermedia's 8 1/2% Senior Notes
due 2008 (the "8 1/2% Notes") and the application of the net proceeds of the
October Offerings and the December Offering, Intermedia would have had
outstanding approximately $1.4 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 Redeemable
Exchangeable Preferred Stock due 2009 (the "Series B Preferred Stock"), $170.1
million of obligations with respect to Intermedia's 7% Junior Convertible
Series D Preferred Stock (the "Series D Preferred Stock") and $193.7 million
of obligations with respect to the Series E Preferred Stock. The degree to
which Intermedia is leveraged could have important consequences to holders of
the Common Stock, including the following: (i) a substantial portion of
Intermedia'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) Intermedia's significant degree of
leverage could increase its vulnerability to changes in general economic
conditions or increases in prevailing interest rates; (iii) Intermedia's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes could
be impaired; and (iv) Intermedia may be more leveraged than certain of its
competitors, which may be a competitive disadvantage.
Intermedia'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. Combined fixed
charges and dividends include interest and dividends whether paid or accrued. In
addition, insufficiencies of $37.6 million and $187.0 million were
1
<PAGE>
experienced in the nine-month periods ended September 30, 1996 and 1997,
respectively. On a pro forma basis, after giving applicable effect to the
acquisitions of DIGEX, EMI Communications, Inc. ("EMI"), NetSolve Incorporated
("NetSolve") and UTT Telecom Inc. ("UTT"), the pending acquisition of Shared
Technologies and the March 1997 offering (the "March 1997 Offering") of the
Series B Preferred Stock, the July 9, 1997 offerings (the "July 1997 Offerings")
of the Series D Preferred Stock and Intermedia's 11 1/4% Senior Discount Notes
due 2007 (the "11 1/4% Notes"), the October Offerings and the December Offering,
Intermedia's earnings were insufficient to cover combined fixed charges and
dividends on preferred stock by $274.0 million for the year ended December 31,
1996 and by $321.1 million for the nine months ended September 30, 1997.
Intermedia anticipates that earnings will be insufficient to cover fixed charges
for the next several years. In order for Intermedia 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, Intermedia will need to
substantially improve its operating results. There can be no assurance that
Intermedia's operating results will be of sufficient magnitude to enable
Intermedia to meet such debt service, dividend and redemption obligations. In
the absence of such operating results, Intermedia 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.
Lack of Dividend History. Intermedia has never declared or paid any cash
dividends on its Common Stock and does not expect to declare any such dividends
in the foreseeable future. Payment of any future dividends will depend upon
earnings and capital requirements of Intermedia, Intermedia's debt facilities
and other factors the Board of Directors considers appropriate. Intermedia
intends to retain earnings, if any, to finance the development and expansion of
its business, and therefore does not anticipate paying any dividends in the
foreseeable future. In addition, the terms of the indenture (the "12 1/2% Notes
Indenture") governing the 12 1/2% Senior Notes due 2006 (the "12 1/2% Notes),
the indenture governing the 11 1/4% Notes (the "11 1/4% Notes Indenture"), the
indenture governing the 8 7/8% Notes (the "8 7/8% Notes Indenture") and the
indenture governing the 8 1/2% Notes (the "8 1/2% Notes Indenture"; the 12 1/2%
Notes Indenture, the 11 1/4% Notes Indenture, the 8 7/8% Notes Indenture and the
8 1/2% Notes Indenture collectively referred to as the "Existing Indentures")
and the Certificate of Designation governing the Series B Preferred Stock (the
"Series B Certificate of Designation"), the Certificate of Designation of
governing the Series D Preferred Stock (the "Series D Certificate of
Designation") and the Certificate of Designation governing the Series E
Preferred Stock (the "Series E Certificate of Designation") restrict the payment
of dividends on the Shares. In addition, Intermedia may establish a bank credit
facility which may be secured by a substantial portion of the assets of
Intermedia and would contain additional dividend restrictions.
Risks Associated with Acquisitions. On November 20, 1997, Intermedia,
Moonlight Acquisition Corp. ("Moonlight"), 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. On February 11, 1998,
Intermedia entered into a definitive agreement (the "National Merger Agreement")
for the acquisition of National Telecommunications of Florida, Inc. and its
affiliate, NTC, Inc. (collectively, "National"). Such acquisitions, if made, and
the acquisition of LDS which will have been consummated pursuant to an
acquisition agreement dated December 17, 1997 (the "LDS Merger Agreement") could
divert the resources and management time of Intermedia and would require
integration with Intermedia's existing networks and services. There can be no
assurance that the pending acquisitions of Shared Technologies and National will
be consummated or that any other acquisitions will occur or that any such
acquisitions, including the acquisitions of Shared Technologies and National, if
made, would be on terms favorable to Intermedia or would be successfully
integrated into Intermedia's operations.
In connection with the acquisition of Shared Technologies and in
anticipation of Shared Technologies becoming a "Restricted Subsidiary" within
the meaning of the Existing Indentures and the Series B Certificate of
Designation, Intermedia purchased certain equity interests and certain notes
issued by Shared Technologies. If the acquisition of Shared Technologies is not
consummated before May 11, 1998 and, as a result, Shared Technologies does not
become a Restricted Subsidiary of Intermedia, an Event of Default would occur
under the terms of each of the
2
<PAGE>
Existing Indentures and the Series B Certificate of Designation unless
Intermedia disposes of its investment in Shared Technologies without a loss or
holds its investment through an "Unrestricted Subsidiary" within the meaning of
the Existing Indentures and the Series B Certificate of Designation. If such an
event of default occurs, upon receipt of notice from the trustee under any of
the Existing 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 collectively, the "Existing Notes"), acceleration of the Existing Notes
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 Notes were
accelerated, Intermedia would not have sufficient funds available to repay the
all of the Existing Notes, unless it could arrange a refinancing of the Existing
Notes.
Consistent with its strategy, Intermedia 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 on hand
and/or Intermedia's securities. It is possible that one or more of such possible
future acquisitions, if completed, could adversely affect Intermedia's funds
from operations or cash available for distribution, in the short term or the
long term or both, or increase Intermedia's debt, or such an acquisition could
be followed by a decline in the market value of Intermedia's securities.
Failure to Obtain Third Party Consents in connection with an Acquisition or
Merger. Intermedia has consummated a number of acquisitions over the past two
years and expects to consummate additional acquisitions during the current
fiscal year. In connection therewith, Intermedia may not have obtained, and in
connection with future acquisitions may elect not to seek, all required consents
from third parties with respect to acquired contracts. If an acquired contract
required the consent of a third party and such consent was not obtained, the
third party could assert a breach of the contract. Intermedia believes that the
failure to obtain any such third party consents should not result in any
material adverse consequences to Intermedia, although there can be no assurance
that such a consequence will not result.
Regulatory Approval of the October Offerings and the December Offering.
Certain states in which Intermedia is certificated provide for prior approval or
notification of the issuance of securities by Intermedia. Because of time
constraints, Intermedia did not seek the approval from such states prior to the
October Offerings and 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. Intermedia subsequently filed
the necessary notifications and applications for approval in these states. After
consultation with counsel, Intermedia believes the regulatory approvals will be
granted and that obtaining such approvals subsequent to the October Offerings
and the December Offering should not result in any material adverse consequences
to Intermedia, 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 Intermedia meets the industry's current standards for peering, there is
no assurance that other national ISPs will maintain peering relationships with
Intermedia. In addition, there may develop increasing requirements associated
with maintaining peering with the major national ISPs with which Intermedia may
have to comply. There can be no assurance that Intermedia 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
3
<PAGE>
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 Intermedia 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. Intermedia believes that it is currently unsettled whether the 1996
Act prohibits and imposes liability for any services provided by Intermedia
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
Intermedia's business, financial condition and results of operations.
Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks. Intermedia's success in marketing its services to business and government
users requires that Intermedia provide superior reliability, capacity and
security via its network infrastructure. Intermedia'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 Intermedia's customers. Similarly, Intermedia'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
Intermedia's business, financial condition and results of operations.
Class Action by DIGEX Stockholders. On June 5, 1997, Intermedia announced
that it had agreed to acquire 100% of the outstanding equity of 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 "DIGEX 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 DIGEX 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
DIGEX Merger but no applications were made for such injunctions prior to the
consummation of the DIGEX 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 Intermedia'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, credit availability and internally generated
funds. Intermedia expects that continued expansion of its business will require
raising equity and/or debt by the end of fiscal 1999. Depending on market
conditions, Intermedia 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
4
<PAGE>
Indentures, the Series B Certificate of Designation, the Series D Certificate of
Designation and the Series E Certificate of Designation impose certain
restrictions upon Intermedia's ability to incur additional indebtedness or issue
additional preferred stock. In addition, Intermedia'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 Intermedia'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. Intermedia is experiencing a period of rapid expansion
which management expects will increase in the near future. This growth has
increased the operating complexity of Intermedia as well as the level of
responsibility for both existing and new management personnel. Intermedia'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. Intermedia's inability to effectively manage its
expansion could have a material adverse effect on its business.
A portion of Intermedia'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 Intermedia's
future acquisitions, if any, will be successful or will not impair Intermedia's
ability to service its outstanding obligations.
Risks of Implementation; Need to Obtain Permits and Rights of Way.
Intermedia is continuing to expand its existing networks. Intermedia 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 Intermedia will be able to expand
its existing networks or construct or acquire new networks as currently planned
on a timely basis. The expansion of Intermedia'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, Intermedia 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 Intermedia's customer
base on its existing networks and commencement of operations on new networks. If
Intermedia 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, Intermedia 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
Intermedia. Intermedia 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, Intermedia 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 Intermedia's existing and potential
competitors have financial, personnel and other resources significantly greater
than those of Intermedia.
Intermedia 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
5
<PAGE>
customers, the net income or cash flow of ICPs and competitive local exchange
carriers ("CLECs"), including Intermedia, could be materially adversely
affected. In addition, while Intermedia 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. 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. Intermedia 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 Intermedia's business.
Regulation. Intermedia is subject to varying degrees of federal, state and
local regulation. Intermedia is not currently subject to price cap or rate of
return regulation at the state or federal level, nor is it currently required to
obtain Federal Communication Commission ("FCC") authorization for the
installation, acquisition or operation of its interstate network facilities.
Further, the FCC issued an order holding that non-dominant carriers, such as
Intermedia, are required to withdraw interstate tariffs for domestic long
distance service. That order has been stayed by a federal appeals court and it
is not clear at this time whether the detariffing order will be implemented.
Until further action is taken by the court, Intermedia will continue to maintain
tariffs for these services. In June 1997, the FCC issued another order stating
that non-dominant carriers, such as Intermedia, could withdraw their tariffs for
interstate access services. While Intermedia has no immediate plans to withdraw
its tariff, this FCC order allows Intermedia to do so. The FCC does require
Intermedia to file tariffs on an ongoing basis for international traffic.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. Intermedia believes that the FCC's new access charge rules do not
adversely affect Intermedia's business plan, and that they in fact present
significant new opportunities for new entrants, including Intermedia. 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.
Intermedia is generally subject to certification or registration and tariff
or price list filing requirements for intrastate services by state regulators.
The 1996 Act and the issuance by the FCC of rules governing local competition,
particularly those requiring the interconnection of all networks and the
exchange of traffic among the ILEC 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 decision
vacating the FCC's pricing and "most favored nation" rules, as well as certain
other of the FCC's interconnection rules. On October 14, 1997, the Eighth
Circuit issued an order clarifying its previous decision. In this order, the
Court held that ILECs have an obligation under the 1996 Act to offer other
carriers access to the ILECs network elements on an unbundled basis, but the
ILECs do not have an obligation to recombine those elements for use by other
carriers. The FCC's and other parties' petitions to the Supreme Court requesting
review of these decisions have been granted. Most recently, on January 22, 1998,
the Eighth Circuit reiterated that the FCC is bound by the pricing policies of
the state regulatory commissions regarding interconnection, unbundled access,
resale, and transport and termination of local telecommunications traffic and
rebuffed what it perceived as an attempt by the FCC to condition the RBOCs'
provision of in-region long distance service on compliance with federal pricing
policies regarding these items. Even though these decisions restrict the role of
the FCC in the pricing and other issues, these issues remain subject to scrutiny
and oversight by state regulatory commissions.
Although Intermedia is not able to predict the impact of these decisions on
future efforts to negotiate interconnection agreements with ILECs, Intermedia's
analysis shows that interconnection arrangements that have been
6
<PAGE>
approved or mandated by state regulatory commissions have been consistent with
the intent of the 1996 Act to expand local competition and with Intermedia'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
Intermedia's sales force and its competitive advantages in providing integrated
telecommunications services, Intermedia believes that it is well positioned to
capitalize on the new market opportunities emerging in the local exchange
market.
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 Intermedia. 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 Intermedia for
the required interconnection of the competitor's networks with those of the
ILECs or that such agreements will be favorable. Moreover, 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.
Potential Diminishing Rate of Growth. During the period from 1994 through
1996, Intermedia's revenues grew at a compound annual growth rate of 169%. While
Intermedia 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. Intermedia has recently
introduced a number of services, primarily local exchange services, that
Intermedia 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 Intermedia 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 Intermedia.
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. Intermedia'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 Intermedia's business. Intermedia
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
Intermedia'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 Intermedia.
Risk of Cancellation or Non-Renewal of Network Agreements, Licenses and
Permits. Intermedia has lease and/or purchase agreements for rights-of-way,
utility pole attachments, conduit and dark fiber for its fiber optic networks.
Although Intermedia 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 Intermedia's business in the
affected metropolitan area. In addition, Intermedia 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
7
<PAGE>
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
Intermedia will be able to maintain its existing franchises, permits and rights
or to obtain and maintain the other franchises, permits and rights needed to
implement its strategy on acceptable terms.
Dependence on Business from Interexchange Carriers ("IXCs"). For the year
ended December 31, 1996, approximately 10% of Intermedia'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
Intermedia's business.
In addition, Intermedia'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
Intermedia's services, or will not reduce or cease their utilization of
Intermedia's services, which could have a material adverse effect on Intermedia.
Business Combinations; Change of Control. Intermedia 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 Intermedia and (ii) potential joint venture partners looking toward
the formation of strategic alliances that would expand the reach of Intermedia's
networks or services without necessarily requiring an additional investment in
Intermedia. 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 Indentures and the Series B
Certificate of Designation provide that a change of control would require
Intermedia to repay the Existing Notes and redeem the Series B Preferred Stock
outstanding under such instruments. A change of control also requires Intermedia
to offer to redeem the Series D Preferred Stock and the Series E Preferred
Stock. If a change of control does occur, there is no assurance that Intermedia
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 Notes and to redeem the Series B Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock.
Anti-Takeover Provisions. Intermedia's Certificate of Incorporation and
Bylaws, the provisions of the Delaware General Corporation Law (the "DGCL"), the
Existing Indentures, the Series B Certificate of Designation, the Series D
Certificate of Designation and the Series E Certificate of Designation may make
it difficult in some respects to effect a change in control of Intermedia and
replace incumbent management. In addition, Intermedia'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 Intermedia 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, Intermedia's
preferred stock, which may have the effect of delaying or preventing a change in
control of Intermedia 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,
including the Series D Preferred Stock and the Series E Preferred Stock, could
materially adversely affect the market price of shares of Common Stock and could
materially impair Intermedia's future ability to raise capital through an
offering of equity securities. Substantially all of Intermedia's outstanding
shares, other than those held by affiliates, are transferable without
restriction under the Securities Act. Additionally, the purchase price for the
acquisition of National will be funded at least in part through the issuance of
Intermedia stock. 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.
8
<PAGE>
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
Intermedia or actual results differing from the assumptions underlying such
statements.
9
<PAGE>
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, Intermedia 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, Intermedia 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. Intermedia 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. Intermedia'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 February 11, 1998, Intermedia entered into the National
Merger Agreement pursuant to which Intermedia will acquire National for a
purchase price of approximately $151.0 million, subject to certain adjustments,
of which 70% is payable in Intermedia common stock and 30% is payable in cash.
On December 17, 1997 Intermedia entered into a definitive agreement for the
acquisition of LDS for a purchase price of approximately $151.0 million, of
which approximately $130.0 million is payable in Intermedia common stock and
approximately $21.0 million is payable in cash, in each case, subject to certain
adjustments. The shares of common stock offered hereby will have been issued
upon the closing of the acquisition of LDS which is expected to occur in the
first quarter of 1998.
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 professionals in Louisiana, Texas, Oklahoma,
Mississippi and Florida. LDS had revenues of $101.8 million and $82.3 million
and EBITDA of $15.3 million and $10.2 million for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively. The acquisition
of LDS 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 Intermedia believes that
the pending acquisition of LDS 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, 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 4,000,000 additional shares of Shared
Technologies at $15 per share in cash, which expired on December 26, 1997. More
than 16,000,000 shares
10
<PAGE>
were tendered pursuant to the tender offer. In order to avoid the purchase of
fractional shares, 4,000,064 shares were accepted. The stockholders of Shared
Technologies approved the merger between Shared Technologies and Moonlight on
February 10, 1998.
The acquisition of Shared Technologies is expected to be consummated during
the first quarter of 1998. Consummation of the merger agreement is subject to
various customary conditions, including receipt of necessary regulatory
approvals.
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 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, Intermedia will have approximately 160,000 CLEC
access lines, serving more than 2,000 buildings.
On July 11, 1997, Intermedia consummated the final step in the DIGEX
Acquisition through the DIGEX Merger. The aggregate consideration for the DIGEX
Acquisition, which was funded with Intermedia'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.
Intermedia 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 on hand and/or Intermedia'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.
Offerings. On December 23, 1997, Intermedia completed the December
Offering, a private placement of $400.0 million of the 8 1/2% Notes (including
the exercise of the over-allotment with respect to the 8 1/2% notes).
On October 30, 1997, Intermedia completed the October Offerings, private
placements of 8,000,000 Depositary Shares (including the exercise of the
over-allotment option with respect to such Depository Shares), each representing
one-hundredth of an interest in a share of the Series E Preferred Stock, and
$260,250,000 of the 8 7/8% Notes (including the exercise of the over-allotment
option with respect to the 8 7/8% Notes). The aggregate gross proceeds from the
October Offerings were approximately $460.3 million.
In July 1997, Intermedia completed the July Offerings, private placements
of 6,900,000 Depositary Shares (including the exercise of the over-allotment
option with respect to such 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 the 11 1/4% Notes (including the
exercise of the over-allotment option with respect to the 11 1/4% 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 ILEC 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.
11
<PAGE>
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. Intermedia believes that the FCC's new access charge rules do not
adversely affect Intermedia's business plan, and that they in fact present
significant new opportunities for new entrants, including Intermedia. 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.
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 issued an order clarifying its previous decision. In this
order, the Court held that ILECs have an obligation under the 1996 Act to offer
other carriers access to the ILECs network elements on an unbundled basis, but
the ILECs do not have an obligation to recombine those elements for use by other
carriers. The FCC's and other parties' petitions to the Supreme Court requesting
review of these decisions have been granted. Most recently, on January 22, 1998,
the Eighth Circuit reiterated that the FCC is bound by the pricing policies of
the state regulatory commissions regarding interconnection, unbundled access,
resale, and transport and termination of local telecommunications traffic and
rebuffed what it perceived as an attempt by the FCC to condition the RBOCs'
provision of in-region long distance service on compliance with federal pricing
policies regarding these items. Even though these decisions restrict the role of
the FCC in the pricing and other issues, these issues remain subject to scrutiny
and oversight by state regulatory commissions.
Although Intermedia is not able to predict the impact of these decisions on
future efforts to negotiate interconnection agreements with ILECs, Intermedia'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 Intermedia'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 Intermedia's sales force and its
competitive advantages in providing integrated telecommunications services,
Intermedia 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.
USE OF PROCEEDS
Intermedia is not selling any of the Shares and will not receive any
proceeds from the sale of the Shares by the Selling Securityholders.
12
<PAGE>
THE SELLING SECURITYHOLDERS
The following table sets forth, as of the closing of the acquisition of
LDS, certain information regarding the Selling Securityholders' ownership of
Intermedia's 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 Intermedia, its predecessors or affiliates during the
past three years. To the knowledge of Intermedia, except as disclosed below, the
Selling Securityholders own all of the Shares and do not own, nor have any
rights to acquire, any other shares of Common Stock as of the date of this
Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Beneficially Owned Prior
to This Offering(1)
-------------------------
Number of Percent of Offered Beneficially Owned
Name of Selling Securityholder Shares Shares(2) for Sale After This Offering(1)
- -------------------------------- --------- ---------- --------- ----------------------
Freddy Nolan 978,632 4.83% 978,632 0
William L. Montgomery 368,764 1.82% 368,764 0
William D. Hoover 138,990 * 138,990 0
Gayle D. Hoover Trust 122,135 * 122,135 0
Terri Hoover Debnam 235,778 1.16% 235,778 0
Gary D. Hoover 235,974 1.17% 235,974 0
Stephanie Hoover Trust 245,756 1.21% 245,756 0
Christopher B. Chelette 10,245 * 10,245 0
Avril L. Fowler, Jr. 10,245 * 10,245 0
Garry L. Findley 6,561 * 6,561 0
Gary L. Woodruff 23,192 * 23,192 0
Lyn D. Johnson 23,192 * 23,192 0
John R. Hollis Trust 27,302 * 27,302 0
Ken Doughty 27,302 * 27,302 0
Wesley R. Johnson and Deanna
V. Johnson 23,192 * 23,192 0
Kenneth Doughty, Trustee of the
Kenneth Doughty Revocable
Trust under agreement dated
4/7/94 1,979 * 1,979 0
Florene Doughty Revocable Trust 1,979 * 1,979 0
Larry Ferk 1,979 * 1,979 0
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Beneficially Owned Prior
to This Offering(1)
-----------------------------
Number of Percent of Offered Beneficially Owned
Name of Selling Securityholder Shares Shares(2) for Sale After This Offering(1)
- ------------------------------ ------ --------- -------- ----------------------
William N. Montgomery 5,886 * 5,886 0
Michael T. Montgomery 5,886 * 5,886 0
Thomas A. Winkler 990 * 990 0
Michael L. Tinnerello 990 * 990 0
Robert J. Calibani 1,979 * 1,979 0
Albert D. Burson 990 * 990 0
Morgan Family Revocable Trust
Joseph B. Morgan, III and Paula
K. Morgan, Trustees 1,979 * 1,979 0
Pat O. Daily Revocable Trust
Pat O. Daily, Trustee 1,979 * 1,979 0
Mary Lee Daily Prout Revocable
Trust, Mary L. Prout, Trustee 1,979 * 1,979 0
Jason Doughty 495 * 495 0
John R. Hollis 1988 Revocable
Trust under agreement dated
2/26/88, John R. Hollis, Trustee 3,958 * 3,958 0
Alicia Nolan 9,768 * 9,768 0
Ashley Nolan 9,768 * 9,768 0
Madeline Hoover 9,768 * 9,768 0
Matthew Debnam 3,257 * 3,257 0
Emily Debnam 3,257 * 3,257 0
Mallory Debnam 3,255 * 3,255 0
</TABLE>
*Less than one percent. Based on 17,694,631 shares of common stock
outstanding on February 11, 1998. The 17,694,631 shares outstanding on February
11, 1998 do not include the 2,549,381 shares which will be issued in connection
with the acquisition of LDS.
(1) 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
14
<PAGE>
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.
(2) The percentage of shares beneficially owned by each Selling Securityholder
is based on 20,244,012 shares of common stock (17,694,631 shares of common
stock outstanding on February 11, 1998 plus 2,549,381 shares which will be
issued at the closing of the acqusition of LDS).
The 2,549,381 Shares to be owned by the Selling Securityholders represent
all of the securities covered by this Registration Statement of which this
Prospectus is a part. The 2,549,381 Shares would have had an aggregate market
value of approximately $162,523,039 on February 11, 1998 (based on the $63.75
per share closing price of the Common Stock on that date). Upon the closing of
the LDS Merger Agreement, a pro-rata amount of the Shares owned by the Selling
Securityholders will be held in escrow for certain obligations they may have
under the LDS Merger Agreement, as described below.
A total of approximately 46,875 Shares (the "Purchase Price Escrow Shares")
will be held by an escrow agent (the "Escrow Agent") until a final determination
of the adjustments to the purchase price for the acquisition of LDS is
determined. After such final determination, the Purchase Price Escrow Shares
will either be released to the Selling Securityholder or returned to Intermedia
and subsequently canceled.
A total of approximately 78,125 Shares (the "Indemnity Escrow Shares") will
be held by the Escrow Agent as security for certain indemnification obligations
of the Selling Securityholders pursuant to the LDS Merger Agreement. For a
period of three years following the Closing Date (the "Indemnification Period"),
Intermedia may assert claims for indemnification against the Indemnity Escrow
Shares. At the expiration of the Indemnification Period, the Escrow Agent shall
deliver any remaining Indemnity Escrow Shares to the Selling Securityholders.
Any Purchase Price Escrow Shares or Indemnity Escrow Shares which are
required to be delivered to satisfy a payment or indemnity obligation under the
LDS Merger Agreement shall be deemed to be valued at $51.1875 per Share,
notwithstanding the actual market or other value of the Shares at the time of
delivery.
The Shares will be acquired by the Selling Securityholders pursuant to an
exemption from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof. Pursuant to the LDS Merger Agreement, the Selling
Securityholders have agreed that they will not sell or transfer more than 1/12th
of the Shares during each of the 12 months following the date of the closing of
the LDS Merger Agreement (calculated on a cumulative basis). However, this
restriction will not prohibit (i) a person or entity to which the Shares are
pledged from selling such Shares after a default in the obligations secured by
such pledge or (ii) a Selling Securityholder from selling such Shares upon the
announcement by Intermedia of a Change in Control of Intermedia (as defined in
the LDS Merger Agreement), whereupon the foregoing restriction on the sale or
transfer of the Shares will immediately lapse.
In addition, the LDS Merger Agreement requires Intermedia to file a
registration statement covering the Shares and to 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 in the LDS Merger Agreement, to immediately file a new
registration statement in the event such effectiveness lapses at any time during
such two-year period). Intermedia has filed this Registration Statement to
fulfill its obligations under the LDS Merger Agreement.
15
<PAGE>
PLAN OF DISTRIBUTION
Intermedia will not receive any proceeds from the sale of the Shares
offered hereby. The Shares may be sold from time to time in accordance with the
transfer restrictions set forth in the LDS Merger Agreement to purchasers
directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time in accordance with the transfer
restrictions set forth in the LDS Merger Agreement offer the Shares 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 Shares for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Shares may be deemed to be "underwriters", and any profits
on the sale of the Shares 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 Shares offered hereby may be sold by the Selling Securityholders from
time to time in accordance with the restrictions on transfer of the Shares set
forth in the LDS Merger Agreement 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 Shares 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 Shares 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 methods.
To the best knowledge of Intermedia, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Shares by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Shares offered by it hereunder or that any such
Selling Securityholder will not transfer, devise or gift such Shares 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 Shares by the
Selling Securityholders and any other such person. All of the foregoing may
affect the marketability of the Shares and the ability of any person or entity
to engage in market-making activities with respect to the Shares.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Intermedia's Certificate of Incorporation provides that Intermedia will to
the fullest extent permitted by the DGCL indemnify all persons whom it may
indemnify pursuant thereto. Intermedia's Bylaws contain a similar provision
requiring indemnification of Intermedia'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,
16
<PAGE>
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 Intermedia 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, Intermedia's Certificate of Incorporation contains a
provision limiting the personal liability of Intermedia's directors for monetary
damages for certain breaches of their fiduciary duty. Intermedia has
indemnification insurance under which directors and officers are insured against
certain liability that may occur in their capacity as such.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Intermedia
pursuant to the foregoing provisions, Intermedia has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by 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.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
Intermedia 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 this
Registration Statement have been audited by Arthur Andersen LLP,
17
<PAGE>
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.
18
<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 Intermedia:
Securities and Exchange Commission filing fee......................... $47,569
Legal fees and expenses............................................... $25,000
Accountant's fees and expenses........................................ $15,000
Miscellaneous ........................................................ $10,000
-------
Total................................................................. $97,569
=======
Item 15. Indemnification of Directors and Officers.
Intermedia's Certificate of Incorporation provides that Intermedia will to
the fullest extent permitted by the DGCL indemnify all persons whom it may
indemnify pursuant thereto. Intermedia's Bylaws contain a similar provision
requiring indemnification of Intermedia'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 Intermedia 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, Intermedia's Certificate of Incorporation
contains a provision limiting the personal liability of Intermedia's directors
for monetary damages for certain breaches of their fiduciary duty. Intermedia
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
2.1 -- Agreement and Plan of Merger, dated as of June 4, 1997, among
Intermedia, Daylight Acquisition Corp. and DIGEX, Incorporated.
Exhibit 99(c)(1) to Intermedia'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 Intermedia, Moonlight Acquisition Corp. and Shared Technologies
Fairchild Inc. Exhibit 99(c)(1) to Intermedia'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
Intermedia and the holders of interest in the Long Distance Savers
companies. Exhibit 2.3 to Amendment No. 1 to Intermedia's Form S-3
filed with the Commission on January 14, 1998 is incorporated herein
by reference.
2.4 -- Agreement and Plan of Merger dated as of February 11, 1998 among
Intermedia, Sumter One Acquisition, Inc., Sumter Two Acquisition,
Inc., National Telecommunications of Florida, Inc., NTC, Inc. and the
stockholders of National.
5.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters.
23.1 -- Consent of Kronish, Lieb, Weiner & Hellman LLP.
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.
* To be filed by Amendment to this Registration Statement.
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective 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 Intermedia 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.
<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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, State of Florida, on this 12th day of
February, 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
authorizes David C. Ruberg and Robert M. Manning, or either of them, as
attorney-in-fact to sign and file in each capacity stated below, all amendments
and post-effective amendments to this Registration Statement.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------ --------------------------- -----------------
Principal Executive Officers:
<S> <C> <C>
/s/ David C. Ruberg Chairman of the Board, February 12, 1998
- ------------------------------------- President and Chief
David C. Ruberg Executive Officer
Principal Financial and Accounting Officers:
/s/ Robert M. Manning Chief Financial Officer and February 12, 1998
- ------------------------------------ Senior Vice President
Robert M. Manning
/s/ Jeanne M. Walters Controller and Chief February 12, 1998
- -------------------------------------- Accounting Officer
Jeanne M. Walters
Other Directors:
/s/ John C. Baker Director February 12, 1998
- ---------------------------------------
John C. Baker
/s/ George F. Knapp Director February 12, 1998
- --------------------------------------
George F. Knapp
/s/ Philip A. Campbell Director February 12, 1998
- --------------------------------------
Philip A. Campbell
</TABLE>
<PAGE>
Exhibit Index
Number Exhibit Page
- ------ ------- ----
2.1 -- Agreement and Plan of Merger, dated as of June 4, 1997, among
Intermedia, Daylight Acquisition Corp. and DIGEX, Incorporated.
Exhibit 99(c)(1) to Intermedia'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 Intermedia, Moonlight Acquisition Corp. and Shared
Technologies Fairchild Inc. Exhibit 99(c)(1) to Intermedia'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
Intermedia and the holders of interest in the Long Distance
Savers companies. Exhibit 2.3 to Intermedia's Amendment No. 1
to Form S-3 filed with the Commission on January 14, 1998 is
incorporated herein by reference.
2.4 -- Agreement and Plan of Merger dated as of February 11, 1998
among Intermedia, Sumter One Acquisition, Inc., Sumter Two
Acquisition, Inc., National Telecommunications of Florida, Inc.,
NTC, Inc. and the stockholders of National.
5.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP.
8.1* -- Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters.
23.1 -- Consent of Kronish, Lieb, Weiner & Hellman LLP.
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.
* To be filed by Amendment to this Registration Statement.
<PAGE>
Exhibit 2.4
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
Intermedia Communications Inc.,
Sumter One Acquisition, Inc.,
Sumter Two Acquisition, Inc.,
National Telecommunications of Florida, Inc.,
NTC, Inc.
and
the stockholders of
National Telecommunications of Florida, Inc.
and NTC, Inc.
Dated February 11, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
THE MERGERS
1.1. Mergers; Surviving Corporation...........................................................2
1.2. Certificates of Incorporation............................................................2
1.3. By-Laws..................................................................................3
1.4. Directors and Officers...................................................................3
1.5. Effective Time...........................................................................3
1.6. Conversion of Shares.....................................................................3
1.7. Sub Common Stock.........................................................................7
1.8. Exchange of Shares.......................................................................7
1.9. Escrow...................................................................................9
1.10. Adjustments.............................................................................11
1.11. Allocation Among Stockholders ..........................................................12
ARTICLE II
REGISTRATION RIGHTS
2.1. Registration Rights.....................................................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
3.1. Organization, Authority and Qualification ..............................................12
3.2. Capital Stock of Target; Ownership of the Shares........................................13
3.3. No Subsidiaries.........................................................................14
3.4. Corporate Books and Records.............................................................14
3.5. No Conflict.............................................................................14
3.6. Governmental Consents and Approvals.....................................................15
3.7. Financial Information, Books and Records................................................15
3.8. No Undisclosed Liabilities..............................................................16
3.9. Receivables.............................................................................17
3.10. Conduct in the Ordinary Course; Absence of
Certain Changes, Events and Conditions..................................................17
3.11. Litigation..............................................................................20
3.12. Certain Interests.......................................................................20
3.13. Compliance with Laws; Licenses..........................................................21
3.14. Material Contracts......................................................................22
3.15. Intellectual Property...................................................................24
3.16. Assets..................................................................................24
3.17. Customers...............................................................................25
3.18. Suppliers...............................................................................26
3.19. Employee Benefit Plans..................................................................26
3.20. Labor Matters...........................................................................28
3.21. Key Employees...........................................................................28
3.22. Taxes...................................................................................28
3.23. Insurance...............................................................................30
3.24. Accounts; Lockboxes; Safe Deposit Boxes.................................................30
3.25. Full Disclosure.........................................................................31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.26. Brokers.................................................................................31
3.27. Investment Purposes, etc................................................................31
3.28. Tax Reporting...........................................................................32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ENTERPRISE AND THE SUBS
4.1. Organization and Authorization, etc.....................................................33
4.2. Non-Contravention.......................................................................33
4.3. Approvals...............................................................................34
4.4. Shares of Enterprise Common Stock.......................................................34
4.5. SEC Reports.............................................................................34
4.6. No Brokers..............................................................................35
4.6. Capitalization..........................................................................35
4.6. Full Disclosure.........................................................................35
4.6. Tax Reporting...........................................................................36
4.6. Continuity of Business Enterprise.......................................................36
ARTICLE V
COVENANTS OF TARGET AND THE STOCKHOLDERS
5.1. Conduct of Business.....................................................................36
5.2. No Solicitation.........................................................................38
5.3. Accountants' Cooperation................................................................39
5.4. Completion of Schedule 3.22.............................................................39
5.5. Waiver of Transfer Restrictions.........................................................39
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Compliance with Conditions Precedent, etc...............................................39
6.2. Certain Notifications...................................................................40
6.3. Adoption by the Subs and Target.........................................................40
6.4. Expenses................................................................................40
6.5. Public Announcements....................................................................40
6.6. Transition Arrangements.................................................................40
6.7. Non-Competition.........................................................................41
6.8. Sumter One Employees Trust..............................................................41
6.9. Access and Information; Confidentiality.................................................41
6.10. Conduct of the Target Business after the Effective Date ................................42
6.11. Projections; Future Performance.........................................................42
ARTICLE VII
CONDITIONS
7.1. Conditions to the Mergers...............................................................43
7.2. Additional Conditions to Obligations of the Stockholders and Target.....................43
7.3. Additional Conditions to Obligations of Enterprise and the Subs.........................45
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1. Termination.............................................................................47
8.2. Effect of Termination...................................................................48
8.3. Amendment...............................................................................48
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.4. Waiver..................................................................................48
ARTICLE IX
INDEMNIFICATION
9.1. Indemnification by the Stockholders.....................................................48
9.2. Indemnification by Enterprise and the Subs .............................................48
9.3. Survival of Representations and Warranties..............................................49
9.4. Notice of Claims........................................................................49
9.5. Limitations on Liability................................................................50
9.6. Escrow not Exclusive....................................................................51
9.7. After-Tax Basis: Insurance Proceeds.....................................................51
ARTICLE X
GENERAL PROVISIONS
10.1. Definitions............................................................................52
10.2. Notices................................................................................63
10.3. Severability...........................................................................65
10.4. Miscellaneous..........................................................................66
10.5. Specific Performance...................................................................66
10.6. Disputes...............................................................................66
10.7. Venue..................................................................................67
10.8. WAIVER OF JURY TRIAL...................................................................67
</TABLE>
<PAGE>
Exhibits
Exhibit A . . . . . . . . . Form of Escrow Agreement
Exhibit B . . . . . . . . . Form of Registration
Rights Agreement
Exhibit C . . . . . . . . . Form of Transition Agreement
Exhibit D . . . . . . . . . Form of Opinion of
Enterprise's Counsel
Exhibit E . . . . . . . . . Form of Opinion of
Sumter's Counsel
Annex
Annex A . . . . . . . . . Sample Calculation of
Section 1.6 Adjustments
<PAGE>
Schedules
1.11
3.1
3.2(a)
3.2(b)
3.2(c)
3.3
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12(a)
3.12(b)
3.13(a)
3.13(b)
3.13(c)
3.14(a)
3.14(b)
3.14(c)
3.14(d)
3.15
3.16
3.17
3.18
3.19
3.20
3.21(a)
3.21(b)
3.21(c)
3.22
3.23
3.24
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered into
as of this 11th day of February, 1998 by and among Intermedia Communications
Inc., a Delaware corporation ("Enterprise"), Sumter One Acquisition, Inc., a
Delaware corporation which is wholly owned by Enterprise ("Sub One"), Sumter Two
Acquisition, Inc., a Delaware corporation which is wholly owned by Enterprise
("Sub Two" and, together with Sub One, the "Subs"), National Telecommunications
of Florida, Inc., a Florida corporation ("Sumter One"), NTC, Inc., a Florida
corporation ("Sumter Two" and, together with Sumter One, "Target"), and the
stockholders of Target (each a "Stockholder" and collectively, the
"Stockholders").
WHEREAS, Sumter One and Sumter Two desire to merge with and into Sub One
and Sub Two, respectively, Enterprise desires that Sumter One and Sumter Two
merge with and into Sub One and Sub Two, respectively, and Sub One and Sub Two
desire to have Sumter One and Sumter Two merge into Sub One and Sub Two,
respectively;
WHEREAS, the Boards of Directors of Enterprise, the Subs and Target have
each determined that it is in the best interests of their respective
stockholders for Enterprise to acquire Target (the "Acquisition") upon the terms
and subject to the conditions set forth herein;
WHEREAS, in furtherance of such Acquisition, the Boards of Directors of
Enterprise, Sub One and Sumter One have each approved the merger of Sumter One
with and into Sub One ("Merger One") and the Boards of Directors of Enterprise,
Sub Two and Sumter Two have each approved the merger of Sumter Two with and into
Sub Two ("Merger Two," and, together with Merger One, the "Mergers"), in
accordance with the General Corporation Law of the State of Delaware (the"DGCL")
and the Business Corporation Act of the State of Florida (the "FBCA") upon the
terms and subject to the conditions set forth herein;
WHEREAS, the Stockholders have each approved the Mergers upon the terms and
subject to the conditions set forth herein; and
WHEREAS, the parties desire to qualify the Mergers as reorganizations under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") by reason of Section 368(a)(2)(D) of the Code.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE (5)
THE MERGERS
(i) Mergers; Surviving Corporation. In accordance with the provisions of
this Agreement, the DGCL and the FBCA, at the Effective Time (as such term and
other capitalized terms used herein without definition are defined in Section
10.1), Sumter One and Sumter Two shall be merged with and into Sub One and Sub
Two, respectively, and Sub One and Sub Two shall be the surviving corporations
(hereinafter sometimes individually called "Surviving Corporation One" and
"Surviving Corporation Two", respectively, and collectively called the
"Surviving Corporations") and shall continue their corporate existence under the
laws of the State of Delaware. At the Effective Time the separate corporate
existence of Sumter One shall cease. All properties, franchises and rights
belonging to Sumter One and Sub One, by virtue of Merger One and without further
act or deed, shall be deemed to be vested in Surviving Corporation One, which
shall thenceforth be responsible for all the liabilities and obligations of each
of Sub One and Sumter One. At the Effective Time the
<PAGE>
separate corporate existence of Sumter Two shall cease. All properties,
franchises, and rights belonging to Sumter Two and Sub Two by virtue of Merger
Two and without further act or deed, shall be deemed to be vested in Surviving
Corporation Two, which shall thenceforth be responsible for all the liabilities
and obligations of each of Sub Two and Sumter Two.
(ii) Certificates of Incorporation. (a) At the Effective Time, Article
First of the Certificate of Incorporation of Sub One as in effect immediately
prior to the Effective Time shall be amended so that Article First thereof shall
read in its entirety as follows:
"First: The name of the Corporation is National Telecommunications of
Florida, Inc."
As so amended, the Certificate of Incorporation of Sub One as in effect
immediately prior to the Effective Time shall thereafter continue in full force
and effect as the Certificate of Incorporation of Surviving Corporation One
until altered or amended as provided therein or by law.
(b) At the Effective Time, Article First of the Certificate of
Incorporation of Sub Two as in effect immediately prior to the Effective Time
shall be amended so that Article First thereof shall read in its entirety as
follows:
"First: The name of the Corporation is NTC, Inc.
As so amended, the Certificate of Incorporation of Sub Two as in effect
immediately prior to the Effective Time shall thereafter continue in full force
and effect as the Certificate of Incorporation of Surviving Corporation Two
until altered or amended as provided therein or by law.
(iii) By-Laws. The By-Laws of Sub One and Sub Two in effect immediately
prior to the Effective Time shall be the By-Laws of Surviving Corporation One
and Surviving Corporation Two, respectively, until altered, amended or repealed
as provided therein and in the Certificate of Incorporation of Surviving
Corporation One and Surviving Corporation Two, respectively.
(iv) Directors and Officers. The Directors of Sub One and Sub Two
immediately prior to the Effective Time shall be the directors of Surviving
Corporation One and Surviving Corporation Two, respectively. The officers of Sub
One and Sub Two immediately prior to the Effective Time shall be the officers of
Surviving Corporation One and Surviving Corporation Two, respectively. Each of
such directors and officers shall hold office in accordance with the Certificate
of Incorporation and By-Laws of the applicable Surviving Corporation.
(v) Effective Time. Merger One shall become effective at the time of filing
of a certificate of merger (the "Certificate of Merger One") and Merger Two
shall become effective at the time of filing a certificate of merger (the
"Certificate of Merger Two" and, together with Certificate of Merger One, the
"Certificates of Merger") with the Secretary of State of the State of Delaware
in accordance with the provisions of Section 251 of the DGCL and with the
Department of State of the State of Florida in accordance with Section 607.1105
of the FBCA, or at a later time specified as the effective time in the
Certificates of Merger, which Certificates of Merger shall be so filed as soon
as practicable after the satisfaction or, if permissible, waiver of the
conditions set forth in Article VII. The date and time when the Mergers shall
become effective are referred to herein as the "Effective Date" and the
"Effective Time," respectively. Prior to such filing, a closing shall be held at
the offices of Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas,
New York, New York 10036, or such other place as shall be agreed to by the
parties, for the purpose of confirming the satisfaction or waiver, as the case
may be, of the conditions set forth in Article VII.
2
<PAGE>
(vi) Conversion of Shares. 1. Each share of the Common Stock, par value
$1.00 per share, of Sumter One ("Sumter One Common Stock") issued and
outstanding immediately prior to the Effective Time (other than Sumter One
Common Stock to be cancelled as set forth in Section 1.6(b) and 1.6(c)) shall,
by virtue of Merger One and without any action on the part of the holder
thereof, be converted into, exchanged for and represent the right to receive
(A) such number of shares of Common Stock, par value $.01 per share, of
Enterprise ("Enterprise Common Stock") as shall be equal to the Merger
One Per Share Stock Consideration divided by the Fair Market Value of
a share of Enterprise Common Stock (as so divided, the "Merger One
Stock Consideration") and
(B) cash as shall be equal to 30% of (i) the Merger One Consideration
divided by (ii) the number of shares outstanding (on a fully diluted
basis) of Sumter One Common Stock (the "Merger One Cash
Consideration"),
subject to the limitations set forth in Sections 1.8 and 1.9 hereof.
Each share of the Common Stock, par value $1.00 per share, of Sumter Two
("Sumter Two Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Sumter Two Common Stock to be cancelled as set forth
in Section 1.6(b) and 1.6(c)) shall, by virtue of Merger Two and without any
action on the part of the holder thereof, be converted into, exchanged for and
represent the right to receive
(A) such number of shares of Enterprise Common Stock as shall be equal to
the Merger Two Per Share Stock Consideration divided by the Fair
Market Value of a share of Enterprise Common Stock (as so divided, the
"Merger Two Stock Consideration") and
(B) cash as shall be equal to 30% of (i) the Merger Two Consideration
divided by (ii) the number of shares outstanding (on a fully diluted
basis) of Sumter Two Common Stock (the "Merger Two Cash
Consideration"),
subject to the limitations set forth in Sections 1.8 and 1.9 hereof.
"Merger One Consideration" shall mean $125,330,000 plus the cash on hand of
Sumter One at the time of Merger One, less the principal amount of Funded Debt
of Sumter One at the time of Merger One.
"Merger One Aggregate Stock Consideration" shall mean 70% of the Merger One
Consideration, provided, however, if the Enterprise Common Stock Effective Date
Price is less than the Enterprise Common Stock Floor Price and Enterprise has
exercised its Make Whole Rights pursuant to Section 7.2(i), then the Merger One
Aggregate Stock Consideration shall be equal to 70% of the Merger One
Consideration divided by the Enterprise Common Stock Execution Date Price and
multiplied by the Enterprise Common Stock Floor Price.
"Merger One Per Share Stock Consideration" shall mean the Merger One
Aggregate Stock Consideration divided by the number of shares outstanding (on a
fully diluted basis) of Sumter One Common Stock.
"Merger Two Consideration" shall mean $25,670,000 plus the cash on hand of
Sumter Two at the time of Merger Two, less the principal amount of Funded Debt
of Sumter Two at the time of Merger Two.
3
<PAGE>
"Merger Two Aggregate Stock Consideration" shall mean 70% of the Merger Two
Consideration, provided, however, if the Enterprise Common Stock Effective Date
Price is less than the Enterprise Common Stock Floor Price and Enterprise has
exercised its Make Whole Rights pursuant to Section 7.2(i), then the Merger Two
Aggregate Stock Consideration shall be equal to 70% of the Merger Two
Consideration divided by the Enterprise Common Stock Execution Date Price and
multiplied by the Enterprise Common Stock Floor Price.
"Merger Two Per Share Consideration" shall mean the Merger Two Aggregate
Stock Consideration divided by the number of shares outstanding (on a fully
diluted basis) of Sumter Two Common Stock.
"Funded Debt" with respect to Sumter One and Sumter Two shall mean (a) all
indebtedness of Sumter One or Sumter Two, as the case may be, for borrowed money
or for deferred purchase price of tangible or intangible property, whether real,
personal or mixed, or services (excluding trade accounts payable incurred in the
ordinary course of business and, to the extent current, which are due within 90
days after incurrence and, to the extent not current, which are being contested
in good faith by appropriate action) for which either of Sumter One or Sumter
Two, as applicable, is liable, contingently or otherwise, as obligor, guarantor
or otherwise, or in respect of which either of Sumter One or Sumter Two, as
applicable, otherwise assures a creditor against loss and (b) all obligations
under leases which shall have been, or should have been, in accordance with
generally accepted accounting principles, recorded as capital leases in respect
of which either of Sumter One or Sumter Two, as applicable, is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations either of Sumter One or Sumter Two, as applicable, otherwise
assures a creditor against loss.
"Fair Market Value" of a share of Enterprise Common Stock shall mean
$61.00, provided, however, if (i) the Enterprise Common Stock Effective Date
Price is less than $45 per share (the "Enterprise Common Stock Floor Price") and
greater than or equal to $40 per share (the "Enterprise Common Stock Minimum
Price") and (ii) Enterprise has exercised its Make Whole Rights pursuant to
Section 7.2(i), the Fair Market Value shall mean the Enterprise Common Stock
Effective Date Price.
Annex A sets forth certain examples of the application of the adjustment
provisions contained in this Section 1.6(a).
2. Each share of Sumter One Common Stock or Sumter Two Common Stock issued
and outstanding immediately prior to the Effective Time which is then owned
beneficially or of record by Enterprise or any Subsidiary of Enterprise shall,
by virtue of the Mergers and without any action on the part of the holder
thereof, be cancelled and retired and cease to exist, without any conversion
thereof.
3. Each share of Sumter One Common Stock or Sumter Two Common Stock held in
the treasury of Sumter One or Sumter Two, respectively, immediately prior to the
Effective Time shall, by virtue of the Mergers, be cancelled and retired and
cease to exist, without any conversion thereof.
4. Notwithstanding anything in this Section 1.6 to the contrary, shares of
Sumter One Common Stock or Sumter Two Common Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders of Sumter One or Sumter Two who have not voted such shares in favor
of the applicable Merger and who shall have properly exercised their dissenters'
rights with respect to such shares in the manner provided by the FBCA (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the applicable Merger Consideration, unless and until such
holder shall have failed to perfect or shall have effectively withdrawn or lost
his dissenters' rights, as the case may be. If such holder shall have so failed
to perfect or shall have effectively withdrawn or lost such right, his shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the
4
<PAGE>
Effective Time, the right to receive the applicable Merger Consideration,
without any interest thereon. Target shall give Enterprise prompt notice of any
Dissenting Shares (and shall also give Enterprise prompt notice of any
withdrawals of such demands for dissenters' rights) and Enterprise shall have
the right to direct all negotiations and proceedings with respect to any such
demands. Neither Target nor the Surviving Corporations shall, except with the
prior written consent of Enterprise, voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for dissenters' rights.
Stockholders of Target who shall have perfected their dissenters' and not
withdrawn or otherwise lost such rights, shall be entitled to receive payment of
the fair value of the shares of Sumter One Common Stock and Sumter Two Common
Stock held by them in accordance with the provisions of Section 607.1320 of the
FBCA.
(vii) Sub Common Stock. 1. Each share of common stock of Sub One issued and
outstanding immediately prior to the Effective Time shall, by virtue of Merger
One and without any action on the part of Sub One or the holder thereof, be
converted into and become one fully paid and nonassessable share of common stock
of Surviving Corporation One. From and after the Effective Time, each
outstanding certificate theretofore representing shares of Sub One common stock
shall be deemed for all purposes to evidence ownership of and to represent the
number of shares of Surviving Corporation One common stock into which such
shares of Sub One common stock shall have been converted.
2. Each share of common stock of Sub Two issued and outstanding immediately
prior to the Effective Time shall, by virtue of Merger Two and without any
action on the part of Sub Two or the holder thereof, be converted into and
become one fully paid and nonassessable share of common stock of Surviving
Corporation Two. From and after the Effective Time, each outstanding certificate
theretofore representing shares of Sub Two common stock shall be deemed for all
purposes to evidence ownership of and to represent the number of shares of
Surviving Corporation Two common stock into which such shares of Sub Two common
stock shall have been converted.
(viii) Exchange of Shares. 1. On the Effective Date, Enterprise shall make
available such cash and such shares of Enterprise Common Stock as shall be
issuable in exchange for outstanding shares of Sumter One Common Stock and
Sumter Two Common Stock pursuant to Section 1.6 hereof less $5,000,000 in
Enterprise Common Stock (the "Escrow Amount") which shall be withheld from each
of the Stockholders proportionately, based on the Merger Consideration to which
each such Stockholder is entitled pursuant to this Agreement. The shares of
Enterprise Common Stock withheld from each of the Stockholders pursuant to this
Section 1.8 shall be deemed to be valued at the Fair Market Value
notwithstanding the actual market value of the shares of Enterprise Common Stock
on the Effective Date.
2. On the Effective Date, each Stockholder shall deliver to Enterprise a
certificate or certificates (the "Certificates") that immediately prior to the
Effective Time represented all of the outstanding shares of Sumter One Common
Stock or Sumter Two Common Stock held by such Stockholder (other than any
Dissenting Shares), which Certificates shall be properly endorsed or otherwise
in proper form for transfer.
3. Upon surrender of a Certificate for cancellation to Enterprise, together
with such other agreements as Enterprise shall reasonably request, the holder of
such Certificate shall be entitled to receive in exchange therefor, subject to
the escrow of the Escrow Amount pursuant to the Escrow Agreement, the applicable
Merger Consideration into which the shares of Sumter One Common Stock and Sumter
Two Common Stock theretofore represented by the Certificates so surrendered
shall have been converted pursuant to the provisions of this Article I, and the
Certificate so surrendered shall forthwith be cancelled. Until surrendered as
contemplated by this Section 1.8, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive, subject to the
escrow of the Escrow Amount pursuant to the Escrow Agreement, the applicable
Merger Consideration with respect to the shares of Sumter One Common Stock or
Sumter Two Common Stock formerly represented thereby.
5
<PAGE>
4. Enterprise shall have the right to make reasonable and/or customary
rules, not inconsistent with the terms of this Agreement, for the issuance and
delivery of certificates for Enterprise Common Stock into which shares of Sumter
One Common Stock and Sumter Two Common Stock are converted in the Mergers.
5. No dividends or other distributions declared after the Effective Time
with respect to Enterprise Common Stock and payable to holders of record thereof
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Enterprise Common Stock represented
thereby until the holder of record shall surrender such Certificate. Subject to
the effect, if any, of applicable law, after the subsequent surrender and
exchange of a Certificate, the holder thereof shall be entitled to receive,
subject to the escrow of the Escrow Amount pursuant to the Escrow Agreement, any
such dividends or other distributions, without any interest thereon, which
theretofore became payable with respect to shares of Enterprise Common Stock
represented by such Certificate. All dividends and other distributions declared
after the Effective Time with respect to Enterprise Common Stock and payable to
the holders of record thereof after the Effective Time which are payable to
holders of Certificates not theretofore surrendered and exchanged for
certificates representing shares of Enterprise Common Stock pursuant to this
Section 1.8 shall, subject to the escrow of the Escrow Amount pursuant to the
Escrow Agreement, be held by Enterprise, in trust, for the benefit of such
holders until six months after the Effective Date, after which time any holder
of Certificates who has not theretofore surrendered such Certificates to
Enterprise, shall, subject to applicable law, look as a general creditor only to
Enterprise for payment or delivery of such dividends or distributions, as the
case may be.
6. If any Certificate representing shares of Enterprise Common Stock is to
be issued in a name other than that in which the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the reasonable
satisfaction of the applicable Surviving Corporation that such tax has been paid
or is not applicable.
7. All shares of Enterprise Common Stock and rights to receive cash into
which and for which shares of Sumter One Common Stock and Sumter Two Common
Stock shall have been converted or exchanged pursuant to this Article I shall be
deemed to have been issued in full satisfaction of all rights per taining to
such converted and exchanged shares of Sumter One Common Stock and Sumter Two
Common Stock, as applicable.
8. After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporations of the
shares of Sumter One Common Stock and Sumter Two Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented to the Surviving
Corporations, they shall be cancelled and exchanged for the applicable Merger
Consideration as provided in this Article I.
9. No certificates or scrip representing fractional shares of Enterprise
Common Stock shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution of Enterprise shall relate to any fractional share, and
any such fractional share interest will not entitle the owner thereof to vote or
to any rights of the stockholders of Enterprise. In lieu thereof, Enterprise
shall pay cash based upon the Closing Price on the day preceding the Effective
Date.
(ix) Escrow. 1. At the Effective Time, Enterprise, the Subs, Sumter One,
Sumter Two and the Stockholders 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 Enterprise, Sumter One, Sumter Two and
the Stockholders shall act as escrow agent (the "Escrow Agent") with respect to
the Enterprise Common Stock deposited with the Escrow Agent. Enterprise shall
deposit the Escrow Amount with the Escrow Agent,
6
<PAGE>
which shall be withheld from the Merger Consideration payable to the
Stockholders after the Mergers as provided in Section 1.8.
2. Subject to the provisions of this Section 1.9 and the Escrow Agreement
the Escrow Amount shall be paid to the Stockholders or to Enterprise as follows:
(i) As promptly as practicable after the 90th day following the Effective
Date hereof (but in no event later than the 120th day following the Effective
Date), Enterprise shall deliver to the Stockholders a written statement setting
forth the amount of all or any portion of the Receivables, excluding the
Receivables described in item 2 of Schedule 3.7, on the Effective Date (the
"Effective Date Receivables") which shall not have been collected by Enterprise
within 90 days after the Effective Date. In the event the amount of such
uncollected Effective Date Receivables exceeds the Effective Date Reserve, then
Enterprise shall deliver written notice to the Stockholders and the Escrow Agent
specifying the amount of such excess and the Escrow Agent shall promptly and in
accordance with the terms of the Escrow Agreement deliver to Enterprise from the
Escrow Amount shares of Enterprise Common Stock sufficient to cover such excess.
With respect to collection of Effective Date Receivables, remittances to the
Surviving Corporations made by any account debtor shall, unless otherwise
specified by the account debtor on account of a dispute with respect to an
invoice for services rendered prior to the Effective Time, be credited to the
invoices bearing the earliest dates. If Enterprise Common Stock is delivered to
Enterprise from the Escrow Amount pursuant to this Section 1.9(b)(i), the
Surviving Corporations shall assign to the Stockholders all Effective Date
Receivables not collected by the Surviving Corporations within 90 days after the
Effective Date. Thereafter, the Stockholders shall promptly remit to Enterprise
funds in the amount, if any, by which the Stockholders' collections of such
assigned Effective Date Receivables exceeds the value of the Enterprise Common
Stock delivered to Enterprise from the Escrow Amount pursuant to this Section
1.9(b)(i). In the event that the amount of such uncollected Effective Date
Receivables is less than or equal to the Effective Date Reserve, then Enterprise
shall deliver written notice to the Stockholders and the Escrow Agent specifying
that the Escrow Agent shall promptly and in accordance with the terms of the
Escrow Agreement deliver to the Stockholders from the Escrow Amount an amount of
Enterprise Common Stock equal to $2.5 million. In the event that the amount of
uncollected Effective Date Receivables exceeds the Effective Date Reserve and
such excess is less than $2.5 million, then Enterprise shall deliver written
notice to the Escrow Agent specifying that the Escrow Agent shall promptly and
in accordance with the terms of the Escrow Agreement deliver to the Stockholders
from the Escrow Amount an amount of Enterprise Common Stock equal to the
difference between such excess and $2.5 million; and
(ii) 270 days following the Effective Date, the balance of the Escrow
Amount, less the sum of (a) any amount requested to be disbursed from the Escrow
Amount pursuant to clause (i) above which amount has not yet been paid, (b) the
amount of all claims for indemnification for Losses asserted in writing within
such 270 day period and arising out of or resulting from the breach of the
representations and warranties set forth in Sections 3.7 and 3.8 (but, with
respect to the representation and warranty in Section 3.8, only with respect to
(x) Liabilities which, in accordance with U.S. GAAP, should be reflected or
reserved for on the Reference Balance Sheet, (y) Liabilities which should be
reflected or reserved for on the Interim Balance Sheet, other than the Excluded
Adjustments, on a basis consistent with the past practice of Sumter One and
Sumter Two and (z) the Agreed Items) that have not been finally resolved, shall
be delivered to the Stockholders.
3. For all purposes of this Agreement and the Escrow Agreement, whenever
shares of Enterprise Common Stock shall be required to be delivered to satisfy a
payment or indemnity obligation of any party hereto, each share of Enterprise
Common Stock shall be deemed to be valued at the Fair Market Value,
notwithstanding the actual market or other value of the shares of Enterprise
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 Enterprise Common Stock or any merger, consolidation or combination of
Enterprise with any other entity or entities, the deemed value specified above
for the shares of Enterprise Common Stock shall be proportionally adjusted so
that the deemed value of the shares of Enterprise Common Stock after such event
7
<PAGE>
shall be the same as the deemed value of the shares of Enterprise Common Stock
prior to such event. All such adjustments shall be made successively.
4. The Stockholders and their representatives shall be entitled to inspect
all of the work papers, schedules and other supporting documentation relating to
the calculation of the uncollected Effective Date Receivables pursuant to clause
(i) of Section 1.9(b) and the calculation of any Losses pursuant to clause (ii)
of Section 1.9(b).
(x) Adjustments. 1. If, between the date of this Agreement and the
Effective Time, the outstanding shares of Sumter One Common Stock or Sumter Two
Common Stock shall have been changed into a different number of shares or a
different class by reason of any issuance or cancellation of shares, or any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within such period, the consideration to be paid in the applicable Merger in
exchange for each outstanding share of Sumter One Common Stock or Sumter Two
Common Stock, as applicable, as provided in this Agreement shall be
correspondingly adjusted.
2. If, between the date of this Agreement and the Effective Time, the
outstanding shares of Enterprise Common Stock shall have been changed into a
different number of shares or a different class by reason of any issuance or
cancellation of shares, or any reclassification, recapitalization, split-up,
combination, exchange of shares of readjustment, or a stock dividend thereon
shall be declared with a record date within such period, the Merger One Stock
Consideration, the Merger Two Stock Consideration, the Enterprise Common Stock
Execution Date Price, the Enterprise Common Stock Floor Price and the Enterprise
Common Stock Minimum Price shall be correspondingly adjusted.
(xi) Allocation Among Stockholders. All shares of Enterprise Common Stock
and payments of Merger One Cash Consideration and Merger Two Cash Consideration
delivered to the Stockholders pursuant to Section 1.6 and any shares of
Enterprise Common Stock delivered to the Stockholders pursuant to the Escrow
Agreement shall be allocated among the Stockholders as set forth on Schedule
1.11.
ARTICLE (6)
REGISTRATION RIGHTS
(i) Registration Rights. Enterprise and the Stockholders shall enter into a
registration rights agreement substantially in the form of Exhibit B hereto (the
"Registration Rights Agreement") on the Effective Date.
ARTICLE (7)
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
Each of the Stockholders, jointly and severally, represents and warrants to
Enterprise and the Subs as follows:
(i) Organization, Authority and Qualification. Each of Sumter One and
Sumter Two is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and
8
<PAGE>
has all necessary power and authority to enter into this Agreement and the other
Operative Documents, to carry out its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. Each of Sumter
One and Sumter Two is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary
and all such jurisdictions are set forth on Schedule 3.1 hereto. Each of Sumter
One and Sumter Two 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 Sumter One and Sumter Two, as the case may be, was
formed. Each Trust is duly organized under the laws of the State of Texas, has
not been revoked by the grantor thereof and has all necessary power and
authority to enter into this Agreement and the other Operative Documents, to
carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the other Operative Documents, the performance by each Sumter
Party of their respective obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of each Sumter Party. This
Agreement has been, and upon their execution the other Operative Documents shall
have been, duly executed and delivered by each Sumter Party which is a party
thereto, and (assuming due authorization, execution and delivery by Enterprise
and the other parties thereto) this Agreement constitutes, and upon its
execution each of the other Operative Documents will constitute, a legal, valid
and binding obligation of each Sumter Party which is a party thereto enforceable
against such Sumter Party which is a party thereto in accordance with their
respective terms. Assuming the accuracy of the representations and warranties
set forth in Section 4.1 hereof, the restrictions on business combinations
contained in Section 203 of the DGCL have been satisfied with respect to the
transactions contemplated hereby. The Board of Directors of each of Sumter One
and Sumter Two has duly and validly taken all necessary actions to exempt the
transactions contemplated by this Agreement, including the Mergers, from the
provisions of Sections 607.0901 through 607.0903 of the FBCA. All corporate
actions taken by Sumter One and Sumter Two have been duly authorized, and
neither Sumter One nor Sumter Two has taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Certificate of Incorporation or By-laws. True and correct
copies of the Certificate of Incorporation and by-laws of Sumter One and Sumter
Two, each as in effect on the date hereof, have been delivered by Sumter One and
Sumter Two to Enterprise and the Subs.
(ii) Capital Stock of Target; Ownership of the Shares. 1. The authorized
capital stock of Sumter One and Sumter Two consists of 10,000 and 10,000 shares
of Sumter One Common Stock and Sumter Two Common Stock, respectively. As of the
date hereof, 2,500 and 2,500 shares of Sumter One Common Stock and Sumter Two
Common Stock, respectively, are issued and outstanding, all of which are validly
issued, fully paid and nonassessable. None of the issued and outstanding shares
of Sumter One Common Stock or Sumter Two Common Stock was issued in violation of
any preemptive rights. There are no options, warrants, convertible securities
or, except as provided herein or as set forth on Schedule 3.2(a), other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of Sumter One or Sumter Two or obligating Sumter One or Sumter Two to
issue or sell any shares of capital stock of, or any other interest in, Sumter
One or Sumter Two. There are no outstanding contractual obligations of Sumter
One or Sumter Two to repurchase, redeem or otherwise acquire any shares of
Sumter One Common Stock or Sumter Two Common Stock or to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any other Person.
2. Schedule 3.2(b) sets forth (i) the name and address of each Person
owning shares of capital stock of Sumter One or Sumter Two, respectively, and
(ii) the certificate number of each certificate evidencing shares of capital
stock issued by Sumter One or Sumter Two, respectively, the number of shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation.
9
<PAGE>
3. Except as set forth on Schedule 3.2(c), there are no voting trusts,
stockholder agreements, proxies or other agreements or understandings in effect
with respect to the voting or transfer of any shares of capital stock of or any
other interests in either Sumter One or Sumter Two.
(iii) No Subsidiaries. Except as set forth on Schedule 3.3, there are no
corporations, partnerships, joint ventures, associations or other entities in
which Sumter One or Sumter Two owns, of record or beneficially, any direct or
indirect equity or other interest or any right (contingent or otherwise) to
acquire the same.
(iv) Corporate Books and Records. The minute books of Sumter One and Sumter
Two contain accurate records of all meetings and accurately reflect all other
actions taken by the stockholders, Boards of Directors and all committees of the
Boards of Directors of Sumter One and Sumter Two. Complete and accurate copies
of all such minute books and of the stock register of Sumter One and Sumter Two
have been provided to Enterprise.
(v) No Conflict. The execution, delivery and performance of this Agreement
and the other Operative Documents by Sumter One, Sumter Two and the Stockholders
do not and will not (a) violate, conflict with or result in the breach of any
provision of the charter or by-laws (or similar organizational documents) of
Sumter One, Sumter Two or any Stockholder, (b) conflict with or violate any Law
or Governmental Order applicable to the Stockholders, Sumter One, Sumter Two or
any of their respective assets, properties or businesses or, (c) except as set
forth in Schedule 3.5 hereto, violate or conflict with any provision of or
result in the breach or the acceleration of or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both) any obligation
under, any mortgage, lien, lease, agreement, license, instrument, order,
arbitration award, judgment or decree to which Sumter One, Sumter Two or any
Stockholder is a party or by which any of them is bound, or (d) result in the
creation or imposition of any Encumbrance upon any property of Sumter One,
Sumter Two or any Stockholder.
(vi) Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement and the other Operative Documents by Target and
the Stockholders do not and will not require any consent, approval,
authorization or other order of, action by, filing with or notification to any
Governmental Authority, except for (a) the filing of a Notification and Report
Form by Sumter One and Sumter Two under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (b) the filings with and
approvals of the FCC and state public utility commissions or other Governmental
Authorities identified on Schedule 3.6 hereto and (c) the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware and
the Department of State of the State of Florida.
(vii) Financial Information, Books and Records. 1. True and complete copies
of the audited combined balance sheet of Sumter One and Sumter Two for each of
the three fiscal years ended as of March 31, 1997 (the "Reference Balance Sheet
Date"), March 31, 1996, and March 31, 1995, and the related audited combined
statements of income, shareholders' equity and cash flows of Sumter One and
Sumter Two, together with all related notes and schedules thereto, accompanied
by the reports thereon of Target's accountants (collectively referred to herein
as the "Financial Statements") have been delivered by Sumter One and Sumter Two
to Enterprise and the Subs. The Financial Statements (i) were prepared in
accordance with the books of account and other financial records of Sumter One
and Sumter Two, (ii) present fairly the combined financial condition and results
of operations of Sumter One and Sumter Two as of the dates thereof or for the
periods covered thereby and (iii) have been prepared in accordance with U.S.
GAAP applied on a basis consistent with the past practices of Sumter One and
Sumter Two, except as may be indicated in the notes to such financial
statements.
2. The unaudited combined balance sheet (the "Interim Balance Sheet") of
Sumter One and Sumter Two as of December 31, 1997 (the "Interim Balance Sheet
Date"), and the related combined
10
<PAGE>
statement of income for the nine month period ended December 31, 1997 of Sumter
One and Sumter Two (collectively referred to herein as the "Interim Financial
Statements") were prepared in accordance with the books of account and other
financial records of Sumter One and Sumter Two and, except as set forth below,
(i) present fairly the combined financial condition and results of operations of
Sumter One and Sumter Two as of the date thereof or for the period covered
thereby and (ii) include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the combined financial
condition of Sumter One and Sumter Two and the results of the operations of
Sumter One and Sumter Two as of the date thereof or for the period covered
thereby. Adjustments for the following items, in addition to the adjustments set
forth on Schedule 3.7 (collectively, the "Excluded Adjustments"), have not been
considered in the preparation of the Interim Financial Statements: (v)
adjustments to Sumter One's and Sumter Two's vacation accrual liability; (w)
adjustments to Sumter One's and Sumter Two's allowance for doubtful accounts
receivable; (x) accrual for billing disputes related to Sumter One's and Sumter
Two's line cost agreements in effect as of December 31, 1997; (y) accrual for
asserted or unasserted litigation related to Sumter One and Sumter Two as of
December 31, 1997; and (z) accrual for Taxes related to disputes with taxing
authorities as of December 31, 1997.
3. Other than as may result from the Excluded Adjustments, the books of
account and other financial records of Sumter One and Sumter Two: (i) reflect
all items of income and expense and all assets and Liabilities required to be
reflected therein in accordance with U.S. GAAP applied on a basis consistent
with the past practices of Sumter One and Sumter Two, (ii) are complete and
correct, and do not contain or reflect any inaccuracies or discrepancies and
(iii) have been maintained in accordance with good business and accounting
practices.
(viii) No Undisclosed Liabilities. (a) There are no Liabilities of Sumter
One or Sumter Two, other than Liabilities (i) reflected or reserved against on
the Reference Balance Sheet and the notes thereto or the Interim Balance Sheet,
(ii) disclosed in Schedule 3.8 hereto, or (iii) incurred since December 31, 1997
in the ordinary course of the business, consistent with the past practice, of
Sumter One and Sumter Two. Reserves are reflected on the Reference Balance Sheet
as of its date against all Liabilities of Sumter One and Sumter Two at such date
in amounts that have been established on a basis consistent with the past
practices of Sumter One and Sumter Two and in accordance with U.S. GAAP. Subject
to the Excluded Adjustments, reserves are reflected on the Interim Balance Sheet
as of its date against Liabilities of Sumter One and Sumter Two at such date in
amounts that have been established on a basis consistent with the past practices
of Sumter One and Sumter Two. For purposes of the Stockholders' indemnification
of Enterprise pursuant to Section 9 or for making a claim against the Escrow
Amount for Losses, Schedule 3.8 shall be deemed not to have disclosed the Agreed
Items and the disclosure of or reference to the Agreed Items in other
representations and warranties herein shall not negate the deemed non-disclosure
of such Agreed Items pursuant to this Section 3.8.
(b) Deferred tax liabilities, if any, created as a result of the Mergers,
as required by U.S. GAAP, will be deemed to be the Liabilities of Enterprise
after the Effective Date and not the Liabilities of Sumter One and Sumter Two as
of any date before, at or after the Effective Date.
(ix) Receivables. Schedule 3.9 hereto sets forth an aged list of the
Receivables of Sumter One and Sumter Two as of the Interim Balance Sheet Date
showing separately those Receivables that as of such date had been outstanding
(i) 29 days or less, (ii) 30 to 59 days, (iii) 60 to 89 days and (iv) more than
90 days. Except to the extent, if any, reserved for on the Interim Balance
Sheet, which reserves have been provided consistent with past practice as
reflected on the Reference Balance Sheet, all Receivables reflected on the
Interim Balance Sheet arose from, and the Effective Date Receivables will have
arisen from, the sale of Inventory or services, except as disclosed on Schedule
3.9 hereto, to Persons not affiliated with the Stockholders, Sumter One or
Sumter Two and in the ordinary course of business consistent with past practice
and, except as reserved against on the Interim Balance Sheet, constituted,
constitute or will constitute, as the case may be, only valid, undisputed claims
of Sumter One or Sumter Two not subject to valid claims of set-off or other
defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of business
11
<PAGE>
consistent with past practice. Except for the Receivable described in item 2 of
Schedule 3.7, all Effective Date Receivables (subject to the Effective Date
Reserve) are or will be good and are or will be collected, without resort to
litigation or extraordinary collection activity, within 90 days of the Effective
Date.
(x) Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions. Since the Reference Balance Sheet Date, except as disclosed in
Schedule 3.10, the business of Sumter One and Sumter Two has been conducted in
the ordinary course and consistent with past practice. As amplification and not
limitation of the foregoing, except as disclosed in Schedule 3.10, since the
Reference Balance Sheet Date, neither Sumter One nor Sumter Two has:
a. permitted or allowed any of the assets or properties (whether tangible
or intangible) of Sumter One or Sumter Two to be subjected to any Encumbrance,
other than Permitted Encumbrances and Encumbrances that will be released at or
prior to the Effective Time;
b. except in the ordinary course of business consistent with past practice,
discharged or otherwise obtained the release of any Encumbrance or paid or
otherwise discharged any Liability, in excess of $50,000, other than current
liabilities reflected on the Reference Balance Sheet and current liabilities
incurred in the ordinary course of business consistent with past practice since
the Reference Balance Sheet Date;
c. made any loan to, guaranteed any Indebtedness of or otherwise incurred
any Indebtedness, in excess of $50,000, on behalf of any Person;
d. failed to pay any creditor any amount owed to such creditor when due
(unless such amount owed is being contested in good faith by appropriate
proceedings timely instituted and diligently concluded, provided that any
reserve required to be in conformity with U.S. GAAP has been made);
e. made any material changes in the customary methods of operations of
Sumter One or Sumter Two, including, without limitation, practices and policies
relating to marketing, selling and pricing;
f. merged with, entered into a consolidation with or acquired an interest
of 5% or more in any Person or acquired a substantial portion of the assets or
business of any Person or any division or line of business thereof, otherwise
acquired any material assets other than in the ordinary course of business
consistent with past practice or entered into any transaction of a material
nature other than in the ordinary course of business consistent with past
practice;
g. made any capital expenditure or commitment for any capital expenditure
in excess of $500,000 individually or $2,500,000 in the aggregate;
h. issued any sales orders or otherwise agreed to make any purchases
involving exchanges in value in excess of $500,000 individually or $2,500,000 in
the aggregate;
i. sold, transferred, leased, subleased, licensed or otherwise disposed of
any properties or assets, real, personal or mixed (including, without
limitation, leasehold interests and intangible assets) with a book value in
excess of $50,000, other than the sale of Inventories in the ordinary course of
business consistent with past practice;
j. issued or sold any capital stock, notes, bonds or other securities of,
or any option, warrant or other right to acquire the same, or any other interest
in, Sumter One or Sumter Two, except hereunder;
12
<PAGE>
k. entered into any agreement, arrangement or transaction with any of its
directors, officers, employees or stockholders (or with any relative,
beneficiary, spouse or Affiliate of such Person), other than agreements,
arrangements or transactions that may be cancelled upon notice of not more than
30 days without liability, penalty or premium, and that do not require payment
by Sumter One or Sumter Two of more than $50,000 per year;
l. increased the compensation of any of its employees, except for annual
raises consistent with past practice;
m. written down or written up (or failed to write down or write up in
accordance with U.S. GAAP consistent with past practice) the value of any
receivables by any material amount or revalued any assets of Sumter One or
Sumter Two by any material amount other than in the ordinary course of business
consistent with past practice and in accordance with U.S. GAAP;
n. amended, terminated, cancelled or compromised any claims of Sumter One
or Sumter Two or waived any other rights of substantial value to Sumter One or
Sumter Two;
o. made any change in any method of accounting or accounting practice or
policy used by Sumter One or Sumter Two, other than such changes required by
U.S. GAAP or disclosed in Schedule 3.10;
p. failed to maintain the Assets in accordance with good business practice
and in good operating condition and repair, reasonable wear and tear excepted;
q. allowed any License that was issued or relates to Sumter One or Sumter
Two or otherwise relates to any Asset to lapse or terminate or failed to renew
any such License or any insurance policy that is scheduled to terminate or
expire within 45 calendar days of the Effective Date;
r. incurred any Indebtedness, in excess of $500,000 individually or
$2,500,000 in the aggregate;
s. amended, modified or consented to the termination of any Material
Contract or the rights of Sumter One or Sumter Two thereunder, except in
instances in which any such amendment, modification or termination conferred a
substantial benefit on Sumter One or Sumter Two;
t. amended or restated the Certificate of Incorporation or the By-laws (or
other organizational documents) of Sumter One or Sumter Two;
u. made any express or deemed election or settled or compromised any
liability, with respect to Taxes of Sumter One or Sumter Two, except in
instances where such election, settlement or compromise conferred a substantial
benefit on Sumter One or Sumter Two;
v. suffered any casualty loss or damage with respect to any of the Assets
or affecting the business, properties or prospects of Sumter One or Sumter Two
which in the aggregate have a replacement cost of more than $100,000, whether or
not such loss or damage shall have been covered by insurance;
w. suffered any Material Adverse Effect; or
x. agreed, whether in writing or otherwise, to take any of the actions
specified in this Section 3.10 or granted any options to purchase, rights of
first refusal, rights of first offer or any other similar
13
<PAGE>
rights or commitments with respect to any of the actions specified in
this Section 3.10, except as expressly contemplated by this Agreement.
(xi) Litigation. Except as set forth in Schedule 3.11 (which, with respect
to each Action disclosed therein, sets forth: the parties, nature of the
proceeding, date and method commenced, amount of damages or other relief sought
and, if applicable, paid or granted), there are no Actions by or against Sumter
One or Sumter Two or affecting the Target Business or any of the Assets, pending
before any Governmental Authority (or, to the best knowledge of Sumter One,
Sumter Two and the Stockholders after due inquiry, threatened to be brought by
or before any Governmental Authority). None of the matters disclosed in Schedule
3.11 has had or, if determined adversely, could reasonably be expected to have,
a Material Adverse Effect or could reasonably be expected to affect the
legality, validity or enforceability of this Agreement or any other Operative
Document or the consummation of the transactions contemplated hereby or thereby.
Except as set forth in Schedule 3.11, none of Sumter One, Sumter Two nor any of
the Assets nor the Stockholders is subject to any Governmental Order (nor, to
the best knowledge of Sumter One, Sumter Two and the Stockholders after due
inquiry, are there any such Governmental Orders threatened to be imposed by any
Governmental Authority) which has had or could reasonably be expected to have a
Material Adverse Effect, except such Governmental Orders that apply to the
telecommunications industry in the United States generally.
(xii) Certain Interests. 1. Except as disclosed in Schedule 3.12(a), no
officer or director of Sumter One or Sumter Two and no relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer or director:
(1) has any direct or indirect financial interest in any competitor,
supplier or customer of Sumter One or Sumter Two, provided, however, that the
ownership of securities representing no more than one percent of the outstanding
voting power of any competitor, supplier or customer, and which are listed on
any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial interest" so
long as the Person owning such securities has no other connection or
relationship with such competitor, supplier or customer;
(2) owns, directly or indirectly, in whole or in part, or has any other
interest in any tangible or intangible property which Sumter One or Sumter Two
uses or has used in the conduct of the Target Business or otherwise; or
(3) has outstanding any Indebtedness to Sumter One or Sumter Two.
2. Except as disclosed in Schedule 3.12(b), neither Sumter One nor Sumter
Two has any Liability or any other obligation of any nature whatsoever (other
than for the payment of salaries and other compensation in the ordinary course
of business consistent with past practice) to any officer, director or
stockholder of Sumter One or Sumter Two or to any relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer, director or stockholder.
(xiii) Compliance with Laws; Licenses. 1. Except as set forth in Schedule
3.13(a), Sumter One and Sumter Two have each conducted and continue to conduct
the Target Business in accordance with all Laws, Licenses and Governmental
Orders applicable to any of Sumter One, Sumter Two, the Assets and the Target
Business, and neither Sumter One nor Sumter Two is in violation of any such Law,
License or Governmental Order.
2. Schedule 3.13(b) sets forth a brief description of each Governmental
Order, other than Governmental Orders that apply to the telecommunications
industry in the United States generally, applicable to any of Sumter One, Sumter
Two, the Assets and the Target Business, and no such Governmental Order, other
14
<PAGE>
than Governmental Orders that apply to the telecommunications industry in the
United States generally, has had or could reasonably be expected to cause a
Material Adverse Effect.
3. Sumter One and Sumter Two hold all permits, licenses, certificates,
variances, exemptions, orders and approvals from Governmental 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. Schedule 3.13(c) sets forth all Licenses issued by the
FCC or any state public utility commission and all other Licenses held by Sumter
One and Sumter Two, together with any pending applications filed by Sumter One
or Sumter Two for other Licenses. Sumter One and Sumter Two have delivered to
Enterprise correct and complete copies of all Licenses (including the
applications related thereto) and all pending applications listed on Schedule
3.13(c). To the best knowledge of each of the Stockholders, Sumter One and
Sumter Two, no event has occurred with respect to any such License or
application which would permit the revocation, termination, suspension or denial
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
Stockholders, Sumter One and Sumter Two, no investigation or review is pending
or threatened by any Governmental Authority with regard to any alleged violation
by Sumter One or Sumter Two of any License or any alleged failure by Sumter One
or Sumter Two to have any License.
(xiv) Material Contracts. 1. Schedule 3.14(a) lists each of the following
contracts and agreements (including, without limitation, oral and informal
arrangements) of Sumter One or Sumter Two (such contracts and agreements being
"Material Contracts"):
(1) contracts and agreements relating to Indebtedness in excess of $50,000
of Sumter One or Sumter Two;
(2) contracts and agreements with any Governmental Authority to which
Sumter One or Sumter Two is a party that may not be cancelled by Sumter One or
Sumter Two upon notice of not more than 30 days and without liability, penalty
or premium;
(3) contracts and agreements that limit or purport to limit the ability of
Sumter One or Sumter Two to compete in any line of business or with any Person
or in any geographic area or during any period of time;
(4) contracts and agreements between or among Sumter One or Sumter Two and
any Stockholder or any Affiliate (other than Sumter One or Sumter Two) of any
Stockholder that may not be cancelled by Sumter One or Sumter Two upon notice of
not more than 30 days and without liability, penalty or premium;
(5) employment agreements that may not be cancelled by Sumter One or Sumter
Two upon notice of not more than 30 days and without liability, penalty or
premium;
(6) Target Plans and Target Group Plans;
(7) collective bargaining agreements;
(8) sales agency, manufacturer's representatives or distributorship
agreements that may not be cancelled by Sumter One or Sumter Two upon notice of
not more than 30 days and without liability, penalty or premium and that require
payment by Sumter One or Sumter Two of more than $50,000 individually in any
calendar year;
15
<PAGE>
(9) agreements, orders or commitments for the purchase by Sumter One or
Sumter Two of raw materials, supplies or finished products exceeding $500,000;
(10) agreements, orders or commitments for the sale by Sumter One or Sumter
Two of their products exceeding $500,000;
(11) leases requiring annual payments in excess of $500,000;
(12) licenses of patents, trademarks and other Intellectual Property that
may not be cancelled by Sumter One or Sumter Two upon notice of not more than 30
days and without liability, penalty or premium or that require payment by Sumter
One or Sumter Two of more than $50,000 individually in any calendar year;
(13) agreements or commitments for capital expenditures in excess of
$500,000 for any single project (it being warranted that the commitment does not
exceed $2,500,000 in the aggregate for all projects);
(14) brokerage or finder's agreements that may not be cancelled by Sumter
One or Sumter Two upon notice of not more than 30 days and without liability,
penalty or premium;
(15) surety bonds for any single project, foreign exchange contracts and
letters of credit, in each case in excess of $250,000;
(16) all other contracts and agreements whether or not made in the ordinary
course of business, which are material to Sumter One, Sumter Two or the conduct
of the Target Business that may not be cancelled by Sumter One or Sumter Two
upon notice of not more than 30 days and without liability, penalty or premium
or the absence of which would have a Material Adverse Effect or which involve
payments or receipts of more than $500,000.
For purposes of this Section 3.14, the term "lease" shall include any and
all leases, subleases, sale/leaseback agreements or similar arrangements.
2. Except as disclosed in Schedule 3.14(b), each Material Contract: (i) is
valid and binding on Sumter One or Sumter Two as a party thereto and, to the
best knowledge of Sumter One, Sumter Two and the Stockholders, is valid and
binding on the other parties thereto and is in full force and effect and (ii)
upon consummation of the transactions contemplated by this Agreement, except to
the extent that any consents set forth in Schedule 3.5 or 3.6 are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence with respect to Sumter One or Sumter Two as a party thereto and, to
the best knowledge of Sumter One, Sumter Two and the Stockholders, shall
continue in full force and effect without penalty or other adverse consequence
with respect to the other parties thereto. Neither Sumter One nor Sumter Two is
in breach of, or default under, any Material Contract.
3. Except as disclosed in Schedule 3.14(c), to the best knowledge of Sumter
One, Sumter Two and the Stockholders, no other party to any Material Contract is
in breach thereof or default thereunder.
4. Except as disclosed in Schedule 3.14(d), there is no contract, agreement
or other arrangement granting any Person any preferential right to purchase,
other than in the ordinary course of business consistent with past practice, any
of the properties or assets of Sumter One or Sumter Two.
16
<PAGE>
5. No claim of default by any party has been made or is now pending under
any Material Contract and, to the best knowledge of Sumter One, Sumter Two and
the Stockholders, no event has occurred and is continuing that with notice or
the passing of time or both would constitute a default thereunder or would
excuse performance by any party thereto. No Material Contract has resulted in or
in the future may (so far as Sumter One, Sumter Two and the Stockholders can now
reasonably foresee) result in a Material Adverse Effect.
(xv) Intellectual Property. Neither Sumter One nor Sumter Two owns or
licenses any Intellectual Property other than that disclosed in Schedule 3.15.
Sumter One and Sumter Two own or license all the Intellectual Property that is
necessary to the conduct of the Target Business. All names under which either
Sumter One or Sumter Two 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 either Sumter One or Sumter Two has infringed on any Intellectual
Property of any other person. No claim has been made, and no basis for any such
claim exists, that any person has infringed on any Intellectual Property of
Sumter One or Sumter Two.
(xvi) Assets. 1. Except as disclosed in Schedule 3.16, either Sumter One or
Sumter Two owns, leases or has the legal right to use all the properties and
assets used or intended to be used in the conduct of the Target Business or
otherwise owned, leased or used by Sumter One or Sumter Two and, with respect to
contract rights, 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
Sumter One or Sumter Two or in or relating to the conduct of the Target Business
(all such properties, assets and contract rights being the "Assets"). Either
Sumter One or Sumter Two has good and marketable title to, or, in the case of
leased or subleased Assets, valid and subsisting leasehold interests in, all the
Assets, free and clear of all Encumbrances, except for Permitted Encumbrances.
2. The Assets constitute all the properties, assets and rights forming a
part of, used, held or intended to be used in, and all such properties, assets
and rights as are necessary in the conduct of, the Target Business. At all times
since the Reference Balance Sheet Date, Sumter One and Sumter Two have caused
the Assets to be maintained in accordance with good business practice, and all
the Assets are in good operating condition and repair, reasonable wear and tear
excepted, and are suitable for the purposes for which they are used and
intended.
3. Following the consummation of the transactions contemplated by this
Agreement, either Surviving Corporation One or Surviving Corporation Two, as the
case may be, will continue to own, pursuant to good and marketable title, or
lease, under valid and subsisting leases, or otherwise retain its respective
interest in the Assets without incurring any penalty or other adverse
consequence, including, without limitation, any increase in rentals, royalties,
or licenses or other fees imposed as a result of, or arising from, the
consummation of the transactions contemplated by this Agreement. Immediately
following the Effective Time, either Surviving Corporation One or Surviving
Corporation Two, as the case may be, shall own and possess all documents, books,
records, agreements and financial data of any sort used by Sumter One or Sumter
Two in the conduct of the Target Business or otherwise.
(xvii) Customers. Listed in Schedule 3.17 are the names and addresses of
the ten most significant customers (by revenue) of Sumter One and Sumter Two for
the twelve-month period ended December 31, 1997 and the amount for which each
such customer was invoiced during such period. Except as disclosed in Schedule
3.17, none of the Stockholders, Sumter One and Sumter Two has received any
notice or has any reason to believe that any significant customer of Sumter One
or Sumter Two has ceased, or will cease, to use the products, equipment, goods
or services of Sumter One or Sumter Two (or after the Effective Time, Surviving
Corporation One or Surviving Corporation Two), or has substantially reduced, or
will substantially reduce, the use of such products, equipment, goods or
services at any time.
(xviii) Suppliers. Listed in Schedule 3.18 are the names and addresses of
all the suppliers from which Sumter One and Sumter Two ordered services, raw
materials, supplies, merchandise and other
17
<PAGE>
goods for Sumter One and Sumter Two with an aggregate purchase price of $500,000
or more during the twelve-month period ended December 31, 1997 and the amount
for which each such supplier invoiced Sumter One and Sumter Two during such
period. Except as disclosed in Schedule 3.18, none of the Stockholders, Sumter
One and Sumter Two has received any notice or has any reason to believe that any
such supplier will not sell services, raw materials, supplies, merchandise and
other goods to Sumter One or Sumter Two at any time (or at any time after the
Effective Time to Surviving Corporation One or Surviving Corporation Two), on
terms and conditions substantially similar to those used in its current sales to
Sumter One and Sumter Two, subject only to general and customary price
increases.
(xix) Employment Benefit Plans. (a) Schedule 3.19 contains a true and
complete list of all bonus, deferred compensation, pension, profit-sharing,
retirement, insurance, stock purchase, stock option, welfare, severance,
hospitalization, insurance or other employee benefit plan (as defined in Section
3(3) of ERISA), whether formal or informal, presently maintained by Sumter One
or Sumter Two or maintained by either of them since 1992, or under which either
Sumter One or Sumter Two has, or has had, since 1992, any obligation to
contribute (collectively, the "Target Plans").
(b) For each of the Target Plans, Sumter One and Sumter Two have delivered
or made available to Enterprise true and complete copies of (i) the plan
document, (ii) any related trust agreements, insurance contracts and other
funding agreements, (iii) the summary plan descriptions, (iv) the most recent
Internal Revenue Service determination letter, if any, (v) the most recently
filed annual report (Form 5500 Series) and accompanying schedules filed with the
Department of Labor or Internal Revenue Service, and (vi) the most recent
financial statements, if any.
(c) Each such Target Plan which is intended to be a "qualified plan" under
Section 401(a) of the Code, has received, within the last three years, a
favorable determination letter from the Internal Revenue Service. With respect
to any Target Plan which has received such a determination letter, nothing has
occurred since the date of such determination letter that would adversely affect
the qualification of the Target Plan under Section 401(a) of the Code.
(d) Sumter One and Sumter Two have performed and complied with all of their
respective obligations under or with respect to the Target Plans, and the Target
Plans have operated in accordance with their respective terms. All Target Plans
have operated in accordance with the applicable requirements of ERISA and the
Code and other applicable laws, rules and regulations, and all reports required
by any governmental agency with respect to an Target Plan have been timely
filed.
(e) All contributions (including all employer contributions and salary
reduction contributions) which are due have been paid to each Target Plan which
is an employee pension plan within the meaning of section 3(2) of ERISA and all
contributions for any period ending on or before the Effective Date which are
not yet due have been paid to each Target Plan or accrued in accordance with the
past custom and practice of Sumter One and Sumter Two, respectively. All
premiums or other payments for all periods ending on or before the Effective
Date have been paid with respect to each Target Plan which is a welfare benefit
plan within the meaning of section 3(1) of ERISA.
(f) Neither any of the Target Plans nor any employee benefit plan (as
defined in Section 3(3) of ERISA) maintained or contributed to by an ERISA
Affiliate (the Target Plans and the employee benefit plans of ERISA Affiliates
are collectively referred to as the "Target Group Plans") is covered by Title IV
of ERISA.
(g) No prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code) has occurred with respect to any of the Target Group
Plans.
18
<PAGE>
(h) Each Target Plan which constitutes a welfare benefit plan within the
meaning of Section 3(1) of ERISA has complied and continues to comply with the
health care continuation coverage requirements of section 4980B of the Code and
Part 6 of Subtitle B of Title I of ERISA. Other than the coverage referred to in
the immediately preceding sentence, there are no benefits to be provided to
current retirees under any of the Target Plans which constitutes a welfare
benefit plan.
(i) No action, suit or proceeding, hearing, or investigation with respect
to the administration or investment of the assets of any Target Group Plan is
pending or, to the best knowledge of Sumter One, Sumter Two or the Stockholders,
threatened. None of Sumter One, Sumter Two or the Stockholders has any knowledge
of any valid basis for any such action, suit, proceeding, hearing or
investigation.
(j) No amount paid or payable (or which may become payable) pursuant to any
Target Plan to or for the benefit of any officer, director or employee of Sumter
One or Sumter Two was or will constitute any excess parachute payment (within
the meaning of Section 280G of the Code) as a consequence, direct or indirect,
in whole or in part, of the consummation of the transaction contemplated under
this Agreement.
(k) Neither Sumter One nor Sumter Two has any commitment, whether formal or
informal and whether legally binding or not, to create or amend any Target Plan.
(xx) Labor Matters. None of the employees of Sumter One or Sumter Two 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 Sumter
One or Sumter Two to form or enter into a labor union or similar organization.
Except as disclosed in Schedule 3.20, the relationship of Sumter One and Sumter
Two 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 or, to the best knowledge of Sumter One, Sumter Two or the
Stockholders, threatened against or involving Sumter One or Sumter Two.
(xxi) Key Emplo 1. Schedule 3.21(a) lists the name, place of employment,
the current annual salary rates, bonuses, deferred or contingent compensation,
pension, accrued vacation, "golden parachute" and other like benefits paid or
payable (in cash or otherwise) in 1996, 1997 and 1998, the date of employment
and a description of position and job function of each current salaried
employee, officer, director, consultant or agent of Sumter One or Sumter Two
whose annual compensation exceeded in 1997 (or, in 1998, is expected to exceed)
$100,000.
2. Except as disclosed in Schedule 3.21(b), all directors, officers,
management employees, and technical and professional employees of Sumter One and
Sumter Two are under written obligation to Sumter One or Sumter Two to maintain
in confidence all confidential or proprietary information acquired by them in
the course of their employment and to assign to Sumter One or Sumter Two all
inventions made by them within the scope of their employment during such
employment and for a reasonable period thereafter.
3. Except as set forth on Schedule 3.21(c), no employee of Sumter One or
Sumter Two is entitled to any "golden parachute" payment. For purposes of the
Stockholders' indemnification of Enterprise pursuant to Section 9.1, Schedule
3.21(c) shall be deemed to have disclosed no liabilities for "golden parachute"
payments.
(xxii) Taxes. 1. (i) Except as set forth on Schedule 3.22, all returns and
reports in respect of Taxes required to be filed with respect to Sumter One or
Sumter Two (including any state Tax return that includes Sumter One or Sumter
Two on a separate, consolidated or combined basis) have been timely filed,
taking into account any extensions of time to file granted to or obtained on
behalf of Sumter One or Sumter
19
<PAGE>
Two, and no extensions of time within which to file any such returns and reports
has been requested, which return or report has not since been filed; (ii) except
for the Florida sales tax described in item 4 of Schedule 3.7, all Taxes
required to be shown on such returns and reports or otherwise due have been
timely paid; (iii) all such returns and reports (insofar as they relate to the
activities or income of Sumter One or Sumter Two) are true, correct and complete
in all respects; (iv) no consent under Section 341(f) of the Code has been filed
with respect to Sumter One or Sumter Two; (v) there are no Tax liens on any
assets of Sumter One or Sumter Two; (vi) neither the Stockholders, Sumter One
nor Sumter Two or any Affiliate of any Stockholder is a party to any agreement
or arrangement that would result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 28OG of the
Code; and (vii) no acceleration of the vesting schedule for any property that is
substantially unvested within the meaning of the regulations under Section 83 of
the Code will occur in connection with the transactions contemplated by this
Agreement.
2. Except as disclosed with reasonable specificity in Schedule 3.22: (i)
there are no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which Sumter One or Sumter
Two may be subject; (ii) neither Sumter One nor Sumter Two has ever engaged in
any foreign activity; (iii) neither Sumter One nor Sumter Two has any income
reportable for a period ending after the Effective Date but attributable to a
transaction (e.g., an installment sale) occurring in or a change in accounting
method made for a period ending on or prior to the Effective Date which resulted
in a deferred reporting of income from such transaction or from such change in
accounting method (other than a deferred intercompany transaction); and (iv) no
power of attorney that is currently in force has been granted with respect to
any matter relating to Taxes that could affect Sumter One or Sumter Two.
3. (i) Schedule 3.22 lists all federal, state and local income, franchise
and similar tax returns filed with respect to Sumter One and Sumter Two during
1997 and will on the Effective Date list all federal, state and local income,
franchise and similar tax returns filed with respect to each of Sumter One and
Sumter Two for each taxable period since the date of incorporation of Sumter One
and Sumter Two, indicates for which jurisdictions returns have been filed on the
basis of a unitary group, indicates the most recent income, franchise or similar
tax return for each relevant jurisdiction for which an audit has been completed
or the statute of limitations has lapsed and indicates all tax returns that
currently are the subject of audit; (ii) Sumter One and Sumter Two have
delivered or made available to Enterprise correct and complete copies of all
federal, state and local income, franchise and similar tax returns, examination
reports, and statements of deficiencies assessed against or agreed to by Sumter
One or Sumter Two since the date of incorporation of Sumter One and Sumter Two;
and (iii) Sumter One and Sumter Two have delivered to Enterprise a true and
complete copy of any tax- sharing or allocation agreement or arrangement
involving Sumter One or Sumter Two and a true and complete description of any
such unwritten or informal agreement or arrangement.
4. On the Reference Balance Sheet, reserves and allowances have been
provided in accordance with U.S. GAAP and in amounts adequate to satisfy all
Liabilities for Taxes relating to Sumter One and Sumter Two for periods through
the March 31, 1997.
(xxiii) Insurance. 1. All material assets, properties and risks of Sumter
One and Sumter Two are, and for the past five years have been, covered by valid
and currently effective insurance (including, without limitation, property
insurance) policies issued in favor of Sumter One or Sumter Two, as the case may
be, in each case in the ordinary course, and all insurance policies or binders
of limitation, including those with respect to general liability and workers'
compensation, issued for the benefit of Sumter One or Sumter Two, are provided
by responsible insurance companies, and, to the best knowledge of Sumter One,
Sumter Two and the Stockholders, are in such types and amounts and covering such
risks as are consistent with customary practices and standards of companies
engaged in businesses and operations similar to those of Sumter One or Sumter
Two, as the case may be, and are adequate to protect Sumter One, Sumter Two,
their assets and properties. Schedule 3.23 sets forth a list of all such
insurance policies and copies of all such insurance policies have been delivered
to Enterprise and the Subs.
20
<PAGE>
2. No insurance policy listed in Schedule 3.23 will cease to be legal,
valid, binding, enforceable in accordance with its terms and in full force and
effect on terms identical to those in effect as of the date hereof as a result
of the consummation of the transactions contemplated by this Agreement.
(xxiv) Accounts; Lockboxes; Safe Deposit Boxes. Schedule 3.24 is a true and
complete list of (a) the names of each bank, savings and loan association,
securities or commodities broker or other financial institution in which Sumter
One or Sumter Two have an account, including cash contribution accounts, and the
names of all persons authorized to draw thereon or have access thereto and (b)
the location of all lockboxes and safe deposit boxes of Sumter One and Sumter
Two and the names of all Persons authorized to draw thereon or have access
thereto. At the Effective Time, without the prior written consent of Enterprise
and the Subs, neither Sumter One nor Sumter Two shall have any such account,
lockbox or safe deposit box other than those listed in Schedule 3.24, nor shall
any additional Person have been authorized, from the date of this Agreement, to
draw thereon or have access thereto. The Stockholders and their affiliates have
not commingled monies or accounts of Sumter One or Sumter Two with other monies
or accounts of the Stockholders and their affiliates or relating to their other
businesses nor have the Stockholders and their affiliates transferred monies or
accounts of Sumter One or Sumter Two other than to an account of Sumter One or
Sumter Two. At the Effective Time, all monies and accounts of Sumter One and
Sumter Two shall be held by, and be accessible only to, Sumter One or Sumter
Two.
(xxv) Full Disclosure. The certificates, statements, and other information
furnished to Enterprise or the Subs in writing by or on behalf of Sumter One and
Sumter Two in connection with the transactions contemplated herein, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Sumter One, Sumter Two
and the Stockholders know of no fact or condition, other than such facts and
conditions which apply to the telecommunications industry in the United States
generally, which materially adversely affects or in the future may (so far as
Sumter One, Sumter Two and the Stockholders can now reasonably foresee)
materially adversely affect the condition (financial or otherwise), properties,
assets, liabilities, business, operations or prospects of Sumter One or Sumter
Two which has not been set forth herein or disclosed in writing to Enterprise
and the Subs with reference to this Agreement.
(xxvi) Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of the Stockholders, Sumter One and Sumter Two in
such manner as to give rise to any valid claim against the Stockholders, Sumter
One, Sumter Two, Enterprise or any Subsidiary of Enterprise for any broker's or
finder's fee or similar compensation.
(xxvii) Investment Purposes, etc. (a) The Stockholders (i) understand that
the shares of Enterprise Common Stock to be issued to the Stockholders pursuant
to this Agreement have not been registered for sale under any federal or state
securities laws and that such shares of Enterprise Common Stock are being
offered and sold to the Stockholders 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 the Stockholders are acquiring such shares of
Enterprise 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 3.27 are given with the
intention that Enterprise 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 Enterprise Common Stock for an indefinite period of time as such
shares of Enterprise Common Stock cannot be sold unless subsequently registered
under such laws or unless an exemption from registration is available.
(b) The Stockholders agree that the shares of Enterprise Common Stock
issued to the Stockholders 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
21
<PAGE>
to Enterprise an opinion of counsel reasonably satisfactory to Enterprise that
such registration is not required, and consent that any transfer agent of
Enterprise may be instructed not to transfer any such shares of Enterprise
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 Enterprise Common Stock an appropriate legend calling
attention to the foregoing restrictions on transferability of such shares of
Enterprise Common Stock.
(c) The Stockholders (i) are aware of Enterprise's business and affairs and
financial condition and have acquired sufficient information about Enterprise to
reach an informed and knowledgeable decision to acquire the shares of Enterprise
Common Stock issued to the Stockholders pursuant to this Agreement, (ii) have
reviewed Enterprise's latest annual report on form 10-K and all filings
subsequent thereto made by Enterprise with the Securities and Exchange
Commission (the "SEC") pursuant to the federal securities laws, (iii) have
discussed Enterprise and its plans, operations and financial condition with
Enterprise'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 Enterprise Common Stock, (v)
have received satisfactory and complete information concerning the business and
financial condition of Enterprise 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 Enterprise 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 Enterprise Common
Stock.
(xxviii) Tax Reporting. Consistent with the intent of the parties hereto,
the Stockholders shall treat, and cause their Affiliates to so treat, each of
the Mergers as a reorganization under Section 368(a)(1)(A) by reason of Section
368(a)(2)(D) of the Code with respect to all relevant tax returns or similar
filings, to the extent consistent with law.
ARTICLE (8)
REPRESENTATIONS AND WARRANTIES OF ENTERPRISE AND THE SUBS
Enterprise, Sub One and Sub Two jointly and severally represent to Target
and the Stockholders as follows:
(i) Organization and Authorization, etc. Each of Enterprise, Sub One and
Sub Two is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, has the corporate power and
authority to own, lease and operate all of its properties and assets and to
carry on its business, and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its business or the ownership of its properties or both makes such qualif
ication necessary. Each of Enterprise, Sub One and Sub Two has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of the Agreement and the other Operative Documents,
the performance by Enterprise, Sub One and Sub Two of their respective
obligations thereunder and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by the Board of
Directors of each Enterprise, Sub One and Sub Two and no other corporate
proceedings on the part of Enterprise, Sub One or Sub Two are necessary to
authorize this Agreement and the other Operative Documents and the transactions
contemplated hereby and thereby. This Agreement has been, and upon their
execution the other Operative Documents shall have been, duly and validly
executed and delivered by each Enterprise Party which is a party thereto and,
assuming this Agreement and the other Operative Documents constitute the legal,
valid and binding agreements of the other parties hereto and thereto, this
Agreement constitutes, and upon their execution the other Operative Documents
shall constitute, the legal,
22
<PAGE>
valid and binding agreements of each Enterprise Party which is a party thereto,
enforceable against each of them in accordance with their terms.
(ii) Non-Contravention. The execution, delivery and performance of this
Agreement and the other Operative Documents by Enterprise and the Subs and the
consummation of the transactions contemplated hereby and thereby do not and will
not (a) violate any provision of the Certificate of Incorporation or By-Laws of
Enterprise, the Subs or any of their respective Subsidiaries, (b) violate,
conflict with or result in the breach of any provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any obligation under, any
mortgage, lien, lease, agreement, license, instrument, order, arbitration award,
judgment or decree to which Enterprise, the Subs or any of their respective
Subsidiaries is a party or by which any of them is bound, (c) result in the
creation or imposition of any Encumbrance upon any property of Enterprise, the
Subs or any of their respective Subsidiaries or (d) violate or conflict with any
Law or Governmental Order to which Enterprise, the Subs or any of their
respective Subsidiaries, or the property of Enterprise, the Subs or any of their
respective Subsidiaries, is subject.
(iii) Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
in connection with the execution, delivery and performance of this Agreement and
the other Operative Documents by Enterprise, Sub One and Sub Two or the
consummation by Enterprise, Sub One and Sub Two of the transactions contemplated
hereby and thereby, except for (a) the filing of a Notification and Report Form
by Enterprise under the HSR Act, (b) any necessary filings with and approvals of
the FCC and state public utility commissions or other Governmental Authorities
where the operations of Sumter One and Sumter Two are subject to their
jurisdiction and (c) the filing of Certificates of Merger with the Secretary of
State of the State of Delaware and the Department of State of the State of
Florida.
(iv) Shares of Enterprise Common Stock. At the Effective Time, the shares
of Enterprise Common Stock to be issued to the Stockholders hereby will be duly
authorized, validly issued, fully paid and non-assessable.
(v) SEC Reports.
1. Enterprise has timely filed all forms, reports and documents required to
be filed by it with the SEC (collectively, 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 Effective Time (i) at the time filed, complied 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 or omit to state any 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.
2. Each of the financial statements of Enterprise (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 Effective Time, complied
as to form with the applicable published rules and regulations of the SEC with
respect thereto, was prepared in accordance with U.S. GAAP, 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 the
consolidated financial position of Enterprise 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 normal and recurring year-end adjustments which were not
or are not expected to be material in amount or effect.
23
<PAGE>
(vi) No Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Enterprise in such manner as to give rise to
any valid claim against Enterprise, any of its Subsidiaries, Sumter One or
Sumter Two for any broker's or finder's fee or similar compensation other than
Bear, Stearns & Co. Inc., whose fees shall be paid by Enterprise.
(vii) Capitalization. The authorized capital stock of Enterprise consist of
50,000,000 shares of Enterprise Common Stock and 2,000,000 shares of preferred
stock, par value $1.00 per share. As of December 31, 1997, 17,442,586 shares of
Enterprise Common Stock and 483,417.364 shares of preferred stock were duly
authorized, validly issued, fully paid and non-assessable. Except for options
and warrants to purchase an aggregate of 3,982,419 shares of Enterprise Common
Stock, preferred stock convertible into 7,741,872 shares of Enterprise Common
Stock and rights which trade with the shares of Enterprise Common Stock, and
except that certain of the outstanding shares of preferred stock of Enterprise
may pay dividend in Enterprise Common Stock, at December 31, 1997, Enterprise
did not have outstanding any stock or securities convertible or exchangeable for
any shares of Enterprise Common Stock or any stock or securities convertible
into or exchangeable for any other capital stock of Enterprise and, except for
an obligation to redeem Enterprise's outstanding 13 1/2% Redeemable Exchangeable
Preferred Stock due 2009, was not subject to any obligation (contingent or
otherwise) to purchase or otherwise acquire or retire any shares of its capital
stock.
(viii) Full Disclosure. The SEC Reports and the certificates, statements
and other information furnished to Sumter One, Sumter Two or the Stockholders in
writing by or on behalf of Enterprise or the Subs in connection with the
transactions contemplated herein, taken as a whole, do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Neither Enterprise nor either of the Subs know of any fact
or condition, other than such facts or conditions that apply to the
telecommunications industry in the United States generally, which materially
adversely affects or in the future may (so far as Enterprise or the Subs can now
reasonably foresee) materially adversely affect the condition (financial or
otherwise), properties, assets, liabilities, business, operations or prospects
of Enterprise which has not been set forth herein or disclosed in writing to
Sumter One, Sumter Two and the Stockholders with reference to this Agreement or
in the SEC Reports filed by Enterprise.
(ix) Tax Reporting. Consistent with the intent of the parties hereto,
Enterprise and each of Surviving Corporation One and Surviving Corporation Two
(and any consolidated, combined or unitary group of corporations of which any of
Enterprise, Surviving Corporation One and Surviving Corporation Two is a member)
shall treat, and cause their Affiliates to so treat, each of the Mergers as a
reorganization under Section 368(a)(1)(A) by reason of Section 368(a)(2)(D) of
the Code with respect to all relevant tax returns or similar filings, to the
extent consistent with law.
(x) Continuity of Business Enterprise. Enterprise intends on the date
hereof and as of the Effective Date, to cause each of Surviving Corporation One
and Surviving Corporation Two either to continue the historic business of Sumter
One or Sumter Two, respectively, or to use a significant portion of the business
assets of Sumter One and Sumter Two, respectively, within the meaning of
Treasury Regulation Section 1.368- 1(d).
ARTICLE (9)
COVENANTS OF TARGET AND THE STOCKHOLDERS
(i) Conduct of Business. From the date hereof to the Effective Time, except
with the prior written consent of Enterprise, which consent shall not be
unreasonably withheld, delayed or conditioned, each of
24
<PAGE>
Sumter One and Sumter Two will, and each of the Stockholders shall use his best
efforts to cause each of Sumter One and Sumter Two to:
1. carry on its business in, and only in, the usual, regular and ordinary
course in substantially the same manner as heretofore and, to the extent
consistent with such business, use all commercially reasonable efforts to
preserve intact its present business organization, keep available the services
of its present officers and employees, and preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and going concern value shall be unimpaired at the Effective Time;
2. maintain all of its material structures, equipment and other tangible
personal property in good repair, order and condition, except for depletion,
depreciation, ordinary wear and tear and damage by unavoidable casualty;
3. keep in full force and effect insurance comparable in amount and scope
of coverage to in surance now carried by it;
4. perform in all material respects all of its obligations under
agreements, contracts and instruments relating to or affecting its properties,
assets and business;
5. maintain its books of account and records in the usual, regular and
ordinary manner;
6. comply in all material respects with all statutes, laws, ordinances,
rules and regulations applicable to it and to the conduct of its business;
7. not amend its Certificate of Incorporation or By-Laws;
8. not enter into, assume or amend in any material respect any agreement,
contract or commitment of the character referred to in clauses (i) through (iv)
of Section 3.14(a) or, except in the ordinary course of business consistent with
past practice, clauses (v) through (xvi) of such Section;
9. not enter into any additional contracts or agreements for network
capacity or local transport services which are not terminable by Sumter One or
Sumter Two, as applicable, without penalty or other adverse consequence, on not
more than 60 days notice;
10. not enter into any additional customer contracts or agreements
containing rates with a greater than 10% discount to the customary rates charged
by Sumter One or Sumter Two, as applicable;
11. not merge or consolidate with, or agree to merge or consolidate with,
or purchase substantially all the assets of, or otherwise acquire any business
or any corporation, partnership, association or other business organization or
division thereof;
12. not take, or permit to be taken, any action which is represented and
warranted in Section 3.10 not to have been taken since the Reference Balance
Sheet Date;
13. promptly advise Enterprise in writing of any Material Adverse Effect
with respect to Sumter One or Sumter Two;
14. not effect any stock split or other reclassification;
25
<PAGE>
15. not authorize the creation or issuance of or issue, sell or dispose of,
or create any obliga tion to issue, sell or dispose of, any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for, any shares of its capital stock;
16. not issue any press releases without first consulting with Enterprise
regarding any such press release;
17. not create, incur, assume, guarantee or otherwise become directly or
indirectly liable with respect to any indebtedness for borrowed money other than
in the ordinary course of business consistent with past practice under
agreements existing on the date hereof and identified in writing to Enterprise;
and
18. not enter into any agreement or understanding to do or engage in any of
the foregoing.
(ii) No Solicitation. From the date hereof to the earlier of termination of
this Agreement pursuant to the provisions of Section 8.1 or the Effective Time,
neither Sumter One nor Sumter Two shall directly or indirectly, through any
Stockholder, officer, director, agent, Affiliate of any thereof or otherwise, a.
solicit, initiate or encourage the submission of any proposal or offer from any
person relating to any acquisition or purchase of all or (other than in the
ordinary course of business) any portion of the assets of, or any equity
interest in, Sumter One or Sumter Two or any business combination with any of
Sumter One or Sumter Two (a "Target takeover proposal") 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
any of the foregoing. Each Stockholder, Sumter One and Sumter Two immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
Target shall notify Enterprise promptly of any Target takeover proposal or any
inquiry or contact with any person with respect thereto, that is made and shall,
in any such notice to Enterprise, indicate in reasonable detail the identity of
the person making such Target takeover proposal or related inquiry or contact
and the terms and conditions of such Target takeover proposal or related inquiry
or contact. Neither Sumter One nor Sumter Two shall release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which either of Sumter One or Sumter Two is a party.
(iii) Accountants' Cooperation. Both before and after the Effective Time,
the Stockholders, Sumter One and Sumter Two shall provide, or cause to be
provided, to Enterprise access to all audited financial statements and work
papers of the internal and external accountants of Sumter One and Sumter Two and
shall procure from such external accountants all consents necessary for such
access and otherwise necessary for Enterprise to comply with any reporting
requirements that Enterprise, in its sole discretion, reasonably exercised,
determines that it may have under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or under the terms of any indenture or other
instrument of Enterprise or any of its affiliates and all consents necessary to
permit Enterprise to use such audited financial statements in any filings under
the Securities Act that Enterprise may desire to make.
(iv) Completion of Schedule 3.22. On or prior to 30 days after the date
hereof, the Stockholders shall have delivered to Enterprise a completed Schedule
3.22 which lists all income, franchise and similar tax returns (federal, state
and local) filed with respect to each of Sumter One and Sumter Two for each
taxable period since the date of incorporation of Sumter One and Sumter Two,
indicates for which jurisdictions returns have been filed on the basis of a
unitary group, indicates the most recent income, franchise or similar tax return
for each relevant jurisdiction for which an audit has been completed or the
statute of limitations has lapsed and indicates all tax returns that currently
are the subject of audit.
26
<PAGE>
(v) Waiver of Transfer Restrictions. Sumter One, Sumter Two and each
Stockholder hereby consents to the transfer of any of the shares of Sumter One
Common Stock and Sumter Two Common Stock by the other Stockholders pursuant to
this Agreement and, in connection with the transactions contemplated hereby,
waives any rights under any transfer restrictions relating to the shares of
Sumter One Common Stock and Sumter Two Common Stock.
ARTICLE (10)
ADDITIONAL AGREEMENTS
(i) Compliance with Conditions Precedent, etc. Each of the parties will use
its best efforts to cause the conditions precedent to the Mergers set forth in
Article VII hereof to be fulfilled and, subject to the terms and conditions
herein provided, to take, or cause to be taken, all action, and to do or cause
to be done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Mergers, including without limitation to lift any
injunction or remove any other impediment to the consummation of such
transactions or the Mergers. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and/or directors of Sumter One, Sumter Two,
Enterprise, Sub One or Sub Two, as the case may be, shall take all such
necessary action.
(ii) Certain Notifications. At all times from the date hereof until the
Effective Time, each party shall promptly notify the others in writing of the
occurrence of any event which will or may result in the failure to satisfy the
conditions specified in Article VII.
(iii) Adoption by the Subs and Target. 1. Enterprise, as the sole
stockholder of the Subs, by executing this Agreement, consents to the adoption
of this Agreement by the Subs and agrees that such consent shall be treated for
all purposes as a vote duly adopted at a meeting of the stockholders of each Sub
held for this purpose.
2. The Stockholders, as the sole stockholders of Sumter One and Sumter Two,
by executing this Agreement, consent to the adoption of this Agreement by Sumter
One and Sumter Two, respectively, and agree that such consent shall be treated
for all purposes as a vote duly adopted at a meeting of the stockholders of each
of Sumter One and Sumter Two, respectively, held for this purpose.
(iv) Expenses. Whether or not the Mergers are consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense.
(v) Public Announcements. Enterprise and Target shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any transaction contemplated herein and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with the
Nasdaq Market.
(vi) Transition Arrangements. Each of James M. Mansour, John A. Mansour and
Mark A. Mansour (the "Principal Stockholders") shall enter into an agreement
with Enterprise in the form attached hereto as Exhibit C (the "Transition
Agreement") to provide transition related services during the 12 month period
commencing on the Effective Date (the "Transition Period").
(vii) Non-Competition. 1. Each of the Principal Stockholders shall be bound
by the terms of Section 7.1 of his respective Transition Agreement which terms
are incorporated by reference herein.
27
<PAGE>
2. Each of the Principal Stockholders acknowledges that the covenants of
the Principal Stockholders set forth in this Section 6.7 are an essential
element of this Agreement and that, but for the agreement of the Principal
Stockholders to comply with these covenants, Enterprise would not have entered
into this Agreement. The Stockholders, Sumter One and Sumter Two acknowledge
that this Section 6.7 constitutes an independent covenant and shall not be
affected by performance or nonperformance of any other provision of this
Agreement by Enterprise. Each of the Principal Stockholders has independently
consulted with his counsel and after such consultation agrees that the covenants
set forth in this Section 6.7 are reasonable and proper.
(viii) Sumter One Employees Trust. It is contemplated that, prior to the
Effective Time, Sumter One will issue one or more shares of Sumter One Common
Stock to an irrevocable trust (the "Sumter One Employees Trust") created for the
benefit of those persons who shall be employees of Sumter One on the Effective
Date. The terms and conditions of the instrument or instruments under which the
Sumter One Employees Trust may be created and the terms and conditions of any
related bonus plan shall be reasonably satisfactory to Enterprise, and neither
the creation of the Sumter One Employees Trust nor the issuance of shares of
Sumter One Common Stock thereto shall result in any Material Adverse Effect on
Enterprise, or any charge to the consolidated earnings of Enterprise or any
liability to Enterprise or the Surviving Corporations. It is anticipated that
the Principal Stockholders shall serve as the initial trustees of the Sumter One
Employees Trust. In the event that one or more shares of Sumter One Common Stock
are issued to the Sumter One Employees Trust in accordance with this Section
prior to the Effective Time, the parties hereto and the Sumter One Employees
Trust shall enter into an amendment to this Agreement, which amendment shall
specify the name of the Sumter One Employees Trust, the number of shares of
Sumter One Common Stock that shall have been issued thereto, the total number of
shares of Sumter One Common Stock that shall be issued and outstanding as of the
Effective Date, and such other terms and conditions as to which the parties
hereto and the Sumter One Employees Trust shall mutually agree.
(ix) Access and Information; Confidentiality. From the date hereof to the
Effective Time, each of Sumter One and Sumter Two shall give to Enterprise and
the Subs and their representatives reasonable access during normal business
hours to the personnel, properties, books, records, contracts and commitments of
Sumter One and Sumter Two and will furnish all such information and documents
relating to the properties and business of Sumter One and Sumter Two as
Enterprise may reasonably request. Prior to the Effective Date (or at any time
if this Agreement is terminated in accordance with the provisions of Section
8.1), Enterprise and the Subs shall keep confidential and not disclose to any
Person (other than employees, attorneys, accountants and advisors who, in the
reasonable opinion of Enterprise, need to know such information) or use (except
in connection with the transactions contemplated hereby) all non-public
information obtained by Enterprise or the Subs pursuant to this Agreement or in
contemplation of the consummation of the transactions contemplated hereby. In
the event this Agreement is terminated and the Mergers abandoned, Enterprise and
the Subs will use their reasonable best efforts to return to Sumter One or
Sumter Two all documents, work papers and other written material obtained by
Enterprise and the Subs from Sumter One or Sumter Two. None of Enterprise, Sub
One or Sub Two shall be deemed to have violated this Section 6.9 by disclosure
of information that (i) is in its possession prior to the time that such
information is disclosed to it by Sumter One or Sumter Two, (ii) is or becomes
public information through no act of Enterprise, Sub One or Sub Two, (iii) is
disclosed to Enterprise, Sub One or Sub Two by a third party that is not, to the
knowledge of Enterprise Sub One or Sub Two, otherwise subject to an obligation
of secrecy to Sumter One or Sumter Two, or (iv) is disclosed as required by
court order or as otherwise required by law, on condition that notice of the
requirement of such disclosure is given to Sumter One and Sumter Two prior to
making any such disclosure and Enterprise, Sub One and Sub Two cooperate as
Sumter One or Sumter Two may reasonably request in resisting such disclosure.
(x) Conduct of the Target Business After the Effective Date. Until the
completion of the 90- day period that shall commence on the Effective Date,
Enterprise shall not, without the prior written consent of the Stock(i) make
anych consent shall not be unreasonably delayed, conditioned or withheld:
material changes in the business practices followed by Sumter One and Sumter Two
as of the Effective Date with respect to the collection of Receivables or the
recording of collections thereof, except as may be requested by the independent
auditors of Enterprise to enable the collection of such Receivables to be
recorded in
28
<PAGE>
compliance with U.S. GAAP; or (ii) forgive, write-off or discount all or any
portion of the Effective Date Receivables.
(xi) Projections; Future Performance. Enterprise is an established provider
of telecommunications services in the United States. Enterprise has elected to
purchase Target on the basis of Target's historical financial performance,
rather than on any projections prepared by Target or the Stockholders as to
future performance, including, without limitation, any projections relative to
future revenues, sales or profitability. Except as set forth in Section 3.9 with
respect to the collection of Receivables (as to which in addition to any
indemnification available pursuant to Section 9 hereof Enterprise has reserved
and may apply the Escrow Amount in the event of any breach of such provision),
neither Target nor any of the Stockholders makes any representation or warranty
with respect to the future performance of the Target Business or with respect to
the future condition (financial or otherwise), operations or prospects of
Surviving Corporation One, Surviving Corporation Two or the Target Business.
Notwithstanding the foregoing, the Stockholders acknowledge that inaccuracies in
the representations and warranties or breaches of the covenants contained in
this Agreement may affect the future performance of Surviving Corporation One,
Surviving Corporation Two or the Target Business and, as a result, the
Stockholders may have indemnification obligations pursuant to Section 9 hereof.
ARTICLE (11)
CONDITIONS
(i) Conditions to the Mergers. The obligations of each party to effect the
Mergers shall be subject to the satisfaction, at or prior to the Effective Time,
of each of the following conditions:
1. 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; and
2. no preliminary or permanent injunction or other order of a court or
Governmental Authority shall have been issued and be in effect, and no United
States federal or state statute, rule or regulation shall have been enacted or
promulgated after the date hereof and be in effect, that prohibits the
consummation of the Mergers.
(ii) Additional Conditions to Obligations of the Stockholders and Target.
The obligation of the Stockholders and Target to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver, at
or prior to the Effective Time, of each of the following conditions:
1. Representations and Warranties; Covenants. The representations and
warranties of Enterprise and the Subs contained in this Agreement shall be true
and correct as of the Effective Time, with the same force and effect as if made
as of the Effective Time, other than such representations and warranties as are
made as of another date, which shall be true and correct as of such other date,
except where the failure of such representations and warranties to be so true
and correct does not have, and is not likely to have, individually or in the
aggregate, a Material Adverse Effect on Enterprise, and all the covenants
contained in this Agreement to be complied with by Enterprise and the Subs on or
before the Effective Time shall have been complied with in all material
respects, and the Stockholders and Target shall have received a certificate of
each of Enterprise, Sub One and Sub Two to such effect signed by a duly
authorized officer of each of Enterprise, Sub One and Sub Two, respectively.
2. Other Governmental and Regulatory Consents.
29
<PAGE>
All permits, approvals and consents of any Governmental Authority or any other
third party necessary or appropriate for consummation of the Mergers, other than
consents the failure to obtain which, in the reasonable opinion of Target, would
not have, individually or in the aggregate, a Material Adverse Effect on
Enterprise or a material adverse effect on the consummation of the transactions
contemplated hereby.
3. Resolutions; Incumbency. Target and the Stockholders shall have received
certificates of the Secretary or Assistant Secretary of Enterprise, Sub One and
Sub Two certifying (i) a true and complete copy of the resolutions duly and
validly adopted by the Board of Directors of Enterprise, Sub One and Sub Two, as
applicable, 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 Enterprise, Sub One and Sub Two, as
applicable, authorized to sign this Agreement and the other documents to be
delivered hereunder.
4. Opinion of Counsel to Enterprise. Enterprise shall have caused to be
delivered to Target and the Stockholders an opinion of counsel substantially in
the form attached hereto as Exhibit D.
5. Escrow Agreement. Enterprise shall have delivered to Target and the
Stockholders an executed counterpart of the Escrow Agreement.
6. Transition Agreement. Enterprise shall have delivered to each of the
Principal Stockholders an executed counterpart of their respective Transition
Agreements.
7. Registration Rights Agreement. Enterprise shall have delivered to Target
and the Stockholders an executed counterpart of the Registration Rights
Agreement.
8. 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 on Enterprise.
9. Price of Enterprise Common Stock. The Enterprise Common Stock Effective
Date Price shall be not less than the Enterprise Common Stock Floor Price;
provided, however, if the Enterprise Common Stock Effective Date Price is equal
to or greater than the Enterprise Common Stock Minimum Price, Enterprise shall
have the right to deem this condition satisfied (the "Make Whole Right") and to
deliver shares of Enterprise Common Stock in accordance with the provisions of
Section 1.6(a), and if Enterprise so elects this condition shall be deemed
satisfied.
10. Market for Enterprise Common Stock. The shares of Enterprise Common
Stock shall be listed or admitted to trading on a national securities exchange,
the NASDAQ market or any comparable market system and no event shall have
occurred that would reasonably be expected to result in a suspension of trading
privileges with respect thereto or a delisting thereof.
(iii) Additional Conditions to Obligations of Enterprise and the Subs. The
obligation of Enterprise and the Subs to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver, at
or prior to the Effective Time, of each of the following conditions:
1. Representations and Warranties; Covenants. The representations and
warranties of each Stockholder, Sumter One and Sumter Two contained in this
Agreement shall be true and correct as of the Effective Time, with the same
force and effect as if made as of the Effective Time, other than such
representations and warranties as are made as of another date, which shall be
true and correct as of such other date, except where the failure of such
representations and warranties to be so true and correct does not have, and is
not likely to have, individually or in the aggregate, a Material Adverse Effect
on Sumter One or Sumter
30
<PAGE>
Two, and all the covenants contained in this Agreement to be complied with by
each Stockholder, Sumter One and Sumter Two on or before the Effective Time
shall have been complied with in all material respects, and Enterprise and the
Subs shall have received a certificate of the each of the Stockholders, Sumter
One and Sumter Two to such effect.
2. Other Governmental and Regulatory Consents. All permits, approvals and
consents of any Governmental Authority or any other third party necessary or
appropriate for consummation of the Mergers, other than consents the failure to
obtain which, in the reasonable opinion of Enterprise, would not have,
individually or in the aggregate, a Material Adverse Effect on Target or a
material adverse effect on the consummation of the transactions contemplated
hereby or the operation of the Target Business after the Effective Date.
3. Resolutions; Incumbency of Target. Enterprise and Sub One and Sub Two
shall have received certificates of the Secretary or Assistant Secretary of
Sumter One and Sumter Two certifying (i) a true and complete copy of the
resolutions duly and validly adopted by the Board of Directors and the
stockholders of Sumter One and Sumter Two, as applicable, 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 Sumter One and Sumter Two authorized to sign this
Agreement and the other documents to be delivered hereunder.
4. Opinion of Counsel to Target. The Stockholders and Target shall have
caused to be delivered to Enterprise and the Subs an opinion of counsel
substantially in the form attached hereto as Exhibit E.
5. Escrow Agreement. Each Stockholder shall have delivered to Enterprise
and the Subs an executed counterpart of the Escrow Agreement.
6. Transition Agreement. Each of the Principal Stockholders shall have
delivered to Enterprise an executed counterpart of their respective Transition
Agreement.
7. Registration Rights Agreement. Each Stockholder shall have delivered to
Enterprise an executed counterpart of the Registration Rights Agreement.
8. Dissenters' Rights. Not more than one percent of the issued and
outstanding capital stock of each of Sumter One and Sumter Two shall be
Dissenting Shares.
9. Spousal Consents. Each married Stockholder shall have delivered to
Enterprise an executed spousal consent, which spousal consent shall be in form
and substance reasonably acceptable to Enterprise.
10. 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 on Sumter One or Sumter
Two.
11. Injunctions. No preliminary or permanent injunction or other order of a
court or Governmental Authority shall have been issued and be in effect, and no
United States federal or state statute, rule or regulation shall have been
enacted or promulgated after the date hereof and be in effect, that imposes
material limitations on the ability of Enterprise to exercise full rights of
ownership of the assets or business of Sumter One or Sumter Two.
31
<PAGE>
12. Proceedings. There shall not be any action or proceeding commenced by
or before any Governmental Authority in the United States, or threatened by any
Governmental Authority in the United States, that challenges the consummation of
the Mergers or seeks to impose material limitations on the ability of Enterprise
to exercise full rights of ownership of the assets or business of Sumter One or
Sumter Two.
ARTICLE (12)
TERMINATION, AMENDMENT AND WAIVER
(i) Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the Stockholders, by the
Stockholders, Enterprise, the Subs, Sumter One and Sumter Two:
1. by consent of the Boards of Directors of Enterprise, Sumter One and
Sumter Two;
2. by Enterprise upon notice to Target if any material default under or
material breach of any agreement or condition of this Agreement by the
Stockholders, Sumter One or Sumter Two shall have occurred and shall not have
been cured within ten days after receipt of such notice, or any representation
or warranty contained herein on the part of Stockholders, Sumter One or Sumter
Two shall not have been true and correct in any material respect at and as of
the date made;
3. by Target and the Stockholders upon notice to Enterprise if any material
default under or material breach of any agreement or condition of this Agreement
by Enterprise or the Subs shall have occurred and shall not have been cured
within ten days after receipt of such notice, or any representation or warranty
contained herein on the part of Enterprise or the Subs shall not have been true
and correct in any material respect at and as of the date made; or
4. by Enterprise, on the one hand, or Target and the Stockholders, on the
other, upon notice to the other if the Mergers shall not have become effective
on or before the later of (i) 120 days after the date hereof and (ii) 10 days
after the receipt of all required regulatory and third party approvals, unless
such date is extended by the consent of the Boards of Directors of Target,
Enterprise and the Subs evidenced by appropriate resolutions; provided, however,
that the right to terminate this Agreement under this Section 8.1(d) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date.
(ii) Effect of Termination. In the event of the termination of this
Agreement pursuant to the provisions of Section 8.1, the provisions of this
Agreement (other than the second, third and fourth sentences of Sections 6.9 and
Sections 6.5 and 8.2 hereof) shall become void and have no effect, with no
liability on the part of any party hereto or its stockholders or directors or
officers in respect thereof, provided that nothing contained herein shall be
deemed to relieve any party of any liability it may have to any other party with
respect to a breach of its obligations under this Agreement.
(iii) Amendment. This Agreement may be amended by the parties hereto only
in a writing signed on behalf of each of them or, in the case of the
Stockholders, by their attorney-in-fact.
(iv) Waiver. Any term or provision of this Agreement (other than the
requirements for approval by the stockholders of Sumter One and Sumter Two) may
be waived in writing at any time by the party which is, or whose stockholders
are, entitled to the benefits thereof.
32
<PAGE>
ARTICLE (13)
INDEMNIFICATION
(i) Indemnification by the Stockholders. Subject to the limitations set
forth in Sections 9.3 and 9.5, the Stockholders jointly and severally agree to
defend, indemnify and hold harmless Enterprise, the Subs, any subsidiary or
affiliate thereof and its officers, directors, agents, successors and assigns
(the "Indemnified Acquiring 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 any of the Stockholders and contained in this Agreement or in
any certificate delivered by the Stockholders pursuant to this Agreement or (ii)
the breach of any covenant or agreement made by any of the Stockholders and
Target and contained in this Agreement.
(ii) Indemnification by Enterprise and the Subs. Subject to the limitations
set forth in Sections 9.3 and 9.5, each of Enterprise and the Subs agrees to
defend, indemnify and hold harmless the Stockholders, any subsidiary or
affiliate thereof and their officers, directors, stockholders and controlling
persons, employees, agents, successors and assigns (the "Indemnified Acquired
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
Enterprise or the Subs and contained in this Agreement or in any certificate
delivered by Enterprise pursuant to this Agreement or (ii) the breach of any
covenant or agreement made by Enterprise or the Subs and contained in this
Agreement.
(iii) Survival of Representations and Warranties. Except as set forth
below, an indemnifying party shall be liable for Losses arising under Section
9.1(i) or 9.2(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
second anniversary of the Effective 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 3.13(a) and 3.22,
(ii) such day shall be 90 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, 4.1 and 4.4 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
any of the Stockholders or Target in this Agreement will be deemed to have been
relied upon by Enterprise and the Subs (notwithstanding any investigation by
Enterprise and the Subs). All representations, covenants and warranties made by
or on behalf of any of Enterprise and the Subs in this Agreement will be deemed
to have been relied upon by the Stockholders and Target (notwithstanding any
investigation by the Stockholders and Target).
(iv) 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 9.1 or 9.2 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 9.1 or 9.2, 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 reasonably 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
33
<PAGE>
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 9.1 or 9.2 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.
(v) Limitations on Liability. (a) Except in the case of fraud or
intentional misrepresentation and excluding Article VIII, Section 3.27, Section
6.7 and Article X, and except for the availability of the Escrow Amount pursuant
to Section 1.9, the indemnification provisions of Sections 9.1 and 9.2 shall be
the exclusive and sole remedy for Losses and shall be subject to the limitations
on liability set forth herein.
(b) No member of the Indemnified Acquiring Group shall be entitled to
indemnification pursuant to this Article IX for Losses suffered or incurred by
the Indemnified Acquiring Group unless such Losses aggregate at least
$500,000.00 (the "Basket"), whereupon the Stockholders shall be precluded from
asserting that any such Losses are immaterial or not adverse to Enterprise or a
Surviving Corporation. Subject to the last sentence of this Section 9.5(b), if
Losses aggregate more than the Basket, the Stockholders shall be liable pursuant
to this Article IX for the entire amount of such Losses, including the Basket,
up to an amount equal to (A) 10% of the sum of (i) the Merger One Consideration
and (ii) the Merger Two Consideration less (B) the Escrow Amount (the result of
such computation being the "Liability Cap"), provided that the foregoing
limitations of liability (including both the Basket and the Liability Cap) shall
not apply in the event of fraud or intentional misrepresentation or in the event
of a breach of the representations and warranties set forth in Sections 3.1,
3.2, 3.21(c) or the covenants set forth in Section 6.7. Notwithstanding anything
contained herein to the effect that the liability of the Stockholders is joint,
several or otherwise, in the event of any breach of Section 6.7, the sole and
exclusive remedy of Indemnified Acquiring Group shall be against the Stockholder
that breached such Section 6.7, and no member of the Indemnified Acquiring Group
shall have any recourse (and expressly waives any such recourse) against any
other Stockholder pursuant to Section 6.7.
(c) No member of the Indemnified Acquired Group shall be entitled to
indemnification pursuant to this Article IX for Losses suffered or incurred by
the Indemnified Acquired Group unless such Losses aggregate at least the Basket,
whereupon Enterprise, Surviving Corporation One and Surviving Corporation Two
shall be precluded from asserting that any such Losses are immaterial or not
adverse to the Stockholders. If Losses aggregate more than the Basket,
Enterprise, Surviving Corporation One and Surviving Corporation Two shall be
liable for the entire amount of such Losses, including the Basket, up to an
amount equal to 10% of the sum of (i) the Merger One Consideration and (ii) the
Merger Two Consideration (the result of such computation being the "Acquiring
Group Liability Cap"); provided that the foregoing limitations on liability
(including both the Basket and the Acquiring Group Liability Cap) shall not
apply in the event of fraud or intentional misrepresentation or in the event of
a breach of the representations and warranties set forth in Sections 4.1 or 4.4.
(vi) Escrow not Exclusive. The lack of availability of the Escrow Amount or
the decision of Enterprise, the Subs or any member of the Indemnified Acquiring
Group not to make a claim against the Escrow Amount shall not limit any claims
for indemnification by Enterprise, the Subs or any member of the Indemnified
Acquiring Group under this Agreement. Notwithstanding anything to the contrary
contained herein, Enterprise may make claims against the Escrow Amount pursuant
to Section 1.9 hereof or to the extent the Escrow Amount was not adequate may
seek indemnity pursuant to Section 9.1 with respect to the matters
34
<PAGE>
described in Sections 1.9(b)(i) and 1.9 (b)(ii) regardless of whether the Losses
incurred in connection with such claims exceed the Basket.
(vii) After-Tax Basis: Insurance Proceeds. In determining the Losses
suffered by any Person, the amount thereof shall be reduced by any tax benefit
realized or net insurance proceeds received by such Person as a result of the
occurrence of such Losses. Any payment required by this Article IX (for
indemnification or otherwise) in respect of the Losses suffered by any Person
shall be in an amount that, after deducting any tax cost incurred by the Person
receiving that payment, equals the amount required to be paid as determined
under the applicable provisions (other than this sentence) of this Article IX.
The tax benefit realized by a Person by reason of any payment or other matter
shall be the amount by which (a) the aggregate amount of federal and state
income and franchise taxes that would have been, but for such payment or other
matter, payable by such Person (or by a group of corporations of which such
Person is a member filing a consolidated or combined return) for the fiscal
year, if any, in which such payment or other matter is taken into account
("but-for tax") exceeds (b) the aggregate amount of federal and state income and
franchise taxes actually payable by such Person (or such group) for such fiscal
year ("actual tax"). The tax cost of any payment shall be the amount by which
the actual tax exceeds the but-for tax. A certificate of the chief financial
officer (prepared in good faith) of the Person that realizes any tax benefit or
suffers any tax cost as to the amount thereof shall be binding and conclusive
evidence of the amount, if any, thereof and no indemnifying party receiving such
a certificate shall be entitled to inquire as to the affairs or tax returns of
such Person for purposes of determining the amount of such tax benefit. An
indemnifying Person shall not be liable for any Losses to the extent such Losses
are recoverable from insurance proceeds, and the amount of any such proceeds
shall not reduce the amount of the Basket.
ARTICLE (14)
GENERAL PROVISIONS
(i) Definitions. As used in the Agreement, the following terms have the
following respective meanings:
Acquiring Group Liability Cap: as defined in Section 9.5.
Acquisition: as defined in the recitals.
Action: any claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
actual tax: as defined in Section 9.7.
Affiliate: with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
Agreed Items: any obligation or liability arising out of, relating to or on
account of any of the following: (i) that certain billing dispute with Worldcom,
Inc. d/b/a WilTel relating to line cost agreements; and (ii) that certain
dispute with the taxing authorities of the State of Florida regarding sales
taxes.
Assets: as defined in Section 3.16.
Basket: as defined in Section 9.5.
35
<PAGE>
Beneficial Owner: a beneficial owner as defined in Rules 13d-3 and 13d-5
under the Exchange Act (or any successor rules), including the provision of such
Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
but-for tax: as defined in Section 9.7.
Certificate of Merger One: as defined in Section 1.5.
Certificate of Merger Two: as defined in Section 1.5.
Certificates: as defined in Section 1.8(b).
Certificates of Merger: as defined in Section 1.5.
Change of Control: the occurrence of any of the following: (i) the sale,
lease, transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of Enterprise and its
Subsidiaries, taken as a whole, to any Person or group (as such term is used in
Section 13(d)(3) and 14(d)(2) of the Exchange Act, (ii) the adoption of a plan
relating to the liquidation or dissolution of Enterprise, (iii) any Person or
group (as defined above) is or becomes in one or a related series of
transactions the Beneficial Owner, directly or indirectly, of more than 50% of
the Enterprise Common Stock, including by way of merger, consolidation or
otherwise or (iv) the first day on which a majority of the members of the Board
of Directors of Enterprise are not Continuing Directors.
Closing Price: for any day, 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 Enterprise Common Stock are
listed or to which such shares are admitted to trading or (2) if the Enterprise
Common Stock is not listed or admitted to trading on a national securities
exchange, in the over-the-counter market as reported by the Nasdaq Market or any
comparable system or (3) if the Enterprise Common Stock is not listed on the
Nasdaq 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 Enterprise for that purpose.
Code: as defined in the recitals.
Contingent Liabilities: 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 Sumter
One, Sumter Two, and the Target Business, including Environmental Laws, and (v)
liabilities under guaranty or other hold harmless arrangements.
Continuing Directors: as of any date of determination, any member of the
board of directors of Enterprise who (i) was a member of such board of directors
on the Effective Date or (ii) was nominated for election or elected to such
board of directors with the affirmative vote of a majority of the Continuing
Directors wo were members of such board at the time of such nomination or
election.
36
<PAGE>
Control (including the terms controlled by and under common control with):
with respect to the relationship between or among two or more Persons, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the voting
of securities, as trustee or executor, or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
Dissenting Shares: as defined in Section 1.6(d).
Effective Date: as defined in Section 1.5.
Effective Date Receivables: as defined in Section 1.9(b).
Effective Date Reserve: the reserve or allowance for doubtful Effective
Date Receivables which reserve or allowance shall be equal to 2.75% of the
Effective Date Receivables.
Effective Time: as defined in Section 1.5.
Encumbrance: any security interest, pledge, mortgage, lien (including,
without limitation, environmental and tax liens), charge, encumbrance, adverse
claim, preferential arrangement or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.
Enterprise: as defined in the first paragraph of this Agreement.
Enterprise Common Stock: as defined in Section 1.6.
Enterprise Common Stock Execution Date Price: means $61.00.
Enterprise Common Stock Effective Date Price: the average Closing Price of
a share of Enterprise Common Stock for the 20 trading days immediately preceding
the Effective Date.
Enterprise Common Stock Floor Price: as defined in Section 1.6(a).
Enterprise Common Stock Minimum Price: as defined in Section 1.6(a).
Enterprise Party: any of Enterprise and the Subs.
Environmental Laws: any Law, now or hereafter in effect and as amended, and
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended through the date hereof; the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq.; the Hazardous Materials Transportation Act, 49
U.S.C. ss.ss. 6901 et seq.; the Clean Water Act, 33 U.S.C. ss.ss. 1251 et seq.;
the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; the Clean Air
Act, 42 U.S.C. ss.ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f et seq.; the Atomic Energy Act, 42 U.S.C. ss.ss. 2011 et seq.; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq.;
and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. ss.ss. 301 et seq.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
37
<PAGE>
ERISA Affiliate: an organization which is a member of a controlled group of
organizations within the meaning of Sections 414(b), (c), (m) or (o) of the Code
which includes either Sumter One or Sumter Two.
Escrow Agent: as defined in Section 1.9(a).
Escrow Agreement: as defined in Section 1.9(a).
Escrow Amount: as defined in Section 1.8(a).
Exchange Act: as defined in Section 5.3.
Excluded Adjustments: as defined in Section 3.7.
Fair Market Value: as defined in Section 1.6.
FBCA: as defined in the recitals.
FCC: the Federal Communications Commission.
Financial Statements: as defined in Section 3.7(a).
Funded Debt: as defined in Section 1.6
DGCL: as defined in the recitals.
Governmental Authority: means any United States federal, state or local or
any foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or judicial or arbitral body.
Governmental Order: any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
Hazardous Materials: (a) petroleum and petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants", or words of similar import, under any applicable
Environmental Law, and (c) any other chemical, material or substance exposure to
which is regulated by any Governmental Authority.
HSR Act: as defined in Section 3.6.
Indebtedness: with respect to any Person, (a) all indebtedness of such
Person, whether or not contingent, for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the
Stockholders, Sumter One, Sumter Two or lender under such agreement in the event
of default are limited to repossession or sale of such property), (e) all
obligations of such Person as lessee under leases that have been or should be,
in accordance with U.S. GAAP, recorded as capital leases, (f) all obligations,
contingent or otherwise, of such
38
<PAGE>
Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Encumbrance on
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
Indemnified Acquired Group: as defined in Section 9.2.
Indemnified Acquiring Group: as defined in Section 9.1.
Intellectual Property: (a) inventions, whether or not patentable, whether
or not reduced to practice, and whether or not yet made the subject of a pending
patent application or applications, (b) ideas and conceptions of potentially
patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending patent application or applications, (c) national
(including, but not limited to the United States) and multinational statutory
invention registrations, patents (including but not limited to design patents),
patent registrations and patent applications (including all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations) and all
rights therein provided by international treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application, (d) trademarks, service marks, trade dress, logos, trade names and
corporate names, whether or not registered and regardless of where used,
including but not limited to all common law rights, and registrations and
applications for registration thereof, including, but not limited to, all marks
registered in the United States Patent and Trademark office, the Trademark
Offices of the States and Territories of the United States of America, and the
Trademark Offices of other nations throughout the world, and all rights therein
provided by international treaties or conventions, (e) copyrights (including but
not limited to copyrights on designs) (registered or otherwise) and
registrations and applications for registration thereof, and all rights therein
provided by any national law, international treaties or conventions, (f)
computer software, including, without limitation, source code, operating systems
and specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (g) trade secrets and confidential,
technical and business information (including but not limited to ideas,
formulas, compositions, inventions, and conceptions of inventions whether
patentable or unpatentable and whether or not reduced to practice), (h) whether
or not confidential, technology (including know-how and show-how), manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (i) any right arising under any law providing protection to
industrial or other designs, (j) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (k) all rights to obtain and rights to
apply for patents, and to register trademarks and copyrights, and (l) all rights
to sue or recover and retain damages and costs and attorneys fees for present
and past infringement of any of the foregoing.
Interim Balance Sheet: as defined in Section 3.7.
39
<PAGE>
Interim Balance Sheet Date: as defined in Section 3.7.
Interim Financial Statements: as defined in Section 3.7.
Inventories: all inventory, merchandise, finished goods, and raw materials,
packaging, supplies and other personal property related to the Target Business
maintained, held or stored by or for Sumter One or Sumter Two and any prepaid
deposits for any of the same.
IRS: the Internal Revenue Service of the United States.
Law: any federal, state, local or foreign statute, law, ordinance,
regulation, rule, code, order, other requirement or rule of law.
Liabilities: any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including, without limitation, Contingent Liabilities, those
arising under any Law (including, without limitation, any Environmental Law),
Action or Governmental order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
Liability Cap: as defined in Section 9.5.
Licenses: as defined in Section 3.13.
Losses: as defined in Section 9.1.
Make Whole Right: as defined in Section 7.2(i).
Material Adverse Effect: any change or effect that, individually or in the
aggregate with all other changes or effects, is or is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets, liabilities or prospects of Sumter One or Sumter Two,
when used with respect to Sumter One or Sumter Two, respectively, or of
Enterprise and its Subsidiaries, taken as a whole, when used with respect to
Enterprise.
Material Contracts: as defined in Section 3.14(a).
Merger Consideration: the sum of the Merger One Per Share Consideration and
the Merger Two Per Share Consideration.
Merger One: as defined in the recitals.
Merger One Aggregate Stock Consideration: as defined in Section 1.6(a).
Merger One Cash Consideration: as defined in Section 1.6(a).
Merger One Consideration: as defined in Section 1.6(a).
Merger One Per Share Stock Consideration: as defined in Section 1.6(a).
Merger One Stock Consideration: as defined in Section 1.6(a).
Mergers: as defined in the recitals.
40
<PAGE>
Merger Two: as defined in the recitals.
Merger Two Aggregate Stock Consideration: as defined in Section 1.6(a).
Merger Two Cash Consideration: as defined in Section 1.6(a).
Merger Two Consideration: as defined in Section 1.6(a).
Merger Two Per Share Stock Consideration: as defined in Section 1.6(a).
Merger Two Stock Consideration: as defined in Section 1.6(a).
Operative Documents: This Agreement, the Transition Agreement, the Escrow
Agreement and the Registration Rights Agreement.
Permitted Encumbrances: such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced:
(a) liens for taxes, assessments and governmental charges or levies not yet due
and delinquent which are not in excess of the amount accrued therefor on the
Reference Balance Sheet; (b) Encumbrances imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other similar liens
arising in the ordinary course of business securing obligations that (i) are not
overdue for a period of more than 30 days and (ii) are not in excess of $5,000
in the case of a single property or $50,000 in the aggregate at any time; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations and obligations
to secure the performance of bids, tenders, trade contracts, surety bonds,
performance and return-of-money bonds and other obligation of like nature; and
(d) minor survey exceptions, rights of way, reservations, restrictions,
reciprocal easement agreements and other customary encumbrances on title to real
property that (i) were not incurred in connection with any Indebtedness, (ii) do
not render title to the property encumbered thereby unmarketable and (iii) do
not, individually or in the aggregate, materially adversely affect the value or
use of such property for its current and reasonably anticipated purposes.
Person: an individual, partnership, limited partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization, other
entity and a government or any department, subdivision, agency, commission or
authority thereof.
Principal Stockholder: as defined in Section 6.6.
Receivables: any and all accounts receivable, notes and other amounts
receivable by Sumter One or Sumter Two from third parties, including, without
limitation, customers, arising from the conduct of the Target Business or
otherwise before the Effective Date, whether or not in the ordinary course,
together with all unpaid financing charges accrued thereon.
Reference Balance Sheet: the audited consolidated balance sheet of each of
Sumter One and Sumter Two as of the Reference Balance Sheet Date, together with
all related notes and schedules thereto, accompanied by the reports thereon of
Target's accountants.
Reference Balance Sheet Date: as defined in Section 3.7(a).
Registration Rights Agreement: as defined in Section 2.1.
Restricted Business: the business of (i) transmitting, or providing
services relating to the transmission of, voice, video or data through owned or
leased transmission facilities, (ii) creating, developing or
41
<PAGE>
marketing communications related network equipment, software and other devices
for use in such a business or (iii) evaluating, participating or pursuing any
other activity or opportunity that is related to those identified in (i) or (ii)
above.
SEC: as defined in Section 3.27.
SEC Reports: as defined in Section 4.5.
Securities Act: as defined in Section 3.27.
Stockholder and Stockholders: as defined in the first paragraph of this
Agreement.
Sub One: as defined in the first paragraph of this Agreement.
Subs: as defined in the first paragraph of this Agreement.
Subsidiary: with respect to any Person, any corporation or other business
entity, of which a majority (by number of votes) of the shares of capital stock
(or other voting interests) at the time outstanding is owned by such Person
directly or indirectly through Subsidiaries.
Sub Two: as defined in the first paragraph of this Agreement.
Sumter One: as defined in the first paragraph of this Agreement.
Sumter One Common Stock: as defined in Section 1.6.
Sumter One Employees Trust: as defined in Section 6.8.
Sumter Two: as defined in the first paragraph of this Agreement.
Sumter Two Common Stock: as defined in Section 1.6.
Sumter Party: any of the Stockholders, Sumter One and Sumter Two.
Surviving Corporation One: as defined in Section 1.1.
Surviving Corporations: as defined in Section 1.1.
Surviving Corporation Two: as defined in Section 1.1.
Target: as defined in the first paragraph of this Agreement.
Target Business: the businesses conducted by Sumter One and Sumter Two.
Target Plans: as defined in Section 3.19.
Target Group Plans: as defined in Section 3.19.
Target takeover proposal: as defined in Section 5.3.
42
<PAGE>
Tax or Taxes: any and all taxes, fees, levies, duties, tariffs, imposts and
other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any government or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and customs duties, tariffs, and similar charges.
Transition Agreement: as defined in Section 6.6.
Transition Period: as defined in Section 6.6.
Trusts: the trusts set forth on the signature pages to this Agreement.
U.S. GAAP: United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout the
periods involved.
(ii) Notices. All notices, consents, instructions and other communications
required or permitted under this Agreement 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) re ceived 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 simi larly given to the other parties in accordance
herewith, which shall not be deemed given until received by the addressee).
Notice shall be given:
if to Enterprise, Sub One or Sub Two, a copy to:
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Ralph J. Sutcliffe, Esq.
43
<PAGE>
if to Sumter One, a copy to:
111 Congress Avenue
Suite 3000
Austin, Texas 78701
Attention: James M. Mansour
Telecopie(512) 472-9018
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Frost Bank Plaza
816 Congress Avenue
Austin, Texas 78701
Attn: John Strickland, Esq.
Telecopie(512) 499-6290
44
<PAGE>
if to Sumter Two, a copy to:
111 Congress Avenue
Suite 3000
Austin, Texas 78701
Attention: James M. Mansour
Telecopie(512) 472-9018
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Frost Bank Plaza
816 Congress Avenue
Austin, Texas 78701
Attn: John Strickland, Esq.
Telecopie(512) 499-6290
if to any of the Stockholders, a copy to:
such Stockholder
c/o National Telecommunications of Florida, Inc.
111 Congress Avenue
Suite 3000
Austin, Texas 78701
Attention: James M. Mansour
Telecopie(512) 472-9018
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Frost Bank Plaza
816 Congress Avenue
Austin, Texas 78701
Attn: John Strickland, Esq.
Telecopie(512) 499-6290
(iii) 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 or legal substance of
the transactions contemplated thereby is not affected in any manner materially
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 including the
Mergers, be consummated as originally contemplated to the fullest extent
possible.
(iv) Miscellaneous. This Agreement the other Operative Documents (including
the exhibits, documents and instruments referred to herein or therein) (a)
constitute the entire agreement and supersede all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof and thereof; (b) are not intended to confer
upon any other person other than the parties hereto any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise, except
that each of Enterprise and the Subs may assign its rights and obligations
hereunder without the consent
45
<PAGE>
of Target or the Stockholders to one or more direct or indirect Subsidiaries of
Enterprise (it being recognized that such an assignment shall not release or
discharge the assignor from its obligations under this Agreement); and (d) shall
be governed in all respects, including validity, interpretation and effect, by
the internal laws of the State of New York, except, with respect to matters
relating to the Mergers, which shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware or the
laws of the State of Florida, as the case may be (in each case, without regard
to conflicts of laws provisions). 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. This Agreement may be
executed in two or more counterparts which together shall constitute a single
instrument.
(v) 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 de fense that there exists an
adequate remedy at law.
(vi) Disputes. Any controversy, claim or dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof (including
without limitation the determination of the scope or applicability of the
agreement to arbitrate), other than a controversy, claim or dispute arising out
of or relating to the provisions of Section 6.8 hereof, shall be determined by
arbitration in New York City before one arbiter mutually agreed upon by the
parties or, if not so agreed, by one arbiter selected pursuant to the Commercial
Arbitration Rules of the American Arbitration Association in New York (the
"Arbiter"). The determination of the Arbiter shall be final and binding 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. Judgement upon the award rendered may be entered in any court having
competent jurisdiction.
(vii) VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER OPERATIVE DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK RESIDING IN THE BOROUGH OF MANHATTAN OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH PARTY HERETO HEREBY WAIVES, AND AGREES NOT TO ASSERT, AS A DEFENSE
IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT OF THIS
AGREEMENT OR ANY OF THE OTHER OPERATIVE DOCUMENTS 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 OTHER OPERATIVE
DOCUMENT 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. EACH
PARTY HERETO 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 NEW YORK
OR THE FEDERAL LAWS OF THE UNITED STATES. SERVICE OF PROCESS IN ANY MANNER
REFERRED TO IN THE PRECEDING
46
<PAGE>
SENTENCE SHALL BE DEEMED, IN EVERY RESPECT, EFFECTIVE SERVICE OF PROCESS UPON
SUCH PARTY.
(viii) 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.
[SIGNATURE PAGES FOLLOW]
47
<PAGE>
IN WITNESS WHEREOF, Enterprise, the Subs and Target have caused this
Agreement to be executed, by their respective duly authorized officers, and the
Stockholders have executed this Agreement, on the date first above written.
INTERMEDIA COMMUNICATIONS INC.
By ___________________________
Name:
Title:
SUMTER ONE ACQUISITION, INC.
By ___________________________
Name:
Title:
SUMTER TWO ACQUISITION, INC.
By ___________________________
Name:
Title:
NATIONAL TELECOMMUNICATIONS OF
FLORIDA, INC.
By ___________________________
Name:
Title:
NTC, INC.
By ___________________________
Name:
Title:
<PAGE>
[CONTINUATION OF SIGNATURE PAGE]
_______________________________________
Name: James M. Mansour
_______________________________________
Name: John A. Mansour
_______________________________________
Name: Mark A. Mansour
Ned Michael Jabour Trust; Grantor
James M. Mansour
By ________________________
Name: John A.
Mansour
Title: Trustee
Phyllis Mansour Crews Trust;
Grantor James M. Mansour
By ________________________
Name: John A.
Mansour
Title: Trustee
Samuel Philip Mansour Trust;
Grantor John A. Mansour
By ________________________
Name: James M.
Mansour
Title: Trustee
Mary Margaret Mansour Trust;
Grantor John A. Mansour
<PAGE>
By ________________________
Name: James M.
Mansour
Title: Trustee
<PAGE>
[CONTINUATION OF SIGNATURE PAGE]
Teresa Marie Mansour Trust; Grantor
John A. Mansour
By ________________________
Name: James M.
Mansour
Title: Trustee
Samera Louise Mansour Trust;
Grantor James M. Mansour
By ________________________
Name: John A.
Mansour
Title: Trustee
Philip Mansour, Jr. Trust; Grantor
John A. Mansour
By ________________________
Name: James M.
Mansour
Title: Trustee
Philip Mansour, Jr. Trust; Grantor
James M. Mansour
By ________________________
Name: John A.
Mansour
Title: Trustee
<PAGE>
Annex A
General Assumptions:
70% of Merger One Consideration (Merger One Aggregate Stock Consideration before
any adjustments): $120 million
Enterprise Common Stock Execution Date Price: $60
Enterprise Common Stock Floor Price: $45
Enterprise Common Stock Minimum Price: $40
Example 1:
Assumption: Enterprise Common Stock Effective Date Price: $70
Results:
Merger One Aggregate Stock Consideration = $120 million (no adjustments done)
Fair Market Value = Enterprise Common Stock Execution Date Price
Aggregate Number of shares of
Enterprise Common Stock Delivered:
$120 million / Fair Market Value ($60) = 2,000,000
Example 2:
Assumption: Enterprise Common Stock Effective Date Price: $50
Results:
Merger One Aggregate Stock Consideration = $120 million (no adjustments done)
Fair Market Value = Enterprise Common Stock Execution Date Price
Aggregate Number of shares of
Enterprise Common Stock Delivered:
$120 million / Fair Market Value ($60) = 2,000,000
Example 3:
Assumption: Enterprise Common Stock Effective Date Price: $40
Enterprise has exercised its option to Make Whole
Results:
A1
<PAGE>
Merger One Aggregate Stock Consideration = 70% of Merger One Consideration ($120
million) divided by Enterprise Common Stock Execution Date Price ($60)
multiplied by Enterprise Common Stock Floor Price ($45) = $90 million
Fair Market Value = Enterprise Common Stock Effective Date Price
Aggregate Number of shares of
Enterprise Common Stock Delivered:
$90 million / Fair Market Value ($40) = 2,250,000
Example 5:
Assumption: Enterprise Common Stock Effective Date Price: $40
Enterprise has not exercised its option to Make
Whole and Sumter agrees to close anyway
Results:
Merger One Aggregate Stock Consideration = $120 million (no adjustments done)
Fair Market Value = Enterprise Common Stock Execution Date Price
Aggregate Number of shares of
Enterprise Common Stock Delivered:
$120 million / Fair Market Value ($60) = 2,000,000
Example 6:
Assumption: Enterprise Common Stock Effective Date Price: $30
Sumter agrees to close
Results:
Merger One Aggregate Stock Consideration = $120 million (no adjustments done)
Fair Market Value = Enterprise Common Stock Execution Date Price
Aggregate Number of shares of
Enterprise Common Stock Delivered:
$120 million / Fair Market Value ($60) = 2,000,000
A2
<PAGE>
Exhibit 23.1
Consent of Legal Counsel
We consent to the use of our firm's name under the caption "Legal Matters" in
the Registration Statement on Form S-3 and related Prospectus of Intermedia
Communications Inc. for the registration of 2,549,381 shares of Common Stock.
-----------------------------------------
/s/ Kronish, Lieb, Weiner & Hellman LLP
New York, New York
February 12, 1998
<PAGE>
Exhibit 23.2
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Intermedia
Communications Inc. for the registration of 2,549,381 shares of Common 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 schedules 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
February 9, 1998
<PAGE>
Exhibit 23.3
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Intermedia
Communications Inc. for the registration of 2,549,381 shares of Common 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
February 9, 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 Form S-3 Registration Statement of our report dated March 7,
1997 included 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.
February 9, 1998
<PAGE>
Exhibit 23.5
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Intermedia Communications Inc. for the registration of 2,549,381
shares of Common 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
February 9, 1998
