<PAGE> 1
Filed Pursuant to Rule 424 (b) (1)
Registration No 333-76363
OFFER TO EXCHANGE
9 1/2% SERIES B SENIOR NOTES DUE 2009
FOR ANY AND ALL OUTSTANDING 9 1/2% SENIOR NOTES DUE 2009
AND
12 1/4% SERIES B SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
FOR ANY AND ALL OUTSTANDING 12 1/4% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2009
OF
INTERMEDIA COMMUNICATIONS INC.
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MAY 27, 1999, UNLESS EXTENDED
---------------------
- On February 24, 1999, we completed private offerings of $300,000,000
aggregate principal amount of 9 1/2% Senior Notes and $364,000,000
aggregate principal amount at maturity of 12 1/4% Senior Subordinated
Notes (collectively, the "Old Notes"). The Offerings were exempt from
registration under the Securities Act of 1933.
- In the Exchange Offers, we are offering to exchange, for all outstanding
9 1/2% Senior Notes that are validly tendered and not validly withdrawn
before the expiration of the Exchange Offers, an equal amount of 9 1/2%
Series B Senior Notes which are registered under the Securities Act of
1933 and for all outstanding 12 1/4% Senior Subordinated Notes that are
validly tendered and not validly withdrawn before the expiration of the
Exchange Offers, an equal amount of 12 1/4% Series B Senior Subordinated
Notes which are registered under the Securities Act of 1933.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- The terms of the 9 1/2% Series B Senior Notes to be issued are
substantially identical to the terms of the 9 1/2% Senior Notes, except
for some of the transfer restrictions and registration rights relating to
the 9 1/2% Senior Notes, and the terms of the 12 1/4% Series B Senior
Subordinated Notes to be issued are substantially identical to the terms
of the 12 1/4% Senior Subordinated Notes, except for some of the transfer
restrictions and registration rights relating to the 12 1/4% Senior
Subordinated Notes.
- We will not receive any proceeds from the Exchange Offers.
- You may tender Old Notes only in denominations of $1,000 and multiples of
$1,000.
- The Exchange Offers are subject to customary conditions, including the
condition that the Exchange Offers not violate applicable law or any
applicable interpretation of the Staff of the Securities and Exchange
Commission.
- You may withdraw tenders of Old Notes at any time prior to the expiration
of the Exchange Offers.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT INTERMEDIA THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. THIS
INFORMATION IS AVAILABLE TO YOU WITHOUT CHARGE UPON YOUR WRITTEN OR ORAL
REQUEST. TO REQUEST SUCH INFORMATION PLEASE CONTACT INTERMEDIA COMMUNICATIONS
INC., 3625 QUEEN PALM DRIVE, TAMPA, FLORIDA 33619 (TELEPHONE 813-829-0011)
ATTENTION: INVESTOR RELATIONS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 20, 1999.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFERS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is April 29, 1999
<PAGE> 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by Intermedia with
the SEC and are incorporated herein by reference:
Intermedia's Annual Report on Form 10-K for the year ended December 31,
1998.
The portions of the Proxy Statement for the Annual Meeting of Stockholders
of Intermedia to be held on May 20, 1999 that have been incorporated by
reference into Intermedia's Annual Report on Form 10-K for the year ended
December 31, 1998.
All documents subsequently filed by Intermedia with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 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 will provide without charge 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, to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, upon
written or oral request made to Intermedia Communications Inc., 3625 Queen Palm
Drive, Tampa, Florida 33619 (telephone 813-829-0011), Attention: Investor
Relations.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a Registration Statement on Form S-4 with the SEC covering
the New Notes, and this Prospectus is part of our Registration Statement. For
further information on Intermedia and the New Notes, you should refer to our
Registration Statement and its exhibits. This Prospectus summarizes material
provisions of contracts and other documents that we refer you to. Since the
Prospectus may not contain all the information that you may find important, you
should review the full text of these documents. We have included copies of these
documents as exhibits to our Registration Statement.
We are currently subject to the periodic reporting and other informational
requirements of the Securities Exchange Act. The reports and other information
that we file with the SEC can be inspected and copied at prescribed rates at the
public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and will also be available for
inspection and copying at the regional offices of the SEC located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and the Citicorp Center at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may
obtain information on the operation of the public reference facilities by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web Site
at http://www.sec.gov that contains reports, proxy and information statements
and other information. You can also obtain copies of such materials from us upon
request. Our common stock is listed on the Nasdaq National Market under the
symbol "ICIX". Reports, proxy statements and other information concerning
Intermedia may be inspected and copied at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C.
20006.
In the event that we cease to be subject to the informational reporting
requirements of the Exchange Act, we have agreed that, whether or not we are
required to do so by the rules and regulations of the SEC, for so long as any of
the New Notes remain outstanding, we will furnish to the holders of the
securities and file with the SEC (unless the SEC will not accept such a filing)
(a) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if we were required to
file such forms, including a "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and, with respect to the annual information
only, a report thereon by our certified independent public accountants and (b)
all reports that would be required to be filed with the SEC on Form 8-K if we
were required to file such reports. In addition, for so long as any of the New
Notes remain outstanding, we have agreed to make available to any prospective
purchaser of the New Notes or beneficial owner of the New Notes in connection
with any sale thereof the information required by Rule 144A(d)(4) under the
Securities Act.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
Because it is a summary, it does not contain all the information you should
consider before participating in the Exchange Offers. You should read the entire
Prospectus carefully, including the section titled "Risk Factors." In addition
you should review the Consolidated Financial Statements and the notes relating
to those statements which are incorporated into this Prospectus by Reference.
Except where the context otherwise requires, when we say "we," "us," "the
Company" or "Intermedia," we mean the combined business of Intermedia
Communications Inc. and its subsidiaries. Except where the context otherwise
requires, when we say the "Old Notes" we mean the 9 1/2% Senior Notes and the
12 1/4% Senior Subordinated Notes, when we say the "New Notes" we mean the
9 1/2% Series B Senior Notes and the 12 1/4% Series B Senior Subordinated Notes,
when we say the "Senior Notes" we mean the 9 1/2% Senior Notes and the 9 1/2%
Series B Senior Notes, when we say the "Senior Subordinated Notes" we mean the
12 1/4% Senior Subordinated Notes and the 12 1/4% Series B Senior Subordinated
Notes and when we say the "Notes" we mean the Senior Notes and the Senior
Subordinated Notes.
This Prospectus contains certain "forward-looking statements" concerning
the Company's operations, economic performance and financial condition. You can
identify these statements by looking for the words "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions. These
statements reflect our plans, expectations and beliefs. As a result,
forward-looking statements are subject to certain risks and uncertainties,
including those identified under "Risk Factors." Actual results could differ
materially from those anticipated in this Prospectus.
THE COMPANY
We provide integrated communications services to business and government
customers. Our integrated communications services include local, long distance,
high speed data and Internet services. We serve approximately 90,000 business
customers throughout the United States and in selected international markets
through a combination of owned and leased network facilities. We are:
- the largest domestic, independent company among those companies
generally referred to as competitive local exchange carriers (based
upon fiscal 1998 telecommunications services revenues of $712.8
million);
- the largest provider of shared tenant telecommunications services in
the United States;
- a tier-one Internet service provider;
- the fourth largest nationwide frame relay provider in the United
States (based on frame relay revenues); and
- a rapidly growing provider of Web hosting services and applications.
We were incorporated in the state of Delaware on November 9, 1987, as the
successor to a Florida corporation that was founded in 1986. Our principal
offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619, and our
telephone number is (813) 829-0011.
THE EXCHANGE OFFERS
Securities Offered............ Up to $300,000,000 principal amount of our
9 1/2% Series B Senior Notes due 2009 and up to
$364,000,000 principal amount at maturity of
our 12 1/4% Series B Senior Subordinated
Discount Notes due 2009. The terms of the
9 1/2% Series B Senior Notes and the 9 1/2%
Senior Notes are substantially identical in all
material respects, except for certain transfer
restrictions and registration rights relating
to the 9 1/2% Senior Notes which do not apply
to the 9 1/2% Series B Senior Notes. The terms
of the 12 1/4% Series B Senior Subordinated
Notes and the 12 1/4% Senior Subordinated
1
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Notes are substantially identical in all
material respects, except for certain transfer
restrictions and registration rights relating
to the 12 1/4% Senior Subordinated Notes which
do not apply to the 12 1/4% Series B Senior
Subordinated Notes. See "Description of the
Senior Notes" and "Description of Senior
Subordinated Notes."
The Exchange Offer............ We are offering to exchange $1,000 principal
amount of 9 1/2% Series B Senior Notes for each
$1,000 principal amount of 9 1/2% Senior Notes
and to exchange $1,000 principal amount at
maturity of 12 1/4% Series B Senior
Subordinated Notes for each $1,000 principal
amount at maturity of 12 1/4% Senior
Subordinated Notes. See "The Exchange Offers"
for a description of the procedures for
tendering Old Notes. The Exchange Offers
satisfy our registration obligations under the
registration rights agreements relating to the
Old Notes. When the Exchange Offers are
completed, holders of Old Notes that were not
prohibited from participating in the Exchange
Offers and did not tender their Old Notes will
not have any registration rights under the
registration rights agreements with respect to
the non-tendered Old Notes and, therefore, the
Old Notes will continue to be subject to
certain transfer restrictions.
Tenders, Expiration Date;
Withdrawal.................... Unless extended, the Exchange Offers will
expire at 5:00 p.m., New York City time, on May
27, 1999. Tenders of Old Notes pursuant to the
Exchange Offers may be withdrawn and retendered
at any time prior to the expiration of the
Exchange Offers. Any Old Notes not accepted for
exchange for any reason will be returned
without expense to the tendering holder after
the expiration or termination of the Exchange
Offers.
Federal Income Tax
Considerations................ The Exchange Offers will not result in any
income, gain or loss to the holders or to us
for federal income tax purposes. See "Certain
Federal Income Tax Considerations."
Use of Proceeds............... We will receive no proceeds from the exchange
of the Old Notes for the New Notes pursuant to
the Exchange Offers.
Exchange Agent................ SunTrust Bank, Central Florida, National
Association, the trustee under the indentures
governing the Notes, is serving as Exchange
Agent in connection with the Exchange Offers.
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Generally, holders of Old Notes, other than any holder who is our
"affiliate" within the meaning of Rule 405 under the Securities Act, who
exchange their Old Notes for New Notes pursuant to the Exchange Offers may offer
their New Notes for resale, resell their New Notes, and otherwise transfer their
New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided:
- the New Notes are acquired in the ordinary course of the holders'
business,
- the holders have no arrangement with any person to participate in a
distribution of the New Notes, and
- neither the holder nor any other person is engaging in or intends to
engage in a distribution of the New Notes.
2
<PAGE> 5
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes must acknowledge that it will deliver a prospectus in connection
with any resale of its New Notes. Broker-dealers may not exchange Old Notes
which are part of an unsold original allotment in the Exchange Offers. See "Plan
of Distribution." To comply with the securities laws of certain jurisdictions,
it may be necessary to qualify for sale or register the New Notes prior to
offering or selling such New Notes. We are required, under the registration
rights agreements, to register the New Notes in any jurisdiction reasonably
requested by the holders, subject to certain limitations. When the Exchange
Offers are completed, holders that were not prohibited from participating in the
Exchange Offers and did not tender their Old Notes will not have any
registration rights under the registration rights agreements with respect to
non-tendered Old Notes and, therefore, the Old Notes will continue to be subject
to certain transfer restrictions. In general, the Old Notes may not be offered
or sold, except in private transactions, unless registered under the Securities
Act and applicable state securities laws. See "The Exchange
Offers -- Consequences of Failure to Exchange."
THE NOTES
SENIOR NOTES:
SENIOR NOTES OFFERED.......... We are offering up to $300.0 million in
principal amount of 9 1/2% Series B Senior
Notes due 2009. The terms of the 9 1/2%
Series B Senior Notes and the 9 1/2% Senior
Notes are substantially identical in all
material respects, except for certain
transfer restrictions and registration rights
relating to the 9 1/2% Senior Notes which do
not apply to 9 1/2% Series B Senior Notes.
ISSUE PRICE................... We are offering to exchange $1,000 stated
principal amount of the 9 1/2% Senior Notes
for $1,000 stated principal amount of the
9 1/2% Series B Senior Notes.
MATURITY DATE................. The Senior Notes will mature on March 1,
2009.
INTEREST...................... We will pay interest on the Senior Notes at
an annual rate of 9 1/2%. We will pay the
interest due on the Senior Notes in cash
every six months on March 1 and September 1.
We will make the first payment on September
1, 1999.
RANKING....................... The Senior Notes are unsecured senior debt of
Intermedia:
- The 9 1/2% Senior Notes rank, and the
9 1/2% Series B Senior Notes will
rank, equal to all of our existing and
future senior unsecured debt.
- The 9 1/2% Senior Notes rank, and the
9 1/2% Series B Senior Notes will
rank, ahead of all of our future debts
that expressly provide that they are
subordinated to the Senior Notes,
including the Senior Subordinated
Notes.
- The 9 1/2% Senior Notes are
effectively subordinated to, and the
9 1/2% Series B Senior Notes will be
effectively subordinated to, existing
and future senior secured debt, if
any, to the extent of such security
and to all indebtedness and other
liabilities of our subsidiaries.
As of December 31, 1998, assuming we had
issued the Old Notes on that date, there
would have been approximately:
- $1.8 billion of outstanding debt,
excluding capital lease obligations,
ranking equally with the Senior Notes.
3
<PAGE> 6
- No senior secured debt, excluding
capital lease obligations, ranking
effectively senior to the Senior
Notes.
- No outstanding debt ranking behind the
Senior Notes, other than the Senior
Subordinated Notes.
SENIOR SUBORDINATED NOTES:
SENIOR SUBORDINATED NOTES
OFFERED....................... We are offering up to $364.0 million in
principal amount at maturity of 12 1/4%
Series B Senior Subordinated Discount Notes
due 2009. The terms of the 12 1/4% Series B
Senior Subordinated Notes and the 12 1/4%
Senior Subordinated Notes are substantially
identical in all material respects, except
for certain transfer restrictions and
registration rights relating to the 12 1/4%
Senior Subordinated Notes which do not apply
to the 12 1/4% Series B Senior Subordinated
Notes.
ISSUE PRICE................... We are offering to exchange $1,000 stated
principal amount at maturity of the 12 1/4%
Senior Subordinated Notes for $1,000 stated
principal amount at maturity of the 12 1/4%
Series B Senior Subordinated Notes.
MATURITY DATE................. The Senior Subordinated Notes will mature on
March 1, 2009.
INTEREST...................... The 12 1/4% Senior Subordinated Notes were
issued at a substantial discount to their
principal amount at maturity. The Senior
Subordinated Notes will accrete in value
through March 1, 2004 at an annual rate of
12 1/4%, compounded every six months. Cash
interest will not be payable on the Senior
Subordinated Notes until March 1, 2004. After
March 1, 2004, the Senior Subordinated Notes
will accrue interest at an annual interest
rate of 12 1/4%, payable in cash every six
months on March 1 and September 1 beginning
September 1, 2004.
RANKING....................... The Senior Subordinated Notes are unsecured
senior subordinated debt of Intermedia:
- The 12 1/4% Senior Subordinated Notes
rank, and the 12 1/4% Series B Senior
Subordinated Notes will rank, behind
all of our existing debts and all
future debts that do not expressly
provide that they rank equally with,
or are subordinated to, the Senior
Subordinated Notes.
- The 12 1/4% Senior Subordinated Notes
rank, and the 12 1/4% Series B Senior
Subordinated Notes will rank, ahead of
all of our future debts that expressly
provide that they are subordinated to
the Senior Subordinated Notes.
As of December 31, 1998, assuming we had
issued the Old Notes on that date, there
would have been approximately:
- $2.1 billion of outstanding debt,
excluding capital lease obligations,
ranking ahead of the Senior
Subordinated Notes.
- No debt ranking equally with the
Senior Subordinated Notes.
4
<PAGE> 7
- No debt ranking behind the Senior
Subordinated Notes.
OPTIONAL REDEMPTION............. We may redeem some or all of the Notes at our
option at any time at the redemption prices
described under "Description of the Senior
Notes" and "Description of the Senior
Subordinated Notes," as applicable, plus any
interest that is due and unpaid on the date
we redeem the Notes.
MANDATORY REPURCHASE............ Following certain changes of control, we must
offer to repurchase the Notes at the prices
set forth under "Description of the Senior
Notes" and "Description of the Senior
Subordinated Notes," as applicable.
CERTAIN COVENANTS............... We will issue the 9 1/2% Series B Senior
Notes and the 12 1/4% Series B Senior
Subordinated Notes under separate indentures
with SunTrust Bank, Central Florida, National
Association, as trustee under each indenture.
The indentures, among other things, restrict
our ability to:
- make certain restricted payments;
- incur additional indebtedness;
- pay dividends or make other
distributions;
- repurchase equity interests or
subordinated indebtedness;
- engage in sale and leaseback
transactions;
- create certain liens;
- enter into certain transactions with
affiliates;
- sell our assets or assets of our
subsidiaries;
- conduct certain lines of business; and
- enter into mergers and consolidations.
RISK FACTORS
You should carefully consider all the information in this Prospectus. In
particular, you should evaluate the specific risk factors set forth under "Risk
Factors," beginning on page 8, for a discussion of certain risks involved in
participating in the Exchange Offers and making an investment in the Notes.
5
<PAGE> 8
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
information and other data of Intermedia for the three years ended December 31,
1998 which have been derived from the consolidated financial statements of
Intermedia, which financial statements have been audited by Ernst & Young LLP,
independent certified public accountants.
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $103,397 $ 247,899 $ 712,783
Costs and Expenses:
Network expenses, facilities administration and
maintenance costs....................................... 81,105 199,139 468,780
Selling, general and administrative....................... 36,610 98,598 215,109
Depreciation and amortization............................. 19,836 53,613 229,747
Charge for in-process R&D(1).............................. -- 60,000 63,000
Business restructuring, integration and other charges..... -- -- 53,453
-------- --------- ----------
137,551 411,350 1,030,089
-------- --------- ----------
Loss from operations........................................ (34,154) (163,451) (317,306)
Interest expense............................................ (35,213) (60,662) (205,760)
Interest and other income................................... 12,168 26,824 35,837
-------- --------- ----------
Loss before extraordinary item.............................. (57,199) (197,289) (487,229)
Extraordinary loss on early extinguishment of debt.......... -- (43,834) --
-------- --------- ----------
Net loss.................................................... (57,199) (241,123) (487,229)
Preferred stock dividends................................... -- (43,742) (90,344)
-------- --------- ----------
Net loss attributable to common stockholders................ $(57,199) $(284,865) $ (577,573)
======== ========= ==========
OTHER DATA:
EBITDA before certain charges(2)............................ $(14,318) $ (49,838) $ 28,894
Insufficiency of earnings to cover combined fixed charges
and preferred stock dividends(3).......................... 59,978 245,685 584,762
Capital expenditures........................................ 130,590 260,105 473,197
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
LOCAL AND LONG DISTANCE SERVICES:
Voice switches in operation............................... 5 16 23
Long distance billable minutes(4)......................... 69.1 139.4 460.6
Access line equivalents................................... 7,106 81,349 347,584
ENHANCED DATA SERVICES:
Nodes(5).................................................. 9,777 20,209 35,268
Switches.................................................. 89 136 177
NETWORK DATA:
Buildings connected(6).................................... 487 3,005 4,342
Route miles............................................... 655 757 839
Fiber miles............................................... 24,122 34,956 41,398
EMPLOYEES................................................... 874 2,036 3,931
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
------------------------
AS
ACTUAL ADJUSTED(9)
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7)................................ $ 387,615 $ 876,213
Working capital(8).......................................... 394,463 883,061
Total assets................................................ 3,049,019 3,548,079
Long-term debt (including current maturities)............... 2,372,386 2,871,446
Redeemable preferred stock.................................. 371,678 371,678
Convertible preferred stock................................. 490,610 490,610
Total stockholders' deficiency.............................. (370,648) (370,648)
</TABLE>
- ---------------
(1) Represents a one time charge to earnings as a result of the write-off of
in-process research and development in connection with the acquisitions of
DIGEX, Incorporated in 1997 and Shared Technologies Fairchild, Inc. in the
first half of 1998.
6
<PAGE> 9
(2) EBITDA before certain charges consists of earnings (loss) before interest
expense, interest and other income, income tax (provision) benefit,
depreciation, amortization and charges for in-process research and
development and business restructuring, integration and other charges
associated with our restructuring program. EBITDA before certain charges
does not represent funds available for management's discretionary use and
is not intended to represent cash flow from operations. EBITDA before
certain charges should not be considered as an alternative to net loss as
an indicator of the Company's operating performance or to cash flows as a
measure of liquidity. In addition, EBITDA before certain charges is not a
term defined by generally acceptable accounting principles and as a result
the measure of EBITDA before certain charges presented herein may not be
comparable to similarly titled measures used by other companies. The
Company believes that EBITDA before certain charges is often reported and
widely used by analysts, investors and other interested parties in the
telecommunications industry. Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in the
industry.
(3) For purposes of calculating the insufficiency of earnings to cover combined
fixed charges: (i) earnings consist of loss before income taxes plus fixed
charges excluding capitalized interest and preferred stock dividends and
(ii) fixed charges consist of interest expensed and capitalized, plus
amortization of deferred financing costs, preferred stock dividends and a
portion of rent expense under operating leases deemed by the Company to
represent an interest factor.
(4) Represents long distance billable minutes for most recent fiscal quarter in
period indicated (in millions).
(5) Each node represents an individual point of origination and termination of
data served by the Company's enhanced data network. In the opinion of
management of the Company, the number of nodes reported is an accurate
representation of the quantity of enhanced data network services provided.
(6) Beginning in January 1997, the Company changed its definition of "Buildings
connected" to include buildings connected to the Company's network via
facilities leased by the Company in addition to those connected to the
Company's network via facilities constructed by the Company. The Company
believes the new definition is consistent with industry practice.
(7) Cash and cash equivalents excludes investments of $7.9 million at December
31, 1998, restricted under the terms of various notes and other agreements.
(8) Working capital includes the restricted investments referred to in Note 7
above whose restrictions either lapse within one year or will be used to
pay current liabilities.
(9) As adjusted gives effect to the issuance of the 9 1/2% Senior Notes and the
12 1/4% Senior Subordinated Notes on February 24, 1999, as if it occurred
on December 31, 1998.
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<PAGE> 10
RISK FACTORS
In addition to other information set forth elsewhere in this Prospectus,
before tendering your Old Notes for New Notes, you should consider carefully the
following factors which, other than "Consequences of Failure to Exchange" and
"Resale of Notes", are generally applicable to the Old Notes as well as to the
New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Old Notes for New Notes pursuant to the
Exchange Offers, you will not be able to resell, offer to resell or otherwise
transfer the Old Notes unless they are registered under the Securities Act or
unless you resell them, offer to resell or otherwise transfer them under an
exemption from the registration requirements of, or in a transaction not subject
to, the Securities Act. In addition, you will no longer be able to obligate us
to register the Old Notes under the Securities Act except in the limited
circumstances provided under the registration rights agreements. In addition, if
you want to exchange your Old Notes in the Exchange Offers for the purpose of
participating in a distribution of the New Notes, you may be deemed to have
received restricted securities, and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
RESALE OF NOTES
Based on certain no-action letters issued by the staff of the SEC, we
believe that the New Notes may be offered for resale, resold or otherwise
transferred by you without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that:
- you are acquiring the New Notes in the ordinary course of your
business,
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the New Notes within the meaning of the Securities
Act, and
- you are not an affiliate of the Company within the meaning of Rule 405
of the Securities Act.
If any of the foregoing are not true and you transfer any New Note without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your New Notes under the Securities
Act, you may incur liability under the Securities Act. We do not and will not
assume or indemnify you against such liability.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes which were acquired by such broker-dealer as a result of market
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for the Old Notes acquired by the broker-dealer as a result of
market-making activities or other trading activities. Broker-Dealers may not
exchange Old Notes which are part of an unsold original allotment in the
Exchange Offers. We have agreed that, for a period of 365 days after the
completion of the Exchange Offers, we will make this Prospectus available to any
broker-dealer for use in connection with any such resale of the New Notes. See
"Plan of Distribution." The New Notes may not be offered or sold unless they
have been registered or qualified for sale under applicable state securities
laws or an exemption from registration or qualification is available and is
complied with. The registration rights agreements require us to register or
qualify the New Notes for resale in any state reasonably requested by a holder,
subject to certain limitations.
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SUBSTANTIAL DEBT
Substantial Debt. We have a significant amount of debt. Assuming we had
issued the Old Notes on December 31, 1998, we would have had outstanding
approximately $3.1 billion of debt and other liabilities, including trade
payables, and approximately $862.3 million of obligations with respect to four
outstanding series of preferred stock. As a result, we are required to pay cash
interest of approximately $128.6 million in 1999 on our outstanding notes. This
amount will increase in 2001, 2002 and 2004 when certain of our outstanding debt
which does not currently pay cash interest begins to pay cash interest.
Insufficient Cash Flow. We do not generate enough cash flow to cover our
operating and investing expenses. Our historical earnings have been insufficient
to cover combined fixed charges and dividends on preferred stock by $584.8
million for the year ended December 31, 1998. Combined fixed charges and
dividends include interest and dividends, whether paid or accrued. Assuming we
had acquired Shared Technologies Fairchild, Inc. ("Shared"), the affiliated
entities known as Long Distance Savers (collectively, "LDS") and the affiliated
entities known as National Tel (collectively, "National") and completed each of
our 1998 debt and equity offerings on January 1, 1998, our earnings would be
insufficient to cover combined fixed charges and dividends on preferred stock by
$602.3 million for the year ended December 31, 1998. Assuming we had issued the
Old Notes and completed the transactions referred to in the preceding sentence
on January 1, 1998, our earnings would have been insufficient to cover combined
fixed charges and dividends on preferred stock by $655.2 million for the year
ended December 31, 1998. We expect this situation will continue for the next
several years. Therefore, unless we develop additional sources of cash flow, we
may not be able to pay interest on our debt and dividends on our preferred stock
or repay our obligations at maturity. As an alternative, we may refinance all or
a portion of our outstanding debt. We cannot assure you that we will be able to
refinance our debt or develop additional sources of cash flow.
Additional Debt. While the terms of our outstanding debt, limit the
additional debt we may incur, they do not prohibit us from incurring more debt.
We may incur substantial additional debt during the next few years to finance
the construction of networks and purchase of network electronics, including
local/long distance voice and data switches, or for general corporate purposes,
including to fund working capital and operating losses. Any additional debt may
rank equal to the Senior Notes and senior to the Senior Subordinated Notes or
equal to the Senior Subordinated Notes. See "Description of the Senior Notes"
and "Description of the Senior Subordinated Notes."
Effective Subordination of the Notes. The Notes are not secured. Holders
of secured debt will have claims that are prior to your claims as a holder of
Notes to the extent of the assets securing such other debt. Under the terms of
the Notes, as well as the terms of our outstanding debt, we are permitted to
incur certain secured debt. We may in the future incur secured bank debt.
Our subsidiaries have not guaranteed the Notes. Therefore, our subsidiaries
are not directly obligated under the Notes. At December 31, 1998, our
subsidiaries had outstanding approximately $88.1 million of debt and other
liabilities and commitments, including trade payables. Earnings generated by any
of our subsidiaries, as well as the existing assets of such subsidiaries, must
be used by such subsidiaries to fulfill their debt service requirements before
we can use them to repay our outstanding debt. In the event of a bankruptcy,
liquidation or reorganization of any of our subsidiaries, holders of their debt
and their trade creditors will generally be entitled to payment of their claims
from the assets of those subsidiaries before any assets are made available for
distribution to us. Therefore, your claims as a holder of the Notes will be
effectively subordinated to the obligations of our subsidiaries.
Consequences of Debt. Our level of debt could have important consequences
to you as a holder of the Notes. For example, it could:
- make it more difficult for us to satisfy our obligations under the
Notes;
- require us to dedicate a substantial portion of our future cash flow
from operations to the payment of the principal and interest on our debt,
and dividends on and the redemption of our preferred stock, thereby
reducing the funds available for other business purposes;
- make us more vulnerable if there is a downturn in our business;
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- limit our ability to obtain additional financing for working
capital, capital expenditures, acquisitions or other purposes; and
- place us at a competitive disadvantage compared to competitors who
have less debt than we do.
SUBORDINATION OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes rank behind all of our other existing debt,
other than trade payables, and all of our future borrowings, other than trade
payables, except any future debt that expressly provides that it ranks equal
with, or is subordinated in right of payment to, the Senior Subordinated Notes.
As a result, upon any distribution to our creditors in a bankruptcy, liquidation
or reorganization or similar proceeding relating to us or our property, the
holders of our senior debt will be entitled to be paid in full in cash before
any payment may be made with respect to the Senior Subordinated Notes.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, holders of the Senior Subordinated Notes will
participate with trade creditors and all other holders of our subordinated debt
in the assets remaining after we have paid all of the senior debt. However,
because the Senior Subordinated Note Indenture requires that amounts otherwise
payable to holders of the Senior Subordinated Notes in a bankruptcy or similar
proceeding be paid to holders of senior debt instead, holders of the Senior
Subordinated Notes may receive less, ratably, than holders of trade payables in
any such proceeding. In any of these cases, we may not have sufficient funds to
pay all of our creditors and holders of Senior Subordinated Notes may receive
less, ratably, than the holders of senior debt.
Assuming we had completed the issuance of the Old Notes on December 31,
1998, the Senior Subordinated Notes would have been subordinated to $2.1 billion
of senior debt, excluding capital lease obligations. In addition, we will be
permitted to incur substantial additional debt, including senior debt, in the
future under the terms of the Senior Subordinated Note Indenture. See
"-- Substantial Debt" and "Description of the Senior Subordinated
Notes -- Subordination."
HISTORY OF NET LOSSES; LIMITED OPERATIONS OF CERTAIN SERVICES; NEED FOR
ADDITIONAL CAPITAL
History of Net Losses. We have incurred significant operating losses
during the past several years while we have developed our business and expanded
our networks. Although our revenues have increased in each of the last three
years, we have incurred net losses attributable to common stockholders of
approximately $57.2 million for the year ended December 31, 1996, $284.9 million
for the year ended December 31, 1997, and $577.6 million for the year ended
December 31, and 1998. We expect net losses to continue for the next several
years.
Limited Operations of Certain Services. We began operations in 1986.
Substantially all of our revenues are derived from local, long distance,
enhanced data and integration services. We have recently initiated many of these
services or expanded their availability in new market areas. We also expect to
substantially increase the size of our operations in the near future. Therefore,
you have limited historical financial information upon which to base your
evaluation of our performance and our ability to compete successfully in the
telecommunications business.
Need for Additional Capital. We require significant amounts of capital to
expand our existing networks and services and to develop new networks and
services. In addition, we may need additional capital in order to repay our
outstanding debts when they become due. See "-- Substantial Debt." We expect to
fund our capital needs by using available cash, joint ventures, debt or equity
financing, credit availability and internally generated funds. We expect that
during the second half of 2000 we will need to raise additional capital to
continue expanding our business. However, our future capital needs depend upon a
number of factors, certain of which we can control, such as marketing expenses,
staffing levels and customer growth, and others which we cannot control, such as
competitive conditions, government regulation and capital costs. Moreover, our
outstanding debt and preferred stock restrict our ability to incur additional
debt or issue additional preferred stock. Depending on market conditions, we may
decide to raise additional capital earlier. However, we cannot assure you that
we will be successful in raising sufficient debt or equity on terms that we will
consider
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acceptable. If we cannot generate sufficient funds we may be required to delay
or abandon some of our planned expansion or expenditures. This likely would
affect our growth and our ability to repay our outstanding debt as well as the
Notes at maturity.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION
Recent Acquisitions. In 1998, we acquired Shared, LDS and National. These
acquisitions diverted our resources and management time and require further
integration with our existing networks and services. We recorded a restructuring
charge during the second quarter of 1998 of approximately $32.3 million, which
was reduced in the third and fourth quarters by $13.5 million, upon
renegotiation of a contract and other changes in estimates. We also expensed
$34.7 million of other business restructuring, integration and other charges
during 1998. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our most recent Annual Report on Form 10-K. We
cannot assure you we will successfully integrate the operations of these
acquired entities into our operations; all of the anticipated benefits from the
restructuring program will be realized; or the restructuring program will not be
more expensive or take longer than anticipated. If we cannot successfully
integrate the acquisitions and realize the benefits of the restructuring
program, we may have difficulty generating sufficient funds to repay the Notes.
Possible Future Acquisitions or Dispositions. Consistent with our
strategy, we are currently evaluating and often engage in discussions regarding
various acquisition or disposition opportunities. However, we have not reached
any agreement or agreement in principle to effect any material acquisition or
disposition. We cannot assure you that we will be able to identify suitable
acquisition opportunities or finance and complete any such acquisitions on
acceptable terms. Any future acquisitions could be funded with cash on hand
and/or by issuing additional securities. It is possible that one or more of such
possible future acquisitions or dispositions, if completed, could adversely
affect our funds from operations or cash available for distribution, in the
short term, in the long term or both, or increase our debt, or could be followed
by a decline in the market value of our outstanding securities, including the
Notes.
Failure to Obtain Third Party Consents in Connection with an Acquisition or
Merger. We consummated a number of acquisitions over the past two years,
including the acquisitions of Shared, LDS and National. We may not have obtained
or, as in the case of the acquisition of Shared, may have elected not to seek,
and in connection with future acquisitions may elect not to seek, all required
consents from third parties with respect to acquired contracts. While the
failure to obtain required third party consents does not give rise to an action
to rescind the acquisition or merger, the third party could assert a breach of
the acquired contract. We believe the failure to obtain any such third party
consents should not result in any material adverse consequences. However, we
cannot assure you that no material adverse consequences will result from any
such breach of contract claims.
Expansion Risk. We have expanded rapidly and expect this rapid expansion
to continue in the near future. This growth has increased our operating
complexity, as well as the level of responsibility for both existing and new
management personnel. In order to manage our expansion effectively, we must
continue to implement and improve our operational and financial systems and
expand, train and manage our employee base.
Need to Obtain Permits and Rights-of-Way to Implement Network
Expansion. We are continuing to expand our existing networks to pursue market
opportunities. To expand our networks requires us, among other things, to
acquire rights-of-way, pole attachment agreements and any required permits and
to finance such expansion. We cannot assure you we will be able to obtain the
necessary permits, agreements or financing to expand our existing networks on a
timely basis. If we cannot expand our existing networks in accordance with our
plans, the growth of our business could be materially adversely affected.
Risk of New Service Acceptance by Customers. We have recently introduced
and will continue to introduce new services, primarily local exchange services,
which we believe are important to our long-term growth. The success of these
services will be dependent upon, among other things, the willingness of
customers to accept us as the provider of such services. The lack of such
acceptance could have a material adverse effect on the growth of our business.
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Potential Diminishing Rate of Growth. During the period from 1994 through
1998, our revenues grew at a compound annual growth rate of approximately 166%
(including the effect of acquisitions). While we expect to continue to grow, as
our size increases, it is likely our rate of growth will decrease.
RISKS RELATED TO INTERNET SERVICES
Maintenance of Peering Relationships. The Internet is comprised of many
Internet service providers who operate their own networks and interconnect with
other Internet service providers at various peering points. Our peering
relationships with other Internet service providers permit us to exchange
traffic with other Internet service providers without having to pay settlement
charges. Although we meet the industry's current standards for peering, we
cannot guarantee that other national Internet service providers will maintain
peering relationships with us. In addition, the requirements associated with
maintaining peering relationships with the major national Internet service
providers may change. We cannot assure you that we will be able to expand or
adapt our network infrastructure to meet any new requirements 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 Internet
service providers for information carried on, disseminated through, or hosted on
their systems is currently unsettled. If liability for materials carried on or
disseminated through their systems is imposed on Internet service providers, we
would likely implement measures to reduce our exposure to such liability. Such
measures could require us to expend substantial resources or discontinue certain
product or service offerings. In addition, increased attention on liability
issues, as a result of lawsuits, legislation and legislative proposals, could
adversely affect the growth of Internet use.
DEPENDENCE UPON NETWORK INFRASTRUCTURE
To successfully market our services to business and government users, our
network infrastructure must provide superior reliability, capacity and security.
Our 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 our customers.
Interruptions in service, capacity limitations or security breaches could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
RAPID TECHNOLOGICAL CHANGES
Communications technology is changing rapidly. While we believe, for the
foreseeable future, these changes will not materially affect the continued use
of our fiber optic networks or materially hinder our ability to acquire
necessary technologies, the effect of technological changes, such as changes
relating to emerging wire-line and wireless transmission technologies, including
software protocols, on our business cannot be predicted.
COMPETITION
In each of our markets, when selling local services, we compete with
incumbent local exchange carriers ("ILECs"), which currently dominate their
local telecommunications markets. ILECs have longstanding relationships with
their customers which may create competitive barriers. ILECs also may have the
potential to subsidize their competitive services from revenues they earn from
their monopoly services. We also face competition in most markets in which we
operate from one or more integrated communications providers or competitive
local exchange carriers ("CLECs"). Through acquisitions, AT&T and MCI WorldCom
have entered the local services market, and other long distance carriers have
announced their intent to enter the local services market. A continuing trend
toward business combinations and alliances in the telecommunications industry
may create significant new or larger competitors. The recent mergers of MCI and
WorldCom and of AT&T with Teleport Communications Group, Inc. and
Tele-Communications, Inc. as well as the proposed mergers of Bell Atlantic and
GTE, and Ameritech and SBC Communications, Inc. are examples of this trend.
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Recent legislative initiatives, including the Telecommunications Act of
1996 (the "Telecommunications Act"), have removed many of the remaining
legislative barriers to local competition. Rules adopted to carry out the
provisions of the Telecommunications Act, however, remain subject to pending
administrative and judicial proceedings. We cannot predict the impact future
regulatory developments may have on our ability to compete. However, if ILECs
are permitted to substantially lower their rates or offer significant volume or
term discount pricing, our net income and/or cash flow could be materially
adversely affected.
Our enhanced data services (including Internet) compete with services
offered by ILECs, long distance carriers, very small aperture terminal
(satellite dish) providers, Internet service providers and others. In
particular, the market for Internet services is extremely competitive, and there
are limited barriers to entry. When offering long distance services, we compete
with AT&T, MCI WorldCom, Sprint and others. The Telecommunications Act permits
the regional Bell operating companies ("RBOCs") to provide long distance
services in the same areas where they now provide local service once certain
criteria are met. Once the RBOCs begin to provide such services, they will be in
a position to offer single source local and long distance service similar to
that being offered by us. Our integration services compete with those offered by
equipment manufacturers, RBOCs and other ILECs, long distance carriers and
systems integrators.
We cannot predict the number of competitors that will emerge as a result of
existing or new federal and state regulatory or legislative actions, but
increased competition from existing and new entities could have a material
adverse effect on our business. Many of our existing and potential competitors
have financial, personnel and other resources significantly greater than ours
which could effect our ability to compete.
REGULATION
We are subject to federal, state and local regulation of our
telecommunications business as more fully described below. See
"Business -- Government Regulation" in our most recent Annual Report on Form
10-K. In general, regulation of the telecommunications industry is in a state of
flux. With the passage of the Telecommunications Act, Congress sought to foster
competition in the telecommunications industry. The Telecommunications Act
attempted to create a framework for companies, such as ours, to offer local
exchange service for business and residential customers in competition with
existing local telephone companies. The Telecommunications Act also sought to
open up the long distance market to additional competition by permitting RBOCs
to engage in the long distance business, under certain conditions, in the same
regions where they now offer local service. These and many other regulations are
the subject of ongoing administrative proceedings at the state and federal
levels, litigation in federal and state courts, and legislation in Congress and
state legislatures. The outcome of the various proceedings, litigation and
legislation cannot be predicted and might adversely affect our business and
operations.
The Telecommunications Act and the issuance by the Federal Communication
Commission ("FCC") of rules governing local competition, particularly those
requiring the interconnection of all networks and the exchange of traffic among
the ILECs and CLECs, as well as pro-competitive policies already developed by
state regulatory commissions, have caused fundamental changes in the structure
of the markets for local exchange services. On January 25, 1999, the Supreme
Court largely reversed earlier decisions of the Eighth Circuit Court of Appeals
and held that the FCC has general jurisdiction to implement the local
competition provisions of the Telecommunications Act. The Supreme Court stated
that the FCC has authority to set pricing guidelines for CLECs to use various
portions of the ILEC's network necessary for the CLECs to provide service. These
portions of the ILEC's network are called "Unbundled Network Elements" or
"UNEs." The Supreme Court also affirmed the FCC's authority to prevent ILECs
from refusing to sell to CLECs the ILECs existing combinations of network
elements. The Supreme Court approved the FCC's establishment of "pick and
choose" rules regarding interconnection agreements between ILECs and CLECs
(which would permit a CLEC to "pick and choose" among various terms of service
in different interconnection agreements between the ILEC and other CLECs). The
Supreme Court's decision reestablishes the validity of many of the FCC rules
vacated by the Eighth Circuit. Although the Supreme Court affirmed the FCC's
authority to develop pricing guidelines, the Court did not evaluate the specific
pricing methodology adopted by the FCC and has remanded the case to the Eighth
Circuit for further consideration. In its decision, the Supreme Court also
vacated the FCC's rule that identifies the unbundled network elements that ILECs
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must provide to CLECs. The Supreme Court found that the FCC had not adequately
considered certain statutory criteria for requiring ILECs to make those network
elements available to CLECs. Thus, while the Supreme Court resolved many issues,
including the FCC's jurisdictional authority, other issues remain subject to
further consideration by the courts and the FCC, and we cannot predict the
ultimate disposition of these matters. The possible impact of this decision,
including the portion dealing with unbundled network elements, on existing
interconnection agreements between ILECs and CLECs or on agreements that may be
negotiated in the future also can not be determined at this time.
Although the passage of the Telecommunications 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 us.
We believe we are entitled to receive reciprocal compensation from ILECs
for the transport and termination of Internet traffic pursuant to various
interconnection agreements. Some ILECs have not paid and/or have disputed these
charges, arguing the Internet service provider traffic is not local traffic as
defined by the various agreements. Both state and federal regulators currently
are considering the proper treatment of calls placed to an Internet service
provider, and whether Internet service provider calling triggers an obligation
to pay reciprocal compensation. All of the 31 states addressing the question to
date have ruled that Internet traffic is subject to reciprocal compensation
under the interconnection agreements then before them. On February 25, 1999, the
FCC ruled that Internet traffic is primarily interstate, rather than local, for
jurisdictional purposes and that Section 25(b)(5) of the Telecommunications Act,
requiring reciprocal compensation for local traffic, would not apply. But the
FCC specifically disavowed any intent to overturn prior state interpretations of
interconnection agreements as requiring reciprocal compensation for Internet
traffic or to prevent states from requiring reciprocal compensation for such
traffic in the future. Indeed, in a rulemaking initiated at the time of its
decision, the FCC has tentatively concluded that inter-carrier compensation for
Internet traffic should be governed in the future by interconnection agreements
negotiated and arbitrated as provided in the Telecommunications Act. Various
parties have challenged the FCC ruling and some of the ILECs have requested
state authorities to reconsider their prior rulings requiring reciprocal
compensation for Internet traffic in light of the FCC's determination that such
traffic is jurisdictionally interstate. All three of the states addressing
compensation for Internet traffic subsequent to the FCC's February 25 ruling,
Alabama, Nevada and Florida, have required ILECs to pay reciprocal compensation
for Internet traffic. There can be no assurance, however, that these issues will
be resolved by the FCC or all of the states or that any such resolution will be
favorable to us. We account for reciprocal compensation with the ILECs,
including activity associated with Internet traffic, as local traffic pursuant
to the terms of our interconnection agreements. Accordingly, revenue is
recognized in the period that the traffic is terminated. The circumstances
surrounding the disputes, including the status of cases that have arisen by
reason of similar disputes, is considered by management periodically in
determining whether reserves against unpaid balances are warranted. As of
December 31, 1998, provisions for reserves have not been considered necessary by
management. However, we cannot assure you that management will not determine
that a reserve is necessary at some point in the future or that ultimately these
receivables will be collected. Approximately $46.0 million of our receivables,
as of December 31, 1998, are related to such reciprocal compensation. As our
Internet service provider traffic grows, these amounts are expected to increase
and will be accounted for in the manner described above, subject to any changes
in our interconnection agreements.
The regulatory status of telephone service over the Internet is presently
uncertain. We are unable to predict what regulations may be adopted in the
future or to what extent existing laws and regulations may be found by state and
federal authorities to be applicable to such services or the impact such new or
existing laws and regulations may have on our business. Specific statutes and
regulations addressing this service have not been adopted at this time and the
extent to which current laws and regulations at the state and federal levels
will be interpreted to include such Internet telephone services has not been
determined. The FCC has indicated, for example, that voice telecommunications
carried over the Internet between two telephone sets using the public switched
network may be subject to payment of access charges and Universal Service
funding obligations, while voice telecommunications using computers rather than
telephone sets may not be subject to
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such obligations. There can be no assurance that new laws or regulations
relating to these services or a determination that existing laws are applicable
to them will not have a material adverse effect on our business.
REGULATORY APPROVAL OF THE OFFERING
Certain of the states where we are authorized to provide local services
require us to obtain approval prior to issuing securities. Because of time
constraints, we may not have obtained all these approvals prior to consummating
the Exchange Offers. These requirements may have been pre-empted by the National
Securities Market Improvement Act of 1996, although there is no case law on this
point. We will seek the necessary approvals prior to or promptly following the
closing of the Exchange Offers. After consulting with counsel, we believe the
approvals will be granted and that seeking such approvals after the closing of
the Exchange Offers should not result in any material adverse consequences.
However, we cannot assure you that no adverse consequences will result.
RISK OF TERMINATION, CANCELLATION OR NON-RENEWAL OF INTEREXCHANGE AGREEMENTS,
NETWORK AGREEMENTS, LICENSES AND PERMITS
We lease and/or purchase agreements for rights-of-way, utility pole
attachments, conduits and dark fiber for our fiber optic networks. Although we
do not believe any of these agreements will be canceled in the near future,
cancellation or non-renewal of certain of such agreements could materially
adversely affect our business in the affected metropolitan area. In addition, we
have certain licenses and permits from local government authorities. The
Telecommunications Act requires local government authorities to treat
telecommunications carriers and most utilities, including most ILECs and
electric companies, in a competitively neutral, non-discriminatory manner to
afford alternative carriers access to their poles, conduits and rights-of-way at
reasonable rates on non-discriminatory terms and conditions. We cannot assure
you we will be able to maintain our existing franchises, permits and rights or
to obtain and maintain the other franchises, permits and rights needed to
implement our strategy on acceptable terms. In March 1998, we acquired a 20 year
indefeasible right of use from Williams Telecommunications Group ("Williams")
that provides us with high capacity transport for our integrated voice and data
services, connecting major markets throughout the continental United States. The
indefeasible right of use may be terminated by Williams if we fail to make the
required payments and, in the event of a bankruptcy of Williams, the
indefeasible right of use may be rejected by Williams in a bankruptcy
proceeding.
DEPENDENCE ON KEY PERSONNEL
Our continued success depends on the continued employment of certain
members of our senior management team and on our continued ability to attract
and retain highly skilled and qualified personnel. We do not have long-term
employment agreements with any of our key employees. The loss of the services of
key personnel or the inability to attract additional qualified personnel could
have a material adverse impact on our business, financial condition, results of
operations and prospects.
BUSINESS COMBINATIONS
We have from time to time held, and continue to hold, preliminary
discussions with (i) potential strategic investors who have expressed an
interest in making an investment in or acquiring us and (ii) potential joint
venture partners looking toward the formation of strategic alliances that would
expand the reach of our networks or services without necessarily requiring an
additional investment in us. In addition to providing additional growth capital,
we believe 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.
We cannot assure you that agreements for any of the foregoing will be reached.
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FINANCING CHANGE OF CONTROL OFFER
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all of our outstanding debt,
including the Notes. However, it is possible that we will not have sufficient
funds at the time of the change of control to make the required repurchase. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a change of control. See "-- Subordination of the Senior Subordinated
Notes," "Description of the Senior Notes -- Offer to Purchase Upon Change of
Control" and "Description of the Senior Subordinated Notes -- Offer to Purchase
Upon Change of Control."
NO PRIOR MARKET FOR THE NOTES
The New Notes are new issues of securities. We do not intend to apply for
listing of the New Notes on any securities exchange or on Nasdaq. We have been
informed by Bear, Stearns & Co. Inc., Merrill Lynch & Co., Salomon Smith Barney
Inc., NationsBanc-Montgomery Securities LLC and Warburg Dillon Read LLC, the
initial purchasers of the Old Notes, that they intend to make a market in the
New Notes after the Exchange Offers are completed. However, the initial
purchasers may cease their market-making at any time. In addition, the liquidity
of the trading market in the New Notes, and the market price quoted for the New
Notes, may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, we cannot assure
you that an active trading market will develop for the New Notes.
ORIGINAL ISSUE DISCOUNT
The 12 1/4% Senior Subordinated Notes were issued at a substantial discount
from their principal amount. Consequently, after completion of the Exchange
Offers, the 12 1/4% Series B Senior Subordinated Notes will have "original issue
discount" for United States federal income tax purposes, and holders of the
Senior Subordinated Notes will be required to include amounts in gross income in
advance of receipt of any cash payment on the Senior Subordinated Notes to which
the income is attributable.
Under the Senior Subordinated Note Indenture, in the event of an
acceleration of the maturity of the Senior Subordinated Notes upon the
occurrence of an Event of Default, the holders of Senior Subordinated Notes may
be entitled to recover only the amount that may be declared due and payable
pursuant to the Senior Subordinated Note Indenture, which may be less than the
principal amount at maturity of such Senior Subordinated Notes. See "Description
of the Senior Subordinated Notes -- Events of Default."
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the Senior Subordinated Notes, the claim
of a holder of Senior Subordinated Notes with respect to the principal amount of
such Senior Subordinated Notes will likely be limited to an amount equal to the
sum of (1) the issue price of the Senior Subordinated Notes as of the date of
issuance of the Senior Subordinated Notes and (2) that portion of the original
issue discount that is not deemed to constitute "unmatured interest" for
purposes of the Bankruptcy Code. Accordingly, holders of the Senior Subordinated
Notes under such circumstances may, even if sufficient funds are available,
receive a lesser amount than they would be entitled to under the express terms
of the Senior Subordinated Note Indenture. In addition, there can be no
assurance that a bankruptcy court would compute the accrual of interest under
the same rules as those used for the calculation of original issue discount
under United States federal income tax law and, accordingly, a holder might be
required to recognize gain or loss in the event of a distribution related to
such bankruptcy case.
YEAR 2000 DATE CONVERSION
To ensure that our computer systems and applications will function properly
beyond 1999, we have implemented a Year 2000 program. However, there can be no
assurance that the Year 2000 program will be successfully completed.
If we cannot operate effectively after December 31, 1999, we could, among
other things, face substantial claims by our customers or loss of revenue due to
service interruptions, the inability to fulfill contractual
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<PAGE> 19
obligations or to bill customers accurately and on a timely basis, increased
expenses associated with litigation, stabilization of operations following
critical system failures and the execution of contingency plans and the
inability by customers and others to pay, on a timely basis or at all,
obligations owed to us. Under these circumstances, the adverse effects, although
not quantifiable at this time, would be material to our business, results of
operations, financial condition and prospects. For a more complete discussion of
Intermedia's Year 2000 program and the associated risks, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000" in Intermedia's most recent periodic report.
FORWARD-LOOKING STATEMENTS
Some of the statements 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). Forward-looking statements can be identified by
the use of words such as "estimates," "projects," "anticipates," "expects,"
"intends," "believes" or the negative thereof or other variations thereon or by
discussions of strategy that involve risks and uncertainties. Examples of
forward-looking statements include discussions of our plans to expand our
existing networks, introduce new products, build and acquire networks in new
areas, install switches or provide local services, the estimate of market sizes
and addressable markets for our services and products, the market opportunity
presented by larger metropolitan areas, anticipated revenues from designated
markets during 1999 and statements regarding the development of our businesses,
anticipated capital expenditures and regulatory reform.
Management wishes to caution you that all forward-looking statements
contained in this Prospectus are only estimates and predictions. Actual results
could differ materially from those anticipated in this Prospectus as a result of
risks facing us or actual events differing from the assumptions underlying such
statements. Such risks and assumptions include, but are not limited to, those
discussed above.
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<PAGE> 20
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We originally issued and sold the Old Notes on February 24, 1999 in
reliance upon the exemptions from registration under Rule 144A and Section 4(2)
of the Securities Act. In connection with the sale of the Old Notes, we entered
into registration rights agreements. Pursuant to the registration rights
agreements, we agreed to register with the SEC a series of notes with
substantially identical terms as 9 1/2% Senior Notes to be offered in exchange
for the 9 1/2% Senior Notes and a series of notes with substantially identical
terms as the 12 1/4% Senior Subordinated Notes to be offered in exchange for the
12 1/4% Senior Subordinated Notes. The purpose of the Exchange Offers is to
satisfy our obligations under the registration rights agreements. Holders that
are not prohibited from participating in the Exchange Offers and do not tender
all of their Old Notes will no longer have any registration rights under the
registration rights agreements.
TERMS OF THE EXCHANGE
We are offering to exchange, subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal accompanying this Prospectus, the
same principal amount of New Notes for the Old Notes tendered for exchange. The
terms of the New Notes are substantially identical to the Old Notes in all
material respects, including interest rate and maturity, except that:
- the New Notes will not be subject to the restrictions on transfer,
other than with respect to holders who are affiliates and as otherwise
described below, and
- holders of New Notes will not be entitled to certain rights of holders
of Old Notes under the registration rights agreements.
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the respective indentures. See "Description of the
Senior Notes and "Description of the Senior Subordinated Notes." The Exchange
Offers are not conditioned upon any minimum aggregate principal amount of Old
Notes being tendered for exchange.
We believe that New Notes received in exchange for Old Notes may be offered
for sale, sold and otherwise transferred by any holder, other than any holder
which is our "affiliate" within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that:
- the New Notes are acquired in the ordinary course of the holder's
business,
- the holder has no arrangement or understanding with any person to
participate in the distribution of the New Notes, and
- neither the holder nor any other person is engaging in or intends to
engage in a distribution of the New Notes.
Any holder who tenders in the Exchange Offers for the purpose of
participating in a public distribution of the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the distribution. Broker-dealers may not exchange Old Notes
which are part of an unsold original allotment in the Exchange Offers.
Tendering holders of the Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the Exchange Offers.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENT
The Exchange Offers will expire at 5:00 p.m., New York City time, on May
27, 1999 unless extended by us, in our sole discretion. We may extend the
expiration time and date, or otherwise amend the terms of the Exchange Offers,
at any time and from time to time by giving oral or written notice to holders of
the Old Notes and, unless otherwise required by applicable law or regulation, by
making a release to the Dow
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<PAGE> 21
Jones News Service on or before 9:00 a.m. of the next business day following the
expiration date. We may terminate the Exchange Offers at any time prior to 5:00
p.m., New York City time on the date the Exchange Offers expire, by giving
notice as described in the preceding sentence. During any extensions of the
Exchange Offers, all Old Notes tendered for exchange will remain subject to the
Exchange Offers. In connection with the Exchange Offers, we will comply with all
applicable requirements of the federal securities laws, including, but not
limited to, Rule 14e-1 under the Exchange Act.
We expressly reserve the right to:
- terminate the Exchange Offers and not accept for exchange any Old
Notes if any event described under "Conditions to the Exchange Offers"
has occurred and not been waived by us and
- amend the terms of the Exchange Offers in any manner which, in our
good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Old Notes.
Unless we terminate the Exchange Offers prior to 5:00 p.m., New York City
time, on the expiration date, we will exchange the New Notes for the Old Notes
on the first business day following the expiration date.
PROCEDURES FOR TENDERING OLD NOTES
The Exchange Offers are subject to the terms and conditions set forth in
this Prospectus and the Letter of Transmittal.
Old Notes may be tendered by properly completing and signing the Letter of
Transmittal and delivering the Letter of Transmittal to the Exchange Agent at
its address set forth in this Prospectus on or prior to the expiration date,
together with:
- the certificate or certificates representing the Old Notes being
tendered and any required signature guarantees,
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of the Old Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the
"Depository") pursuant to the procedure for book-entry transfer
described below, or
- the completion of the procedures for guaranteed delivery set forth
below. See "Guaranteed Delivery Procedures."
If the New Notes are to be issued in the name of the registered holder and
the registered holder has signed the Letter of Transmittal the holder's
signature need not be guaranteed. In any other case, the tendered Old Notes must
be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Exchange Agent and duly executed by the registered holder
and the signature on the endorsement or instrument of transfer must be
guaranteed by a commercial bank or trust company located or having an office or
correspondent in the United States, or by a member firm of a national securities
exchange or of the National Association of Securities Dealers, Inc. (an
"Eligible Institution"). If the New Notes and/or Old Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the register for the Old Notes, the signature on the Letter of Transmittal must
be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER
INSURANCE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal, the
Old Notes or a Book-Entry Confirmation and all other required documents are
received by the Exchange Agent.
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<PAGE> 22
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, and acceptance for exchange of any
tender of Old Notes, which determination will be final and binding. We reserve
the right to reject any or all tenders not in proper form or the acceptance for
exchange of which may, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any of the conditions of the Exchange Offer or any
defect, withdrawal, rejection of tender or irregularity in the tender of any Old
Notes. Neither we, the Exchange Agent nor any other person will be under any
duty to give notification of any defects, withdrawals, rejections or
irregularities or incur any liability for failure to give any such notification.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offers.
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to us and irrevocably constitutes and appoints the Exchange Agent as the
holder's agent and attorney-in-fact to cause the Old Notes to be assigned,
transferred and exchanged. All authority conferred by the holder will survive
the death or incapacity of the holder and every obligation of the holder will be
binding upon the heirs, legal representatives, successors assigns, executors and
administrators of the holder.
By participating in the Exchange Offers, the holder represents and warrants
that:
- it has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire New Notes in exchange for the
Old Notes,
- is not an "affiliate" within the meaning of Rule 405 under the
Securities Act or that, if it is our "affiliate," it will comply with
the registration and prospectus delivery requirements of the
Securities Act to the extent applicable,
- when the Old Notes are accepted for exchange, we will acquire good and
unencumbered title to the Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse
claim
- it will, upon request, execute and deliver any additional documents
deemed by us to be necessary or desirable to complete the exchange,
assignment and transfer of tendered Old Notes,
- it is acquiring the New Notes offered in the ordinary course of its
business, and
- it has no arrangement with any person to participate in the
distribution of the New Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offers may be withdrawn at any
time prior to the expiration date of the Exchange Offers.
To be effective, the Exchange Agent must receive at its address set forth
in this Prospectus by mail, courier, telegraphic, telex or facsimile
transmission a written notice of withdrawal. Any notice of withdrawal must
specify the person named in the Letter of Transmittal as having tendered Old
Notes to be withdrawn, the certificate numbers of Old Notes to be withdrawn, the
principal amount of Old Notes to be withdrawn, a statement that the holder is
withdrawing its election to tender the Old Notes for exchange, and the name of
the registered holder of the Old Notes, and must be signed by the holder in the
same manner as the original signature on the Letter of Transmittal, including
any required signature guarantees, or be accompanied by evidence satisfactory to
the Exchange Agent that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to a book-entry transfer,
any notice of withdrawal must specify the name and number of the account at the
Depository to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of the Depository. We will determine all questions as to the
validity of notices of withdrawals, including time of
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<PAGE> 23
receipt, and such determination will be final and binding on all parties. Any
Old Notes which have been tendered for exchange but which are not exchanged will
be returned to the holder without cost as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offers. Properly withdrawn
Old Notes may be re-tendered at any time on or prior to the expiration of the
Exchange Offer. Any Old Notes withdrawn and not re-tendered will not be
exchanged for New Notes under the Exchange Offers.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF SENIOR NOTES
Old Notes validly tendered and not withdrawn will be accepted for exchange,
subject to the conditions of the Exchange Offers, and issuance of the New Notes
will be issued on the first business day following the expiration of the
Exchange Offers. We will be deemed to have accepted for exchange validly
tendered Old Notes when we give oral or written notice to the Exchange Agent of
our acceptance of the Old Notes for exchange.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purpose of causing the Old Notes to be assigned, transferred and
exchanged for New Notes. Upon the terms and subject to the conditions of the
Exchange Offers, the Exchange Agent will deliver New Notes in exchange for Old
Notes promptly after our acceptance of the tendered Old Notes. Tendered Old
Notes which we do not accept for exchange will be returned without expense to
the tendering holders promptly following the expiration of the Exchange Offers
or, if we terminate the Exchange Offers prior to the expiration date, promptly
after the Exchange Offers are terminated.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account at the Depository for purposes
of the Exchange Offers within two business days after the date of this
Prospectus. Any financial institution that is a participant in the Depository's
systems may make book-entry delivery of Old Notes by causing the Depository to
transfer the Old Notes into the Exchange Agent's account at the Depository in
accordance with the Depository's procedure for transfer.
EVEN THOUGH THE OLD NOTES ARE BEING DELIVERED BY A BOOK ENTRY TRANSFER THE
LETTER OF TRANSMITTAL WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER
REQUIRED DOCUMENTS MUST BE PHYSICALLY RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR
TO THE TIME THE EXCHANGE OFFERS EXPIRE.
CONDITIONS TO THE EXCHANGE OFFERS
Notwithstanding any other provision of the Exchange Offers, we will not be
required to issue New Notes in exchange for properly tendered Old Notes and may
terminate the Exchange Offers or, at our option, modify or otherwise amend the
Exchange Offers, if any event has occurred which, in our sole judgment and
regardless of the circumstances giving rise to any such event, including any
action by us, makes it unlawful or inadvisable to proceed with the Exchange
Offers and/or with the acceptance of Old Notes for exchange or with the
exchange.
We expressly reserve the right to:
- terminate the Exchange Offers and not accept for exchange any Old
Notes upon the occurrence of any of the foregoing conditions (which
represent all of the material conditions to the acceptance by us of
properly tendered Old Notes),
- amend the Exchange Offers at any time prior to their expiration if any
of the conditions set forth above occur, and
- regardless of whether any of such conditions has occurred, amend the
Exchange Offers in any manner which, in our good faith judgment, is
advantageous to holders of the Old Notes.
These conditions are for our sole benefit and may be waived by us, in whole
or in part, in our sole discretion. Any determination made by us that any of
these conditions has occurred will be final and binding on all holders, absent
manifest error.
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In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for Old Notes, if any stop order has been
threatened or is in effect with respect to the Registration Statement of which
this Prospectus constitutes a part or the qualification of the Indenture under
the Trust Indenture Act of 1939.
EXCHANGE AGENT
SunTrust Bank, Central Florida, National Association, the Trustee under the
indentures governing the Senior Note and the Senior Subordinated Notes, has been
appointed as the Exchange Agent for the Exchange Offers. All executed Letters of
Transmittal, questions and requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent, addressed as follows:
SunTrust Bank, Central Florida, National Association
225 East Robinson St.
Suite 250
Orlando, FL 32801
Attention: Holly Arencibia
Facsimile: (407) 237-5299
Confirm by telephone: (407) 237-5179
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
We have not retained any dealer-manager or similar agent in connection with
the Exchange Offers and will not make any payments to brokers, dealers or others
for soliciting acceptances of the Exchange Offers.
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus and the
Letter of Transmittal. You must not rely on any unauthorized information. The
information in this Prospectus is current as of the date set forth on the front
cover. The Exchange Offers are not being made, nor will tenders be accepted from
or on behalf of, holders of Old Notes in any jurisdiction where the making of
the Exchange Offers or the acceptance of tender would not be in compliance with
the laws of the jurisdiction. We may, however, at the reasonable request of any
holder, take the actions we deem necessary to make the Exchange Offers in any
jurisdiction and extend the Exchange Offers to holders of Old Notes in that
jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes in exchange for New Notes will not be
obligated to pay any transfer taxes except that holders who instruct us to
register New Notes in the name of, or request that Old Notes not tendered or not
accepted in the Exchange Offers be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes were not registered under the Securities Act or under the
Securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold pursuant
to exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your Old Notes for New
Notes pursuant to the Exchange Offers, you will not be able to resell, offer to
resell or otherwise transfer the Old Notes unless they are registered under the
Securities Act or unless you resell them, offer to resell or otherwise transfer
them under an exemption from the registration requirements of, or in a
transaction not subject to, the Securities Act. In addition, you will no longer
be able to obligate us to register the Old Notes under the Securities Act except
in the limited circumstances provided under the registration rights agreements.
In addition, if you want to exchange your Old Notes in the Exchange Offers for
the purpose of participating in a distribution of the New Notes, you may
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<PAGE> 25
be deemed to have received restricted securities, and, if so, will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. We do not intend to
register the Old Notes under the Securities Act.
Based on certain no-action letters issued by the staff of the SEC, we
believe that the New Notes may be offered for resale, resold or otherwise
transferred by you without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that:
- you are acquiring the New Notes in the ordinary course of your
business,
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the New Notes within the meaning of the Securities
Act, and
- you are not an affiliate of the Company within the meaning of Rule 405
of the Securities Act.
If any of the foregoing are not true and you transfer any New Note without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your New Notes under the Securities
Act, you may incur liability under the Securities Act. We do not and will not
assume or indemnify you against such liability.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes which were acquired by such broker-dealer as a result of market
making or other trading activities may be deemed to be an "Underwriter" within
the meaning of the Securities Act and must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
See "Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. We have agreed to register or qualify the New Notes for resale in any
jurisdictions reasonably requested by any holder, subject to certain
limitations.
OTHER
Participation in the Exchange Offers is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
When the Exchange Offers are completed, holders of Old Notes that were not
prohibited from participating in the Exchange Offers and did not tender their
Old Notes will not have any registration rights under the registration rights
agreements with respect to non-tendered Old Notes and, therefore, such Old Notes
will continue to be subject to certain transfer restrictions.
We have not entered into any arrangement or understanding with any person
to distribute the New Notes to be received in the Exchange Offers and to the
best of our information and belief, each person participating in the Exchange
Offers is acquiring the New Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
of the New Notes to be received in the Exchange Offers. In this regard, we will
make each person participating in the Exchange Offers aware, through this
Prospectus or otherwise, that if the Exchange Offers are being accepted for the
purpose of secondary resale, any holder using the Exchange Offers to participate
in a distribution of New Notes to be acquired in the registered Exchange Offers
(1) may not rely on the staff position enunciated in Morgan Stanley and Co. Inc.
(avail. June 5, 1991) and Exxon Capital Holding Corp. (avail. May 13, 1988) or
similar letters and (2) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
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<PAGE> 26
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in our accounting records on the date the Exchange Offers are
consummated. Accordingly, we will recognize no gain or loss for accounting
purposes. The expenses of the Exchange Offers will be amortized over the term of
the New Notes.
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USE OF PROCEEDS
We will receive no proceeds from the Exchange Offers.
CAPITALIZATION
The following table sets forth as of December 31, 1998, the historical
consolidated capitalization of Intermedia and the capitalization as adjusted to
give effect to the issuance of the Senior Notes and the Senior Subordinated
Notes. This table should be read in conjunction with the Consolidated Financial
Statements of Intermedia and the notes relating to those statements included in
Intermedia's Annual Report on Form 10-K.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 387,615 $ 876,213
========== ==========
Long-term debt (including current maturities):
12.50% Senior Discount Notes due 2006..................... $ 247,524 $ 247,524
11.25% Senior Discount Notes due 2007..................... 440,069 440,069
8.875% Senior Notes due 2007.............................. 260,250 260,250
8.50% Senior Notes due 2008............................... 400,000 400,000
8.60% Senior Notes due 2008............................... 500,000 500,000
9.50% Senior Notes due 2009............................... -- 298,653
12.25% Senior Subordinated Discount Notes due 2009........ -- 200,407
Other long-term debt...................................... 676 676
Capital lease obligations................................. 523,867 523,867
---------- ----------
Total long-term debt.............................. 2,372,386 2,871,446
13.50% Series B redeemable exchangeable preferred stock
due 2009............................................... 371,678 371,678
7% Series D junior convertible preferred stock............ 133,686 133,686
7% Series E junior convertible preferred stock............ 160,086 160,086
7% Series F junior convertible preferred stock............ 196,838 196,838
Total stockholders' deficiency............................ (370,648) (370,648)
---------- ----------
Total capitalization.............................. $2,864,026 $3,363,086
========== ==========
</TABLE>
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DESCRIPTION OF THE SENIOR NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Intermedia Communications Inc. and not to any of its
subsidiaries and the term Senior Notes refers to the 9 1/2% Senior Notes and the
9 1/2% Series B Senior Notes and not the Senior Subordinated notes.
The Company will issue the 9 1/2% Series B Senior Notes under an indenture
(the "Senior Note Indenture") between itself and SunTrust Bank, Central Florida,
National Association, as trustee (the "Trustee"). The terms of the Senior Notes
include those stated in the Senior Note Indenture and those made part of the
Senior Note Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). Certain rights of the holders of the Senior
Notes are also set forth in registration rights agreement between Intermedia and
the initial purchasers of the Senior Notes (the "Senior Notes Registration
Rights Agreement").
The following description is a summary of the material provisions of the
Senior Note Indenture and the Senior Note Registration Rights Agreement. It does
not restate those agreements in their entirety. We urge you to read the Senior
Note Indenture and the Senior Note Registration Rights Agreement because they,
and not this description, define your rights as holders of the Senior Notes.
Copies of the Senior Note Indenture and the Senior Note Registration Rights
Agreement are available as set forth below under the subheading "Additional
Information." Certain defined terms used in this description but not defined
below under the subheading "Certain Definitions" have the meanings assigned to
them in the Senior Note Indenture.
BRIEF DESCRIPTION OF THE SENIOR NOTES
The Senior Notes:
- are general unsecured obligations of the Company;
- are pari passu in right of payment with all existing and future
senior borrowings, including the Existing Senior Notes and
borrowings under a credit facility which may be established by the
Company. Holders of secured Indebtedness of the Company will,
however, have claims that are prior to the claims of the Holders of
the Senior Notes with respect to the assets securing such other
Indebtedness.
Certain of the Company's operations are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its Subsidiaries
to meet its obligations, including its obligations under the Senior Notes. The
9 1/2% Senior Notes are, and the 9 1/2% Series B Senior Notes will be,
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Senior Notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. As of December 31, 1998, on a pro
forma basis after giving effect to the offering of the Senior Notes and the
Senior Subordinated Notes, the Company would have had approximately $3.1 billion
of total indebtedness outstanding, including trade payables and approximately
$88.1 million of indebtedness and other liabilities of the Company's
Subsidiaries. Senior indebtedness would have accounted for approximately $2.1
billion of such total indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Senior Note Indenture provides for the issuance by the Company of
Senior Notes with a maximum aggregate principal amount of $300.0 million. The
Company will issue 9 1/2% Series B Senior Notes in denominations of $1,000 and
integral multiples of $1,000. The 9 1/2% Series B Senior Notes will mature on
March 1, 2009.
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Interest on the Senior Notes will accrue at the rate of 9 1/2% per annum
and will be payable semi-annually in cash in arrears on March 1 and September 1,
commencing on September 1, 1999. The Company will make each interest payment to
the Holders of record on the immediately preceding February 15 and August 15.
Interest on the Senior Notes will accrue from February 24, 1999 or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
PAYING AGENT AND REGISTRAR FOR THE SENIOR NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Senior Note Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Senior Note Indenture. The Company is not required to transfer
or exchange any Senior Note selected for redemption. Also, the Company is not
required to transfer or exchange any Senior Note for a period of 15 days before
a selection of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
OPTIONAL REDEMPTION
Prior to March 1, 2004, the 9 1/2% Series B Senior Notes will be subject to
redemption at any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the Make-Whole Price, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date.
On or after March 1, 2004, the 9 1/2% Series B Senior Notes will be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on March 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004........................................................ 104.750%
2005........................................................ 103.167%
2006........................................................ 101.583%
2007 and thereafter......................................... 100.000%
</TABLE>
In the event of the sale by the Company prior to March 1, 2002 of its
Capital Stock (other than Disqualified Stock) (i) to a Strategic Investor in a
single transaction or series of related transactions for an aggregate purchase
price equal to or exceeding $50.0 million or (ii) in one or more Public
Offerings (each of clauses (i) and (ii), a "Qualified Equity Offering"), up to a
maximum of 25% of the aggregate principal amount of the Senior Notes originally
issued will, at the option of the Company, be redeemable from the net cash
proceeds of such sale or sales (but only to the extent such proceeds consist of
cash or readily marketable cash equivalents received in respect of the Capital
Stock, other than Disqualified Stock, so sold) at a redemption price equal to
109.50% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, provided that:
(1) at least 75% of the aggregate principal amount of the Senior Notes
originally issued remains outstanding immediately after the occurrence of
such redemption; and
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<PAGE> 30
(2) such redemption occurs within 90 days of the date of the closing
of each such sale.
MANDATORY REDEMPTION
Except as set forth below under the captions "Offer to Purchase Upon Change
of Control" and "Offer to Purchase with Excess Asset Sale Proceeds," the Company
will not be required to make mandatory redemption or sinking fund payments with
respect to the Senior Notes.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of Senior Notes to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). The Change of Control Offer must be commenced within 30 days
following a Change of Control, must remain open for at least 30 and not more
than 40 days (unless required by applicable law) and must comply with the
requirements of Rule 14e-1 under the Exchange Act and any other applicable
securities laws and regulations.
Except as described above with respect to a Change of Control, the Senior
Note Indenture will not contain provisions that permit the holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction.
Due to the leveraged structure of the Company and the effective
subordination of the Senior Notes to secured Indebtedness of the Company and
Indebtedness of the Company's Subsidiaries, the Company may not have sufficient
funds available to purchase the Senior Notes tendered in response to a Change of
Control Offer. In addition, the Existing Senior Notes or other agreements
relating to Indebtedness of the Company's Subsidiaries may contain prohibitions
or restrictions on the Company's ability to effect a Change of Control Payment.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Notes to require the Company to repurchase such Senior Notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of the Company to another Person may be uncertain.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under the
subheading "Certain Covenants -- Asset Sales") exceeds $10.0 million, the
Company will make an offer to all holders of Senior Notes and Pari Passu Notes
(an "Excess Proceeds Offer"), to purchase the maximum principal amount and/or
accreted value as applicable of Senior Notes and Pari Passu Notes that may be
purchased out of such Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the outstanding principal amount of the Senior Notes and 100%
of the accreted value or 100% of the outstanding principal amount, as
applicable, of the Pari Passu Notes, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date fixed for the closing of such
offer, in accordance with the procedures specified in the Senior Note Indenture.
If the aggregate principal amount and/or accreted value, as the case may
be, of Senior Notes and Pari Passu Notes surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee will select the Senior Notes and Pari
Passu Notes to be purchased on a pro rata basis. To the extent that the
aggregate amount of Senior Notes and Pari Passu Notes tendered pursuant to an
Excess Proceeds Offer is less than the amount of Excess Proceeds, the Company
may use such deficiency for general purposes. Upon completion of an Excess
Proceeds Offer, the amount of Excess Proceeds will be reset at zero.
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SELECTION OF SENIOR NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Senior Notes are to be redeemed at any time, the
Trustee will select Senior Notes for redemption as follows:
(1) if the Senior Notes are listed, in compliance with the
requirements of the principal national securities exchange on which the
Senior Notes are listed; or
(2) if the Senior Notes are not so listed, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate.
No Senior Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Senior Notes to be redeemed at
its registered address. Notices of redemption may not be conditional.
If any Senior Note is to be redeemed in part only, the notice of redemption
that relates to that Senior Note shall state the portion of the principal amount
thereof to be redeemed. A new Senior Note in principal amount equal to the
unredeemed portion of the original Senior Note will be issued in the name of the
Holder thereof upon cancellation of the original Senior Note. Senior Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on the Senior Notes or portions
of them called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Company and its Subsidiaries may not, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Subsidiaries other than
dividends or distributions payable (A) in Equity Interests of the Company
that are not Disqualified Stock or (B) to the Company or any Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for value
("Retire" and correlatively, a "Retirement") any Equity Interests of the
Company or any of its Subsidiaries or other Affiliate of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that is
subordinate in right of payment to the Senior Notes or (B) any Subsidiary,
except, with respect to clause (A) or (B) above, at final maturity or in
accordance with the mandatory redemption or repayment provisions set forth
in the original documentation governing such Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test described under the subheading "Incurrence of
Indebtedness and Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the Issue Date (including any Restricted Payments made pursuant to
clauses (i), (v) and (vi) of the next paragraph), is less than the sum
of
(w) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from June 30, 1996 to the end
of the Company's most recently ended fiscal
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<PAGE> 32
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock) after June 30, 1996
(other than any such Equity Interests, the proceeds of which were
used as set forth in clauses (ii) and (viii) below) plus
(y) 100% of the sum of, without duplication, (1) aggregate
dividends or distributions received by the Company or any Subsidiary
from any Joint Venture (other than dividends or distributions to pay
any obligations of such Joint Venture to Persons other than the
Company or any Subsidiary, such as income taxes), with non-cash
distributions to be valued at the lower of book value or fair market
value as determined by the Board of Directors, (2) the amount of the
principal and interest payments received since the Issue Date by the
Company or any Subsidiary from any Joint Venture and (3) the net
proceeds from the sale of an Investment in a Joint Venture received
by the Company or any Subsidiary; provided that there is no
obligation to return any such amounts to the Joint Venture, and
excluding any such dividend, distribution, interest payment or net
proceeds that constitutes a return of capital invested pursuant to
clause (vi) of the next succeeding paragraph, plus
(z) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Senior Note Indenture;
(ii) the Retirement of (A) any Equity Interests of the Company or any
Subsidiary of the Company, (B) Indebtedness of the Company that is
subordinate to the Senior Notes or (C) Indebtedness of a Subsidiary of the
Company, in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity
Interests of the Company (other than Disqualified Stock);
(iii) the Retirement of any Indebtedness of the Company subordinated
in right of payment to the Senior Notes in exchange for, or out of the
proceeds of the substantially concurrent Incurrence of Indebtedness of the
Company (other than Indebtedness to a Subsidiary of the Company), but only
to the extent that such new Indebtedness is permitted under the covenant
described below under the subheading "Incurrence of Indebtedness and
Issuance of Disqualified Stock" and (A) is subordinated in right of payment
to the Senior Notes at least to the same extent as, (B) has a Weighted
Average Life to Maturity at least as long as, and (C) has no scheduled
principal payments due in any amount earlier than, any equivalent amount of
principal under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Subsidiary of the Company
in exchange for, or out of the proceeds of the substantially concurrent
incurrence of Indebtedness of the Company or any Subsidiary but only to the
extent that such incurrence is permitted under the covenant described below
under the subheading "Incurrence of Indebtedness and Issuance of
Disqualified Stock" and only to the extent that such Indebtedness (A) is
not secured by any assets of the Company or any Subsidiary to a greater
extent than the Retired Indebtedness was so secured, (B) has a Weighted
Average Life to Maturity at least as long as the Retired Indebtedness and
(C) if such Retired Indebtedness was an obligation of the Company, is pari
passu or subordinated in right of payment to the Senior Notes at least to
the same extent as the Retired Indebtedness;
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<PAGE> 33
(v) the Retirement of any Equity Interests of the Company or any
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries;
(vi) Investments in any Joint Venture; provided that at the time any
such Investment is made, such Investment will not cause the aggregate
amount of Investments at any one time outstanding under this clause (vi) to
exceed the greater of (A) $25.0 million and (B) 5% of the Total Common
Equity of the Company;
(vii) the payment of cash in lieu of fractional shares (A) payable as
dividends on Equity Interests of the Company or (B) issuable upon
conversion of or in exchange for securities convertible into or
exchangeable for Equity Interests of the Company or (C) issuable as a
result of a corporate reorganization, provided that, in the case of (A) and
(B), the issuance of such Equity Interests or securities and, in the case
of (C), such corporate reorganization, is permitted under the terms of the
Senior Note Indenture; and
(viii) Investments with the net cash proceeds received by the Company
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) after December 31, 1997;
provided, however, that at the time of, and after giving effect to,
any Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v),
(vi) and (viii) no Default or Event of Default shall have occurred and be
continuing.
A Permitted Investment that ceases to be a Permitted Investment pursuant to
the definition of that term, shall become a Restricted Investment, deemed to
have been made on the date that it ceases to be a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default or an Event of Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Subsidiaries (except to the extent repaid in cash) in such
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation, (y)
the fair market value of such Investments at the time of such designation and
(z) the original fair market value of such Investments at the time they were
made. Such designation will only be permitted if such Restricted Payment would
be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the subheading "Incurrence of Indebtedness and
Issuance of Disqualified Stock," and (ii) no Default or Event of Default would
be in existence following such designation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described under the subheading "Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements.
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Incurrence of Indebtedness and Issuance of Disqualified Stock
The Company and its Subsidiaries may not, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable for the payment of (collectively, "incur" and, correlatively, "incurred"
and "incurrence") any Indebtedness (including, without limitation, Acquired
Debt) and may not issue any Disqualified Stock, provided, however, that the
Company and/or any of its Subsidiaries may incur Indebtedness (including,
without limitation, Acquired Debt) or issue shares of Disqualified Stock if,
after giving effect to the incurrence of such Indebtedness or the issuance of
such Disqualified Stock, the Consolidated Cash Flow Leverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of such
incurrence or issuance:
(A) does not exceed 5.5 to 1 if such incurrence or issuance occurs on
or prior to June 1, 1999; and
(B) does not exceed 5.0 to 1 if such incurrence or issuance occurs
after June 1, 1999, in each case, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period.
If the Company incurs any Indebtedness or issues or redeems any Preferred
Stock subsequent to the commencement of the period for which such ratio is being
calculated but prior to the event for which the calculation of the ratio is
made, then the ratio will be calculated giving pro forma effect to any such
incurrence of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable period. In making
such calculation on a pro forma basis, interest attributable to Indebtedness
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period.
The foregoing limitation will not apply to (with each exception to be given
independent effect):
(a) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness under a Credit Facility in an aggregate principal amount at
any one time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and/or any of its Subsidiaries thereunder) not to exceed $150.0 million in
the aggregate at any one time outstanding, less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently reduce the commitments
with respect to such Indebtedness pursuant to the covenant described above
under the subheading "Asset Sales;"
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total
cost of the Telecommunications Related Assets financed therewith if such
Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
(c) the incurrence by the Company and/or any of its Subsidiaries of
the Existing Indebtedness, including the Existing Senior Notes;
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $50.0 million at any one
time outstanding;
(e) the incurrence by the Company of Indebtedness, but only to the
extent that such Indebtedness has a final maturity no earlier than, and a
Weighted Average Life to Maturity equal to or greater than, the final
maturity and Weighted Average Life to Maturity, respectively, of the Senior
Notes, in an aggregate principal amount not to exceed 2.0 times the net
cash proceeds received by the Company after June 30, 1996 from the issuance
and sale of Equity Interests of the Company (that are not Disqualified
Stock) plus the fair market value of Equity Interests (other than
Disqualified Stock) issued after June 30, 1996 in connection with any
acquisition of any Telecommunications Business;
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(f) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Subsidiaries of Indebtedness issued in exchange for, or the
proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness, other than Indebtedness incurred pursuant to clause (a)
above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness do not exceed
the principal amount of and premium, if any, and accrued interest on the
Indebtedness so Refinanced (or if such Indebtedness was issued at an
original issue discount, the original issue price plus amortization of
the original issue discount at the time of the repayment of such
Indebtedness) plus the fees, expenses and costs of such Refinancing and
reasonable prepayment premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness shall have a final maturity no
earlier than, and a Weighted Average Life to Maturity equal to or
greater than, the final maturity and Weighted Average Life to Maturity
of the Indebtedness being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinated in right
of payment to the Senior Notes, the Refinancing Indebtedness shall be
subordinated in right of payment to the Senior Notes on terms at least
as favorable to the holders of Senior Notes as those contained in the
documentation governing the Indebtedness being so Refinanced;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(h) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate or foreign currency risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Senior Note Indenture to
be outstanding; and
(i) the incurrence by the Company of Indebtedness represented by the
Senior Notes and the Senior Subordinated Notes, in each case, issued on the
Issue Date.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or Disqualified Stock meets the criteria of more
than one of the categories described in clauses (a) through (i) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item in any manner that
complies with this covenant and such item will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
herein. Accrual of interest or dividends, the accretion of accreted value or
liquidation preference and the payment of interest or dividends in the form of
additional Indebtedness, Common Stock or Preferred Stock will not be deemed to
be an incurrence of Indebtedness for purposes of this covenant.
Asset Sales
The Company and its Subsidiaries may not, whether in a single transaction
or a series of related transactions occurring within any twelve-month period:
(i) sell, lease, convey, dispose or otherwise transfer any assets
(including by way of a Sale and Leaseback Transaction) other than sales,
leases, conveyances, dispositions or other transfers:
(A) in the ordinary course of business;
(B) to the Company by any Subsidiary of the Company or from the
Company to any Subsidiary of the Company;
(C) that constitute a Restricted Payment, Investment or dividend or
distribution permitted under the covenant described above under the
subheading "Restricted Payments;" or
(D) that constitute the disposition of all or substantially all of
the assets of the Company pursuant to the covenant described below under
the subheading "Merger, Consolidation or Sale of Assets;" or
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<PAGE> 36
(ii) issue or sell Equity Interests in any of its Subsidiaries other
than an issuance or sale of Equity Interests of any such Subsidiary to the
Company or a Subsidiary of the Company;
if, in the case of either (i) or (ii) above, in a single transaction or a
series of related transactions occurring within any twelve-month period, such
assets or securities:
(x) have a Fair Market Value in excess of $2.0 million; or
(y) are sold or otherwise disposed of for net proceeds in excess of
$2.0 million (each of the foregoing, an "Asset Sale"), unless:
(a) no Default or Event of Default exists or would occur as a
result thereof;
(b) the Company, or such Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair
Market Value (evidenced by a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate delivered to the Trustee),
of the assets or securities issued or sold or otherwise disposed of; and
(c) except with respect to an Asset Sale constituting the issuance
or sale of Equity Interests in the Web Hosting Subsidiary, at least 75%
of the consideration therefor received by the Company or such Subsidiary
is in the form of cash, provided, however, that:
(A) the amount of:
(x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes thereto),
of the Company or any Subsidiary of the Company (other than
liabilities that are by their terms subordinated to the Senior
Notes) that are assumed by the transferee of any such assets; and
(y) any notes, obligations or other securities received by
the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into
cash,
shall be deemed to be cash (to the extent of the cash received in
the case of subclause (y)) for purposes of this clause (c); and
(B) an amount equal to the Fair Market Value (determined as set
forth in clause (b) above) of (1) Telecommunications Related Assets
received by the Company or any such Subsidiary from the transferee
that will be used by the Company or any such Subsidiary in the
operation of a Telecommunications Business in the United States and
(2) the Voting Stock of any Person engaged in the Telecommunications
Business in the United States received by the Company or any such
Subsidiary (provided that such Voting Stock is converted to cash
within 270 days or such Person concurrently becomes or is a
Subsidiary of the Company) will be deemed to be cash for purposes of
this clause (c).
The foregoing provisions will not apply to a sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company,
which will be governed by the provisions of the Senior Note Indenture described
below under the subheading "Merger, Consolidation or Sale of Assets."
Within 360 days after the receipt of net proceeds of any Asset Sale, the
Company (or such Subsidiary, as the case may be) may apply the Net Proceeds from
such Asset Sale, at its option, to:
(i) permanently reduce the amounts permitted to be borrowed by the
Company under the terms of any of its Senior Indebtedness; or
(ii) the purchase of Telecommunications Related Assets or Voting Stock
of any Person engaged in the Telecommunications Business in the United
States (provided that such Person concurrently becomes a Subsidiary of the
Company); or
(iii) in the case of net cash proceeds realized upon the issuance or
sale of Equity Interests in the Web Hosting Subsidiary, fund cash operating
losses, provide working capital and for general corporate purposes.
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Any Net Proceeds from any Asset Sales that are not so applied or invested
will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an Excess Proceeds
Offer in accordance with the terms set forth under the subheading "Offer to
Purchase with Excess Asset Sale Proceeds."
Liens
The Company and its Subsidiaries may not, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except for Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company and its Subsidiaries may not, directly or indirectly, create or
otherwise cause to become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its Subsidiaries;
or
(iii) transfer any of its properties or assets to the Company or any
of its Subsidiaries; except for such encumbrances or restrictions existing
as of the Issue Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the time
of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
(g) Indebtedness incurred under clause (a) of the covenant
described under the subheading "Incurrence of Indebtedness and Issuance
of Disqualified Stock;"
(h) the Senior Note Indenture and the Senior Notes or future
Indebtedness with substantially similar restrictions, if any, to the
Senior Notes;
(i) the Senior Subordinated Note Indenture and the Senior
Subordinated Notes or future Indebtedness with substantially similar
restrictions, if any, to the Senior Subordinated Notes; or
(j) in the case of clauses (a), (c), (e), (g), (h) and (i) above,
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supple-
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ments, refundings, replacements or refinancings are not materially more
restrictive with respect to such dividend and other payment restrictions
than those contained in such instruments as in effect on the date of
their incurrence or, if later, the Issue Date.
Merger, Consolidation or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another corporation, Person or entity unless:
(i) the Company is the surviving entity or the entity or Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all the obligations of the Company under
the Senior Notes and the Senior Note Indenture pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) except in connection with a Merger with or into a wholly owned
Subsidiary of the Company, the Company, or any entity or Person formed by
or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made,
at the time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable fiscal
quarter (including any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
transactions), either (A) could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Cash Flow Leverage Ratio test
described under the subheading "Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (B) would have (x) Total Market Capitalization of at
least $1.0 billion and (y) total Indebtedness (net of cash and cash
equivalents that are not restricted cash or restricted cash equivalents as
reflected on the Company's consolidated balance sheet as of the time of
such event) in an amount no greater than 40% of its Total Market
Capitalization; and
(v) such transaction would not result in the loss, material impairment
or adverse modification or amendment of any authorization or license of the
Company or its Subsidiaries that would have a material adverse effect on
the business or operations of the Company and its Subsidiaries taken as a
whole.
Transactions with Affiliates
The Company and its Subsidiaries may not sell, lease, transfer or otherwise
dispose of any of their respective properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company; and
(iii) the Company delivers to the Trustee, with respect to any
Affiliate Transaction involving aggregate payments in excess of $1.0
million, a resolution of a committee of independent directors of the
Company set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clauses (i) and (ii) above;
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<PAGE> 39
provided that:
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its
Subsidiaries, or any grant of stock, in the ordinary course of business
that are approved by the Board of Directors of the Company;
(b) transactions between or among the Company and its Subsidiaries;
(c) transactions permitted by the provisions of the Senior Note
Indenture described above under the subheading "Restricted Payments;"
and
(d) loans and advances to employees and officers of the Company or
any of its Subsidiaries in the ordinary course of business in an
aggregate principal amount not to exceed $1.0 million at any one time
outstanding, shall not be deemed Affiliate Transactions.
Use of Proceeds
The Company may use the gross proceeds from the sale of the Senior Notes
only for the following purposes:
(i) to pay the fees and expenses of the issuance of the Senior Notes
including any discount or commission to the initial purchasers of the
Senior Notes; and
(ii) with respect to any funds remaining after application under
clause (i) above, to fund up to 80% of the cost of the acquisition or
construction of Telecommunications Related Assets, or to the repayment of
the Existing Senior Notes or to pay regularly scheduled interest on the
Senior Notes pursuant to their terms.
Pending application of the proceeds in accordance with clause (ii) above,
the Company will deposit such proceeds into a segregated account in the
Company's name. The Company will deliver to the Trustee an Officer's Certificate
with each annual compliance certificate certifying that the amounts in such
account were applied in accordance with this covenant.
Business Activities
The Company and its Subsidiaries may not, directly or indirectly, engage in
any business other than the Telecommunications Business.
Limitations on Sale and Leaseback Transactions
The Company and its Subsidiaries may not, directly or indirectly, enter
into, assume, Guarantee or otherwise become liable with respect to any Sale and
Leaseback Transaction, provided that the Company or any Subsidiary of the
Company may enter into any such transaction if:
(i) the Company or such Subsidiary would be permitted under the
covenants described above under the subheadings "Incurrence of Indebtedness
and Issuance of Disqualified Stock" and "Liens" to incur secured
Indebtedness in an amount equal to the Attributable Debt with respect to
such transaction;
(ii) the consideration received by the Company or such Subsidiary from
such transaction is at least equal to the Fair Market Value of the property
being transferred; and
(iii) the Net Proceeds received by the Company or such Subsidiary from
such transaction are applied in accordance with the covenant described
above under the subheading "Asset Sales."
Reports
The Company will file with the Trustee within 15 days after it files them
with the SEC copies of the annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the SEC
pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports"). In the
event the Company is not required or shall cease to be required to file SEC
Reports, pursuant to the Exchange Act,
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<PAGE> 40
the Company will nevertheless continue to file such reports with the SEC (unless
the SEC will not accept such a filing) and the Trustee. Whether or not required
by the Exchange Act to file SEC Reports with the SEC, so long as any Senior
Notes are outstanding, the Company will furnish copies of the SEC Reports to the
holders of Senior Notes at the time the Company is required to file the same
with the Trustee and make such information available to investors who request it
in writing. In addition, the Company has agreed that, for so long as any Senior
Notes remain outstanding, it will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Payments for Consents
Neither the Company nor any of its Affiliates shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Senior Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Senior Note Indenture or the Senior Notes unless such consideration is
offered to be paid or agreed to be paid to all holders of the Senior Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Senior Notes;
(ii) default in payment when due of principal or premium, if any, on
the Senior Notes at maturity, upon redemption or otherwise;
(iii) failure by the Company to perform or comply with the provisions
of the covenants described above under the subheadings "Offer to Purchase
Upon Change of Control," "Asset Sales," "Restricted Payments," "Incurrence
of Indebtedness and Issuance of Disqualified Stock" or "Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company for 30 days after notice from the Trustee
or the holders of at least 25% in principal amount of the Senior Notes then
outstanding to comply with its other agreements in the Senior Note
Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or Guarantee now exists, or is
created after the Issue Date, which default (x) is caused by a failure to
pay when due principal, premium, if any, or interest on such Indebtedness
within the grace period provided in such Indebtedness (a "Payment
Default"), and the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness of the Company or any
Significant Subsidiary under which there has been a Payment Default or the
maturity of which has been accelerated as provided in clause (y),
aggregates $5.0 million or more or (y) results in the acceleration (which
acceleration has not been rescinded) of such Indebtedness prior to its
express maturity and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(vi) failure by the Company or any of its Significant Subsidiaries to
pay final judgments (other than any judgment as to which a reputable
insurance company has accepted full liability in writing) aggregating in
excess of $5.0 million which judgments are not paid, discharged or stayed
within 45 days after their entry; and
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<PAGE> 41
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing under the Senior Note
Indenture, the Trustee or the holders of at least 25% in principal amount of the
then outstanding Senior Notes may declare all the Senior Notes to be due and
payable immediately. Upon such declaration, the principal of, premium, if any,
and accrued and unpaid interest and Liquidated Damages, if any, on the Senior
Notes shall be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries,
the foregoing amount shall ipso facto become due and payable without further
action or notice. No premium is payable upon acceleration of the Senior Notes
except that in the case of an Event of Default that is the result of an action
or inaction by the Company or any of its Subsidiaries intended to avoid
restrictions on or premiums related to redemptions of the Senior Notes contained
in the Senior Note Indenture or the Senior Notes. The amount declared due and
payable will include the premium that would have been applicable on a voluntary
prepayment of the Senior Notes. Holders of the Senior Notes may not enforce the
Senior Note Indenture or the Senior Notes except as provided in the Senior Note
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payments of principal or interest)
if it determines that withholding notice is in such holders' interest.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding, by notice to the Trustee, may on behalf of the holders of all
of the Senior Notes, waive any existing Default or Event of Default and its
consequences under the Senior Note Indenture, except a continuing Default or
Event of Default in the payment of interest or Liquidated Damages or premium on,
or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Senior Note Indenture, and the Company is required
upon becoming aware of any Default or Event of Default to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Notes or the Senior Note Indenture or for any claim based on, in respect
of, or by reason of such obligations or their creation. Each holder of Senior
Notes by accepting a Senior Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Senior
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Senior Notes, except for:
(a) the rights of holders of outstanding Senior Notes to receive from
the trust described below payments in respect of the principal of, premium,
if any, and interest on and Liquidated Damages with respect to such Senior
Notes when such payments are due, or on the redemption date, as the case
may be;
(b) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust;
(c) the rights, powers, trust, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
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<PAGE> 42
(d) the Legal Defeasance provisions of the Senior Note Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain
covenants that are described in the Senior Note Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the
Senior Notes. In the event Covenant Defeasance occurs, certain events (not
including non payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under the subheading "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the Senior Notes, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to pay the
principal of, premium and Liquidated Damages, if any, and interest on the
outstanding Senior Notes, on the stated maturity or on the applicable
optional redemption date, as the case may be, of such principal or
installment of principal of, premium, if any, or interest on or Liquidated
Damages with respect to the outstanding Senior Notes;
(ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Senior Notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company must deliver to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Senior Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Senior Note Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
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<PAGE> 43
(viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Senior Note
Indenture or the Senior Notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes), and any existing default or compliance with
any provision of the Senior Note Indenture or the Senior Notes may be waived
with the consent of the holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each holder affected, however, an amendment or
waiver may not (with respect to any Senior Note held by a non-consenting
holder):
(i) reduce the principal amount of Senior Notes whose holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal or change the fixed maturity of any Senior
Note or alter the provisions with respect to the redemption of the Senior
Notes (other than provisions relating to the covenants described under the
subheadings "Offer to Purchase upon Change of Control" and "Offer to
Purchase with Excess Asset Sale Proceeds");
(iii) reduce the rate of or change the time for payment of interest on
any Senior Notes;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Senior Notes (except a rescission
of acceleration of the Senior Notes by the holders of at least a majority
in aggregate principal amount of the Senior Notes and a waiver of the
payment default that resulted from such acceleration);
(v) make any Senior Note payable in money other than that stated in
the Senior Notes;
(vi) make any change in the provisions of the Senior Note Indenture
relating to waivers of past Defaults or the rights of holders of Senior
Notes to receive payments of principal of, premium, if any, or interest on
the Senior Notes;
(vii) waive a redemption payment with respect to any Senior Note
(other than a payment required by one of the covenants described above
under the subheadings "Offer to Purchase upon Change of Control" and "Offer
to Purchase with Excess Asset Sale Proceeds"); or
(viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Company and the Trustee may amend or supplement the Senior Note
Indenture or the Senior Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Senior Notes in the case of a merger or consolidation;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Senior Notes or that does not adversely
affect the legal rights under the Senior Note Indenture of any such
holder; or
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Senior Note Indenture under
the Trust Indenture Act.
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CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company, the Senior Note Indenture
limits its rights to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The Trustee will be permitted to engage in other transactions with the Company;
however, if the Trustee acquires any conflicting interest, it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
as Trustee or resign.
The holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Senior Note Indenture provides that in case
an Event of Default shall occur and be continuing, the Trustee will be required,
in the exercise of its powers, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Senior
Note Indenture at the request of any holder of Senior Notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
No holder of any Senior Note will have any right to institute any
proceeding with respect to the Senior Note Indenture or for any remedy
thereunder, unless:
(i) such holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) holders of at least 25% in principal amount of the then
outstanding Senior Notes make a written request to pursue the remedy;
(iii) such holders of the Senior Notes provide to the Trustee
satisfactory indemnity; and
(iv) the Trustee does not comply within 60 days. Otherwise, no holder
of any Senior Note will have any right to institute any proceeding with
respect to the Senior Note Indenture or for any remedy thereunder,
except:
(i) a holder of a Senior Note may institute suit for enforcement of
payment of the principal of and premium, if any, or interest on such Senior
Note on or after the respective due dates expressed in such Senior Note
(including upon acceleration thereof); or
(ii) the institution of any proceeding with respect to the Senior Note
Indenture or any remedy thereunder, including without limitation
acceleration, by the Holders of a majority in principal amount of the
outstanding Senior Notes, provided that, upon institution of any proceeding
or exercise of any remedy such Holders provide the Trustee with prompt
notice thereof.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Senior Note
Indenture and Senior Note Registration Rights Agreement without charge by
writing to Intermedia Communications Inc., 3625 Queen Palm Drive, Tampa, Florida
33619.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
Senior Note Registration Rights Agreement. It does not restate that agreement in
its entirety. We urge you to read the Senior Note Registration Rights Agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of these Senior Notes. See "Additional Information."
Pursuant to the Senior Note Registration Rights Agreement, the Company
agreed to file with the SEC a registration statement (the "Senior Exchange Offer
Registration Statement") on the appropriate form under the Securities Act with
respect to an offer to exchange (the "Senior Exchange Offer") the 9 1/2% Senior
Notes for 9 1/2% Series B Senior Notes. Upon the effectiveness of the Senior
Exchange Offer
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<PAGE> 45
Registration Statement, the Company will offer to the holders of Transfer
Restricted Securities pursuant to the Senior Exchange Offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for a new issue of senior notes of the Company (the "9 1/2% Series B
Senior Notes") registered under the Securities Act, with terms substantially
identical to those of the 9 1/2% Senior Notes.
If:
(i) the Company is not:
(a) required to file the Senior Exchange Offer Registration
Statement; or
(b) permitted to consummate the Senior Exchange Offer because the
Senior Exchange Offer is not permitted by applicable law or Commission
policy; or
(ii) any holder of Transfer Restricted Securities notifies the Company
within the specified time period that:
(a) it is prohibited by law or Commission policy from participating
in the Senior Exchange Offer,
(b) it may not resell the 9 1/2% Series B Senior Notes acquired by
it in the Senior Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Senior Exchange Offer
Registration Statement is not appropriate or available for such resales;
or
(c) it is a broker-dealer and owns 9 1/2% Senior Notes acquired
directly from the Company or an affiliate of the Company,
the Company will file with the Commission a shelf registration
statement (the "Senior Notes Shelf Registration Statement") to cover
resales of the Senior Notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the
Senior Notes Shelf Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
9 1/2% Senior Note until:
(i) the date on which such 9 1/2% Senior Note has been exchanged by a
Person other than a broker-dealer for a 9 1/2% Series B Senior Note in the
Senior Exchange Offer;
(ii) following the exchange by a broker-dealer in the Senior Exchange
Offer of a 9 1/2% Senior Note for a 9 1/2% Series B Senior Note, the date
on which such 9 1/2% Series B Senior Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Senior Exchange Offer Registration
Statement;
(iii) the date on which such 9 1/2% Senior Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Senior Notes Shelf Registration Statement; or
(iv) the date on which such 9 1/2% Senior Note may be distributed to
the public pursuant to Rule 144 under the Securities Act.
The Senior Note Registration Rights Agreement provides that:
(i) unless the Senior Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will file a Senior
Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Issue Date;
(ii) unless the Senior Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will use its best efforts
to have the Senior Exchange Offer Registration Statement declared effective
by the Commission on or prior to 180 days after the Issue Date;
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<PAGE> 46
(iii) unless the Senior Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will
(a) upon the effectiveness of the Senior Exchange Offer
Registration Statement, commence the Senior Exchange Offer and
(b) use its best efforts to issue on or prior to 30 business days
after the date on which the Senior Exchange Offer Registration Statement
was declared effective by the Commission, 9 1/2% Series B Senior Notes
in exchange for all 9 1/2% Senior Notes tendered prior thereto in the
Senior Exchange Offer; and
(iv) if obligated to file the Senior Notes Shelf Registration
Statement, the Company will use its best efforts to file the Senior Notes
Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises (and, if the Senior Exchange Offer is
not permitted by applicable law or Commission policy, in any event within
150 days after the Issue Date) and to cause the Senior Notes Shelf
Registration Statement to be declared effective by the Commission on or
prior to 180 days after such obligation arises (and, if the Senior Exchange
Offer is not be permitted by applicable law or Commission policy, in any
event within 270 days after the Issue Date).
If:
(a) the Company fails to file any of the registration statements
required by the Senior Note Registration Rights Agreement on or before
the date specified for such filing;
(b) any of such registration statements is not declared effective
by the Commission on or prior to the date specified for such
effectiveness (the "Senior Note Effectiveness Target Date");
(c) the Company fails to consummate the Senior Exchange Offer
within 30 business days of the Senior Note Effectiveness Target Date
with respect to the Senior Exchange Offer Registration Statement; or
(d) the Senior Notes Shelf Registration Statement or the Senior
Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales
of Transfer Restricted Securities during the periods specified in the
Senior Note Registration Rights Agreement, provided, that the Company
will have the option of suspending the effectiveness of the Senior Notes
Shelf Registration Statement or the Senior Exchange Offer Registration
Statement, without becoming obligated to pay Liquidated Damages for
periods of up to a total of 60 days in any calendar year if the Board of
Directors of the Company determines that compliance with the disclosure
obligations necessary to maintain the effectiveness of the Senior Notes
Shelf Registration Statement at such time could reasonably be expected
to have an adverse effect on the Company or a pending corporate
transaction (each such event referred to in clauses (a) through (d)
above a "Senior Note Registration Default"),
then the Company will pay liquidated damages ("Liquidated Damages") to
each Holder of Transfer Restricted Securities, with respect to the first
90-day period immediately following the occurrence of such Senior Note
Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Senior Notes constituting Transfer Restricted
Securities held by such Holder.
The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of Senior Notes constituting Transfer
Restricted Securities with respect to each subsequent 90-day period until all
Senior Note Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Senior Notes
constituting Transfer Restricted Securities.
All accrued Liquidated Damages will be paid by the Company on each Interest
Payment Date to the Global Senior Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by mailing checks to their registered addresses.
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Following the cure of all Senior Note Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Senior Notes will be required to make certain representations to
the Company (as described in the Senior Note Registration Rights Agreement) in
order to participate in the Senior Exchange Offer and will be required to
deliver information to be used in connection with the Senior Notes Shelf
Registration Statement and to provide comments on the Senior Notes Shelf
Registration Statement within the time periods set forth in the Senior Note
Registration Rights Agreement in order to have their Senior Notes included in
the Senior Notes Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the 9 1/2% Series B Senior Notes
may be issued in the form of one or more global certificates (the "Global Senior
Notes"). The Global Senior Notes will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to herein as the
"Global Senior Note Holder").
Senior Notes that are issued as described below under the subheading
"Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer of Certificated
Securities, such Certificated Securities may, unless all Global Senior Notes
have previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Senior Note representing the principal amount of Senior
Notes being transferred, subject to the transfer restrictions set forth in the
Senior Note Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the initial
purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary:
(i) upon deposit of the Global Senior Notes, the Depositary will
credit the accounts of Participants designated by the initial purchasers
with portions of the principal amount of the Global Senior Notes; and
(ii) ownership of the Senior Notes evidenced by the Global Senior
Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect
to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Senior Notes evidenced by
the Global Senior Note will be limited to such extent.
So long as the Global Senior Note Holder is the registered owner of any
Senior Notes, the Global Senior Note Holder will be considered the sole Holder
under the Senior Note Indenture of any Senior Notes evidenced by the Global
Senior Notes. Beneficial owners of Senior Notes evidenced by the Global Senior
Notes will not be considered the owners or Holders thereof under the Senior Note
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of
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the Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Senior Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Notes registered in the name of the
Global Senior Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Senior Note Holder in its capacity
as the registered Holder under the Senior Note Indenture. Under the terms of the
Senior Note Indenture, the Company and the Trustee may treat the persons in
whose names Senior Notes, including the Global Senior Notes, are registered as
the owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Senior Notes.
The Company believes, however, that it is currently the policy of the Depositary
to immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of the Senior Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Senior Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof).
In addition, if:
(i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and a successor depositary
is not appointed by the Company within 120 days; or
(ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Senior Notes in the form of Certificated
Securities under the Senior Note Indenture,
then, upon surrender by the Global Senior Note Holder of its Global
Senior Note, Senior Notes in such form will be issued to each person that
the Global Senior Note Holder and the Depositary identify as being the
beneficial owner of the related Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Senior Note Holder or the Depositary in identifying the beneficial owners
of Senior Notes and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Senior Note Holder
or the Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the Senior Notes represented
by the Global Senior Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) by wire transfer of immediately available funds to
the accounts specified by the Global Senior Note Holder. With respect to Senior
Notes in certificated form, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Senior Notes represented by the Global Senior Notes are
expected to be eligible to trade in the Depository's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Senior Notes
will, therefore, be required by the Depositary to be settled in immediately
available funds. The Company expects that secondary trading in any certificated
Senior Notes will also be settled in immediately available funds.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Note
Indenture. Reference is made to the Senior Note Indenture for a full disclosure
of all such terms, as well as any other capitalized terms used herein for which
no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the
assets of the Company and its Subsidiaries, taken as a whole, to any Person
or group (as such term is used in Section 13(d)(3) and 14(d)(2) of the
Exchange Act);
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(iii) any Person or group (as defined above) is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the total
Voting Stock or Total Common Equity of the Company, including by way of
merger, consolidation or otherwise; or
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(iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means
the ratio of the Consolidated Indebtedness of such Person to the Consolidated
EBITDA of such Person for the relevant period; provided, however, that:
(1) if the Company or any Subsidiary of the Company has incurred any
Indebtedness (including Acquired Debt) or if the Company has issued any
Disqualified Stock or if any Subsidiary of the Company has issued any
Preferred Stock since the beginning of such period that remains outstanding
on the date of such determination or if the transaction giving rise to the
need to calculate the Consolidated Cash Flow Leverage Ratio is an
incurrence of Indebtedness (including Acquired Debt) or the issuance of
Disqualified Stock by the Company, Consolidated EBITDA and Consolidated
Indebtedness for such period will be calculated after giving effect on a
pro forma basis to:
(A) such Indebtedness, Disqualified Stock or Preferred Stock, as
applicable, as if such Indebtedness had been incurred or such stock had
been issued on the first day of such period;
(B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness or sale of stock as if such discharge had occurred on the
first day of such period; and
(C) the interest income realized by the Company or its Subsidiaries
on the proceeds of such Indebtedness or of such stock sale, to the
extent not yet applied at the date of determination, assuming such
proceeds earned interest at the rate in effect on the date of
determination from the first day of such period through such date of
determination;
(2) if since the beginning of such period the Company or any
Subsidiary of the Company has made any sale of assets (including, without
limitation, any Asset Sales or pursuant to any Sale and Leaseback
Transaction), Consolidated EBITDA for such period will be:
(A) reduced by an amount equal to Consolidated EBITDA (if positive)
directly attributable to the assets which are the subject of such sale
of assets for such period; or
(B) increased by an amount equal to Consolidated EBITDA (if
negative) directly attributable thereto for such period; and
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(3) if since the beginning of such period the Company or any
Subsidiary of the Company (by merger or otherwise) has made an
Investment in any Subsidiary of the Company (or any Person which becomes
a Subsidiary of the Company) or has made an acquisition of assets,
including, without limitation, any acquisition of assets occurring in
connection with a transaction causing a calculation of Consolidated
EBITDA to be made hereunder, which constitutes all or substantially all
of an operating unit of a business, Consolidated EBITDA for such period
will be calculated after giving pro forma effect thereto (including the
incurrence of any Indebtedness (including Acquired Debt)) as if such
Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the pro forma calculations will be
determined in good faith by a responsible financial or accounting Officer
of the Company, provided, however, that such Officer shall assume:
(i) the historical sales and gross profit margins associated with
such assets for any consecutive 12-month period ended prior to the date
of purchase (provided that the first month of such 12-month period will
be no more than 18 months prior to such date of purchase); and
(ii) other expenses as if such assets had been owned by the Company
since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and
is being given pro forma effect, the interest on such Indebtedness will
be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period;
(ii) Consolidated Interest Expense;
(iii) depreciation, amortization (including amortization of goodwill
and other intangibles); and
(iv) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period and excluding non-cash interest and dividend income) of such
Person and its Subsidiaries for such period, in each case, on a
consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation, amortization, interest expense, and other
non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary, or loaned to the Company by any
such Subsidiary, without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of such Person and
its Subsidiaries as of such date calculated on a consolidated basis in
accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP:
(a) the amount of interest in respect of Indebtedness (including
amortization of original issue discount, amortization of debt issuance
costs, and non-cash interest payments on any Indebtedness, the
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interest portion of any deferred payment obligation and after taking into
account the effect of elections made under any Interest Rate Agreement
however denominated with respect to such Indebtedness);
(b) the amount of Redeemable Dividends (to the extent not already
included in Indebtedness in determining Consolidated Interest Expense for
the relevant period); and
(c) the interest component of rentals in respect of any Capital Lease
Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition interest on
a Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in
such Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof;
(ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or other distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders;
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(iv) the cumulative effect of a change in accounting principles shall
be excluded; and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Contingent Investment" means, with respect to any Person, any guarantee by
such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a Contingent
Investment shall be deemed made at the time that the guarantee of performance or
the commitment to invest is given, and the amount of such Investment shall be
the maximum monetary obligation under such guarantee of performance or
commitment to invest. To the extent that a Contingent Investment is released or
lapses without payment under the guarantee of performance or the commitment to
invest, such Investment shall be deemed not made to the extent of such release
or lapse. With respect to any Contingent Investment, the payment of the
guarantee of performance or the payment under the commitment to invest shall not
be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(i) was a member of such Board of Directors on the Issue Date; or
(ii) was nominated for election or elected to such Board of Directors
with the affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or election.
"Credit Facility" means any credit facility entered into by and among the
Company and one or more commercial banks or financial institutions, providing
for senior term or revolving credit borrowings of a type similar to credit
facilities typically entered into by commercial banks and financial
institutions, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection there-
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with, as such credit facility and related agreements may be amended, extended,
refinanced, renewed, restated, replaced or refunded from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and only
to the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Senior Notes mature,
provided, however, that any Capital Stock which would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require the Company to repurchase or redeem such Capital Stock upon the
occurrence of a Change of Control occurring prior to the final maturity of the
Senior Notes shall not constitute Disqualified Stock if the change in control
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions applicable to the Senior Notes
contained in the covenant described under the subheading "Offer to Purchase Upon
a Change of Control" and such Capital Stock specifically provides that the
Company will not repurchase or redeem any such stock pursuant to such provisions
prior to the Company's repurchase of such Senior Notes as are required to be
repurchased pursuant to the covenant described under the subheading "Offer to
Purchase Upon Change of Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivable" means any Receivable not more than 90 days past due
under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"Existing Indebtedness" means the Existing Senior Notes and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 12 1/2% Senior Discount Notes
due 2006, the Company's 11 1/4% Senior Discount Notes due 2007, the Company's
8 7/8% Senior Notes due 2007, the Company's 8 1/2% Senior Notes due 2008 and the
Company's 8.60% Senior Notes due 2008.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of
(i) borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(iii) the balance deferred and unpaid of the purchase price of any
property (including pursuant to capital leases); or
(iv) representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade
payable, if and to the extent any of the foregoing (other than Hedging
Obligations or letters of credit) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, all
indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Persons), all
obligations to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Stock or any warrants, rights or options to acquire
such Disqualified Stock valued, in the case of Disqualified Stock, at the
greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends, the
liquidation value of any Preferred Stock issued by Subsidiaries of such
Person plus accrued and unpaid dividends, and also includes, to the extent
not otherwise included, the Guarantee of items that would be included
within this definition and any amendment, supplement, modification,
deferral, renewal, extension or refunding of any of the above;
notwithstanding the foregoing, in no event will performance bonds or
similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with
GAAP; and provided further, that the amount of any Indebtedness in respect
of any Guarantee shall be the maximum principal amount of the Indebtedness
so guaranteed.
"Interest Rate Agreements" means (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of the Senior Note
Indenture.
"Issue Date" means February 24, 1999.
"Joint Venture" means a Person in the Telecommunications Business in which
the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
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"Make-Whole Amount" means, with respect to any Senior Note, an amount equal
to the excess, if any, of:
(i) the present value of the remaining principal, premium and interest
payments that would be payable with respect to such Senior Note if such
Senior Note were redeemed on March 1, 2004, computed using a discount rate
equal to the Treasury Rate plus 50 basis points;
over
(ii) the outstanding principal amount of such Senior Note.
"Make-Whole Average Life" means, with respect to any date of redemption of
Senior Notes, the number of years (calculated to the nearest one-twelfth) from
such redemption date to March 1, 2004.
"Make-Whole Price" means, with respect to any Senior Note, the greater of
(i) the sum of the principal amount of such Senior Note and the Make-Whole
Amount with respect to such Senior Note and (ii) the redemption price of such
Senior Note on March 1, 2004.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after
the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any Asset Sale (including, without limitation, dispositions
pursuant to Sale and Leaseback Transactions); or
(b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Subsidiaries; and
(ii) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that are the subject of such Asset Sale
and any reserve for adjustment in respect of the sale price of such asset or
assets. Net Proceeds shall exclude any non-cash proceeds received from any Asset
Sale, but shall include such proceeds when and as converted by the Company or
any Subsidiary of the Company to cash.
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"Pari Passu Notes" means any notes issued by the Company which, by their
terms and the terms of any indenture governing such notes, have an obligation to
be repurchased by the Company upon the occurrence of an Asset Sale.
"Permitted Investment" means:
(a) any Investments in the Company or any Subsidiary of the Company;
(b) any Investments in Marketable Securities;
(c) Investments by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment:
(i) such Person becomes a Subsidiary of the Company; or
(ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary of the Company;
(d) any Investments in property or assets to be used in:
(i) any line of business in which the Company or any of its
Subsidiaries was engaged on the Issue Date; or
(ii) any Telecommunications Business;
(e) Investments in any Person in connection with the acquisition of
such Person or substantially all of the property or assets of such Person
by the Company or any Subsidiary of the Company; provided that within 180
days from the first date of any such Investment, either:
(i) such Person becomes a Subsidiary of the Company or any of its
Subsidiaries; or
(ii) the amount of any such Investment is repaid in full to the
Company or any of its Subsidiaries;
(f) Investments pursuant to any agreement or obligation of the Company
or a Subsidiary, in effect on the Issue Date or on the date a Subsidiary
becomes a Subsidiary (provided that any such agreement was not entered into
in contemplation of such Subsidiary becoming a Subsidiary), to make such
Investments;
(g) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(h) Hedging Obligations permitted to be incurred by the covenant
described under the subheading "Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(i) bonds, notes, debentures or other securities received as a result
of Asset Sales permitted under the covenant described under the subheading
"Asset Sales;" and
(j) the Investment deemed to have been made by the Company at such
time as the Web Hosting Subsidiary ceases to be a Subsidiary of the Company
by reason of the issuance or sale of Equity Interests in the Web Hosting
Subsidiary to the extent that the book value of such Investment at the time
such Investment is deemed to have been made does not exceed $200.0 million
in the aggregate.
"Permitted Liens" means:
(i) Liens securing Indebtedness (including Capital Lease Obligations)
permitted to be incurred pursuant to clauses (a), (b) and (d) of the third
paragraph of the covenant described under the subheading "Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(ii) Liens in favor of the Company;
(iii) Liens on property of a Person existing, at the time such Person
is merged into or consolidated with the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to
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the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company;
(iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were
in existence prior to the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(vi) Liens existing, on the Issue Date;
(vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings timely instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by the Company or such Subsidiary;
(ix) Liens on Telecommunications Related Assets existing during the
time of the construction thereof;
(x) Liens on Receivables to secure Indebtedness permitted to be
incurred by the covenant described under the subheading "Incurrence of
Indebtedness and Issuance of Preferred Stock," but only to the extent that
the outstanding amount of the Indebtedness secured by such Liens would not
represent more than 80% of Eligible Receivables; and
(xi) Liens to secure any Permitted Refinancing of any Indebtedness
secured by Liens referred to in the foregoing clauses (i), (iii), (v) or
(x); but only to the extent that such Liens do not extend to any other
property or assets and the principal amount of the Indebtedness secured by
such Liens is not increased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Public Offering" means an underwritten offering of Common Stock of the
Company registered under the Securities Act.
"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising:
(i) accounts;
(ii) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance;
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(iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit,
relating to any of the foregoing after creation of the foregoing or arising
therefrom;
(iv) all rights to any goods or merchandise represented by any of the
foregoing, including, without limitation, returned or repossessed goods;
(v) all reserves and credit balances with respect to any such accounts
receivable or account debtors;
(vi) all letters of credit, security, or Guarantees for any of the
foregoing;
(vii) all insurance policies or reports relating to any of the
foregoing;
(viii) all collection of deposit accounts relating to any of the
foregoing;
(ix) all proceeds of any of the foregoing; and
(x) all books and records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Retire" means, with respect to any Indebtedness, to repay, redeem, refund,
purchase or otherwise to acquire for value, such Indebtedness. The terms
"Retired" and "Retirement" shall have correlative meanings.
"S & P" means Standard and Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"Senior Indebtedness" means any Indebtedness permitted to be incurred by
the Company under the terms of the Senior Note Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is
subordinated in right of payment to the Senior Notes. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness will not include:
(i) any liability for federal, state, local or other taxes owed or
owing by the Company;
(ii) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates;
(iii) any trade payables; or
(iv) any Indebtedness that is incurred in violation of the Senior Note
Indenture.
"Senior Note Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the initial purchasers in respect of the
Senior Notes.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Strategic Investor" means, with respect to any sale of the Company's
Capital Stock, any Person which, both as of the Trading Day immediately before
the day of such sale and the Trading Day immediately after the day of such sale,
has, or whose parent has, a Total Market Capitalization of at least $1.0 billion
on a consolidated basis. In calculating Total Market Capitalization for the
purpose of this definition, the consolidated Indebtedness of such Person, solely
when calculated as of the Trading Day immediately after the day of such sale,
will be calculated after giving effect to such sale (including any Indebtedness
incurred in
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connection with such sale). For purposes of this definition, the term parent
means any Person of which the referent Strategic Investor is a Subsidiary.
"Subsidiary" of any Person means:
(i) any corporation, association or business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof; and
(ii) any partnership:
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person; or
(b) the only general partners of which are such Person or one or
more Subsidiaries of such Person or any combination thereof;
provided that any Unrestricted Subsidiary shall be excluded from this
definition of "Subsidiary."
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of:
(i) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission facilities;
(ii) creating, developing or marketing communications related network
equipment, software and other devices for use in a Telecommunications
Business; or
(iii) evaluating, participating or pursuing any other activity or
opportunity that is related to those identified in (i) or (ii) above;
provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors of the
Company.
"Telecommunications Related Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used in connection
with a Telecommunications Business.
"Total Common Equity" of any Person means, as of any date of determination,
the product of:
(i) the aggregate number of outstanding primary shares of Common Stock
of such Person on such day (which shall not include any options or warrants
on, or securities convertible or exchangeable into, shares of Common Stock
of such Person); and
(ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day. If no such Closing
Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be
determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.
"Total Market Capitalization" of any Person means, as of any day of
determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of:
(1) the consolidated Indebtedness of such Person and its Subsidiaries
(except in the case of the Company, in which case of the Company and its
Subsidiaries) on such day; plus
(2) the product of:
(i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of
Common Stock of such Person); and
(ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day; plus
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(3) the liquidation value of any outstanding share of Preferred Stock
of such Person on such day; less
(4) cash and cash equivalents (other than restricted cash and
restricted cash equivalents) as presented on such Person's consolidated
balance sheet on such date. If no such Closing Price exists with respect to
shares of any such class, the value of such shares for purposes of clause
(2) of the preceding sentence shall be determined by the Company's Board of
Directors in good faith and evidenced by a resolution of the Board of
Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Treasury Rate" means, at any date of computation, the yield to maturity as
of such date (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15 (519), which has become publicly available at least two
business days prior to the date of the redemption notice for which such
computation is being made, or if such Statistical Release is no longer
published, as reported in any publicly available source of similar market data)
of United States Treasury securities with a constant maturity most nearly equal
to the Make-Whole Average Life; provided, however, that if the Make-Whole
Average Life is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Make-Whole Average Life is less
than one year, the weekly average yield on actually traded United States
treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the
Board of Directors.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred (i) in connection with the acquisition or construction of
Telecommunications Related Assets and (ii) to pay regularly scheduled interest
on such Indebtedness pursuant to the terms thereof.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Web Hosting Subsidiary" means the Subsidiary of the Company substantially
all of the assets of which consist of assets used exclusively in the conduct of
the Company's Internet Web hosting business.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the then outstanding principal amount of such Indebtedness; into
(b) the total of the product obtained by multiplying:
(x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof; by
(y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment;
provided, that with respect to Capital Lease Obligations, that maturity
shall be calculated after giving effect to all renewal options by the
Lessee.
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DESCRIPTION OF THE SENIOR SUBORDINATED NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Intermedia Communications Inc. and not to any of its
subsidiaries and term Senior Subordinated Notes refers only to the 12 1/4%
Senior Subordinated Notes and 12 1/4% Series B Senior Subordinated Notes and not
the Senior Notes.
The Company will issue the 12 1/4% Series B Senior Subordinated Notes under
an indenture (the "Senior Subordinated Note Indenture") between itself and
SunTrust Bank, Central Florida, National Association, as trustee (the
"Trustee"). The terms of the Senior Subordinated Notes include those stated in
the Senior Subordinated Note Indenture and those made part of the Senior
Subordinated Note Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). Certain rights of the holders of the Senior
Subordinated Notes are all set forth in a registration rights agreement between
the Company and the initial purchasers of the Senior Subordinated Notes (the
"Senior Subordinated Note Registration Rights Agreement").
The following description is a summary of the material provisions of the
Senior Subordinated Note Indenture and the Senior Subordinated Note Registration
Rights Agreement. It does not restate those agreements in their entirety. We
urge you to read the Senior Subordinated Note Indenture and the Senior
Subordinated Note Registration Rights Agreement because they, and not this
description, define your rights as holders of the Senior Subordinated Notes.
Copies of the Senior Subordinated Note Indenture and the Senior Subordinated
Note Registration Rights Agreement are available as set forth below under the
subheading "Additional Information." Certain defined terms used in this
description but not defined below under the subheading "Certain Definitions"
have the meanings assigned to them in the Senior Subordinated Note Indenture.
BRIEF DESCRIPTION OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes:
- are general unsecured obligations of the Company;
- are subordinated in right of payment to all existing and future
Senior Debt of the Company, including, without limitation, the
Existing Senior Notes and the Senior Notes; and
- are pari passu in right of payment with any future senior
subordinated Indebtedness of the Company.
Certain of the Company's operations are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its Subsidiaries
to meet its obligations, including its obligations under the Senior Subordinated
Notes. The 12 1/4% Senior Subordinated Notes are, and the 12 1/4% Series B
Senior Subordinated Notes will be, effectively subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of the Company's Subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Senior
Subordinated Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors, except to the extent
that the Company is itself recognized as a creditor of such Subsidiary, in which
case the claims of the Company would still be subordinate to any security in the
assets of such Subsidiary and any indebtedness of such Subsidiary senior to that
held by the Company. As of December 31, 1998, on a pro forma basis after giving
effect to the offering of the Senior Notes and the Senior Subordinated Notes,
the Company would have had approximately $3.1 billion of total indebtedness
outstanding, including trade payables and approximately $88.1 million of
indebtedness and other liabilities of the Company's Subsidiaries. Senior
indebtedness would have accounted for approximately $2.1 billion of such total
indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Senior Subordinated Note Indenture provides for the issuance by the
Company of Senior Subordinated Notes with a maximum aggregate principal amount
at maturity of $364.0 million. The Company
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will issue 12 1/4% Series B Senior Subordinated Notes in denominations of $1,000
and integral multiples of $1,000. The 12 1/4% Series B Senior Subordinated Notes
will mature on March 1, 2009.
The 12 1/4% Senior Subordinated Notes were issued at a substantial discount
from their principal amount at maturity, to generate gross proceeds of
approximately $200.4 million. Until March 1, 2004, interest will not accrue or
be payable on the Senior Subordinated Notes, but the Accreted Value will accrete
(representing the amortization of original issue discount) between the date of
issuance and March 1, 2004, on a semi-annual bond equivalent basis using a
360-day year composed of twelve 30-day months such that the Accreted Value shall
be equal to the full principal amount at maturity of the Senior Subordinated
Notes on March 1, 2004. After March 1, 2004, interest on the Senior Subordinated
Notes will accrue at the rate of 12 1/4% per annum and will be payable
semi-annually in cash in arrears on March 1 and September 1, commencing on
September 1, 2004. The Company will make each interest payment to the Holders of
record on the immediately preceding February 15 and August 15.
Interest on the Senior Subordinated Notes will accrue from March 1, 2004
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
PAYING AGENT AND REGISTRAR FOR THE SENIOR SUBORDINATED NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders,
and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Subordinated Notes in accordance
with the Senior Subordinated Note Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Senior Subordinated Note Indenture. The
Company is not required to transfer or exchange any Senior Subordinated Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Senior Subordinated Note for a period of 15 days before a selection
of Senior Subordinated Notes to be redeemed.
The registered Holder of a Senior Subordinated Note will be treated as the
owner of it for all purposes.
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if
any, on the Senior Subordinated Notes will be subordinated to the prior payment
in full of all Senior Debt of the Company, including Senior Debt incurred after
the date of the Senior Subordinated Note Indenture.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of Senior Subordinated Notes will be
entitled to receive any payment with respect to the Senior Subordinated Notes
(except that Holders of Senior Subordinated Notes may receive and retain
Permitted Junior Securities and payments made from the trust described under the
subheading "Legal Defeasance and Covenant Defeasance"), in the event of any
distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Company's assets and liabilities.
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The Company also may not make any payment in respect of the Senior
Subordinated Notes (except in Permitted Junior Securities or from the trust
described under the subheading "Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt.
Payments on the Senior Subordinated Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and
Liquidated Damages, if any, on the Senior Subordinated Notes that have come
due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the Trustee or any Holder of the Senior Subordinated Notes receives a
payment in respect of the Senior Subordinated Notes (except in Permitted Junior
Securities or from the trust described under the subheading "Legal Defeasance
and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the Trustee or the Holder has actual knowledge that the payment is
prohibited;
the Trustee or the Holder, as the case may be, shall hold the payment
in trust for the benefit of the holders of Senior Debt. Upon the proper
written request of the holders of Senior Debt, the Trustee or the Holder,
as the case may be, shall deliver the amounts in trust to the holders of
Senior Debt or their proper representative.
The Company must promptly notify holders of Senior Debt if payment of the
Senior Subordinated Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, Holders of Senior
Subordinated Notes may recover less ratably than creditors of the Company who
are holders of Senior Debt. See "Risk Factors -- Subordination of the Senior
Subordinated Notes."
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under a Credit Facility; and
(2) after payment in full of all Obligations under any Credit
Facility, any other Senior Debt permitted under the Senior Subordinated
Note Indenture the principal amount of which is $25.0 million or more.
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"Permitted Junior Securities" means:
(1) Equity Interests in the Company; or
(2) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the Senior Subordinated Notes
are subordinated to Senior Debt under the Senior Subordinated Note
Indenture.
"Senior Debt" means:
(1) all Indebtedness of the Company outstanding under any Credit
Facility and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of the Company permitted to be incurred
under the terms of the Senior Subordinated Note Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
Senior Subordinated Notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company;
(2) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of
the Senior Subordinated Note Indenture.
OPTIONAL REDEMPTION
Prior to March 1, 2004, the 12 1/4% Series B Senior Subordinated Notes will
be subject to redemption at any time at the option of the Company, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the Make-Whole
Price, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date.
On or after March 1, 2004, the 12 1/4% Series B Senior Subordinated Notes
will be subject to redemption at the option of the Company, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 106.125%
2005........................................................ 104.083%
2006........................................................ 102.041%
2007 and thereafter......................................... 100.000%
</TABLE>
In the event of the sale by the Company prior to March 1, 2002 of its
Capital Stock (other than Disqualified Stock) (i) to a Strategic Investor in a
single transaction or series of related transactions for an aggregate purchase
price equal to or exceeding $50.0 million or (ii) in one or more Public
Offerings (each of clauses (i) and (ii), a "Qualified Equity Offering"), up to a
maximum of 25% of the aggregate principal amount at maturity of the Senior
Subordinated Notes originally issued will, at the option of the Company, be
redeemable from the net cash proceeds of such sale or sales (but only to the
extent such proceeds consist of cash or readily marketable cash equivalents
received in respect of the Capital Stock, other than Disqualified
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Stock, so sold) at a redemption price equal to 112.25% of the Accreted Value
thereof plus accrued and unpaid Liquidated Damages, if any, thereon to the
redemption date, provided that:
(1) at least 75% of the aggregate principal amount at maturity of the
Senior Subordinated Notes originally issued remains outstanding immediately
after the occurrence of such redemption; and
(2) such redemption occurs within 90 days of the date of the closing
of each such sale.
MANDATORY REDEMPTION
Except as set forth below under the captions "Offer to Purchase Upon Change
of Control" and "Offer to Purchase with Excess Asset Sale Proceeds," the Company
will not be required to make mandatory redemption or sinking fund payments with
respect to the Senior Subordinated Notes.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer (the "Change of Control Offer") to each holder of Senior
Subordinated Notes to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's Senior Subordinated Notes at a purchase price
equal to 101% of the Accreted Value thereof on the date of purchase (if such
date of purchase is prior to March 1, 2004) or 101% of the aggregate principal
amount thereof (if such date of purchase is on or after March 1, 2004) plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase (the "Change of Control Payment"). The Change of Control Offer must
be commenced within 30 days following a Change of Control, must remain open for
at least 30 and not more than 40 days (unless required by applicable law) and
must comply with the requirements of Rule 14e-1 under the Exchange Act and any
other applicable securities laws and regulations.
Except as described above with respect to a Change of Control, the Senior
Subordinated Note Indenture will not contain provisions that permit the holders
of the Senior Subordinated Notes to require that the Company repurchase or
redeem the Senior Subordinated Notes in the event of a takeover,
recapitalization or similar transaction.
Due to the leveraged structure of the Company, the subordination of the
Senior Subordinated Notes to the Existing Senior Notes and the Senior Notes and
the effective subordination of the Senior Subordinated Notes to secured
Indebtedness of the Company and Indebtedness of the Company's Subsidiaries, the
Company may not have sufficient funds available to purchase the Senior
Subordinated Notes tendered in response to a Change of Control Offer. In
addition, the Existing Senior Notes or other agreements relating to Indebtedness
of the Company's Subsidiaries may contain prohibitions or restrictions on the
Company's ability to effect a Change of Control Payment.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Senior Subordinated Notes to require the Company to repurchase such
Senior Subordinated Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company to another
Person may be uncertain.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of Senior Subordinated Notes required by this covenant.
OFFER TO PURCHASE WITH EXCESS ASSET SALE PROCEEDS
When the cumulative amount of Excess Proceeds (as defined below under the
subheading "Certain Covenants -- Asset Sales") exceeds $10.0 million, the
Company will make an offer to all holders of Senior Subordinated Notes and Pari
Passu Notes (an "Excess Proceeds Offer"), to purchase the maximum principal
amount and/or accreted value as applicable of Senior Subordinated Notes and Pari
Passu Notes that may be purchased out of such Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the Accreted
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<PAGE> 66
Value (if such date of purchase is prior to March 1, 2004) or 100% of the
outstanding principal amount (if such date of purchase is on or after March 1,
2004) of the Senior Subordinated Notes and 100% of the accreted value or 100% of
the outstanding principal amount, as applicable, of the Pari Passu Notes, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
fixed for the closing of such offer, in accordance with the procedures specified
in the Senior Subordinated Note Indenture.
If the aggregate principal amount and/or accreted value, as the case may
be, of Senior Subordinated Notes and Pari Passu Notes surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee will select the
Senior Subordinated Notes and Pari Passu Notes to be purchased on a pro rata
basis. To the extent that the aggregate amount of Senior Subordinated Notes and
Pari Passu Notes tendered pursuant to an Excess Proceeds Offer is less than the
amount of Excess Proceeds, the Company may use such deficiency for general
purposes. Upon completion of an Excess Proceeds Offer, the amount of Excess
Proceeds will be reset at zero.
SELECTION OF SENIOR SUBORDINATED NOTES FOR REDEMPTION OR OFFERS TO PURCHASE
If less than all of the Senior Subordinated Notes are to be redeemed at any
time, the Trustee will select Senior Subordinated Notes for redemption as
follows:
(1) if the Senior Subordinated Notes are listed, in compliance with
the requirements of the principal national securities exchange on which the
Senior Subordinated Notes are listed; or
(2) if the Senior Subordinated Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate.
No Senior Subordinated Notes of $1,000 or less shall be redeemed in part.
Notices of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Senior
Subordinated Notes to be redeemed at its registered address. Notices of
redemption may not be conditional.
If any Senior Subordinated Note is to be redeemed in part only, the notice
of redemption that relates to that Senior Subordinated Note shall state the
portion of the principal amount thereof to be redeemed. A new Senior
Subordinated Note in principal amount equal to the unredeemed portion of the
original Senior Subordinated Note will be issued in the name of the Holder
thereof upon cancellation of the original Senior Subordinated Note. Senior
Subordinated Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrete or
accrue on the Senior Subordinated Notes or portions of them called for
redemption.
CERTAIN COVENANTS
Restricted Payments
The Company and its Subsidiaries may not, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Subsidiaries other than
dividends or distributions payable (A) in Equity Interests of the Company
that are not Disqualified Stock or (B) to the Company or any Subsidiary;
(ii) purchase, redeem, defease, retire or otherwise acquire for value
("Retire" and correlatively, a "Retirement") any Equity Interests of the
Company or any of its Subsidiaries or other Affiliate of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary);
(iii) Retire for value any Indebtedness of (A) the Company that is
subordinate in right of payment to the Senior Subordinated Notes or (B) any
Subsidiary, except, with respect to clause (A) or (B) above, at final
maturity or in accordance with the mandatory redemption or repayment
provisions set forth in the original documentation governing such
Indebtedness; or
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(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof;
(b) after giving effect to such Restricted Payment on a pro forma
basis as if such Restricted Payment had been made at the beginning of
the applicable four-quarter period, the Company could incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Cash Flow
Leverage Ratio test described under the subheading "Incurrence of
Indebtedness and Issuance of Disqualified Stock;" and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the Issue Date (including any Restricted Payments made pursuant to
clauses (i), (v) and (vi) of the next paragraph), is less than the sum
of
(w) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from June 30, 1996 to the end
of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(x) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale of Equity Interests of the Company or
of debt securities or Disqualified Stock of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that
have been converted into Disqualified Stock) after June 30, 1996
(other than any such Equity Interests, the proceeds of which were
used as set forth in clauses (ii) and (viii) below) plus
(y) 100% of the sum of, without duplication, (1) aggregate
dividends or distributions received by the Company or any Subsidiary
from any Joint Venture (other than dividends or distributions to pay
any obligations of such Joint Venture to Persons other than the
Company or any Subsidiary, such as income taxes), with non-cash
distributions to be valued at the lower of book value or fair market
value as determined by the Board of Directors, (2) the amount of the
principal and interest payments received since the Issue Date by the
Company or any Subsidiary from any Joint Venture and (3) the net
proceeds from the sale of an Investment in a Joint Venture received
by the Company or any Subsidiary; provided that there is no
obligation to return any such amounts to the Joint Venture, and
excluding any such dividend, distribution, interest payment or net
proceeds that constitutes a return of capital invested pursuant to
clause (vi) of the next succeeding paragraph, plus
(z) $10.0 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Senior Subordinated Note Indenture;
(ii) the Retirement of (A) any Equity Interests of the Company or any
Subsidiary of the Company, (B) Indebtedness of the Company that is
subordinate to the Senior Subordinated Notes or (C) Indebtedness of a
Subsidiary of the Company, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, Equity Interests of the Company (other than Disqualified Stock);
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<PAGE> 68
(iii) the Retirement of any Indebtedness of the Company subordinated
in right of payment to the Senior Subordinated Notes in exchange for, or
out of the proceeds of the substantially concurrent Incurrence of
Indebtedness of the Company (other than Indebtedness to a Subsidiary of the
Company), but only to the extent that such new Indebtedness is permitted
under the covenant described below under the subheading "Incurrence of
Indebtedness and Issuance of Disqualified Stock" and (A) is subordinated in
right of payment to the Senior Subordinated Notes at least to the same
extent as, (B) has a Weighted Average Life to Maturity at least as long as,
and (C) has no scheduled principal payments due in any amount earlier than,
any equivalent amount of principal under the Indebtedness so Retired;
(iv) the Retirement of any Indebtedness of a Subsidiary of the Company
in exchange for, or out of the proceeds of the substantially concurrent
incurrence of Indebtedness of the Company or any Subsidiary but only to the
extent that such incurrence is permitted under the covenant described below
under the subheading "Incurrence of Indebtedness and Issuance of
Disqualified Stock" and only to the extent that such Indebtedness (A) is
not secured by any assets of the Company or any Subsidiary to a greater
extent than the Retired Indebtedness was so secured, (B) has a Weighted
Average Life to Maturity at least as long as the Retired Indebtedness and
(C) if such Retired Indebtedness was an obligation of the Company, is pari
passu or subordinated in right of payment to the Senior Subordinated Notes
at least to the same extent as the Retired Indebtedness;
(v) the Retirement of any Equity Interests of the Company or any
Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company
to members of management of the Company and its Subsidiaries;
(vi) Investments in any Joint Venture; provided that at the time any
such Investment is made, such Investment will not cause the aggregate
amount of Investments at any one time outstanding under this clause (vi) to
exceed the greater of (A) $25.0 million and (B) 5% of the Total Common
Equity of the Company;
(vii) the payment of cash in lieu of fractional shares (A) payable as
dividends on Equity Interests of the Company or (B) issuable upon
conversion of or in exchange for securities convertible into or
exchangeable for Equity Interests of the Company or (C) issuable as a
result of a corporate reorganization, provided that, in the case of (A) and
(B), the issuance of such Equity Interests or securities and, in the case
of (C), such corporate reorganization, is permitted under the terms of the
Senior Subordinated Note Indenture; and
(viii) Investments with the net cash proceeds received by the Company
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) after December 31, 1997;
provided, however, that at the time of, and after giving effect to,
any Restricted Payment permitted under clauses (i), (ii), (iii), (iv), (v),
(vi) and (viii) no Default or Event of Default shall have occurred and be
continuing.
A Permitted Investment that ceases to be a Permitted Investment pursuant to
the definition of that term, shall become a Restricted Investment, deemed to
have been made on the date that it ceases to be a Permitted Investment.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary if such designation would not cause a Default or an Event of Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Subsidiaries (except to the extent repaid in cash) in such
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation, (y)
the fair market value of such
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Investments at the time of such designation and (z) the original fair market
value of such Investments at the time they were made. Such designation will only
be permitted if such Restricted Payment would be permitted at such time.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the subheading "Incurrence of Indebtedness and
Issuance of Disqualified Stock," and (ii) no Default or Event of Default would
be in existence following such designation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described under the subheading "Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Company and its Subsidiaries may not, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable for the payment of (collectively, "incur" and, correlatively, "incurred"
and "incurrence") any Indebtedness (including, without limitation, Acquired
Debt) and may not issue any Disqualified Stock, provided, however, that the
Company and/or any of its Subsidiaries may incur Indebtedness (including,
without limitation, Acquired Debt) or issue shares of Disqualified Stock if,
after giving effect to the incurrence of such Indebtedness or the issuance of
such Disqualified Stock, the Consolidated Cash Flow Leverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date of such
incurrence or issuance:
(A) does not exceed 5.5 to 1 if such incurrence or issuance occurs on
or prior to June 1, 1999; and
(B) does not exceed 5.0 to 1 if such incurrence or issuance occurs
after June 1, 1999, in each case, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period.
If the Company incurs any Indebtedness or issues or redeems any Preferred
Stock subsequent to the commencement of the period for which such ratio is being
calculated but prior to the event for which the calculation of the ratio is
made, then the ratio will be calculated giving pro forma effect to any such
incurrence of Indebtedness, or such issuance or redemption of Preferred Stock,
as if the same had occurred at the beginning of the applicable period. In making
such calculation on a pro forma basis, interest attributable to Indebtedness
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period.
The foregoing limitation will not apply to (with each exception to be given
independent effect):
(a) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness under a Credit Facility in an aggregate principal amount at
any one time outstanding (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and/or any of its Subsidiaries thereunder) not to exceed $150.0 million in
the aggregate at any one time outstanding, less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently reduce the commitments
with respect to such Indebtedness pursuant to the covenant described above
under the subheading "Asset Sales;"
(b) the incurrence by the Company and/or any of its Subsidiaries of
Vendor Indebtedness, provided that the aggregate amount of such Vendor
Indebtedness incurred does not exceed 80% of the total cost of the
Telecommunications Related Assets financed therewith (or 100% of the total
cost of the Telecommunications Related Assets financed therewith if such
Vendor Indebtedness was extended for the purchase of tangible physical
assets and was so financed by the vendor thereof or an affiliate of such
vendor);
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(c) the incurrence by the Company and/or any of its Subsidiaries of
the Existing Indebtedness, including the Existing Senior Notes;
(d) the incurrence by the Company and/or any of its Subsidiaries of
Indebtedness in an aggregate amount not to exceed $50.0 million at any one
time outstanding;
(e) the incurrence by the Company of Indebtedness, but only to the
extent that such Indebtedness has a final maturity no earlier than, and a
Weighted Average Life to Maturity equal to or greater than, the final
maturity and Weighted Average Life to Maturity, respectively, of the Senior
Subordinated Notes, in an aggregate principal amount not to exceed 2.0
times the net cash proceeds received by the Company after June 30, 1996
from the issuance and sale of Equity Interests of the Company (that are not
Disqualified Stock) plus the fair market value of Equity Interests (other
than Disqualified Stock) issued after June 30, 1996 in connection with any
acquisition of any Telecommunications Business;
(f) the incurrence (a "Permitted Refinancing") by the Company and/or
any of its Subsidiaries of Indebtedness issued in exchange for, or the
proceeds of which are used to refinance, replace, refund or defease
("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness, other than Indebtedness incurred pursuant to clause (a)
above, but only to the extent that:
(1) the net proceeds of such Refinancing Indebtedness do not exceed
the principal amount of and premium, if any, and accrued interest on the
Indebtedness so Refinanced (or if such Indebtedness was issued at an
original issue discount, the original issue price plus amortization of
the original issue discount at the time of the repayment of such
Indebtedness) plus the fees, expenses and costs of such Refinancing and
reasonable prepayment premiums, if any, in connection therewith;
(2) the Refinancing Indebtedness shall have a final maturity no
earlier than, and a Weighted Average Life to Maturity equal to or
greater than, the final maturity and Weighted Average Life to Maturity
of the Indebtedness being Refinanced; and
(3) if the Indebtedness being Refinanced is subordinated in right
of payment to the Senior Subordinated Notes, the Refinancing
Indebtedness shall be subordinated in right of payment to the Senior
Subordinated Notes on terms at least as favorable to the holders of
Senior Subordinated Notes as those contained in the documentation
governing the Indebtedness being so Refinanced;
(g) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(h) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate or foreign currency risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Senior Subordinated Note
Indenture to be outstanding; and
(i) the incurrence by the Company of Indebtedness represented by the
Senior Subordinated Notes and the Senior Notes, in each case, issued on the
Issue Date.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness or Disqualified Stock meets the criteria of more
than one of the categories described in clauses (a) through (i) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item in any manner that
complies with this covenant and such item will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
herein. Accrual of interest or dividends, the accretion of accreted value or
liquidation preference and the payment of interest or dividends in the form of
additional Indebtedness, Common Stock or Preferred Stock will not be deemed to
be an incurrence of Indebtedness for purposes of this covenant.
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No Senior Subordinated Debt
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the Senior Subordinated Notes.
Asset Sales
The Company and its Subsidiaries may not, whether in a single transaction
or a series of related transactions occurring within any twelve-month period:
(i) sell, lease, convey, dispose or otherwise transfer any assets
(including by way of a Sale and Leaseback Transaction) other than sales,
leases, conveyances, dispositions or other transfers:
(A) in the ordinary course of business;
(B) to the Company by any Subsidiary of the Company or from the
Company to any Subsidiary of the Company;
(C) that constitute a Restricted Payment, Investment or dividend or
distribution permitted under the covenant described above under the
subheading "Restricted Payments;" or
(D) that constitute the disposition of all or substantially all of
the assets of the Company pursuant to the covenant described below under
the subheading "Merger, Consolidation or Sale of Assets;" or
(ii) issue or sell Equity Interests in any of its Subsidiaries other
than an issuance or sale of Equity Interests of any such Subsidiary to the
Company or a Subsidiary of the Company;
if, in the case of either (i) or (ii) above, in a single transaction
or a series of related transactions occurring within any twelve-month
period, such assets or securities:
(x) have a Fair Market Value in excess of $2.0 million; or
(y) are sold or otherwise disposed of for net proceeds in excess of
$2.0 million (each of the foregoing, an "Asset Sale"), unless:
(a) no Default or Event of Default exists or would occur as a
result thereof;
(b) the Company, or such Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value (evidenced by a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate
delivered to the Trustee), of the assets or securities issued or sold
or otherwise disposed of; and
(c) except with respect to an Asset Sale constituting the
issuance or sale of Equity Interests in the Web Hosting Subsidiary,
at least 75% of the consideration therefor received by the Company or
such Subsidiary is in the form of cash, provided, however, that:
(A) the amount of:
(x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Subsidiary of the Company
(other than liabilities that are by their terms subordinated
to the Senior Subordinated Notes) that are assumed by the
transferee of any such assets; and
(y) any notes, obligations or other securities received
by the Company or any such Subsidiary from such transferee
that are immediately converted by the Company or such
Subsidiary into cash,
shall be deemed to be cash (to the extent of the cash
received in the case of subclause (y)) for purposes of this
clause (c); and
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(B) an amount equal to the Fair Market Value (determined as
set forth in clause (b) above) of (1) Telecommunications Related
Assets received by the Company or any such Subsidiary from the
transferee that will be used by the Company or any such
Subsidiary in the operation of a Telecommunications Business in
the United States and (2) the Voting Stock of any Person engaged
in the Telecommunications Business in the United States received
by the Company or any such Subsidiary (provided that such Voting
Stock is converted to cash within 270 days or such Person
concurrently becomes or is a Subsidiary of the Company) will be
deemed to be cash for purposes of this clause (c).
The foregoing provisions will not apply to a sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company,
which will be governed by the provisions of the Senior Subordinated Note
Indenture described below under the subheading "Merger, Consolidation or Sale of
Assets."
Within 360 days after the receipt of net proceeds of any Asset Sale, the
Company (or such Subsidiary, as the case may be) may apply the Net Proceeds from
such Asset Sale, at its option, to:
(i) repay Senior Debt or permanently reduce the amounts permitted to
be borrowed by the Company under the terms of any of its Senior Debt; or
(ii) the purchase of Telecommunications Related Assets or Voting Stock
of any Person engaged in the Telecommunications Business in the United
States (provided that such Person concurrently becomes a Subsidiary of the
Company); or
(iii) in the case of net cash proceeds realized upon the issuance or
sale of Equity Interests in the Web Hosting Subsidiary, fund cash operating
losses, provide working capital and for general corporate purposes.
Any Net Proceeds from any Asset Sales that are not so applied or invested
will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to make an Excess Proceeds
Offer in accordance with the terms set forth under the subheading "Offer to
Purchase with Excess Asset Sale Proceeds."
Liens
The Company and its Subsidiaries may not, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness or trade
payables on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except for
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company and its Subsidiaries may not, directly or indirectly, create or
otherwise cause to become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to:
(i) pay dividends or make any other distributions to the Company or
any of its Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to the Company or any of its Subsidiaries;
(ii) make loans or advances to the Company or any of its Subsidiaries;
or
(iii) transfer any of its properties or assets to the Company or any
of its Subsidiaries; except for such encumbrances or restrictions existing
as of the Issue Date or under or by reason of:
(a) Existing Indebtedness;
(b) applicable law;
(c) any instrument governing Acquired Debt as in effect at the time
of acquisition (except to the extent such Indebtedness was incurred in
connection with, or in contemplation of, such
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acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired;
(d) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices;
(e) Indebtedness in respect of a Permitted Refinancing, provided
that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not materially more restrictive than those
contained in the agreements governing the Indebtedness being refinanced;
(f) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business, Vendor
Indebtedness incurred in connection with the purchase or lease of
Telecommunications Related Assets or performance bonds or similar
security for performance which liens securing such obligations do not
cover any asset other than the asset acquired or, in the case of
performance bonds or similar security for performance, the assets
associated with the Company's performance;
(g) Indebtedness incurred under clause (a) of the covenant
described under the subheading "Incurrence of Indebtedness and Issuance
of Disqualified Stock;"
(h) the Senior Subordinated Note Indenture and the Senior
Subordinated Notes or future Indebtedness with substantially similar
restrictions, if any, to the Senior Subordinated Notes;
(i) the Senior Note Indenture and the Senior Notes or future
Indebtedness with substantially similar restrictions, if any, to the
Senior Notes; or
(j) in the case of clauses (a), (c), (e), (g), (h) and (i) above,
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in such instruments as in effect on
the date of their incurrence or, if later, the Issue Date.
Merger, Consolidation or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving entity), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, another corporation, Person or entity unless:
(i) the Company is the surviving entity or the entity or Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all the obligations of the Company under
the Senior Subordinated Notes and the Senior Subordinated Note Indenture
pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) except in connection with a Merger with or into a wholly owned
Subsidiary of the Company, the Company, or any entity or Person formed by
or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition has been made,
at the time of such transaction after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable fiscal
quarter (including any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
transactions), either (A) could incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Cash Flow Leverage Ratio
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test described under the subheading "Incurrence of Indebtedness and
Issuance of Disqualified Stock" or (B) would have (x) Total Market
Capitalization of at least $1.0 billion and (y) total Indebtedness (net of
cash and cash equivalents that are not restricted cash or restricted cash
equivalents as reflected on the Company's consolidated balance sheet as of
the time of such event) in an amount no greater than 40% of its Total
Market Capitalization; and
(v) such transaction would not result in the loss, material impairment
or adverse modification or amendment of any authorization or license of the
Company or its Subsidiaries that would have a material adverse effect on
the business or operations of the Company and its Subsidiaries taken as a
whole.
Transactions with Affiliates
The Company and its Subsidiaries may not sell, lease, transfer or otherwise
dispose of any of their respective properties or assets to, or purchase any
property or assets from, or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person;
(ii) such Affiliate Transaction is approved by a majority of the
disinterested directors on the Board of Directors of the Company; and
(iii) the Company delivers to the Trustee, with respect to any
Affiliate Transaction involving aggregate payments in excess of $1.0
million, a resolution of a committee of independent directors of the
Company set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clauses (i) and (ii) above;
provided that:
(a) transactions pursuant to any employment, stock option or stock
purchase agreement entered into by the Company or any of its
Subsidiaries, or any grant of stock, in the ordinary course of business
that are approved by the Board of Directors of the Company;
(b) transactions between or among the Company and its Subsidiaries;
(c) transactions permitted by the provisions of the Senior
Subordinated Note Indenture described above under the subheading
"Restricted Payments;" and
(d) loans and advances to employees and officers of the Company or
any of its Subsidiaries in the ordinary course of business in an
aggregate principal amount not to exceed $1.0 million at any one time
outstanding, shall not be deemed Affiliate Transactions.
Business Activities
The Company and its Subsidiaries may not, directly or indirectly, engage in
any business other than the Telecommunications Business.
Limitations on Sale and Leaseback Transactions
The Company and its Subsidiaries may not, directly or indirectly, enter
into, assume, Guarantee or otherwise become liable with respect to any Sale and
Leaseback Transaction, provided that the Company or any Subsidiary of the
Company may enter into any such transaction if:
(i) the Company or such Subsidiary would be permitted under the
covenants described above under the subheadings "Incurrence of Indebtedness
and Issuance of Disqualified Stock" and "Liens" to incur secured
Indebtedness in an amount equal to the Attributable Debt with respect to
such transaction;
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(ii) the consideration received by the Company or such Subsidiary from
such transaction is at least equal to the Fair Market Value of the property
being transferred; and
(iii) the Net Proceeds received by the Company or such Subsidiary from
such transaction are applied in accordance with the covenant described
above under the subheading "Asset Sales."
Reports
The Company will file with the Trustee within 15 days after it files them
with the Commission copies of the annual and quarterly reports and the
information, documents, and other reports that the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company is not required or shall cease to be
required to file SEC Reports, pursuant to the Exchange Act, the Company will
nevertheless continue to file such reports with the Commission (unless the
Commission will not accept such a filing) and the Trustee. Whether or not
required by the Exchange Act to file SEC Reports with the Commission, so long as
any Senior Subordinated Notes are outstanding, the Company will furnish copies
of the SEC Reports to the holders of Senior Subordinated Notes at the time the
Company is required to file the same with the Trustee and make such information
available to investors who request it in writing. In addition, the Company has
agreed that, for so long as any Senior Subordinated Notes remain outstanding, it
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Payments for Consents
Neither the Company nor any of its Affiliates shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Senior Subordinated Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Senior Subordinated Note Indenture or the Senior Subordinated
Notes unless such consideration is offered to be paid or agreed to be paid to
all holders of the Senior Subordinated Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default:
(i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Senior Subordinated Notes, whether or
not prohibited by the subordination provisions of the Senior Subordinated
Note Indenture;
(ii) default in payment when due of principal or premium, if any, on
the Senior Subordinated Notes at maturity, upon redemption or otherwise,
whether or not prohibited by the subordination provisions of the Senior
Subordinated Note Indenture;
(iii) failure by the Company to perform or comply with the provisions
of the covenants described above under the subheadings "Offer to Purchase
Upon Change of Control," "Asset Sales," "Restricted Payments," "Incurrence
of Indebtedness and Issuance of Disqualified Stock" or "Merger,
Consolidation or Sale of Assets;"
(iv) failure by the Company for 30 days after notice from the Trustee
or the holders of at least 25% in principal amount of the Senior
Subordinated Notes then outstanding to comply with its other agreements in
the Senior Subordinated Note Indenture or the Senior Subordinated Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or Guarantee now exists, or is
created after the Issue Date, which default results in the acceleration
(which acceleration has not been rescinded) of such Indebtedness prior to
its
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express maturity and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(vi) failure by the Company or any of its Significant Subsidiaries to
pay final judgments (other than any judgment as to which a reputable
insurance company has accepted full liability in writing) aggregating in
excess of $5.0 million which judgments are not paid, discharged or stayed
within 45 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing under the Senior
Subordinated Note Indenture, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Senior Subordinated Notes may declare
all the Senior Subordinated Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to March 1, 2004, the Accreted Value
of), premium, if any, and accrued and unpaid interest and Liquidated Damages, if
any, on the Senior Subordinated Notes shall be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries, the foregoing amount shall ipso facto become due
and payable without further action or notice. No premium is payable upon
acceleration of the Senior Subordinated Notes except that in the case of an
Event of Default that is the result of an action or inaction by the Company or
any of its Subsidiaries intended to avoid restrictions on or premiums related to
redemptions of the Senior Subordinated Notes contained in the Senior
Subordinated Note Indenture or the Senior Subordinated Notes. The amount
declared due and payable will include the premium that would have been
applicable on a voluntary prepayment of the Senior Subordinated Notes. Holders
of the Senior Subordinated Notes may not enforce the Senior Subordinated Note
Indenture or the Senior Subordinated Notes except as provided in the Senior
Subordinated Note Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Senior Subordinated Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Senior Subordinated Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payments of principal or interest) if it determines that withholding notice
is in such holders' interest.
The holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding, by notice to the Trustee, may on behalf of
the holders of all of the Senior Subordinated Notes, waive any existing Default
or Event of Default and its consequences under the Senior Subordinated Note
Indenture, except a continuing Default or Event of Default in the payment of
interest or Liquidated Damages or premium on, or the principal of, the Senior
Subordinated Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Senior Subordinated Note Indenture, and the
Company is required upon becoming aware of any Default or Event of Default to
deliver to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Subordinated Notes or the Senior Subordinated Note Indenture or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each holder of Senior Subordinated Notes by accepting a Senior
Subordinated Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Senior Subordinated Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Senior Subordinated Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Senior Subordinated Notes, except for:
(a) the rights of holders of outstanding Senior Subordinated Notes to
receive from the trust described below payments in respect of the principal
of, premium, if any, and interest on and Liquidated Damages with respect to
such Senior Subordinated Notes when such payments are due, or on the
redemption date, as the case may be;
(b) the Company's obligations with respect to the Senior Subordinated
Notes concerning issuing temporary Senior Subordinated Notes, registration
of Senior Subordinated Notes, mutilated, destroyed, lost or stolen Senior
Subordinated Notes and the maintenance of an office or agency for payment
and money for security payments held in trust;
(c) the rights, powers, trust, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(d) the Legal Defeasance provisions of the Senior Subordinated Note
Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain
covenants that are described in the Senior Subordinated Note Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect
to the Senior Subordinated Notes. In the event Covenant Defeasance occurs,
certain events (not including non payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under the subheading
"Events of Default" will no longer constitute an Event of Default with
respect to the Senior Subordinated Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the Senior Subordinated Notes, cash in
U.S. dollars, non-callable U.S. government obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants selected by
the Company, to pay the principal of, premium and Liquidated Damages, if
any, and interest on the outstanding Senior Subordinated Notes, on the
stated maturity or on the applicable optional redemption date, as the case
may be, of such principal or installment of principal of, premium, if any,
or interest on or Liquidated Damages with respect to the outstanding Senior
Subordinated Notes;
(ii) in the case of Legal Defeasance, the Company must deliver to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Senior
Subordinated Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(iii) in the case of Covenant Defeasance, the Company must deliver to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding
Senior Subordinated Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
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(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Senior Subordinated Note Indenture)
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day (or such other applicable
date) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
(vii) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of Senior Subordinated Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Senior
Subordinated Note Indenture or the Senior Subordinated Notes may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the Senior Subordinated Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Senior
Subordinated Notes), and any existing default or compliance with any provision
of the Senior Subordinated Note Indenture or the Senior Subordinated Notes may
be waived with the consent of the holders of a majority in principal amount of
the then outstanding Senior Subordinated Notes (including consents obtained in
connection with a tender offer or exchange offer for Senior Subordinated Notes).
Without the consent of each holder affected, however, an amendment or
waiver may not (with respect to any Senior Subordinated Note held by a
non-consenting holder):
(i) reduce the principal amount of Senior Subordinated Notes whose
holders must consent to an amendment, supplement or waiver;
(ii) reduce the principal or change the fixed maturity of any Senior
Subordinated Note or alter the provisions with respect to the redemption of
the Senior Subordinated Notes (other than provisions relating to the
covenants described under the subheadings "Offer to Purchase upon Change of
Control" and "Offer to Purchase with Excess Asset Sale Proceeds");
(iii) reduce the rate of or change the time for payment of interest on
any Senior Subordinated Notes;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Senior Subordinated Notes (except
a rescission of acceleration of the Senior Subordinated Notes by the
holders of at least a majority in aggregate principal amount of the Senior
Subordinated Notes and a waiver of the payment default that resulted from
such acceleration);
(v) make any Senior Subordinated Note payable in money other than that
stated in the Senior Subordinated Notes;
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(vi) make any change in the provisions of the Senior Subordinated Note
Indenture relating to waivers of past Defaults or the rights of holders of
Senior Subordinated Notes to receive payments of principal of, premium, if
any, or interest on the Senior Subordinated Notes;
(vii) waive a redemption payment with respect to any Senior
Subordinated Note (other than a payment required by one of the covenants
described above under the subheadings "Offer to Purchase upon Change of
Control" and "Offer to Purchase with Excess Asset Sale Proceeds"); or
(viii) make any change in the foregoing amendment and waiver
provisions.
In addition, any amendment to, or waiver of, the provisions of the
Senior Subordinated Note Indenture relating to subordination that adversely
affects the rights of the Holders of Senior Subordinated Notes will require
the consent of the Holders of at least 75% in aggregate principal amount of
Senior Subordinated Notes then outstanding.
Notwithstanding the foregoing, without the consent of any holder of Senior
Subordinated Notes, the Company and the Trustee may amend or supplement the
Senior Subordinated Note Indenture or the Senior Subordinated Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Subordinated Notes in
addition to or in place of certificated Senior Subordinated Notes;
(c) to provide for the assumption of the Company's obligations to
holders of the Senior Subordinated Notes in the case of a merger or
consolidation;
(d) to make any change that would provide any additional rights or
benefits to the holders of the Senior Subordinated Notes or that does
not adversely affect the legal rights under the Senior Subordinated Note
Indenture of any such holder; or
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Senior Subordinated Note
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company, the Senior Subordinated
Note Indenture limits its rights to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any such claim as
security or otherwise. The Trustee will be permitted to engage in other
transactions with the Company; however, if the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue as Trustee or resign.
The holders of a majority in principal amount of the then outstanding
Senior Subordinated Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. The Senior Subordinated Note Indenture
provides that in case an Event of Default shall occur and be continuing, the
Trustee will be required, in the exercise of its powers, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Senior Subordinated Note Indenture at the request of
any holder of Senior Subordinated Notes, unless such holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
No holder of any Senior Subordinated Note will have any right to institute
any proceeding with respect to the Senior Subordinated Note Indenture or for any
remedy thereunder, unless:
(i) such holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes make a written request to pursue the
remedy;
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(iii) such holders of the Senior Subordinated Notes provide to the
Trustee satisfactory indemnity; and
(iv) the Trustee does not comply within 60 days. Otherwise, no holder
of any Senior Subordinated Note will have any right to institute any
proceeding with respect to the Senior Subordinated Note Indenture or for
any remedy thereunder,
except:
(i) a holder of a Senior Subordinated Note may institute suit for
enforcement of payment of the principal of and premium, if any, or interest
on such Senior Subordinated Note on or after the respective due dates
expressed in such Senior Subordinated Note (including upon acceleration
thereof); or
(ii) the institution of any proceeding with respect to the Senior
Subordinated Note Indenture or any remedy thereunder, including without
limitation acceleration, by the Holders of a majority in principal amount
of the outstanding Senior Subordinated Notes, provided that, upon
institution of any proceeding or exercise of any remedy such Holders
provide the Trustee with prompt notice thereof.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Senior
Subordinated Note Indenture and Senior Subordinated Note Registration Rights
Agreement without charge by writing to Intermedia Communications Inc., 3625
Queen Palm Drive, Tampa, Florida 33619.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
Senior Subordinated Note Registration Rights Agreement. It does not restate that
agreement in its entirety. We urge you to read the Senior Subordinated Note
Registration Rights Agreement in its entirety because it, and not this
description, defines your registration rights as Holders of these Senior
Subordinated Notes. See "Additional Information."
Pursuant to the Senior Subordinated Note Registration Rights Agreement, the
Company agreed to file with the Commission a registration statement (the "Senior
Subordinated Exchange Offer Registration Statement") on the appropriate form
under the Securities Act with respect to an offer to exchange (the "Senior
Subordinated Exchange Offer") the 12 1/4% Senior Subordinated Notes for 12 1/4%
Series B Senior Subordinated Notes. Upon the effectiveness of the Senior
Subordinated Exchange Offer Registration Statement, the Company will offer to
the holders of Transfer Restricted Securities pursuant to the Senior
Subordinated Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for a new issue of
senior notes of the Company (the "12 1/4% Series B Senior Subordinated Notes")
registered under the Securities Act, with terms substantially identical to those
of the 12 1/4% Senior Subordinated Notes.
If:
(i) the Company is not:
(a) required to file the Senior Subordinated Exchange Offer
Registration Statement; or
(b) permitted to consummate the Senior Subordinated Exchange Offer
because the Senior Subordinated Exchange Offer is not permitted by
applicable law or Commission policy; or
(ii) any holder of Transfer Restricted Securities notifies the Company
within the specified time period that:
(a) it is prohibited by law or Commission policy from participating
in the Senior Subordinated Exchange Offer,
(b) it may not resell the 12 1/4% Series B Senior Subordinated
Notes acquired by it in the Senior Subordinated Exchange Offer to the
public without delivering a prospectus and the
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prospectus contained in the Senior Subordinated Exchange Offer
Registration Statement is not appropriate or available for such resales;
or
(c) it is a broker-dealer and owns 12 1/4% Senior Subordinated
Notes acquired directly from the Company or an affiliate of the Company,
the Company will file with the Commission a shelf registration
statement (the "Senior Subordinated Notes Shelf Registration Statement") to
cover resales of the 12 1/4% Senior Subordinated Notes by the Holders
thereof who satisfy certain conditions relating to the provision of
information in connection with the Senior Subordinated Notes Shelf
Registration Statement.
The Company will use its best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the Commission.
For purposes of the foregoing, "Transfer Restricted Securities" means each
12 1/4% Senior Subordinated Note until:
(i) the date on which such 12 1/4% Senior Subordinated Note has been
exchanged by a Person other than a broker-dealer for a 12 1/4% Series B
Senior Subordinated Note in the Senior Subordinated Exchange Offer;
(ii) following the exchange by a broker-dealer in the Senior
Subordinated Exchange Offer of a 12 1/4% Senior Subordinated Note for a
12 1/4% Series B Senior Subordinated Note, the date on which such 12 1/4%
Series B Senior Subordinated Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Senior Subordinated Exchange Offer Registration
Statement;
(iii) the date on which such 12 1/4% Senior Subordinated Note has been
effectively registered under the Securities Act and disposed of in
accordance with the Senior Subordinated Notes Shelf Registration Statement;
or
(iv) the date on which such 12 1/4% Senior Subordinated Note may be
distributed to the public pursuant to Rule 144 under the Securities Act.
The Senior Subordinated Note Registration Rights Agreement will provide
that:
(i) unless the Senior Subordinated Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will file a
Senior Subordinated Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Issue Date;
(ii) unless the Senior Subordinated Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will use its
best efforts to have the Senior Subordinated Exchange Offer Registration
Statement declared effective by the Commission on or prior to 180 days
after the Issue Date;
(iii) unless the Senior Subordinated Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will
(a) upon the effectiveness of the Senior Subordinated Exchange
Offer Registration Statement, commence the Senior Subordinated Exchange
Offer and
(b) use its best efforts to issue on or prior to 30 business days
after the date on which the Senior Subordinated Exchange Offer
Registration Statement was declared effective by the Commission, 12 1/4%
Series B Senior Subordinated Notes in exchange for all 12 1/4% Senior
Subordinated Notes tendered prior thereto in the Senior Subordinated
Exchange Offer; and
(iv) if obligated to file the Senior Subordinated Notes Shelf
Registration Statement, the Company will use its best efforts to file the
Senior Subordinated Notes Shelf Registration Statement with the Commission
on or prior to 60 days after such filing obligation arises (and, if the
Senior Subordinated Exchange Offer is not permitted by applicable law or
Commission policy, in any event within 150 days
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after the Issue Date) and to cause the Senior Subordinated Notes Shelf
Registration Statement to be declared effective by the Commission on or
prior to 180 days after such obligation arises (and, if the Senior
Subordinated Exchange Offer is not permitted by applicable law or
Commission policy, in any event within 270 days after the Issue Date).
If:
(a) the Company fails to file any of the registration statements
required by the Senior Subordinated Note Registration Rights Agreement on
or before the date specified for such filing;
(b) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness
(the "Senior Subordinated Note Effectiveness Target Date");
(c) the Company fails to consummate the Senior Subordinated Exchange
Offer within 30 business days of the Senior Subordinated Note Effectiveness
Target Date with respect to the Senior Subordinated Exchange Offer
Registration Statement; or
(d) the Senior Subordinated Notes Shelf Registration Statement or the
Senior Subordinated Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified
in the Senior Subordinated Note Registration Rights Agreement, provided,
that the Company will have the option of suspending the effectiveness of
the Senior Subordinated Notes Shelf Registration Statement or the Senior
Subordinated Exchange Offer Registration Statement, without becoming
obligated to pay Liquidated Damages for periods of up to a total of 60 days
in any calendar year if the Board of Directors of the Company determines
that compliance with the disclosure obligations necessary to maintain the
effectiveness of the Senior Subordinated Notes Shelf Registration Statement
at such time could reasonably be expected to have an adverse effect on the
Company or a pending corporate transaction (each such event referred to in
clauses (a) through (d) above a "Senior Subordinated Note Registration
Default"),
then the Company will pay liquidated damages ("Liquidated Damages") to
each Holder of Transfer Restricted Securities, with respect to the first
90-day period immediately following the occurrence of such Senior
Subordinated Note Registration Default, in an amount equal to $.05 per week
per $1,000 principal amount of Senior Subordinated Notes constituting
Transfer Restricted Securities held by such Holder.
The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of Senior Subordinated Notes constituting
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Senior Subordinated Note Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Senior Subordinated Notes constituting Transfer Restricted Securities.
All accrued Liquidated Damages will be paid by the Company on each Interest
Payment Date to the Global Senior Subordinated Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by mailing checks to their registered addresses.
Following the cure of all Senior Subordinated Note Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of Senior Subordinated Notes will be required to make certain
representations to the Company (as described in the Senior Subordinated Note
Registration Rights Agreement) in order to participate in the Senior
Subordinated Exchange Offer and will be required to deliver information to be
used in connection with the Senior Subordinated Notes Shelf Registration
Statement and to provide comments on the Senior Subordinated Notes Shelf
Registration Statement within the time periods set forth in the Senior
Subordinated Note Registration Rights Agreement in order to have their Senior
Subordinated Notes included in the Senior Subordinated Notes Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set forth
above.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the 12 1/4% Series B Senior
Subordinated Notes to be resold as set forth herein will initially be issued in
the form of one or more global certificates (the "Global Senior Subordinated
Notes"). The Global Senior Subordinated Notes will be deposited on the Exchange
Date with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such nominee
being referred to herein as the "Global Holder").
Senior Subordinated Notes that are issued as described below under the
subheading "Certificated Securities" will be issued in the form of registered
definitive certificates (the "Certificated Securities"). Upon the transfer of
Certificated Securities, such Certificated Securities may, unless all Global
Senior Subordinated Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Senior Subordinated Note
representing the principal amount of Senior Subordinated Notes being
transferred, subject to the transfer restrictions set forth in the Senior
Subordinated Note Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the initial
purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary:
(i) upon deposit of the Global Senior Subordinated Notes, the
Depositary will credit the accounts of Participants designated by the
initial purchasers with portions of the principal amount of the Global
Senior Subordinated Notes; and
(ii) ownership of the Senior Subordinated Notes evidenced by the
Global Senior Subordinated Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants.
Prospective purchasers are advised that the laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Senior Subordinated Notes
evidenced by the Global Senior Subordinated Note will be limited to such extent.
So long as the Global Senior Subordinated Note Holder is the registered
owner of any Senior Subordinated Notes, the Global Senior Subordinated Note
Holder will be considered the sole Holder under the Senior Subordinated Note
Indenture of any Senior Subordinated Notes evidenced by the Global Senior
Subordinated Notes. Beneficial owners of Senior Subordinated Notes evidenced by
the Global Senior Subordinated Notes will not be considered the owners or
Holders thereof under the Senior Subordinated Note Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Senior Subordinated Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Subordinated Notes registered in the
name of the Global Senior Subordinated Note Holder on the applicable record date
will be payable by the Trustee to or at the direction of the Global Senior
Subordinated Note Holder in its capacity as the registered Holder under the
Senior Subordinated Note Indenture. Under the terms of the Senior Subordinated
Note Indenture, the Company and the Trustee may treat the persons in whose names
Senior Subordinated Notes, including the Global Senior Subordinated Notes, are
registered as
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the owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Senior
Subordinated Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of the Senior
Subordinated Notes will be governed by standing instructions and customary
practice and will be the responsibility of the Depositary's Participants or the
Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Senior Subordinated Note may, upon request to the Trustee, exchange such
beneficial interest for Senior Subordinated Notes in the form of Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof).
In addition, if:
(i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and a successor depositary
is not appointed by the Company within 120 days; or
(ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Senior Subordinated Notes in the form of
Certificated Securities under the Senior Subordinated Note Indenture,
then, upon surrender by the Global Senior Subordinated Note Holder of its
Global Senior Subordinated Note, Senior Subordinated Notes in such form will be
issued to each person that the Global Senior Subordinated Note Holder and the
Depositary identify as being the beneficial owner of the related Senior
Subordinated Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Senior Subordinated Note Holder or the Depositary in identifying the
beneficial owners of Senior Subordinated Notes and the Company and the Trustee
may conclusively rely on, and will be protected in relying on, instructions from
the Global Senior Subordinated Note Holder or the Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the Senior Subordinated Notes
represented by the Global Senior Subordinated Notes (including principal,
premium, if any, interest and Liquidated Damages, if any) by wire transfer of
immediately available funds to the accounts specified by the Global Senior
Subordinated Note Holder. With respect to Senior Subordinated Notes in
certificated form, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Senior Subordinated Notes represented by the Global Senior
Subordinated Notes are expected to be eligible to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Senior Subordinated Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Senior Subordinated Notes will also
be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Subordinated
Note Indenture. Reference is made to the Senior Subordinated Note Indenture for
a full disclosure of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
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"Accreted Value" means, for each $1,000 face amount of Senior Subordinated
Notes, as of any date of determination prior to March 1, 2004, the sum of (i)
the initial offering price of each Senior Subordinated Note and (ii) that
portion of the excess of the principal amount of each Senior Subordinated Note
over such initial offering price which shall have been accreted thereon through
such date, such amount to be so accreted on a daily basis and compounded
semi-annually on each March 1 and September 1 at the rate of 12 1/4% per year
from the date of issuance of the Senior Subordinated Notes through the date of
determination. The Accreted Value of any Senior Subordinated Note on or after
March 1, 2004 shall be 100% of the principal amount thereof.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 25% or more of the voting securities of a Person
shall be deemed to be control.
"Attributable Debt" means, with respect to any Sale and Leaseback
Transaction, the present value at the time of determination (discounted at a
rate consistent with accounting guidelines, as determined in good faith by the
Company) of the payments during the remaining term of the lease (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended) or until the earliest date on which the lessee may
terminate such lease without penalty or upon payment of a penalty (in which case
the rental payments shall include such penalty), after excluding all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (1) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (2) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the
assets of the Company and its Subsidiaries, taken as a whole, to any Person
or group (as such term is used in Section 13(d)(3) and 14(d)(2) of the
Exchange Act);
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company;
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(iii) any Person or group (as defined above) is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the total
Voting Stock or Total Common Equity of the Company, including by way of
merger, consolidation or otherwise; or
(iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Leverage Ratio" with respect to any Person means
the ratio of the Consolidated Indebtedness of such Person to the Consolidated
EBITDA of such Person for the relevant period; provided, however, that:
(1) if the Company or any Subsidiary of the Company has incurred any
Indebtedness (including Acquired Debt) or if the Company has issued any
Disqualified Stock or if any Subsidiary of the Company has issued any
Preferred Stock since the beginning of such period that remains outstanding
on the date of such determination or if the transaction giving rise to the
need to calculate the Consolidated Cash Flow Leverage Ratio is an
incurrence of Indebtedness (including Acquired Debt) or the issuance of
Disqualified Stock by the Company, Consolidated EBITDA and Consolidated
Indebtedness for such period will be calculated after giving effect on a
pro forma basis to:
(A) such Indebtedness, Disqualified Stock or Preferred Stock, as
applicable, as if such Indebtedness had been incurred or such stock had
been issued on the first day of such period;
(B) the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new
Indebtedness or sale of stock as if such discharge had occurred on the
first day of such period; and
(C) the interest income realized by the Company or its Subsidiaries
on the proceeds of such Indebtedness or of such stock sale, to the
extent not yet applied at the date of determination, assuming such
proceeds earned interest at the rate in effect on the date of
determination from the first day of such period through such date of
determination;
(2) if since the beginning of such period the Company or any
Subsidiary of the Company has made any sale of assets (including, without
limitation, any Asset Sales or pursuant to any Sale and Leaseback
Transaction), Consolidated EBITDA for such period will be:
(A) reduced by an amount equal to Consolidated EBITDA (if positive)
directly attributable to the assets which are the subject of such sale
of assets for such period; or
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(B) increased by an amount equal to Consolidated EBITDA (if
negative) directly attributable thereto for such period; and
(3) if since the beginning of such period the Company or any
Subsidiary of the Company (by merger or otherwise) has made an Investment
in any Subsidiary of the Company (or any Person which becomes a Subsidiary
of the Company) or has made an acquisition of assets, including, without
limitation, any acquisition of assets occurring in connection with a
transaction causing a calculation of Consolidated EBITDA to be made
hereunder, which constitutes all or substantially all of an operating unit
of a business, Consolidated EBITDA for such period will be calculated after
giving pro forma effect thereto (including the incurrence of any
Indebtedness (including Acquired Debt)) as if such Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the pro forma calculations will be
determined in good faith by a responsible financial or accounting Officer
of the Company, provided, however, that such Officer shall assume:
(i) the historical sales and gross profit margins associated with
such assets for any consecutive 12-month period ended prior to the date
of purchase (provided that the first month of such 12-month period will
be no more than 18 months prior to such date of purchase); and
(ii) other expenses as if such assets had been owned by the Company
since the first day of such period. If any Indebtedness (including,
without limitation, Acquired Debt) bears a floating rate of interest and
is being given pro forma effect, the interest on such Indebtedness will
be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period.
"Consolidated EBITDA" as of any date of determination means the
Consolidated Net Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting from purchase accounting
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent deducted in calculating such Consolidated Net
Income:
(i) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period;
(ii) Consolidated Interest Expense;
(iii) depreciation, amortization (including amortization of goodwill
and other intangibles); and
(iv) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period and excluding non-cash interest and dividend income) of such
Person and its Subsidiaries for such period, in each case, on a
consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation, amortization, interest expense, and other
non-cash charges of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated EBITDA only to the extent (and
in same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary, or loaned to the Company by any
such Subsidiary, without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of such Person and
its Subsidiaries as of such date calculated on a consolidated basis in
accordance with GAAP consistently applied.
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"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP:
(a) the amount of interest in respect of Indebtedness (including
amortization of original issue discount, amortization of debt issuance
costs, and non-cash interest payments on any Indebtedness, the interest
portion of any deferred payment obligation and after taking into account
the effect of elections made under any Interest Rate Agreement however
denominated with respect to such Indebtedness);
(b) the amount of Redeemable Dividends (to the extent not already
included in Indebtedness in determining Consolidated Interest Expense for
the relevant period); and
(c) the interest component of rentals in respect of any Capital Lease
Obligation paid, in each case whether accrued or scheduled to be paid or
accrued by such Person during such period to the extent such amounts were
deducted in computing Consolidated Net Income, determined on a consolidated
basis in accordance with GAAP. For purposes of this definition interest on
a Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by such Person to be the rate of interest implicit in
such Capital Lease Obligation in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that:
(i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof;
(ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or other distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders;
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(iv) the cumulative effect of a change in accounting principles shall
be excluded; and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"Contingent Investment" means, with respect to any Person, any guarantee by
such Person of the performance of another Person or any commitment by such
Person to invest in another Person. Any Investment that consists of a Contingent
Investment shall be deemed made at the time that the guarantee of performance or
the commitment to invest is given, and the amount of such Investment shall be
the maximum monetary obligation under such guarantee of performance or
commitment to invest. To the extent that a Contingent Investment is released or
lapses without payment under the guarantee of performance or the commitment to
invest, such Investment shall be deemed not made to the extent of such release
or lapse. With respect to any Contingent Investment, the payment of the
guarantee of performance or the payment under the commitment to invest shall not
be deemed to be an additional Investment.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(i) was a member of such Board of Directors on the Issue Date; or
(ii) was nominated for election or elected to such Board of Directors
with the affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or election.
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"Credit Facility" means any credit facility entered into by and among the
Company and one or more commercial banks or financial institutions, providing
for senior term or revolving credit borrowings of a type similar to credit
facilities typically entered into by commercial banks and financial
institutions, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facility and related agreements may be amended, extended, refinanced, renewed,
restated, replaced or refunded from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock to the extent that, and only
to the extent that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the Senior Subordinated
Notes mature, provided, however, that any Capital Stock which would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require the Company to repurchase or redeem such Capital Stock upon
the occurrence of a Change of Control occurring prior to the final maturity of
the Senior Subordinated Notes shall not constitute Disqualified Stock if the
change in control provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions applicable to
the Senior Subordinated Notes contained in the covenant described under the
subheading "Offer to Purchase Upon a Change of Control" and such Capital Stock
specifically provides that the Company will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
Senior Subordinated Notes as are required to be repurchased pursuant to the
covenant described under the subheading "Offer to Purchase Upon Change of
Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Eligible Receivable" means any Receivable not more than 90 days past due
under its scheduled payment terms.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
"Existing Indebtedness" means the Existing Senior Notes and all other
Indebtedness of the Company and its Subsidiaries in existence on the Issue Date.
"Existing Senior Notes" means the Company's 12 1/2% Senior Discount Notes
due 2006, the Company's 11 1/4% Senior Discount Notes due 2007, the Company's
8 7/8% Senior Notes due 2007, the Company's 8 1/2% Senior Notes due 2008 and the
Company's 8.60% Senior Notes due 2008.
"Fair Market Value" means with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
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"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of
(i) borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(iii) the balance deferred and unpaid of the purchase price of any
property (including pursuant to capital leases); or
(iv) representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade
payable, if and to the extent any of the foregoing (other than Hedging
Obligations or letters of credit) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, all
indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Persons), all
obligations to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Stock or any warrants, rights or options to acquire
such Disqualified Stock valued, in the case of Disqualified Stock, at the
greatest amount payable in respect thereof on a liquidation (whether
voluntary or involuntary) plus accrued and unpaid dividends, the
liquidation value of any Preferred Stock issued by Subsidiaries of such
Person plus accrued and unpaid dividends, and also includes, to the extent
not otherwise included, the Guarantee of items that would be included
within this definition and any amendment, supplement, modification,
deferral, renewal, extension or refunding of any of the above;
notwithstanding the foregoing, in no event will performance bonds or
similar security for performance be deemed Indebtedness so long as such
performance bonds or similar security for performance would not appear as a
liability on a balance sheet of such Person prepared in accordance with
GAAP; and provided further, that the amount of any Indebtedness in respect
of any Guarantee shall be the maximum principal amount of the Indebtedness
so guaranteed.
"Interest Rate Agreements" means (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
Guarantees, Contingent Investments, advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities of any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided, however, that any investment
to the extent made with Capital Stock of the Company (other than Disqualified
Stock) shall not be deemed an "Investment" for purposes of the Senior
Subordinated Note Indenture.
"Issue Date" means February 24, 1999.
"Joint Venture" means a Person in the Telecommunications Business in which
the Company holds less than a majority of the shares of Voting Stock or an
Unrestricted Subsidiary in the Telecommunications Business.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make-Whole Amount" means, with respect to any Senior Subordinated Note, an
amount equal to the excess, if any, of:
(i) the present value of the remaining principal, premium and interest
payments that would be payable with respect to such Senior Subordinated
Note if such Senior Subordinated Note were redeemed on March 1, 2004,
computed using a discount rate equal to the Treasury Rate plus 50 basis
points;
over
(ii) the Accreted Value of such Senior Subordinated Note.
"Make-Whole Average Life" means, with respect to any date of redemption of
Senior Subordinated Notes, the number of years (calculated to the nearest
one-twelfth) from such redemption date to March 1, 2004.
"Make-Whole Price" means, with respect to any Senior Subordinated Note, the
greater of (i) the sum of the principal amount of such Senior Subordinated Note
and the Make-Whole Amount with respect to such Senior Subordinated Note and (ii)
the redemption price of such Senior Subordinated Note on March 1, 2004.
"Marketable Securities" means:
(i) Government Securities;
(ii) any certificate of deposit maturing not more than 270 days after
the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according
to Moody's;
(iv) any banker's acceptances or money market deposit accounts issued
or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(i) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with:
(a) any Asset Sale (including, without limitation, dispositions
pursuant to Sale and Leaseback Transactions); or
(b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Subsidiaries; and
(ii) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation,
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legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that are
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets. Net Proceeds shall exclude any non-cash
proceeds received from any Asset Sale, but shall include such proceeds when and
as converted by the Company or any Subsidiary of the Company to cash.
"Pari Passu Notes" means any notes issued by the Company which, by their
terms and the terms of any indenture governing such notes, have an obligation to
be repurchased by the Company upon the occurrence of an Asset Sale.
"Permitted Investment" means:
(a) any Investments in the Company or any Subsidiary of the Company;
(b) any Investments in Marketable Securities;
(c) Investments by the Company or any Subsidiary of the Company in a
Person, if as a result of such Investment:
(i) such Person becomes a Subsidiary of the Company; or
(ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary of the Company;
(d) any Investments in property or assets to be used in:
(i) any line of business in which the Company or any of its
Subsidiaries was engaged on the Issue Date; or
(ii) any Telecommunications Business;
(e) Investments in any Person in connection with the acquisition of
such Person or substantially all of the property or assets of such Person
by the Company or any Subsidiary of the Company; provided that within 180
days from the first date of any such Investment, either:
(i) such Person becomes a Subsidiary of the Company or any of its
Subsidiaries; or
(ii) the amount of any such Investment is repaid in full to the
Company or any of its Subsidiaries;
(f) Investments pursuant to any agreement or obligation of the Company
or a Subsidiary, in effect on the Issue Date or on the date a Subsidiary
becomes a Subsidiary (provided that any such agreement was not entered into
in contemplation of such Subsidiary becoming a Subsidiary), to make such
Investments;
(g) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(h) Hedging Obligations permitted to be incurred by the covenant
described under the subheading "Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(i) bonds, notes, debentures or other securities received as a result
of Asset Sales permitted under the covenant described under the subheading
"Asset Sales;" and
(j) the Investment deemed to have been made by the Company at such
time as the Web Hosting Subsidiary ceases to be a Subsidiary of the Company
by reason of the issuance or sale of Equity Interests in the Web Hosting
Subsidiary to the extent that the book value of such Investment at the time
such Investment is deemed to have been made does not exceed $200.0 million
in the aggregate.
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"Permitted Liens" means:
(i) Liens securing Senior Debt (including Capital Lease Obligations)
permitted to be incurred pursuant to the covenant described under the
subheading "Incurrence of Indebtedness and Issuance of Preferred Stock;"
(ii) Liens in favor of the Company;
(iii) Liens on property of a Person existing, at the time such Person
is merged into or consolidated with the Company or any Subsidiary of the
Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company;
(iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were
in existence prior to the contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(vi) Liens existing, on the Issue Date;
(vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings timely instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by the Company or such Subsidiary;
(ix) Liens on Telecommunications Related Assets existing during the
time of the construction thereof;
(x) Liens on Receivables to secure Indebtedness permitted to be
incurred by the covenant described under the subheading "Incurrence of
Indebtedness and Issuance of Preferred Stock," but only to the extent that
the outstanding amount of the Indebtedness secured by such Liens would not
represent more than 80% of Eligible Receivables; and
(xi) Liens to secure any Permitted Refinancing of any Indebtedness
secured by Liens referred to in the foregoing clauses (i), (iii), (v) or
(x); but only to the extent that such Liens do not extend to any other
property or assets and the principal amount of the Indebtedness secured by
such Liens is not increased.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Public Offering" means an underwritten offering of Common Stock of the
Company registered under the Securities Act.
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"Receivables" means, with respect to any Person, all of the following
property and interests in property of such person or entity, whether now
existing or existing in the future or hereafter acquired or arising:
(i) accounts;
(ii) accounts receivable, including, without limitation, all rights to
payment created by or arising from sales of goods, leases of goods or the
rendition of services no matter how evidenced, whether or not earned by
performance;
(iii) all unpaid seller's or lessor's rights including, without
limitation, rescission, replevin, reclamation and stoppage in transit,
relating to any of the foregoing after creation of the foregoing or arising
therefrom;
(iv) all rights to any goods or merchandise represented by any of the
foregoing, including, without limitation, returned or repossessed goods;
(v) all reserves and credit balances with respect to any such accounts
receivable or account debtors;
(vi) all letters of credit, security, or Guarantees for any of the
foregoing;
(vii) all insurance policies or reports relating to any of the
foregoing;
(viii) all collection of deposit accounts relating to any of the
foregoing;
(ix) all proceeds of any of the foregoing; and
(x) all books and records relating to any of the foregoing.
"Redeemable Dividend" means, for any dividend with regard to Disqualified
Stock and Preferred Stock, the quotient of the dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Stock or Preferred Stock.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Retire" means, with respect to any Indebtedness, to repay, redeem, refund,
purchase or otherwise to acquire for value, such Indebtedness. The terms
"Retired" and "Retirement" shall have correlative meanings.
"S & P" means Standard and Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which any property (other than
Capital Stock) is sold by such Person or a Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Subsidiaries.
"Senior Subordinated Note Registration Rights Agreement" means the
Registration Rights Agreement between the Company and the initial purchasers in
respect of the Senior Subordinated Notes.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Strategic Investor" means, with respect to any sale of the Company's
Capital Stock, any Person which, both as of the Trading Day immediately before
the day of such sale and the Trading Day immediately after the day of such sale,
has, or whose parent has, a Total Market Capitalization of at least $1.0 billion
on a consolidated basis. In calculating Total Market Capitalization for the
purpose of this definition, the consolidated Indebtedness of such Person, solely
when calculated as of the Trading Day immediately after the day of such sale,
will be calculated after giving effect to such sale (including any Indebtedness
incurred in connection with such sale). For purposes of this definition, the
term parent means any Person of which the referent Strategic Investor is a
Subsidiary.
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"Subsidiary" of any Person means:
(i) any corporation, association or business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof; and
(ii) any partnership:
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person; or
(b) the only general partners of which are such Person or one or
more Subsidiaries of such Person or any combination thereof;
provided that any Unrestricted Subsidiary shall be excluded from this
definition of "Subsidiary."
"Telecommunications Business" means, when used in reference to any Person,
that such Person is engaged primarily in the business of:
(i) transmitting, or providing services relating to the transmission
of, voice, video or data through owned or leased transmission facilities;
(ii) creating, developing or marketing communications related network
equipment, software and other devices for use in a Telecommunications
Business; or
(iii) evaluating, participating or pursuing any other activity or
opportunity that is related to those identified in (i) or (ii) above;
provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors of the
Company.
"Telecommunications Related Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used in connection
with a Telecommunications Business.
"Total Common Equity" of any Person means, as of any date of determination,
the product of:
(i) the aggregate number of outstanding primary shares of Common Stock
of such Person on such day (which shall not include any options or warrants
on, or securities convertible or exchangeable into, shares of Common Stock
of such Person); and
(ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day. If no such Closing
Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (ii) of the preceding sentence shall be
determined by the Board of Directors of the Company in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee.
"Total Market Capitalization" of any Person means, as of any day of
determination (and as modified for purposes of the definition of "Strategic
Investor"), the sum of:
(1) the consolidated Indebtedness of such Person and its Subsidiaries
(except in the case of the Company, in which case of the Company and its
Subsidiaries) on such day; plus
(2) the product of:
(i) the aggregate number of outstanding primary shares of Common
Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of
Common Stock of such Person); and
(ii) the average Closing Price of such Common Stock over the 20
consecutive Trading Days immediately preceding such day; plus
(3) the liquidation value of any outstanding share of Preferred Stock
of such Person on such day; less
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(4) cash and cash equivalents (other than restricted cash and
restricted cash equivalents) as presented on such Person's consolidated
balance sheet on such date. If no such Closing Price exists with respect to
shares of any such class, the value of such shares for purposes of clause
(2) of the preceding sentence shall be determined by the Company's Board of
Directors in good faith and evidenced by a resolution of the Board of
Directors filed with the Trustee.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Treasury Rate" means, at any date of computation, the yield to maturity as
of such date (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15 (519), which has become publicly available at least two
business days prior to the date of the redemption notice for which such
computation is being made, or if such Statistical Release is no longer
published, as reported in any publicly available source of similar market data)
of United States Treasury securities with a constant maturity most nearly equal
to the Make-Whole Average Life; provided, however, that if the Make-Whole
Average Life is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Make-Whole Average Life is less
than one year, the weekly average yield on actually traded United States
treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a resolution of the
Board of Directors.
"Vendor Indebtedness" means any Indebtedness of the Company or any
Subsidiary incurred (i) in connection with the acquisition or construction of
Telecommunications Related Assets and (ii) to pay regularly scheduled interest
on such Indebtedness pursuant to the terms thereof.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Web Hosting Subsidiary" means the Subsidiary of the Company substantially
all of the assets of which consist of assets used exclusively in the conduct of
the Company's Internet Web hosting business.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(a) the then outstanding principal amount of such Indebtedness; into
(b) the total of the product obtained by multiplying:
(x) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof; by
(y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment;
provided, that with respect to Capital Lease Obligations, that maturity
shall be calculated after giving effect to all renewal options by the
Lessee.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Old Notes for New Notes will not constitute a recognition
event for federal income tax purposes. Consequently, no gain or loss will be
recognized by holders upon receipt of the New Notes. The New Notes will have the
same issue date and issue price as the Old Notes. A holder's initial tax basis
in the New Notes will be the same as the holder's basis in the Old Notes
exchanged therefor. Holders will be considered to have held the New Notes from
the time of their original acquisition of the Old Notes.
The following is a summary of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes. It does not purport to be a complete analysis of all potential
consequences. The summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as in effect on the date
of this Prospectus and all of which are subject to change at any time. Any such
change may be applied retroactively in a manner that could adversely affect a
holder. This summary applies only to those persons who are the initial holders
of the Notes and who hold the Notes as "capital assets" (generally, assets held
for investment). It does not address the tax consequences to taxpayers who are
subject to special rules (such as financial institutions, tax-exempt
organizations, insurance companies and persons holding Notes as part of a
straddle, hedge or conversion transaction) or aspects of federal income taxation
that may be relevant to a prospective investor based on such investor's
particular tax situation. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed. Accordingly, purchasers of Notes should
consult their own tax advisors with respect to the particular consequences to
them of the purchase, ownership and disposition of the Notes and the
applicability of any state, local or foreign tax laws, as well as with respect
to the possible effects of changes in federal and other tax laws.
INTEREST ON THE SENIOR NOTES
Interest paid on the Senior Notes will generally be taxable to a holder as
ordinary interest income at the time it is accrued or is received in accordance
with the holder's method of accounting for federal income tax purposes. The
9 1/2% Senior Notes were issued with a de minimus amount of original issue
discount ("OID"). Unless a holder elects to include all interest that accrues on
a Senior Note in gross income using the constant yield method, the Senior Notes
will not give rise to OID income for federal income tax purposes.
ORIGINAL ISSUE DISCOUNT ON THE SENIOR SUBORDINATED NOTES
General. For federal income tax purposes, the 12 1/4% Series B Senior
Subordinated Notes will have the same issue date and issue price as the 12 1/4%
Senior Subordinated Notes. Because the 12 1/4% Senior Subordinated Notes were
issued with OID for federal income tax purposes, holders of the 12 1/4% Series B
Senior Subordinated Notes will be required to include OID in income periodically
over the term of the 12 1/4% Series B Senior Subordinated Notes before receipt
of the cash to which such income is attributable.
The amount of OID on a 12 1/4% Series B Senior Subordinated Note will be
the excess of the stated redemption price at maturity of the 12 1/4% Series B
Senior Subordinated Note over its issue price. The issue price of a 12 1/4%
Series B Senior Subordinated Note will be the first price at which a substantial
amount of 12 1/4% Senior Subordinated Notes was sold to the public for money
(excluding sales to bond houses, brokers or others acting in the capacity of
underwriters, placement agents or wholesalers, etc.). The stated redemption
price at maturity of a 12 1/4% Series B Senior Subordinated Note will be the sum
of all payments to be made on such 12 1/4% Series B Senior Subordinated Note,
whether denominated as principal or interest. Accordingly, each 12 1/4% Series B
Senior Subordinated Note will have a substantial amount of OID.
In general, a holder must include in gross income for federal income tax
purposes the sum of the daily portions of OID with respect to a Senior
Subordinated Note for each day during the taxable year or portion of a taxable
year on which such holder holds the Senior Subordinated Note ("Accrued OID").
The daily portion is determined by allocating to each day of any accrual period
a pro rata portion of the OID allocable to that accrual period. The OID
allocable to a full accrual period is an amount equal to the adjusted issue
price of the Senior Subordinated Note at the beginning of the accrual period
multiplied by the yield to maturity of the Senior Subordinated Note. For
purposes of computing OID, Intermedia will use six-month accrual periods
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that end on the days in the calendar year corresponding to the day before the
maturity date of the Senior Subordinated Notes and the date six months prior to
such day, with the exception of an initial short accrual period. The adjusted
issue price of a Senior Subordinated Note at the beginning of any accrual period
is the issue price of the Senior Subordinated Note increased by the Accrued OID
for all prior accrual periods, less any cash payments on the Senior Subordinated
Note made on or before the first day of that accrual period. Under these rules,
holders will generally be required to include in gross income increasingly
greater amounts of OID in each successive accrual period until cash interest is
payable.
Intermedia is required to furnish certain information to the Internal
Revenue Service (the "IRS"), and will furnish annually to record holders of
Senior Subordinated Notes information with respect to OID accruing during the
calendar year. That information will be based on the adjusted issue price of the
Senior Subordinated Notes as if the holders were the original holders of the
Senior Subordinated Notes. Holders who purchase Senior Subordinated Notes for an
amount other than the adjusted issue price and/or on a date other than the last
day of an accrual period will be required to determine for themselves the amount
of OID, if any, they are required to include in gross income for federal income
tax purposes.
Certain Consequences to the Company and to Corporate Holders. The 12 1/4%
Senior Subordinated Notes constitute "applicable high yield discount
obligations" ("AHYDOs") for federal income tax purposes. Therefore, a portion of
the tax deductions that would otherwise be available to Intermedia in respect of
the Senior Subordinated Notes will be deferred or disallowed, which, in turn,
may reduce the after-tax cash flows of Intermedia. More particularly, Intermedia
will not be entitled to deduct OID that accrues with respect to the Senior
Subordinated Notes until amounts attributable to OID are paid in cash. In
addition, the "disqualified portion" of the OID accruing on the Senior
Subordinated Notes will be characterized as a non-deductible dividend with
respect to Intermedia and will also be treated as a dividend distribution solely
for purposes of the dividends received deduction of Sections 243, 246 and 246A
of the Code with respect to holders that are U.S. corporations. In general, the
"disqualified portion" of OID for any accrual period will be equal to the
product of (i) a percentage determined by dividing the "excess yield" (i.e., the
excess of the yield to maturity of the Senior Subordinated Notes over 11.17% by
the yield to maturity and (ii) the OID for the accrual period. Subject to
otherwise applicable limitations, a U.S. corporate holder will be entitled to a
dividends received deduction (generally at a 70 percent rate) with respect to
the disqualified portion of the Accrued OID if Intermedia has sufficient current
or accumulated "earnings and profits." To the extent that the Company's earnings
and profits are insufficient, any portion of the OID that otherwise would have
been recharacterized as a dividend for purposes of the dividends received
deduction will continue to be taxed as ordinary OID income in accordance with
the rules described above in "Original Issue Discount on the Senior Subordinated
Notes -- General."
EXCHANGE OFFER; REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Neither the exchange of Old Notes for new Notes in the Exchange Offers nor
the registration of the old Notes or new Notes pursuant to a shelf registration
statement should be a taxable event for United States federal income tax
purposes.
Intermedia intends to take the position that Liquidated Damages payable as
the result of a Registration Default, if any, will be taxable to a holder as
ordinary income in accordance with such holder's method of accounting for tax
purposes. The IRS, however, may take a different position, which could affect
the timing of both a holder's income and Intermedia's deduction with respect to
such Liquidated Damages.
DISPOSITION OF THE NOTES
Generally, any sale, redemption or other taxable disposition of a Note will
result in taxable gain or loss equal to the difference between the sum of the
amount of cash and the fair market value of property received (other than
amounts attributable to accrued but unpaid stated interest on a Senior Note) and
the holder's adjusted tax basis in the Note. An initial holder's adjusted tax
basis for determining gain or loss on a sale or other disposition of a Senior
Subordinated Note will equal the cost of the Senior Subordinated Note to such
holder, increased by any Accrued OID includible in such holder's gross income
and decreased by the amount
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of any cash payments received by such holder (regardless of whether such
payments are denominated as principal or interest). Any gain or loss upon a sale
or other disposition of a Note will generally be capital gain or loss, and will
be long-term capital gain or loss if the Note has been held by the holder for
more than one year.
Holders should be aware that the resale of a Note may be affected by the
"market discount" rules of the Code, under which a subsequent purchaser
acquiring a Note at a market discount generally would be required to include as
ordinary income a portion of gain realized upon the disposition or retirement of
such Note to the extent of the market discount that accrued while the Note was
held by such purchaser.
BACKUP WITHHOLDING
A holder may be subject, under certain circumstances, to backup withholding
at a 31 percent rate with respect to payments of interest and OID received on,
and proceeds from the sale (through a broker) of, a Note. Backup withholding
generally applies only if the holder (i) fails to furnish his or her social
security or other taxpayer identification number ("TIN") to Intermedia in the
required manner, (ii) furnishes an incorrect TIN and the IRS so notifies
Intermedia, (iii) is notified by the IRS that he or she has failed to report
properly payments of interest or dividends and the IRS has notified Intermedia
that he or she is subject to withholding, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding.
Any amount withheld from a payment to a holder under the backup withholding
rules is allowable as a credit against such holder's federal income tax
liability, provided that the required information is furnished to the IRS.
Certain holders (including, among others, corporations) are not subject to
backup withholding. Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offers must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes acquired
as a result of market-making activities or other trading activities. We have
agreed that for a period expiring on the earlier of (a) the date that all
Transfer Restricted Securities cease to be Transfer Restricted Securities and
(b) 365 days after the date the Exchange Offers are completed we will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offers may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offers and any broker-dealer that participates in a distribution of New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
We have not entered into any arrangement or understanding with any person
to distribute the New Notes to be received in the Exchange Offers and to the
best of our information and belief, each person participating
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in the Exchange Offers is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to participate
in the distribution of the New Notes to be received in the Exchange Offers.
LEGAL MATTERS
The legality of the securities offered hereby will be 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 11,490 shares of the Common Stock and
owns a warrant to purchase 200,000 shares of Common Stock at an exercise price
of $20.75 per share.
EXPERTS
The consolidated financial statements of Intermedia appearing in
Intermedia's Annual Report (Form 10-K) at December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, have been audited
by Ernst & Young LLP, independent certified public accountants, as set forth in
their report thereon included therein and incorporated therein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report and the authority of such firm as experts in
accounting and auditing.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF APRIL 29, 1999.
--------------------------------
TABLE OF CONTENTS
--------------------------------
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Incorporation of Certain Documents
by Reference...................... i
Where You can Find Additional
Information....................... i
Prospectus Summary.................. 1
Risk Factors........................ 8
The Exchange Offer.................. 18
Use of Proceeds..................... 25
Capitalization...................... 25
Description of the Senior Notes..... 26
Description of the Senior
Subordinated Notes................ 59
Certain Federal Income Tax
Considerations.................... 95
Plan of Distribution................ 97
Legal Matters....................... 98
Experts............................. 98
</TABLE>
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$664,000,000
(INTERMEDIA COMMUNICATIONS LOGO)
$300,000,000
9 1/2% SERIES B SENIOR NOTES
DUE 2009
$364,000,000
12 1/4% SERIES B
SENIOR SUBORDINATED
DISCOUNT NOTES DUE 2009
--------------------
PROSPECTUS
--------------------
APRIL 29, 1999
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