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Rule No. 424(b)(3)
Registration No. 333-62931
PROSPECTUS
INTERMEDIA COMMUNICATIONS INC. 8,000,000 DEPOSITARY SHARES EACH
REPRESENTING A ONE HUNDREDTH INTEREST IN A SHARE OF 7% SERIES F JUNIOR
CONVERTIBLE PREFERRED STOCK, 80,000 SHARES OF 7% SERIES F JUNIOR CONVERTIBLE
PREFERRED STOCK, 4,753,417 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THE DEPOSITARY SHARES AND/OR THE 7% SERIES F JUNIOR CONVERTIBLE PREFERRED STOCK,
324,876 SHARES OF COMMON STOCK AND COMMON STOCK ISSUABLE AS DIVIDENDS OR
LIQUIDATED DAMAGES ON THE 7% SERIES F JUNIOR CONVERTIBLE PREFERRED STOCK
---------------
This Prospectus is being used in connection with the offering from time
to time by certain holders (the "Selling Securityholders") of (1) depositary
shares (the "Depositary Shares") each representing a one hundredth interest in a
share of 7% Series F Junior Convertible Preferred Stock ("Series F Preferred
Stock"), liquidation preference $2,500 per share (equivalent to $25.00 per
Depositary Share; the "Liquidation Preference"), par value $1.00 per share of
Intermedia Communications Inc. (the "Company" or "Intermedia"), (2) the shares
of Series F Preferred Stock and the shares (the "Common Shares") of common
stock, $.01 par value per share, of the Company (the "Common Stock") issuable
upon conversion of the Series F Preferred Stock and/or the Depositary Shares,
(3) the shares of Common Stock issued by the Company in lieu of cash dividends
on the Series F Preferred Stock on October 15, 1998 (the "October 1998 Dividend
Shares") and (4) the shares of Common Stock issued by the Company in lieu of
cash as dividends and liquidated damages on the Series F Preferred Stock on
January 15, 1999 (the "January 1999 Shares")(the Depositary Shares, Series F
Preferred Stock, October 1998 Dividend Shares, the January 1999 Shares and
Common Shares are collectively referred to herein as the "Securities"). This
Prospectus is also being used in connection with the issuance by the Company (1)
from time to time during the two-year period commencing on the date of this
Prospectus of an indeterminate number of shares of Common Stock issuable by the
Company in lieu of cash as dividends on the Series F Preferred Stock (the
"Dividend Shares") and (2) of shares of Common Stock issuable by the Company in
lieu of cash as liquidated damages on the Series F Preferred Stock (the
"Liquidated Damages Shares"). See "Description of Series F Preferred
Stock--Dividends" and "--Registration Rights; Liquidated Damages." The
Depositary Shares were originally issued by the Company in a private placement
on August 18, 1998 (the "Offering") and purchased by Bear, Stearns & Co. Inc.,
Smith Barney Inc., Merrill Lynch & Co. and Warburg Dillon Read LLC (the "Initial
Purchasers") pursuant to a purchase agreement (the "Purchase Agreement") dated
as of August 12, 1998 between the Company and the Initial Purchasers. The
Initial Purchasers, in turn, resold the Depositary Shares in private sales
pursuant to exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"). (continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED
UNDER THE CAPTION "RISK FACTORS" ON PAGE 1.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
No dealer, salesman or any other person has been authorized to give
any information or to make any representation other than those contained in this
Prospectus. If any information is given or any representation is made by a
dealer, salesman or any other person, such information or representation must
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof.
The Information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is February 3, 1999.
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Holders of the Depositary Shares are entitled to all proportional
rights and preferences of the Series F Preferred Stock (including dividend,
voting, redemption and liquidation rights). Dividends on the Series F Preferred
Stock accrue at a rate per annum equal to 7% of the Liquidation Preference per
share of Series F Preferred Stock and are payable quarterly, in arrears, on
January 15, April 15, July 15 and October 15 of each year, commencing on October
15, 1998. Dividends are payable in cash or at the option of the Company, in
shares of Common Stock, or a combination thereof. The Depositary Shares are
convertible, subject to prior redemption, at any time after November 16, 1998,
at the option of the holder thereof into Common Stock at a conversion price of
$42.075 per share, subject to certain adjustments.
The Series F Preferred Stock and the Depositary Shares are redeemable,
in whole or in part, at the option of the Company at any time on or after
October 17, 2001, at the redemption prices set forth herein, plus accumulated
and unpaid dividends and liquidated damages, if any, thereon to the redemption
date. See "Description of Series F Preferred Stock" and "Description of
Depositary Shares." Upon the occurrence of a Change of Control (as defined under
the caption "Description of Series F Preferred Stock -- Change of Control"), the
Company will be required to make an offer to repurchase all outstanding shares
of Series F Preferred Stock at a price equal to 100% of the Liquidation
Preference thereof, plus accumulated and unpaid dividends and Liquidated
Damages, if any, thereon to the repurchase date.
The Series F Preferred Stock ranks (i) senior to all Junior Securities
(as defined under the caption "Description of Series F Preferred Stock --
Ranking"), including all Common Stock of the Company; (ii) on a parity with any
Parity Securities (as defined under the caption "Description of Series F
Preferred Stock -- Ranking"), including the Company's 7% Series D Junior
Convertible Preferred Stock (the "Series D Preferred Stock") and the Company's
7% Series E Junior Convertible Preferred Stock (the "Series E Preferred Stock");
and (iii) junior to each class of Senior Securities (as defined under the
caption "Description of Series F Preferred Stock -- Ranking"), including the
Company's 13 1/2% Series B Redeemable Exchangeable Preferred Stock due 2009 (the
"Series B Preferred Stock"), and junior to all indebtedness and other
obligations of the Company and its subsidiaries. As of September 30, 1998, on a
pro forma basis after giving effect to the Offering and the application of the
proceeds therefrom, the Series F Preferred Stock would have been junior in right
of payment to approximately $2.8 billion of liquidation preference of Series B
Preferred Stock and total indebtedness and other obligations of the Company and
its subsidiaries. See "Description of Series F Preferred Stock--Ranking."
The Securities may be sold from time to time to purchasers directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer the Securities through brokers, dealers or agents who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Securities for whom
they may act as agent. The Selling Securityholders and any such brokers, dealers
or agents who participate in the distribution of the Securities may be deemed to
be "underwriters", and any profits on the sale of the Securities by them and any
discounts, commissions or concessions received by any such brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Securityholders may be deemed to be
underwriters, the Selling Securityholders may be subject to certain statutory
liabilities of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including, but not limited to, Sections 11, 12 and
17 of the Securities Act and Rule 10b-5 under the Exchange Act. See "Plan of
Distribution." The Selling Securityholders and any other person participating in
such distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
Securities by the Selling Securityholders and any other such person. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
The Company will not receive any proceeds from the sale of the
Securities or the issuance of the Dividend Shares or Liquidated Damages Shares
offered hereby. The Company has agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the Securities to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
On January 26, 1999, the closing price for the Common Stock as quoted
on the National Association of Securities Dealers, Inc. Automated Quotation
National Market ("Nasdaq National Market") System, under the symbol "ICIX", was
$13.75 per share. The Company has not and does not intend to apply for the
listing of the Depositary Shares or the Series F Preferred Stock on any
securities exchange or for quotation through the Nasdaq National Market. The
Series F Preferred Stock and the Depositary Shares are eligible for trading in
the National Association of Securities Dealers' Private Offerings, Resales and
Trading Through Automative Linkages ("PORTAL") Market.
Intermedia's principal offices are located at 3625 Queen Palm Drive,
Tampa, Florida 33619 and its telephone number is (813) 829-0011.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
its Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at its Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material can also be inspected
at the Web site of the Commission located at http://www.sec.gov. The Common
Stock is listed on the Nasdaq National Market under the symbol "ICIX". Reports,
proxy and information statements, and other information concerning the Company
can also be inspected at the Nasdaq National Market at 1735 17 Street, N.W.,
Washington, D.C. 20006-1506.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company
with the Commission and are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December
31, 1997.
The portions of the Proxy Statement for the Annual Meeting of
Stockholders of the Company held on May 20, 1998 that have been incorporated by
reference into the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Amendment No. 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998.
Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on
February 1, 1999 (Date of Event -- September 3, 1998).
The Company's Current Report on Form 8-K/A filed with the Commission on
February 1, 1999 (Date of Event -- April 30, 1998).
The Company's Current Report on Form 8-K filed with the Commission on
October 28, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
September 3, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
August 21, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
August 4, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on
June 11, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
May 29, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
May 20, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on
May 13, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
May 1, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
April 30, 1998. The Company's Current Report on Form 8-K filed with the
Commission on April 6, 1998.
The Company's Current Report on Form 8-K/A filed with the Commission on
March 30, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
March 18, 1998.
The Company's Current Report on Form 8-K filed with the Commission on
February 12, 1998. The Company's Current Report on Form 8-K filed with the
Commission on January 21, 1998.
The description of the capital stock contained in the Company's
registration statements on Form 8-A under the Exchange Act, filed April 7, 1992,
April 28, 1992 and April 30, 1992 (File No. 0-20135).
In addition, the following information that has been filed with the
Commission is incorporated herein by reference:
The consolidated financial statements of DIGEX, Incorporated ("DIGEX")
appearing in DIGEX's Annual Report on Form 10-KSB for the year ended December
31, 1996.
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All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN
DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON TO INTERMEDIA
COMMUNICATIONS INC., 3625 QUEEN PALM DRIVE, TAMPA, FLORIDA 33619 (TELEPHONE
813-829-0011), ATTENTION: INVESTOR RELATIONS, A COPY OF ANY OR ALL OF THE
DOCUMENTS REFERRED TO ABOVE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE
BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information ..................................................................................... iii
Incorporation of Certain Documents by Reference ........................................................... iii
Risk Factors .............................................................................................. 1
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends ................................. 13
The Company ............................................................................................... 14
Use Of Proceeds ........................................................................................... 18
Description of Capital Stock .............................................................................. 18
Description of Series F Preferred Stock ................................................................... 22
Description Of Depositary Shares .......................................................................... 31
Federal Income Tax Consequences ........................................................................... 37
Selling Securityholders ................................................................................... 42
Plan of Distribution ...................................................................................... 51
Indemnification for Securities Act Liability .............................................................. 52
Legal Matters ............................................................................................. 53
Experts ................................................................................................... 53
</TABLE>
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RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the business of the Company and this offering, in addition to other
information set forth elsewhere in this Prospectus and in the Company's Annual
Report on Form 10-K, as amended, before purchasing the securities offered
hereby.
Limited Operations of Certain Services. The Company's business commenced in
1986. Substantially all of the Company's revenues are derived from local
exchange services, enhanced data services, long distance services, integration
services and certain local network services. Many of these services have only
recently been initiated or their availability only recently expanded in new
market areas. The Company is expecting to substantially increase the size of its
operations in the near future. Prospective investors, therefore, have limited
historical financial information about the Company upon which to base an
evaluation of the Company's performance. Given the Company's limited operating
history, there is no assurance that it will be able to compete successfully in
the telecommunications business.
History of Net Losses. The development of the Company's business and the
expansion of its networks require significant capital, operational and
administrative expenditures, a substantial portion of which are incurred before
the realization of revenues. These capital expenditures will result in negative
cash flow until an adequate customer base is established. Although its revenues
have increased in each of the last three years, Intermedia has incurred
significant increases in expenses associated with the installation of local/long
distance voice switches and expansion of its fiber optic networks, services and
customer base. Intermedia reported net losses attributable to common
stockholders of approximately $20.7 million, $57.2 million and $284.9 million
for the years ended December 31, 1995, 1996 and 1997, respectively, and a net
loss attributable to common stockholders of $438.2 million for the nine months
ended September 30, 1998. The Company expects net losses to continue for the
next several years. In addition, the Company had negative EBITDA before certain
charges in 1997 and positive EBITDA before certain charges in the first nine
months of 1998 of $(49.8) million and $15.4 million, respectively. 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 the Company's 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. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient EBITDA before certain charges to meet its working capital and debt
service requirements, which could have a material adverse effect on the Company.
Substantial Indebtedness. The Company is highly leveraged. At September 30,
1998, after giving pro forma effect to the Offering, the Company would have had
outstanding approximately $2.8 billion in aggregate principal amount of
indebtedness and other liabilities on a consolidated basis (including trade
payables), approximately $357.4 million of obligations with respect to dividend
payments and the mandatory redemption of the Series B Preferred Stock and $172.5
million, $200.0 million and $200.0 million of obligations with respect to the
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock,
respectively. The degree to which the Company is leveraged could have important
consequences to holders of the Series F Preferred Stock and Common Stock,
including the following: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to payment of the principal and interest on
its indebtedness, to payment of dividends on and the redemption of the Series B
Preferred Stock and the payment of dividends on the Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock, thereby reducing funds
available for other purposes; (ii) the Company's significant degree of leverage
could increase its vulnerability to changes in general economic
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<PAGE> 6
conditions or increases in prevailing interest rates; (iii) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes could
be impaired; and (iv) the Company may be more leveraged than certain of its
competitors, which may be a competitive disadvantage.
Commencing on November 15, 2001, semi-annual cash interest payments of $20.7
million will be due on the 12 1/2% Senior Discount Notes due 2006 (the "12 1/2%
Notes") and commencing on January 15, 2003, semi-annual cash interest payments
of $36.5 million will be due on the 11 1/4% Senior Discount Notes due 2007 (the
"11 1/4% Notes"). Because the Company currently has a net cash flow deficit from
its operating and investing activities, its ability to make such cash interest
payments and to repay its obligations on the 12 1/2% Notes, the 11 1/4% Notes,
the 8 7/8% Senior Notes due 2007 (the "8 7/8% Notes"), the 8 1/2% Senior Notes
due 2008 (the "8 1/2% Notes") and the 8.60% Senior Notes due 2008 (the "8.60%
Notes" and collectively, with the 12 1/2% Notes, the 11 1/4% Notes, the 8 7/8%
Notes and the 8 1/2% Notes, the "Existing Senior Notes") at maturity will depend
on the Company developing one or more sources of cash flow prior to the dates on
which such cash payment obligations arise. Alternatively, the Company may seek
to refinance all or a portion of the Existing Senior Notes. There can be no
assurance, however, that the Company will be able to refinance such indebtedness
or develop additional sources of cash flow.
Insufficiency of Earnings to Cover Fixed Charges. The Company's historical
earnings have been insufficient to cover combined fixed charges and dividends on
preferred stock by $2.3 million, $3.3 million, $19.9 million, $60.0 million and
$245.7 million for each of the years ended December 31, 1993, 1994, 1995, 1996
and 1997, respectively. In addition, insufficiencies of $187.0 million and
$443.6 million were experienced in the nine month periods ended September 30,
1997 and 1998, respectively. Combined fixed charges and dividends include
interest and dividends whether paid or accrued. On a pro forma basis, after
giving applicable effect to the acquisitions of Shared Technologies Fairchild
Inc. ("Shared"), National Telecommunications of Florida, Inc. and NTC, Inc.
(collectively, "National") and the affiliated entities known as the Long
Distance Savers group of companies (collectively, "LDS"), each of the Company's
1997 debt and equity offerings, the private placement of $500 million principal
amount of 8.60% Notes in May 1998 (the "1998 Notes Offering") and the Offering
as if they had been consummated at the beginning of the year, the Company's
earnings were insufficient to cover combined fixed charges and dividends on
preferred stock by $474.6 million for the year ended December 31, 1997 and
$452.3 million for the nine month period ended September 30, 1998. The Company
anticipates that earnings will be insufficient to cover fixed charges for the
next several years. In order for the Company to meet its debt service
obligations, its dividend and redemption obligations with respect to the Series
B Preferred Stock and its dividend obligations with respect to the Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, the
Company will need to substantially improve its operating results. There can be
no assurance that the Company's operating results will be of sufficient
magnitude to enable the Company to meet such debt service, dividend and
redemption obligations. In the absence of such operating results, the Company
could face substantial liquidity problems and may be required to raise
additional financing through the issuance of debt or equity securities; however,
there can be no assurance that Intermedia would be successful in raising such
financing, or the terms or timing thereof.
Restrictions on the Company's Ability to Pay Cash Dividends on the Series F
Preferred Stock. To date, the Company has not paid cash dividends on its shares
of capital stock. The ability of Intermedia to pay cash dividends on the Series
F Preferred Stock is substantially restricted under various covenants and
conditions contained in the indentures governing the Existing Senior Notes (the
"Existing Senior Notes Indentures") and the Certificate of Designation setting
forth the rights of the Series B Preferred Stock (the "Series B Certificate of
Designation"). In addition to the limitations imposed on the payment of
dividends by the Existing Senior Notes Indentures and the Series B Certificate
of Designation, under Delaware law the Company is permitted to pay dividends on
its capital stock, including the Series F Preferred Stock, only out of its
surplus, or in the event that it has no surplus, out of its net profits for the
year in which a dividend is declared or for the immediately preceding fiscal
year. Surplus is defined as the excess of a company's total assets over the sum
of its total liabilities and Series B Preferred Stock plus the par value of its
outstanding capital stock. At September 30, 1998, the
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Company had stockholders' deficit of $240.9 million and surplus of $247.4
million. The Company has had net losses in each of the last five years and
expects to operate at a net loss for the next several years. These net losses
will reduce stockholders' equity and the surplus of the Company. For the nine
months ended September 30, 1998, the Company had a net loss attributable to
common stockholders of $438.2 million ($429.2 million on a pro forma basis). In
order to pay dividends in cash, the Company must have surplus or net profits
equal to the full amount of the cash dividend at the time such dividend is
declared. The Company cannot predict what the value of its assets or the amount
of its liabilities will be in the future and, accordingly, there can be no
assurance that the Company will be able to pay cash dividends on the Series F
Preferred Stock.
Effect of Payment of Dividends and Liquidated Damages in Shares of Common
Stock. In the event dividends or liquidated damages, if any, are paid in shares
of Common Stock, the number of shares of Common Stock to be issued on each
dividend payment date will be determined by dividing the total dividend and
liquidated damages, if any, to be paid on each Depositary Share by 95% of the
average of the high and low sales prices of the Common Stock as reported by the
Nasdaq National Market or any national securities exchange upon which the
Common Stock is then listed, for each of the ten consecutive trading days
immediately preceding the fifth business day preceding the record date for such
dividend. If such average is greater than 5.05% higher than the market value
for the Common Stock on the dividend payment date and the holder sells at such
lower price, the holder's actual dividend yield would be lower than the stated
dividend yield on the Series F Preferred Stock. In addition, the holder is
likely to incur commissions and other transaction costs in connection with the
sale of such Common Stock.
Limited Remedy in the Event of a Failure to Pay Dividends. The Certificate
of Designation setting forth the rights of the Series F Preferred Stock (the
"Certificate of Designation") provides that upon the accumulation of accrued and
unpaid dividends on the outstanding Series F Preferred Stock in an amount equal
to six quarterly dividends (whether or not consecutive), the sole remedy to the
holders of the Series F Preferred Stock will be the voting rights arising from a
Voting Rights Triggering Event (as defined under the caption "Description of
Series F Preferred Stock -- Voting Rights"). See "Description of Series F
Preferred Stock -- Voting Rights."
Subordination of the Series F Preferred Stock. The Company's obligations
with respect to the Series F Preferred Stock are subordinate and junior in right
of payment to all present and future indebtedness of the Company and its
subsidiaries, including the Existing Senior Notes, to the Series B Preferred
Stock and to all subsequent series of preferred stock of the Company which by
their terms rank senior to the Series F Preferred Stock. In addition to the
substantial dividend restrictions set forth in the Existing Senior Notes
Indentures, no cash dividend payments may be made with respect to the Series F
Preferred Stock if (i) the obligations with respect to the Existing Senior Notes
or Series B Preferred Stock are not paid when due or (ii) any other event of
default has occurred under the Existing Senior Notes Indentures or Series B
Certificate of Designation, and is continuing or would occur as a consequence of
such payment. As of September 30, 1998, on a pro forma basis after giving effect
to the Offering, the Series F Preferred Stock would have been junior in right of
payment to $2.8 billion liquidation preference of the Series B Preferred Stock
and total indebtedness and other obligations of the Company and its
subsidiaries. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Series F Preferred Stock only after all Senior Securities and all indebtedness
of the Company have been paid, and there may not be sufficient assets remaining
to pay amounts due on any or all of the Series F Preferred Stock then
outstanding. See "Description of Preferred Stock--Ranking."
Significant Capital Requirements and Need for Additional Financing.
Expansion of the Company's existing networks and services and the development of
new networks and services require significant capital expenditures. The Company
expects to fund its capital requirements through existing resources, joint
ventures, debt or equity financing, credit availability and internally generated
funds. The Company expects that continued expansion of its business will require
raising equity and/or debt by the end of fiscal 1999. Depending on market
conditions, the Company may determine to raise additional capital before such
time. There can be no assurance, however, that the Company will be successful in
raising sufficient debt or equity on terms that it will consider acceptable.
Moreover, the Existing Senior Notes Indentures, the Series B Certificate of
Designation, the Certificate of Designation setting forth the rights of the
Series D Preferred Stock (the "Series D Certificate of Designation"),
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<PAGE> 8
the Certificate of Designation setting forth the rights of the Series E
Preferred Stock (the "Series E Certificate of Designation" and collectively with
the Series B Certificate of Designation, the Series D Certificate of Designation
and the Certificate of Designation, the "Certificates of Designation") and the
Certificate of Designation impose certain restrictions upon the Company's
ability to incur additional indebtedness or issue additional preferred stock. In
addition, the Company's future capital requirements will depend upon a number of
factors, including marketing expenses, staffing levels and customer growth, as
well as other factors that are not within the Company's control, such as
competitive conditions, government regulation and capital costs. Failure to
generate sufficient funds may require the Company to delay or abandon some of
its future expansion or expenditures, which would have a material adverse effect
on its growth and its ability to compete in the telecommunications industry.
Effect of Substantial Additional Indebtedness on the Company's Ability to
Make Payments on the Series F Preferred Stock. The Existing Senior Notes
Indentures and the Series B Certificate of Designation limit, but do not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiaries, and the Company may incur substantial additional indebtedness
during the next few years to finance the construction of networks and purchase
of network electronics, including local/long distance voice and data switches.
All additional indebtedness of the Company will rank senior in right of payment
to any payment obligations with respect to the Series F Preferred Stock. The
debt service requirements of any additional indebtedness would make it more
difficult for the Company to pay cash dividends with respect to the Series F
Preferred Stock.
Risks Associated with Acquisitions. In March and April 1998, the Company
completed its acquisitions of Shared, LDS and National. The Company's
acquisitions of Shared, LDS and National could divert the resources and
management time of the Company and will require integration with the Company's
existing networks and services. There can be no assurance that Shared, LDS and
National will be successfully integrated into the Company's operations and will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
Consistent with its strategy, the Company is currently evaluating and often
engages in discussions regarding various acquisition opportunities. However, as
of the date hereof, no agreement or agreement in principal to effect any
material acquisition has been reached. These acquisitions could be funded by
cash on hand and/or the Company's securities. It is possible that one or more of
such possible future acquisitions, if completed, could adversely affect the
Company's funds from operations or cash available for distribution, in the short
term, in the long term or both, or increase the Company's debt, or such an
acquisition could be followed by a decline in the market value of the Company's
securities.
Failure to Obtain Third Party Consents in Connection with an Acquisition or
Merger. The Company has consummated a number of acquisitions over the past two
years, including the acquisitions of Shared, LDS and National. In connection
therewith, the Company may not have obtained or, as in the case of the
acquisition of Shared, may have elected not to seek, and in connection with
future acquisitions may elect not to seek, all required consents from third
parties with respect to acquired contracts. While 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. There
can be no assurance that material adverse consequences to the business of the
Company will not result from any such breach of contract claims. The Company
believes that the failure to obtain any such third party consents should not
result in any material adverse consequences to the Company.
Year 2000 Risk. To ensure that its computer systems and applications will
function properly beyond 1999, the Company has implemented a Year 2000 program.
As the first phase of its program, the Company conducted an inventory and
assessment of its network equipment, office equipment and information management
systems. While the Company believes that its
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equipment inventory is complete, much of the equipment utilized by Intermedia
resides outside the Company's headquarters and there can be no assurance that
mission critical equipment has not been overlooked.
Based on its inventory and assessment, the Company determined that it will
be required to modify or replace portions of its software and hardware so that
its networks, office equipment and information management systems will function
properly with respect to dates in the year 2000 and thereafter. Such
determinations were based in part on statements made by hardware and software
vendors used by the Company as to the year 2000 compliance of the systems
utilized by the Company. Intermedia also has conducted a risk assessment to
identify those systems whose failure would be expected to result in the greatest
risk to the Company. Although the Company intends to conduct tests to ensure
that its equipment is Year 2000 compliant, such tests will be focused
principally on those systems whose failure would pose the greatest risk to the
Company. Intermedia will likely not test all of its equipment and will rely upon
vendor representations, if received by the Company, where tests are not
conducted. There can be no assurance of the accuracy or completeness of such
vendor representations.
The Company has begun upgrading, replacing and testing certain components of
its networks and information processing systems and scheduling the installation
of other necessary hardware and software upgrades. The Company believes that it
has allocated adequate resources for this purpose and expects its Year 2000 date
conversion program to be successfully completed on a timely basis. However there
can be no assurance that it will successfully implement all of the necessary
upgrades in a timely manner. The Company presently believes that with
modifications to existing software and conversions to new software and hardware,
the Year 2000 issue will not pose significant operational problems for its
systems. However, if such modifications and conversions are not made, or are not
completed in timely fashion, the Year 2000 problems could have a material impact
on the operations of the Company.
The Company is in the process of contacting all of its significant suppliers
and large customers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company, however, has not undertaken an in-depth
evaluation of its suppliers' or customers' Year 2000 preparedness and the
ability of such third parties to adequately address their Year 2000 issues is
outside the Company's control. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted or
that such conversions, if not completed or improperly implemented, would not
have a material adverse effect on the Company's systems.
The Company intends to develop appropriate contingency plans should certain
mission critical systems utilized by the Company or its significant suppliers
fail as a result of Year 2000 issues. In addition, the Company is participating
in industry wide efforts to address Year 2000 issues, the goal of which is to
develop contingency plans which address not only the Company's issues but those
of the telecommunications industry as a whole.
For a discussion of the costs to date and projected costs to complete the
Company's Year 2000 project, see "Managements Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of Year 2000" in the
Company's most recent periodic report. The costs of the project and the date
which the Company has established to complete the Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions regarding future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, unanticipated mergers and acquisitions,
and similar uncertainties.
Maintenance of Peering Relationships. The Internet is comprised of many
Internet service providers ("ISPs") who operate their own networks and
interconnect with other ISPs at various peering points. The establishment and
maintenance of peering relationships with other ISPs is necessary to exchange
traffic with other ISPs without having to pay settlement charges. Although the
Company meets the industry's current standards for peering, there
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is no assurance that other national ISPs will maintain peering relationships
with the Company. In addition, there may develop increasing requirements
associated with maintaining peering relationships with the major national ISPs
with which the Company may have to comply. There can be no assurance that the
Company will be able to expand or adapt its network infrastructure to meet the
industry's evolving standards on a timely basis, at a commercially reasonable
cost, or at all.
Potential Liability of On-Line Service Providers. The law in the United
States relating to the liability of on-line service providers and ISPs for
information carried on, disseminated through or hosted on their systems is
currently unsettled. Several private lawsuits seeking to impose such liability
are currently pending. In one case brought against an ISP, Religious Technology
Center v. Netcom On-Line Communication Services, Inc., the United States
District Court for the Northern District of California ruled in a preliminary
phase that, under certain circumstances, ISPs could be held liable for copyright
infringement. The Telecommunications Act of 1996 (the "1996 Act") prohibits and
imposes criminal penalties for using an interactive computer service to transmit
certain types of information and content, such as indecent or obscene
communications. On June 26, 1997, the Supreme Court affirmed the decision of a
panel of three federal judges which granted a preliminary injunction barring
enforcement of this portion of the 1996 Act to the extent enforcement is based
upon allegations other than obscenity or child pornography as an impermissible
restriction on the First Amendment's right of free speech. In addition, numerous
states have adopted or are currently considering similar types of legislation.
The imposition upon ISPs or Web hosting sites of potential liability for
materials carried on or disseminated through their systems could require the
Company to implement measures to reduce its exposure to such liability, which
could require the expenditure of substantial resources or the discontinuation of
certain product or service offerings. The Company believes that it is currently
unsettled whether the 1996 Act prohibits and imposes liability for any services
provided by the Company should the content or information transmitted be subject
to the statute. The increased attention focused upon liability issues as a
result of these lawsuits, legislation and legislative proposals could affect the
growth of Internet use. Any such liability or asserted liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence upon Network Infrastructure. The Company's success in marketing
its services to business and government users requires that the Company provide
superior reliability, capacity and security via its network infrastructure. The
Company's networks are subject to physical damage, power loss, capacity
limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused, and
will continue to cause, interruptions in service or reduced capacity for the
Company's customers. Similarly, the Company's ISP business relies on the
availability of its network infrastructure for the provision of Internet
connectivity. Interruptions in service, capacity limitations or security
breaches could have a material adverse effect on the Company's business,
financial condition and results of operations.
Expansion Risk. The Company is experiencing a period of rapid expansion
which management expects will continue in the near future. This growth has
increased the operating complexity of the Company as well as the level of
responsibility for both existing and new management personnel. The Company's
ability to manage its expansion effectively will require it to continue to
implement and improve its operational and financial systems and to expand, train
and manage its employee base. The Company's inability to effectively manage its
expansion could have a material adverse effect on its business.
A portion of the Company's expansion may occur through acquisitions as an
alternative to direct investments in the assets required to implement the
expansion. No assurance can be given that suitable acquisitions can be
identified, financed and completed on acceptable terms, or that the Company's
future acquisitions, if any, will be successful or will not impair the Company's
ability to service its outstanding obligations.
In addition, expansion through acquisitions will require the Company to
integrate the acquired personnel, assets and businesses with the Company's
existing business. The Company recorded a restructuring charge during the second
quarter of 1998 of approximately $32.3 million. The Company also expensed during
the second and third quarter of 1998 other business restructuring and
integration costs associated with the Program in the amounts of $17.8 million
and $1.8 million, respectively. No assurance can be given that all of the
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anticipated benefits from the restructuring program will be realized or that the
program will not be more expensive or take longer than anticipated.
Need to Obtain Permits and Rights of Way to Implement Network Expansion. The
Company is continuing to expand its existing networks. The Company has
identified other expansion opportunities and is currently extending the reach of
its networks to pursue such opportunities. There can be no assurance that the
Company will be able to expand its existing networks on a timely basis. The
expansion of the Company's existing networks and its construction or acquisition
of new networks will be dependent, among other things, on its ability to acquire
rights-of-way and any required permits on satisfactory terms and conditions and
on its ability to finance such expansion, acquisition and construction. In
addition, the Company may require pole attachment agreements with utilities and
incumbent local exchange carriers ("ILECs") to operate existing and future
networks, and there can be no assurance that such agreements will be obtained on
reasonable terms. These factors and others could adversely affect the expansion
of the Company's customer base on its existing networks and commencement of
operations on new networks. If the Company is not able to expand, acquire or
construct its networks in accordance with its plans, the growth of its business
would be materially adversely affected.
Competition. In each of its markets, the Company faces significant
competition for the local network services, including local exchange services,
it offers from ILECs, which currently dominate their local telecommunications
markets. ILECs have longstanding relationships with their customers, which
relationships may create competitive barriers. Furthermore, ILECs may have the
potential to subsidize competitive service from monopoly service revenues. In
addition, a continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new or larger competitors for
the Company. The recent mergers of WorldCom, Inc. ("WorldCom") and MCI
Communications Corporation ("MCI") and of AT&T, Inc. ("AT&T") and Teleport
Communications Group, Inc. ("Teleport"), as well as the proposed merger of AT&T
and Tele-Communications, Inc., are examples of this trend. The Company also
faces competition in most markets in which it operates from one or more
integrated communications providers ("ICPs") and ILECs operating fiber optic
networks. In addition, the Company faces competition in its integration services
business from equipment manufacturers, the regional Bell operating companies
("RBOCs") and other ILECs, long distance carriers and systems integrators, and
in its enhanced data services business (including Internet) from local telephone
companies, long distance carriers, very small aperture terminal providers, other
ISPs and others. In particular, the market for Internet services is extremely
competitive, and there are limited barriers to entry. Many of the Company's
existing and potential competitors have financial, personnel and other resources
significantly greater than those of the Company.
The Company believes that various legislative initiatives, including the
1996 Act, have removed many of the remaining legislative barriers to local
exchange competition. Nevertheless, in light of the passage of the 1996 Act,
regulators are also likely to provide ILECs with increased pricing flexibility
as competition increases. If ILECs are permitted to lower their rates
substantially or engage in excessive volume or term discount pricing practices
for their customers, the net income or cash flow of ICPs and competitive local
exchange carriers ("CLECs"), including the Company, could be materially
adversely affected. In addition, while the Company currently competes with AT&T,
MCI and others in the interexchange services market, the 1996 Act permits the
RBOCs to provide interexchange services once certain criteria are met. Once the
RBOCs begin to provide such services, they will be in a position to offer single
source service similar to that being offered by the Company. Furthermore, AT&T
and MCI have entered, and other interexchange carriers ("IXCs") have announced
their intent to enter, the local exchange services market, which is facilitated
by the 1996 Act's resale and unbundled network element provisions. The Company
cannot predict the number of competitors that will emerge as a result of
existing or new federal and state regulatory or legislative actions. Competition
from the RBOCs with respect to
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interexchange services or from AT&T, MCI or others with respect to local
exchange services could have a material adverse effect on the Company's
business.
Regulation. The Company is subject to varying degrees of federal, state and
local regulation. The Company is not currently subject to price cap or rate of
return regulation at the state or federal level, nor is it currently required to
obtain Federal Communication Commission ("FCC") authorization for the
installation, acquisition or operation of its interstate network facilities.
Further, the FCC issued an order holding that non-dominant carriers, such as
Intermedia, are required to withdraw interstate tariffs for domestic long
distance service. That order has been stayed by a federal appeals court, and it
is not clear at this time whether the detariffing order will be implemented.
Until further action is taken by the court, the Company will continue to
maintain tariffs for these services. In June 1997, the FCC issued another order
stating that non-dominant carriers, such as Intermedia, could withdraw their
tariffs for interstate access services. While the Company has no immediate plans
to withdraw its tariff, this FCC order allows the Company to do so. The FCC does
require the Company to obtain authority to provide service between the United
States and foreign points and to file tariffs on an ongoing basis for
international service.
On May 16, 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. The Company believes that the FCC's new access charge rules do not
adversely affect the Company's business plan, and that they in fact present
significant new opportunities for new entrants, including the Company. Aspects
of the access charge order may be changed in the future. Numerous parties have
either filed appeals with federal courts or asked the FCC to reconsider portions
of its new rules.
The Company is generally subject to certification or registration and tariff
or price list filing requirements for intrastate services by state regulators.
The 1996 Act and the issuance by the FCC of rules governing local competition,
particularly those requiring the interconnection of all networks and the
exchange of traffic among the ILECs and CLECs, as well as pro-competitive
policies already developed by state regulatory commissions, have caused
fundamental changes in the structure of the markets for local exchange services.
On July 18, 1997, the United States Court of Appeals for the Eighth Circuit
issued a decision vacating the FCC's pricing and "pick and choose" rules, as
well as certain other of the FCC's interconnection rules. On October 14, 1997,
the Eighth Circuit issued an order clarifying its previous decision. In this
order, the Court held that ILECs have an obligation under the 1996 Act to offer
other carriers access to the ILECs' network elements on an unbundled basis, but
the ILECs do not have an obligation to recombine those elements for use by other
carriers. On January 25, 1999, the Supreme Court largely reversed the Eighth
Circuit's order, holding that the FCC has general jurisdiction to implement the
local competition provisions of the 1996 Act. In so doing, the Supreme Court
stated that the FCC has authority to set pricing guidelines for unbundled
network elements, to prevent ILECs from disaggregating existing combinations of
network elements, and to establish "pick and choose" rules regarding
interconnection agreements (which would permit a carrier to "pick and choose"
among various terms of service from the ILEC's other interconnection
agreements). This action 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
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 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
the Company cannot predict the ultimate disposition of those matters.
Two RBOCs, US West Communications ("US West") and Ameritech Communications
International, Inc. ("Ameritech"), have entered into "teaming agreements" with
an IXC, Qwest Communications International, Inc. ("Qwest"), whereby the RBOCs
would solicit customers for Qwest's long distance service and handle billing of
those customers in exchange for a fee. These agreements would permit the RBOCs
to offer their customers a package of local and long distance services in
competition with the Company's offerings even though the RBOCs are not
themselves providing the long distance component. Certain IXCs requested the FCC
to block the proposed arrangement and initiated litigation in federal courts. On
June 4, 1998, a federal court issued a preliminary injunction barring further
performance of the US West agreement but another federal court subsequently
refused to similarly enjoin performance under the Ameritech agreement. Both
courts, at the request of the FCC, have referred the question of the legality of
the agreements under the 1996 Act to the FCC, which ordered Ameritech to stop
marketing Qwest's service pending its review. On October 7, 1998, the FCC
released
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a decision holding that those agreements were an improper attempt by the RBOCs
to provide interLATA service that would be inconsistent with the 1996 Act. The
FCC's decision has been appealed to the federal courts. The Company is unable
to predict the final outcome of this matter or the nature of any policies the
FCC may adopt relating to other types of agreements between RBOCs and other
carriers.
Although passage of the 1996 Act should result in increased opportunities
for companies that are competing with the ILECs, no assurance can be given that
changes in current or future regulations adopted by the FCC or state regulators
or other legislative or judicial initiatives relating to the telecommunications
industry would not have a material adverse effect on the Company.
The Company believes it is entitled to receive reciprocal compensation from
ILECs for the transport and termination of Internet traffic as local traffic
pursuant to various interconnection agreements. Some ILECs have not paid and/or
have disputed these charges, arguing the ISP traffic is not local traffic as
defined by the various agreements. Both state and federal regulators currently
are considering the proper jurisdictional classification of local calls placed
to an ISP, and whether ISP calling triggers an obligation to pay reciprocal
compensation. There can be no assurance that these issues will be resolved by
the FCC or all of the states or that any such resolution will be favorable to
the Company, although all of the states addressing the question to date have
ruled that Internet traffic is local traffic. The Company accounts for
reciprocal compensation with the ILECs, including activity associated with
Internet traffic, as local traffic pursuant to the terms of 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. Based on the foregoing and on the Company's evaluation of the
ILECs' ability to pay the amounts due under the terms of the interconnection
agreements, the Company has not reserved for any of these accounts receivable.
Approximately $30.2 million of the Company's receivables, as of September 30,
1998 ($10.1 million as of December 31, 1997), are related to such reciprocal
compensation. As the Company's ISP traffic grows, these amounts are expected to
increase and will be accounted for in the manner described above.
The regulatory status of telephone service over the Internet is presently
uncertain. The Company is unable to predict what regulations may be adopted in
the future or to what extent existing laws and regulations may be found by state
and federal authorities to be applicable to such services or the impact such new
or existing laws and regulations may have on the business of the Company.
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 recently indicated, for example,
that voice telecommunications carried over the Internet between two telephone
sets using the public switched network may be subject to payment of access
charges and Universal Service funding obligations, while voice
telecommunications using computers rather than telephone sets may not be subject
to such obligations. There can be no assurance that new laws or regulations
relating to these services or a determination that existing laws are applicable
to them will not have a material adverse effect on the Company's business.
Potential Diminishing Rate of Growth. During the period from 1994 through
1997, the Company's revenues grew at a compound annual growth rate of 158.8%
(including the effect of acquisitions). While the Company expects to continue to
grow, as its size increases, it is likely that its rate of growth will diminish.
Risk of New Service Acceptance by Customers. The Company has recently
introduced a number of services, primarily local exchange services, that the
Company believes are important to its long-term growth. The success of these
services will be dependent upon, among other things, the willingness of
customers to accept the Company as the provider of such services. No assurance
can be given that such acceptance will occur; the lack of such acceptance could
have a material adverse effect on the Company.
Rapid Technological Changes. The telecommunications industry is subject to
rapid and significant changes in technology. While the Company believes that,
for the foreseeable future, these changes will neither materially
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affect the continued use of its fiber optic networks nor materially hinder its
ability to acquire necessary technologies, the effect on the business of the
Company of technological changes such as changes relating to emerging wireline
and wireless transmission technologies, including software protocols, cannot be
predicted.
Dependence on Key Personnel. The Company's business is managed by a small
number of key management and operating personnel, the loss of certain of whom
could have a material adverse impact on the Company's business, financial
condition and results of operations. The Company believes that its future
success will depend in large part on its continued ability to attract and retain
highly skilled and qualified personnel. None of the Company's key executives are
party to a long-term employment agreement with the Company.
Risk of Termination, Cancellation or Non-Renewal of Interexchange
Agreements, Network Agreements, Licenses and Permits. The Company has lease
and/or purchase agreements for rights-of-way, utility pole attachments, conduit
and dark fiber for its fiber optic networks. Although the Company does not
believe that any of these agreements will be canceled in the near future,
cancellation or non-renewal of certain of such agreements could materially
adversely affect the Company's business in the affected metropolitan area. In
addition, the Company has certain licenses and permits from local government
authorities. The 1996 Act requires that local government authorities treat
telecommunications carriers in a competitively neutral, non-discriminatory
manner, and that most utilities, including most ILECs and electric companies,
afford alternative carriers access to their poles, conduits and rights-of-way at
reasonable rates on non-discriminatory terms and conditions. There can be no
assurance that the Company will be able to maintain its existing franchises,
permits and rights or to obtain and maintain the other franchises, permits and
rights needed to implement its strategy on acceptable terms. In March 1998,
Intermedia signed a definitive agreement with the Williams Telecommunications
Group ("Williams") granting Intermedia a 20 year indefeasible right of use
("IRU") nationwide transmission capacity on Williams' fiber optic
network. The IRU between the Company and Williams may be terminated by Williams
after a payment default by the Company and, in the event of a bankruptcy of
Williams, the IRU may be rejected by Williams in a bankruptcy proceeding.
Business Combinations. The Company has from time to time held, and continues
to hold, preliminary discussions with (i) potential strategic investors who have
expressed an interest in making an investment in or acquiring the Company and
(ii) potential joint venture partners looking toward the formation of strategic
alliances that would expand the reach of the Company's networks or services
without necessarily requiring an additional investment in the Company. In
addition to providing additional growth capital, management believes that an
alliance with an appropriate strategic investor would provide operating synergy
to, and enhance the competitive positions of, both the Company and the investor
within the rapidly consolidating telecommunications industry. There can be no
assurance that agreements for any of the foregoing will be reached.
Change of Control. An investment, business combination or strategic alliance
involving the company could constitute a change of control. The Existing Senior
Notes Indentures provide that a change of control would require the Company to
repay the indebtedness outstanding under such instruments. A change of control
also requires the Company to offer to redeem its outstanding series of preferred
stock, including the Series F Preferred Stock. The terms of the Existing Senior
Notes Indentures and the Series B Certificate of Designation contain provisions
that may prohibit the repurchase of the Series F Preferred Stock. If a change of
control does occur, there is no assurance that the Company would have sufficient
funds, or could obtain any additional debt or equity financing necessary, to
make such repayments and redemptions.
Class Action by DIGEX Stockholders. On June 5, 1997, the Company announced
that it had agreed to acquire 100% of the outstanding equity of DIGEX (the
"DIGEX Acquisition"). The DIGEX Acquisition was consummated through a tender
offer for all of the outstanding shares of DIGEX, which closed on July 9, 1997,
followed by a cash merger effective on July 11, 1997 (the "Merger").
On June 20, 1997, two purported class action complaints were filed in the
Court of Chancery of the State of Delaware in and for New Castle County
respectively by TAAM Associates, Inc. and David and Chaile Steinberg
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(the "Complaints"), purported stockholders of DIGEX, on behalf of all
non-affiliated common stockholders of DIGEX, against Intermedia, DIGEX and the
directors of DIGEX (the "DIGEX Directors"). The Complaints allege that the DIGEX
Directors violated their fiduciary duties to the public stockholders of DIGEX by
agreeing to vote in favor of the Merger and that Intermedia knowingly aided and
abetted such violation by offering to retain DIGEX management in their present
positions and consenting to stock option grants to certain executive officers of
DIGEX. The Complaints sought preliminary and permanent injunctions enjoining the
Merger but no applications were made for such injunctions prior to consummation
of the Merger on July 11, 1997. In addition, the Complaints seek cash damages
from the DIGEX Directors. In August 1997, a motion to dismiss the Complaints was
filed on behalf of Intermedia, DIGEX and the DIGEX Directors. The action has
been dormant since that time.
These cases are in their very early stages and no assurance can be given as
to their ultimate outcome. Intermedia, after consultation with its counsel,
believes that there are meritorious factual and legal defenses to the claims in
the Complaints. Intermedia intends to defend vigorously the claims in the
Complaints.
Absence of a Public Market for the Depositary Shares. The Depositary Shares
and Series F Preferred Stock are new issues of securities for which there is
currently no public market. The Company does not intend to apply for listing of
the Depositary Shares or the Series F Preferred Stock on any securities exchange
or on the Nasdaq National Market. Although the Initial Purchasers have informed
the Company that they currently intend to make a market in the Depositary
Shares, they are not obligated to do so and any such market-making may be
discontinued at any time without notice. In addition, any market-making
activities with respect to the Depositary Shares may be limited during the
pendency of the Shelf Registration Statement. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Depositary
Shares. If a market for the Depositary Shares were to develop, the Depositary
Shares may trade at prices that may be higher or lower than their respective
initial offering price depending upon many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
securities. Historically, the market for securities such as the Depositary
Shares has been subject to disruptions that have caused substantial volatility
in the prices of similar securities. There can be no assurance that, if a market
for the Depositary Shares were to develop, such a market would not be subject to
similar disruptions. The Company does not expect a market for the Series F
Preferred Stock to develop.
Tax Considerations. For a discussion of certain material federal income tax
considerations which are relevant to the purchase, ownership and disposition of
the Depositary Shares, the Series F Preferred Stock and the Common Shares, see
"Federal Income Tax Consequences."
Anti-Takeover Provisions. The Company's Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") and Bylaws, the
provisions of the Delaware General Corporation Law (the "DGCL"), the Existing
Senior Notes Indentures and the Certificates of Designation may make it
difficult in some respects to effect a change in control of the Company and
replace incumbent management. In addition, the Company's Board of Directors has
adopted a Stockholder's Rights Plan, pursuant to which rights to acquire a
series of preferred stock, exercisable upon the occurrence of certain events,
were distributed to its stockholders. The existence of these provisions may have
a negative impact on the price of the Common Stock, may discourage third party
bidders from making a bid for the Company, or may reduce any premiums paid to
stockholders for their Common Stock. In addition, the Board has the authority to
fix the rights and preferences of, and to issue shares of, the Company's
preferred stock, which may have the effect of delaying or preventing a change in
control of the Company without action by its stockholders.
Shares Eligible for Future Sale. Future sales of shares by existing
stockholders under Rule 144 of the Securities Act, or through the exercise of
outstanding registration rights or the issuance of shares of Common Stock upon
the exercise of options or warrants or conversion of convertible securities
could materially adversely affect the market price of shares of Common Stock and
could materially impair the Company's future ability to raise capital through an
offering of equity securities. Substantially all of the Company's outstanding
shares, other
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than those held by affiliates, are transferable without restriction under the
Securities Act. No predictions can be made as to the effect, if any, that market
sales of such shares or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
Forward-Looking Statements. The statements contained in this Prospectus that
are not historical facts are "forward-looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as "estimates,"
"projects," "anticipates," "expects," "intends," "believes" or the negative
thereof or other variations thereon or comparable terminology or by discussions
of strategy that involve risks and uncertainties. Management wishes to caution
the reader that these forward-looking statements, such as Intermedia's plans to
expand its existing networks or to build and acquire networks in new areas, the
market opportunity presented by larger metropolitan areas, its anticipation of
installation of switches or the provision of local exchange services and
revenues from designated markets during 1999 and statements regarding
development of Intermedia's businesses, the estimate of market sizes and
addressable markets for Intermedia's services and products, Intermedia's
anticipated capital expenditures, regulatory reform and other statements
contained in this Prospectus regarding matters that are not historical facts,
are only estimates and predictions. No assurance can be given that future
results will be achieved. Actual events or results may differ materially as a
result of risks facing Intermedia or actual events differing from the
assumptions underlying such statements. Such risks and assumptions include, but
are not limited to, Intermedia's ability to successfully market its services to
current and new customers; generate customer demand for its services in the
particular markets where it plans to market services; access markets; identify,
finance and complete suitable acquisitions, design and construct fiber optic
networks; install cable and facilities, including switching electronics, and
obtain rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions, as well as regulatory,
legislative and judicial developments that could cause actual results to vary
materially from the future results indicated, expressed or implied, in such
forward-looking statements.
Moreover, Intermedia presents certain data contained herein on an annualized
basis, based on quarterly or monthly data, because Intermedia believes that such
annualized data is a standard method to present certain data in the
telecommunications industry. However, actual annual results could differ
materially from annualized data because annualized data does not account for
factors such as seasonality, growth or decline. Consequently, readers should not
place undue reliance on the annualized data.
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's historical earnings have been insufficient to cover combined
fixed charges and dividends on preferred stock by $2.3 million, $3.3 million,
$19.9 million, $60.0 million and $245.7 million for each of the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, respectively. In addition,
insufficiencies of $187.0 million and $443.6 million were experienced in the
nine month periods ended September 30, 1997 and 1998, respectively. Combined
fixed charges and dividends include interest and dividends whether paid or
accrued. On a pro forma basis, after giving applicable effect to the
acquisitions of Shared, National and LDS, each of the Company's 1997 debt and
equity offerings, the 1998 Notes Offering and the Offering as if they had been
consummated at the beginning of the year, the Company's earnings were
insufficient to cover combined fixed charges and dividends on preferred stock by
$474.6 million for the year ended December 31, 1997 and $452.3 million for the
nine month period ended September 30, 1998.
See "Risk Factors -- Substantial Indebtedness; Insufficiency of Earnings to
Cover Fixed Charges" for a further discussion of factors which may have an
impact on the Company's ratio of earnings to combined fixed charges and
preferred stock dividends.
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THE COMPANY
Intermedia is a rapidly growing ICP delivering local, long distance and
enhanced data services (including Internet-related services) to business and
government customers. Intermedia is the largest domestic independent company
among the CLECs (based upon annualized telecommunications services revenues) and
is also the largest provider of shared tenant telecommunications services in the
United States. As a tier-one ISP and the fourth largest (based on number of
nodes) frame relay provider in the United States, Intermedia is also a leading
provider of enhanced data services to business and government customers.
Intermedia provides services to its customers throughout the United States and
in selected international markets through a combination of owned and leased
network facilities. As an ICP with over 10 years experience focusing on business
and government customers, Intermedia believes it is positioned to take advantage
of technical, regulatory and market dynamics which currently promote demand for
a fully integrated set of communications services.
Intermedia serves approximately 92,800 business customers and has over 610
quota carrying sales personnel operating in 92 cities. The Company's third
quarter 1998 revenues were $192.4 million. Intermedia's reported revenues have
grown from $14.3 million in 1994 to $247.9 million in 1997, representing a
compound annual growth rate of 158.8%.
Through a combination of acquisitions, leased infrastructure, expansion of
existing network and asset purchases, Intermedia continues to increase its
customer base and network density. Additionally, the Company continues to pursue
attractive opportunities to complement and support its existing network
infrastructure and service offerings and to expand into new geographic markets.
Intermedia's network infrastructure includes over 280,000 access line
equivalents ("ALEs") in service, 21 voice switches, 153 data switches, 27,123
frame relay nodes, 553 network to network interfaces ("NNIs"), including NNIs
with BellSouth Telecommunications Inc., US West, Sprint Corporation ("Sprint"),
GTE Corporation, Bell Atlantic Corporation ("Bell Atlantic") and Southern New
England Telecommunications Corp, and approximately 39,400 miles of nationwide
long distance fiber facilities. This infrastructure is capable of delivering
local, long distance and enhanced data services (including frame relay,
asynchronous transfer mode ("ATM") and Internet services) and enabled Intermedia
to address $34 billion of a $222 billion national market opportunity by the end
of 1997. The Company believes that at the end of 1998, its addressable market
will be over $90 billion. Management believes that continuing expansion will
enable Intermedia to (i) increase the size of its addressable market to reach a
significant number of new potential customers, (ii) achieve economies of scale
in network operations and sales and marketing and (iii) more effectively serve
customers having a presence in multiple metropolitan areas.
In order to capitalize on the significant increase in the Company's
addressable market, Intermedia has rapidly expanded, and intends to continue to
expand, its direct sales and support team consisting of highly skilled
engineering and sales professionals. The sales and support team has complete
product knowledge and technical, integration and program or project management
skills. This team approach promotes a close working relationship between
Intermedia and the customers' telecommunications, information services and user
constituencies. Intermedia believes such relationships enable it to sell more of
its services and maintain longer relationships with its customers. Intermedia
believes that the continued deployment of its skilled end user engineering
support and sales teams will allow Intermedia to establish service in new
markets and gain a stronger competitive position in existing markets. By
focusing first on establishing customer relationships in both new and existing
markets, Intermedia believes it can subsequently deploy capital efficiently in
response to customer demand.
Intermedia expects to realize economies of scale on its intercity network:
(i) through the continued deployment of local/long distance voice switches to
serve its rapidly growing customer base, and (ii) by combining long distance
voice traffic between switches with intercity enhanced data and Internet
traffic. In addition, Intermedia plans to introduce a new class of voice
products which utilize data protocols to deliver voice traffic over Intermedia's
packet/cell switched network which efficiently combines multiple data and voice
protocols over a single network fabric ("Packet/Cell Switched Network").
Intermedia expects to begin offering such new products in the second quarter of
1999. However, the timing of such offering will depend on a number of factors,
including the maturation
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of industry standards and the regulatory environment, and no assurance can be
given that the Company will not experience delays in launching this new product
offering. These services will provide a competitive service offering to
customers seeking a more cost efficient and flexible alternative to voice
services provided over traditional circuit switched telecommunications networks.
Intermedia believes that Packet/Cell Switched Networks, such as its own, will
displace a significant portion of the national telecommunications market that is
currently served over traditional circuit switched networks. Intermedia believes
this new service offering, when implemented, will accelerate its penetration of
the traditional voice services market and provide improved returns on its
network investment.
Enhanced data services, such as those provided over Intermedia's ATM and
frame relay network, include specialized communications services for customers
needing to transport various forms of digital data among multiple locations. An
important category of Intermedia's enhanced data services are its Internet
services--both access to the Internet and various Web hosting and Web site
management services. These Internet services are regularly delivered over
Intermedia's ATM and frame relay network. According to industry sources, the
frame relay services market is projected to grow from $1.3 billion in 1996 to
$2.7 billion in 1999 and Internet Web site management services are estimated to
grow from $450 million in 1997 to $7 billion in 2002. There can be no assurance
that such market growth will be realized or that the assumptions underlying such
projections are reliable. While Intermedia has historically concentrated its
enhanced data sales in the eastern half of the United States, Intermedia is
currently the fourth largest national provider of frame relay networking
services (based on number of nodes) after AT&T, MCI combined with WorldCom and
Sprint. To satisfy its customers' desire for end-to-end enhanced data services
(both networking and Internet services) from a single provider, Intermedia has
deployed its network and made interconnection arrangements with other providers
to offer national and international service.
Intermedia's mission is to become the premier provider of communications
services to business and government customers. Intermedia believes that its
target customers have sophisticated communications services requirements,
including the need for reliable network infrastructure, high quality,
solutions-oriented and responsive customer service and continuous focus on
service enhancements and new service development. Intermedia believes it has
multiple advantages over its competitors in serving its targeted customer base
as a result of the Company's: (i) specialized sales and service approach
employing engineering and sales professionals who design and implement
integrated, cost-effective telecommunications solutions; (ii) expertise in
developing and operating a highly reliable, advanced digital fiber optic network
offering substantial transmission capacity for the provision of a full suite of
"all distance" communications services; (iii) emphasis on providing
solutions-oriented and responsive customer service; (iv) network platform
capable of servicing customers throughout the United States and in selected
international markets; (v) network development plan designed to assure an
efficient evolution from a voice-oriented, circuit switched network to a
Packet/Cell Switched Network; (vi) ongoing development and integration of new
telecommunications technologies into its services, especially those technologies
that allow the increasing integration of voice and data applications onto a
single Packet/Cell Switched Network; (vii) ability to deliver local,
long-distance and enhanced data services over a network controlled from
end-to-end by Intermedia; and (viii) long-term contracts with building owners
where the Company acts as a shared tenant telecommunications services provider.
Over the past few years, a portion of Intermedia's growth has been
accomplished through acquisitions and other strategic ventures or selling
relationships. Intermedia continues to examine various acquisitions and other
strategic relationship proposals to accelerate its rate of growth. In addition
to financial considerations, Intermedia assesses each acquisition opportunity to
determine if it provides: (i) an established customer base to whom Intermedia
can cross-sell its other services, (ii) a greater network density in region or
provides needed network connectivity out of region, (iii) accelerated time to
market in a pre-defined target market, (iv) products and services that are
complementary to Intermedia's existing portfolio and (v) skilled staff,
particularly in sales and sales support. While management does not believe that
acquisitions are necessary to achieve Intermedia's strategic goals or to satisfy
its business plan, strategic alliances with or acquisitions of appropriate
companies may accelerate achievement of certain goals by creating financial and
operating synergies, and by providing for more rapid expansion of Intermedia's
network and services. Intermedia is currently evaluating various acquisitions
and strategic relationship opportunities. No assurance can be given that any
potential acquisition or strategic relationship will be consummated.
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Intermedia was incorporated in the state of Delaware on November 9, 1987,
as the successor to a Florida corporation that was founded in 1986. Intermedia's
principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619 and
its telephone number is (813) 829-0011.
RECENT DEVELOPMENTS
US West and Ameritech Agreements. In January 1998, Intermedia entered into
a frame relay services agreement with US West. In May 1998, Intermedia entered
into a similar frame relay services agreement with Ameritech. Pursuant to these
agreements both US West and Ameritech will utilize Intermedia as its preferred
data provider for the provisioning of frame relay networking and Internet
services for all interLATA connections, both inside and outside US West's and
Ameritech's respective regions. The Company believes these agreements will bring
additional traffic onto Intermedia's network and will create cross-selling
opportunities in US West's 14 state territory (where Intermedia currently has no
selling activity) and in Ameritech's five state territory (where Intermedia
intends to substantially expand its selling activities). Intermedia has
undertaken discussions with other ILECs, including other RBOCs, with the intent
of establishing similar agreements, although there is no assurance that such
additional agreements will be consummated. All such agreement with RBOCs will
be required to conform to any policies adopted by the FCC applicable to them.
See "Risk Factors -- Regulation."
1998 Acquisitions. In March 1998, Intermedia consummated the acquisition of
Shared. The total purchase price for Shared was approximately $770.5 million,
including certain transaction expenses and fees relating to certain agreements.
Shared is the nation's largest provider of shared telecommunications services
and systems. Through its technical infrastructure and 852 employees, Shared acts
as a single point of contact for business telecommunications services at over
500 Class A office buildings throughout the United States, and provides turnkey
PBX and key system implementation and operation in other buildings throughout
the United States. Shared's revenues for the year ended December 31, 1997 were
approximately $181.8 million. This acquisition is expected to enhance
Intermedia's national presence in the telecommunications market, enabling it to
provide an integrated offering of local, long distance, data and systems
integration services to Shared's existing customer base of approximately 12,900
customers.
Also in March 1998, Intermedia consummated the acquisition of LDS for
approximately $170.1 million including approximately $137.2 million in
Intermedia's Common Stock and $32.9 million in cash, of which $15.0 million was
used to retire LDS's long-term debt. LDS is an established regional
interexchange carrier, providing long distance services and Internet access to
more than 48,000 business customers and employing approximately 99 quota
carrying sales professionals in Louisiana, Texas, Oklahoma, Mississippi and
Florida. LDS's revenues for the year ended December 31, 1997 were approximately
$122.3 million. The acquisition of LDS provides a significant time-to- market
advantage in a region important to Intermedia's expansion, while also
contributing an experienced regional management team and established sales
organization. Because LDS's service portfolio and footprint complement those of
Intermedia, the Company believes that the acquisition of LDS also presents
significant synergy realization opportunities. By joining forces with an
established operating company having a staff of experienced sales, management
and technical personnel, Intermedia expects to consolidate its position in the
southern markets served by LDS.
In April 1998, Intermedia consummated the acquisition of National. The
total purchase price for National was approximately $153.1 million, consisting
of approximately $88.7 million of Intermedia's Common Stock and $64.4 million in
cash, including debt repayment of $2.8 million. National is an emerging
switch-based CLEC and an established interexchange carrier providing local
exchange and long distance voice services to approximately 9,200 business
customers concentrated in Florida's major metropolitan markets. National had
revenues of approximately $65.2 million for the year ended December 31, 1997.
Intermedia believes that the acquisition of National will help build critical
mass in the State of Florida, one of the top five telecommunications usage
states in the country, and provide an experienced team of sales professionals.
Restructuring Program. On April 29, 1998, the Company announced that it had
committed resources to plan and implement the integration of acquired
businesses. During the second quarter of 1998 the Company developed
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and began implementation of a restructuring program (the "Program"), which was
designed to streamline and refocus the Company's operations and transform
Intermedia's five separate operating companies into one ICP. The significant
activities included in the Program are: (i) consolidation, rationalization and
integration of network facilities, collocations, network management and network
facility procurement; (ii) consolidation and integration of the sales forces of
the Company and its recent acquisitions, including the integration of the
Company's products and services and the elimination of redundant headcount and
related costs; (iii) centralization of accounting and financial functions,
including the elimination of redundant headcount and related costs; (iv)
development and integration of information systems, including the integration of
multiple billing systems, and the introduction and deployment of automated sales
force and workflow management tools; (v) consolidation of office space and the
elimination of unnecessary legal entities; and (vi) exiting non-strategic
businesses including the elimination of redundant headcount and related costs.
The Company recorded a restructuring charge during the second quarter of 1998 of
approximately $32.3 million. The Company also expensed during the second and
third quarter of 1998 other business restructuring and integration costs
associated with the Program in the amount of $17.8 million and $1.8 million,
respectively. These charges were excluded from the calculation of EBITDA before
certain charges (as described herein). Management anticipates that all
activities included in the Program will be completed by the end of 1999 and the
Company anticipates incurring additional related business integration and
restructuring costs through the end of that period. For a more complete
discussion of the costs associated with the Program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 3 to the Company's Condensed Consolidated Financial Statements in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
Williams Agreement. In March 1998, Intermedia signed a definitive agreement
with Williams to purchase nationwide transmission capacity on Williams' fiber
optic network. The 20 year IRU provides Intermedia with high capacity transport
for its integrated voice and data services, connecting major markets throughout
the continental United States. The agreement had the immediate effect of
reducing Intermedia's unit cost for digital, intercity transmission capacity.
Initial implementation of the agreement provides for the connection of
approximately 50 cities over the next 12 months, with additional cities to
follow. The capacity provided by Williams will become part of Intermedia's
nationwide network of self-healing rings, over which the Company will deliver
its integrated voice and data services.
Stock Split. On June 15, 1998, the Company effected a 2 for 1 split (the
"Stock Split") of its Common Stock through a stock dividend paid to stockholders
of record on June 1, 1998.
1998 Notes Offering. In May 1998, the Company completed the 1998 Notes
Offering. The aggregate net proceeds from the 1998 Notes Offering was
approximately $488.9 million.
In July 1998, the Company commenced an exchange offer in connection with
the 8.60% Notes. Pursuant to the exchange offer, $500 million principal amount
at maturity of the 8.60% Notes were exchanged for a series of notes registered
under the Securities Act, with terms substantially identical to those of the
8.60% Notes issued in the 1998 Notes Offering.
Conversions. During July and August 1998, the Company exchanged (a)
approximately 2.0 million shares of Common Stock for approximately 1.5 million
depositary shares, each representing a one-hundredth interest in one share of
Series D Preferred Stock, and (b) approximately 1.4 million shares of Common
Stock for approximately 1.5 million depositary shares, each representing a
one-hundredth interest in one share of Series E Preferred Stock, pursuant to
exchange agreements with certain holders of such depositary shares.
Bell Atlantic Agreement. On September 21, 1998, the Company
entered into a multi-year agreement, having one-year extension options, with
Bell Atlantic. Under the terms of this agreement, Bell Atlantic will resell
Intermedia's high-speed and low-speed frame relay services under the Bell
Atlantic brand. The operational alignment between the two companies should
result in an integrated extension of Bell Atlantic's operations and service
delivery functions, all transparent to the customer, and Bell Atlantic will be
licensed to use the Company's advanced network monitoring system. Service under
this agreement will begin when and if Bell Atlantic gains approval to offer
long-distance services in its primary east coast markets under the 1996 Act.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Securities
by the Selling Securityholders or the issuance of the Dividend Shares or the
Liquidated Damages Shares by the Company.
DESCRIPTION OF CAPITAL STOCK
Intermedia's authorized capital stock consists of 150,000,000 shares of
Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred Stock,
par value $1.00 per share ("Preferred Stock"). As of September 30, 1998, there
were 48,248,049 shares of Common Stock, 369,432 shares of Series B Preferred
Stock, 54,129 shares of Series D Preferred Stock, 64,892 shares of Series E
Preferred Stock and 80,000 shares of Series F Preferred Stock issued and
outstanding. On a fully-diluted basis, at that date, the Company had outstanding
77,015,660 shares of Common Stock after giving effect to (a) the exercise of the
Warrants (as defined under the caption "-- Outstanding Warrants"), (b) the
exercise of all outstanding options issued pursuant to the Company's employee
stock option plans, (c) conversion of the Series D Preferred Stock, (d)
conversion of the Series E Preferred Stock and (e) conversion of the Series F
Preferred Stock. As of September 30, 1998, the Company has reserved (i)
10,818,785 shares of Common Stock for issuance pursuant to the Company's
employee stock option plans, (ii) 872,330 shares of Common Stock for issuance
upon exercise of the Warrants, (iii) 6,957,468 shares of Common Stock for
issuance upon conversion of the Series D Preferred Stock, (iv) 5,365,611 shares
of Common Stock for issuance upon the conversion of the Series E Preferred
Stock, (v) 4,753,417 shares of Common Stock for issuance upon the conversion of
the Series F Preferred Stock, (vi) 230,568 shares of Series B Preferred Stock
for issuance as dividends on the outstanding shares of Series B Preferred Stock
and (vii) 40,000 shares of Series C Preferred Stock for issuance in connection
with the Company's stockholder's rights plan. All outstanding shares of Common
Stock, Series B Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock are fully paid and non-assessable.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock do not have cumulative rights, so that holders of more than 50% of the
shares of Common Stock are able to elect all of Intermedia's directors eligible
for election in a given year. For a description of the classification of the
Board, see "--Delaware Law and Certain Provisions of Intermedia's Certificate of
Incorporation and Bylaws." Subject to the preferences that may be applicable to
any then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board out of funds legally available therefor. See "--Dividend
Restrictions." Upon any liquidation, dissolution or winding up, whether
voluntary or involuntary, of Intermedia, holders of Common Stock are entitled to
receive pro rata all assets available for distribution to stockholders after
payment or provision for payment of the debts and other liabilities of
Intermedia and the liquidation preferences of any then outstanding Preferred
Stock. There are no preemptive of other subscription rights, conversion rights,
or redemption or sinking fund provisions with respect to shares of Common Stock.
All outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon exercise of the Warrants and upon issuance as dividends on or
upon the conversion of the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock will be, fully paid and non-assessable.
See also "-- Reservation of Shares."
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PREFERRED STOCK
The Preferred Stock may be issued at any time or from time to time in one
or more classes or series with such designations, powers, preferences, rights,
qualifications, limitations and restrictions (including dividend, conversion and
voting rights) as may be fixed by the Board, without any further vote or action
by the stockholders.
Series B Preferred Stock. As of September 30 1998, the Company had
outstanding 369,432 shares of Series B Preferred Stock (aggregate liquidation
preference of $369.4 million). Dividends on the Series B Preferred Stock
accumulate at a rate of 13 1/2% of the aggregate liquidation preference thereof
and are payable quarterly, in arrears. Dividends are payable in cash or, at the
Company's option, by the issuance of additional Series B Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. The
Series B Preferred Stock is subject to mandatory redemption at a liquidation
preference of $1,000 per share, plus accumulated and unpaid dividends on March
31, 2009. The Series B Preferred Stock will be redeemable at the option of the
Company at any time after March 31, 2002 at rates commencing with 106.75%,
declining to 100% on March 31, 2007. The Series B Certificate of Designation
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to make certain restricted payments, incur
additional indebtedness and issue additional preferred stock, pay dividends or
make other distributions, repurchase equity interests, conduct certain lines of
business or enter into certain mergers and consolidations. In the event of a
change of control of the Company, holders of the Series B Preferred Stock have
the right to require the Company to purchase their shares of Series B Preferred
Stock at a price equal to 101% of the aggregate liquidation preference with
respect thereto, plus accumulated and unpaid dividends, if any, to the date of
purchase. This description is intended as a summary and is qualified in its
entirety by reference to the Series B Certificate of Designation.
The Company may, at its option, exchange some or all of the Series B
Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures, due
2009 (the "Exchange Debentures"). The Exchange Debentures mature on March 31,
2009. Interest on the Exchange Debentures would be payable semi-annually, and
could be paid in the form of additional Exchange Debentures at the Company's
option. Exchange Debentures would be redeemable by the Company at any time after
March 31, 2002 at rates commencing with 106.75%, declining to 100% on March 31,
2007. The Exchange Debentures contain covenants similar to those contained in
the Existing Senior Notes Indentures.
Series D Preferred Stock. As of September 30, 1998, the Company had
outstanding 54,129 shares of Series D Preferred Stock, with a liquidation
preference of $2,500 per share. Dividends on the Series D Preferred Stock
accumulate at the rate of 7% of the liquidation preference per share, and are
payable quarterly, in arrears. Dividends are payable in cash, or at the option
of the Company, in shares of Common Stock. The Series D Preferred Stock may not
be redeemed at the option of the Company prior to July 19, 2000, but may be
redeemed for cash, in whole or in part, at the option of the Company on or after
such date at rates commencing with 104%, declining to 100% on July 19, 2004. In
the event of change of control of the Company, holders of Series D Preferred
Stock have the right to require the Company to purchase their shares of Series D
Preferred Stock at 100% of the aggregate liquidation preference with respect
thereto, plus accumulated and unpaid dividends, if any, to the date of purchase.
This description is intended as a summary and is qualified in its entirety by
reference to the Series D Certificate of Designation.
Series E Preferred Stock. As of September 30, 1998, the Company had
outstanding 64,892 shares of Series E Preferred Stock, with a liquidation
preference of $2,500 per share. Dividends on the Series E Preferred Stock
accumulate at the rate of 7% of the liquidation preference per share, and are
payable quarterly, in arrears. Dividends are payable in cash, or at the option
of the Company, in shares of Common Stock. The Series E Preferred Stock may not
be redeemed at the option of the Company prior to October 18, 2000, but may be
redeemed for cash, in whole or in part, at the option of the Company on or after
such date at rates commencing with 104%, declining to 100% on October 18, 2004.
In the event of change of control of the Company, holders of Series E Preferred
Stock have the right to require the Company to purchase their shares of Series E
Preferred Stock at 100% of the aggregate liquidation preference with respect
thereto, plus accumulated and unpaid dividends, if any, to the date of purchase.
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This description is intended as a summary and is qualified in its entirety by
reference to the Series E Certificate of Designation.
See "Description of Series F Preferred Stock" for a description of the
terms of Series F Preferred Stock.
DELAWARE LAW AND CERTAIN PROVISIONS OF INTERMEDIA'S CERTIFICATE OF INCORPORATION
AND BYLAWS
General. The Certificate of Incorporation and the Bylaws of Intermedia
contain certain provisions that could make more difficult the acquisition of
Intermedia by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Intermedia first to negotiate with Intermedia. Although such
provisions may have the effect of delaying, deferring or preventing a change in
control of Intermedia, the Company believes that the benefits of increased
protection resulting from Intermedia's potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure the
Company outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. The description set forth below is intended as a summary only and
is qualified in its entirety by reference to the Certificate of Incorporation
and Bylaws of Intermedia.
Board of Directors. Intermedia's Certificate of Incorporation provides that
(i) the Board be divided into three classes of directors, with each class having
a number as nearly equal as possible and with the term of each class expiring in
a different year and (ii) the Board shall consist of not less than three nor
more than seven members, the exact number to be determined from time to time by
the Board. The Board has set the number of directors at five. Subject to any
rights of holders of Preferred Stock, a majority of the Board then in office
will have the sole authority to fill any vacancies on the Board. Stockholders
can remove members of the Board only for cause.
Stockholder Action and Special Meetings. Intermedia's Certificate of
Incorporation provides that (i) any action required or permitted to be taken by
Intermedia's stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing and
(ii) the authorized number of directors may be changed only by resolution of the
Board. The Company's Bylaws provide that, subject to any rights of holders of
any series of Preferred Stock, special meetings of stockholders may be called
only by the Chairman of the Board or the President of Intermedia, by a majority
of the Board or by stockholders owning shares representing at least a majority
of the capital stock of Intermedia issued and outstanding and entitled to vote.
Stockholder's Rights Plan. Intermedia's Board of Directors has adopted a
stockholder's rights plan, pursuant to which rights to acquire a newly created
series of Preferred Stock, exercisable upon the occurrence of certain events,
including the acquisition by a person or group of a specified percentage of the
Common Stock, were distributed to its stockholders.
Anti-Takeover Statute. Subject to certain exceptions, Section 203 of the
DGCL prohibits a publicly held Delaware corporation, such as Intermedia, from
engaging in any "business combination" with an "interested stockholder" for a
three-year period following the date on which such person became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approved either such business combination or the transaction that
resulted in such person becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, such person owned at least 85% of the voting stock of
the corporation outstanding immediately prior to such transaction (excluding
certain shares) or (iii) on or subsequent to such date, such business
combination is approved by the board of directors of the corporation and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. A "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is essentially a person who,
together with affiliates and associates, owns (or within the past three years
has owned) 15% or more of the corporation's voting stock. It is anticipated that
the provisions of Section 203 of the DGCL may encourage any person interested in
acquiring Intermedia to negotiate in advance with the Board since the
stockholder approval requirement would be avoided if a majority of Intermedia's
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<PAGE> 25
directors then in office approved either the business combination or the
transaction that resulted in such person becoming an interested stockholder.
DIVIDEND RESTRICTIONS
The terms of the Existing Senior Note Indentures restrict the Company's
ability to pay cash dividends on the Series B Preferred Stock. The Existing
Senior Note Indentures and the Series B Certificate of Designation restrict
Intermedia's ability to pay cash dividends on the Common Stock, the Series D
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, Series B Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and the Series F
Preferred Stock is Continental Stock Transfer & Trust Company.
OUTSTANDING WARRANTS
153,500 warrants (the "Public Warrants"), each to purchase 4.38 shares of
Common Stock, at an exercise price of $5.43 per share (subject to anti-dilution
adjustments) were issued as part of a June 1995 private placement. The Public
Warrants are currently exercisable. Unless exercised, the Public Warrants will
expire on June 1, 2000. An additional warrant (the "1997 Warrant" and together
with the Public Warrants, the "Warrants") to purchase 200,000 shares of Common
Stock, at an exercise price of $20.75 per share, was issued pursuant to an
Agreement and Warrant Certificate dated as of November 20, 1997, and is
currently exercisable.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of shares
of Common Stock as will be issuable upon the conversion of all its depositary
shares including the Depositary Shares (or all shares of the Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock) and the exercise
of the Warrants and all outstanding options issued pursuant to the Company's
stock option plans. Such shares of Common Stock, when issued, will be duly and
validly issued, fully paid and non-assessable, free of preemptive rights and
free from all taxes, liens, charges and security interests with respect to the
issue thereof.
REGISTRATION RIGHTS.
In addition to the rights granted under the Registration Rights Agreement,
dated August 18, 1998, among the Company and the Initial Purchasers (the
"Registration Rights Agreement"), the Company is a party to several agreements
pursuant to which certain stockholders have the right, among other matters, to
require the Company to register their shares of Common Stock under the
Securities Act under certain circumstances. As a result, upon the effectiveness
of this Registration Statement, substantially all of the Company's outstanding
shares, other than those held by affiliates, will be transferable without
restriction under the Securities Act.
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<PAGE> 26
DESCRIPTION OF SERIES F PREFERRED STOCK
GENERAL
The terms of the Series F Preferred Stock are set forth in the Certificate
of Designation of Voting Power, Designation Preferences and Relative,
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions (the "Certificate of Designation"). The following summary of
the material terms of the Series F Preferred Stock, the Certificate of
Designation and the Registration Rights Agreement is not intended to be complete
and is subject to, and qualified in its entirety by reference to, the Company's
Certificate of Incorporation, the Certificate of Designation and the
Registration Rights Agreement, including the definitions therein of certain
terms used below. Copies of the Certificate of Designation and Registration
Rights Agreement are available from the Company, upon written or oral request
addressed to Intermedia Communications Inc., 3625 Queen Palm Drive, Tampa,
Florida 33619 (telephone 813-829-0011/facsimile 813-829-2913), Attention:
Investor Relations. As used in this Description of Series F Preferred Stock, the
term "Company" refers to Intermedia Communications Inc., excluding its
subsidiaries (the "Subsidiaries").
Certain of the Company's operations are conducted through its Subsidiaries
and, therefore, the Company is dependent upon the cash flow of its Subsidiaries
to meet its obligations, including its obligations under the Series F Preferred
Stock. Any right of the Company to receive assets of any of its Subsidiaries is
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries. As of September 30, 1998 on a pro forma basis after giving effect
to the Offering and the application of the proceeds therefrom, the aggregate
amount of liquidation preference of Senior Securities and indebtedness and other
obligations of the Company and its Subsidiaries that would effectively rank
senior in right of payment to the obligations of the Company under the Series F
Preferred Stock would have been approximately $2.8 billion. See "Risk Factors --
Subordination of the Series F Preferred Stock."
Pursuant to the Certificate of Designation, 92,000 shares (including 12,000
shares which the Initial Purchasers had the option to purchase to cover
over-allotments) of Series F Preferred Stock with the Liquidation Preference
were authorized. Eighty thousand of such shares are issued and outstanding and
are fully paid and non-assessable. The Initial Purchasers did not exercise their
option to purchase the remaining 12,000 shares. The holders of the Series F
Preferred Stock have no preemptive rights.
The transfer agent for the Series F Preferred Stock is Continental Stock
Transfer & Trust Co. unless and until a successor is selected by the Company
(the "Transfer Agent").
RANKING
The Series F Preferred Stock, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company,
ranks (i) senior to all classes of common stock of the Company and to each other
class of capital stock or series of preferred stock established after September
3, 1998 by the Board of Directors, the terms of which do not expressly provide
that it ranks senior to or on a parity with the Series F Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the common stock of
the Company as "Junior Securities"); (ii) on a parity with the Series D
Preferred Stock and Series E Preferred Stock, any additional shares of Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock issued by
the Company in the future and any other class of capital stock or series of
preferred stock issued by the Company established after September 3, 1998 by the
Board of Directors, the terms of which expressly provide that such class or
series will rank on a parity with the Series F Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Company (collectively referred to as "Parity Securities"); and (iii)
junior to the Series B Preferred Stock ($369.4 million aggregate liquidation
preference outstanding at September 30, 1998) and to each class of capital stock
or series of preferred stock issued by the Company established after September
3, 1998 by the Board of Directors the terms
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<PAGE> 27
of which expressly provide that such class or series will rank senior to the
Series F Preferred Stock as to dividend distributions and distributions upon
liquidation, winding-up and dissolution of the Company (collectively referred to
as "Senior Securities").
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Series F
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Senior Securities.
DIVIDENDS
The holders of shares of the Series F Preferred Stock are entitled to
receive, when, as and if dividends are declared by the Board of Directors out of
funds of the Company legally available therefor, cumulative dividends from
August 18, 1998 accruing at the rate per annum of 7% of the Liquidation
Preference per share, payable quarterly in arrears on each January 15, April 15,
July 15 and October 15, commencing on October 15, 1998 (each, a "Dividend
Payment Date"). If any such date is not a business day, such payment shall be
made on the next succeeding business day, to the holders of record as of the
next preceding January 1, April 1, July 1 and October 1 (each, a "Record Date").
Dividends will be payable (i) in cash, (ii) by delivery of shares of Common
Stock to holders (based upon 95% of the Average Stock Price (as defined below))
or (iii) through any combination of the foregoing. The Company intends to pay
dividends in shares of Common Stock on each Dividend Payment Date to the extent
that it is unable to pay dividends in cash. If the dividends are paid in shares
of Common Stock, the number of shares of Common Stock to be issued on each
Dividend Payment Date will be determined by dividing the total dividend to be
paid on each share of Series F Preferred Stock by 95% of the average of the high
and low sales prices of the Common Stock as reported by the Nasdaq National
Market or any national securities exchange upon which the Common Stock is then
listed, for each of the ten consecutive trading days immediately preceding the
fifth business day preceding the Record Date (the "Average Stock Price"). The
Transfer Agent is authorized and directed in the Certificate of Designation to
aggregate any fractional shares of Common Stock that are issued as dividends,
sell them at the best available price and distribute the proceeds to the holders
in proportion to their respective interests therein. The Company will pay the
expenses of the Transfer Agent with respect to such sale, including brokerage
commissions. In the event the sale by the Transfer Agent of such aggregated
fractional interests would be restricted, the Company and the Transfer Agent
will agree upon other appropriate arrangements for the cash realization of
fractional interests. Dividends payable on the Series F Preferred Stock will be
computed on the basis of a 360-day year consisting of twelve 30-day months and
will be deemed to accrue on a daily basis. At the option of the Company,
whenever dividends are to be paid by delivery of shares of Common Stock, such
delivery shall be deemed to be made pursuant to the terms of a dividend
reinvestment plan for the Series F Preferred Stock in which each holder of
Series F Preferred Stock shall be a participant.
Dividends on the Series F Preferred Stock will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Certificate of
Designation provides that the Company will take all actions required or
permitted under the DGCL to permit the payment of dividends on the Series F
Preferred Stock, including, without limitation, through the revaluation of its
assets in accordance with the DGCL, to make or keep funds legally available for
the payment of dividends.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Series F
Preferred Stock with respect to any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for the payment of such dividend, upon all outstanding
shares of Series F Preferred Stock. Unless full cumulative dividends on all
outstanding shares of Series F Preferred Stock for all past dividend periods
shall have been declared and paid, or declared and a sufficient sum for the
payment thereof set apart: (i) no dividend (other than a dividend payable
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<PAGE> 28
solely in shares of any Junior Securities) shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any shares of Junior
Securities; (ii) no other distribution shall be declared or made upon, or any
sum set apart for the payment of any distribution upon, any shares of Junior
Securities, other than a distribution consisting solely of Junior Securities;
(iii) no shares of Junior Securities shall be purchased, redeemed or otherwise
acquired or retired for value (excluding an exchange for shares of other Junior
Securities) by the Company or any of its Subsidiaries; and (iv) no monies shall
be paid into or set apart or made available for a sinking or other like fund for
the purchase, redemption or other acquisition or retirement for value of any
shares of Junior Securities by the Company or any of its Subsidiaries. Holders
of the Series F Preferred Stock will not be entitled to any dividends, whether
payable in cash, property or stock, in excess of the full cumulative dividends
as herein described.
The Existing Senior Notes Indentures and the Series B Certificate of
Designation contain, and any future credit agreements or other agreements
relating to Indebtedness to which the Company becomes a party may contain,
restrictions on the ability of the Company to pay dividends on the Series F
Preferred Stock.
OPTIONAL REDEMPTION
The Series F Preferred Stock may not be redeemed at the option of the
Company prior to October 17, 2001. The Series F Preferred Stock may be redeemed
for cash, in whole or in part, at the option of the Company on or after October
17, 2001, at the redemption prices specified below (expressed as percentages of
the Liquidation Preference thereof), in each case, together with accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
any partial dividend period) and Liquidated Damages, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice,
if redeemed during the 12-month period commencing on October 17 of each of the
years set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001................................................................................................ 104.00%
2002................................................................................................ 103.00%
2003................................................................................................ 102.00%
2004................................................................................................ 101.00%
2005 and thereafter................................................................................. 100.00%
</TABLE>
No optional redemption may be authorized or made unless, prior to giving the
applicable redemption notice, all accumulated and unpaid dividends for periods
ended prior to the date of such redemption notice shall have been paid in cash
or Common Stock. In the event of partial redemptions of Series F Preferred
Stock, the shares to be redeemed will be determined pro rata or by lot, as
determined by the Company.
CONVERSION RIGHTS
Each share of Series F Preferred Stock is convertible, unless previously
redeemed, at the option of the holder thereof into Common Stock of the Company,
at a conversion rate equal to the Liquidation Preference divided by the
conversion price then applicable, except that the right to convert shares of
Series F Preferred Stock called for redemption will terminate at the close of
business on the business day preceding the redemption date and will be lost if
not exercised prior to that time, unless the Company defaults in making the
payment due upon redemption.
The initial conversion price is $42.075 per share. The conversion price
will be subject to adjustment in certain events, including: (i) the payment of
dividends (and other distributions) in Common Stock on any class of capital
stock of the Company other than the payment of dividends in Common Stock on the
Series F Preferred Stock or any other regularly scheduled dividend on any other
preferred stock which does not trigger any anti-dilution provisions in any other
security; (ii) the issuance to all holders of Common Stock of rights, warrants
or options entitling them to subscribe for or purchase Common Stock at less than
the current market price (as calculated pursuant to the
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<PAGE> 29
Certificate of Designation); (iii) subdivisions, combinations and
reclassifications of Common Stock; (iv) distributions to all holders of Common
Stock of evidences of indebtedness of the Company, shares of any class of
capital stock, cash or other assets (including securities, but excluding those
dividends, rights, warrants, options and distributions referred to in clauses
(i) through (iii) above and dividends and distributions paid in cash out of the
retained earnings of the Company, unless the sum of all such cash dividends and
distributions made and the amount of cash and the fair market value of other
consideration paid in respect of any repurchases of Common Stock by the Company
or any of its Subsidiaries, in each case within the preceding 12 months in
respect of which no adjustment has been made, exceeds 20% of the product of the
then current market price of the Common Stock times the aggregate number of
shares of Common Stock outstanding on the record date for such dividend or
distribution).
No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted. Notwithstanding the foregoing, no adjustment to the conversion price
shall reduce the conversion price below the then applicable par value per share
of the Common Stock. In addition to the foregoing adjustments, the Company will
be permitted to make such reductions in the conversion price as it considers to
be advisable in order that any event treated for federal income tax purposes as
a dividend of stock or stock rights will not be taxable to the holders of the
Common Stock.
In the case of certain consolidations or mergers to which the Company is a
party or the transfer of substantially all of the assets of the Company, each
share of Series F Preferred Stock then outstanding would become convertible only
into the kind and amount of securities, cash and other property receivable upon
the consolidation, merger or transfer by a holder of the number of shares of
Common Stock into which such share of Series F Preferred Stock might have been
converted immediately prior to such consolidation, merger or transfer (assuming
such holder of Common Stock failed to exercise any rights of election and
received per share the kind and amount receivable per share by a plurality of
non-electing shares).
The holder of record of a share of Series F Preferred Stock at the close of
business on a record date with respect to the payment of dividends on the Series
F Preferred Stock will be entitled to receive such dividends with respect to
such share of Series F Preferred Stock on the corresponding Dividend Payment
Date, notwithstanding the conversion of such share after such Record Date and
prior to such Dividend Payment Date. A share of Series F Preferred Stock
surrendered for conversion during the period from the close of business on any
Record Date for the payment of dividends to the opening of business of the
corresponding Dividend Payment Date must be accompanied by a payment in cash,
Common Stock or a combination thereof, depending on the method of payment that
the Company has chosen to pay the dividend, in an amount equal to the dividend
payable on such Dividend Payment Date, unless such share of Series F Preferred
Stock has been called for redemption on a redemption date occurring during the
period from the close of business on any Record Date for the payment of
dividends to the close of business on the business day immediately following the
corresponding Dividend Payment Date. The dividend payment with respect to a
share of Series F Preferred Stock called for redemption on a date during the
period from the close of business on any Record Date for the payment of
dividends to the close of business on the business day immediately following the
corresponding Dividend Payment Date will be payable on such Dividend Payment
Date to the record holder of such share on such Record Date, notwithstanding the
conversion of such share after such Record Date and prior to such Dividend
Payment Date. No payment or adjustment will be made upon conversion of shares of
Series F Preferred Stock for accumulated and unpaid dividends or for dividends
with respect to the Common Stock issued upon such conversion.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control and subject to restrictions on
repurchase contained in the instruments governing the Company's outstanding
indebtedness and the Series B Preferred Stock Certificate of Designation and
subject to the participation of any Parity Securities, the Company will be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part of each holder's Series F Preferred Stock at an offer price in cash equal
to 100% of the aggregate Liquidation Preference thereof, plus accumulated and
unpaid dividends and Liquidated Damages, if any, thereon to the date of
repurchase. Within 30 days following a Change of Control, the Company will mail
a notice to each holder of Series F Preferred Stock describing the transaction
that constitutes the
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<PAGE> 30
Change of Control and offering to repurchase the Series F Preferred Stock
pursuant to the procedures required by the Certificate of Designation and
described in such notice; provided that, prior to complying with the provisions
of this covenant, but in any event within 90 days following a Change of Control,
the Company will either repay all outstanding indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding
indebtedness to permit the repurchase of the Series F Preferred Stock required
by this covenant. The Company will comply with the requirements of the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Series F Preferred Stock as a result of a Change of Control.
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following: (a) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its Subsidiaries, taken as a whole, (b) the adoption of a plan
relating to the liquidation or dissolution of the Company, (c) the consummation
of any transaction (including, without limitation, any merger or consolidation)
the result of which is that any "person" or "group" (as such terms are used in
Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly through one or more intermediaries, of more than 50% of the voting
power of the outstanding voting stock of the Company, unless (i) the closing
price per share of Common Stock for any five trading days within the period of
ten consecutive trading days ending immediately after the announcement of such
Change of Control equals or exceeds 105% of the conversion price of the Series F
Preferred Stock in effect on each such trading day or (ii) at least 90% of the
consideration in the transaction or transactions constituting a Change of
Control pursuant to clause (c) consists of shares of Common Stock traded or to
be traded immediately following such Change of Control on a national securities
exchange or the Nasdaq National Market and, as a result of such transaction or
transactions, the Series F Preferred Stock becomes convertible solely into such
Common Stock (and any rights attached thereto), or (d) the first day on which
more than a majority of the members of the Board of Directors of the Company are
not Continuing Directors; provided, however, that a transaction in which the
Company becomes a subsidiary of another entity shall not constitute a Change of
Control if (i) the stockholders of the Company immediately prior to such
transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly through one or more
intermediaries, at least a majority of the voting power of the outstanding
voting stock of the Company immediately following the consummation of such
transaction and (ii) immediately following the consummation of such transaction,
no "person" or "group" (as such terms are defined above), other than such other
entity (but including holders of equity interests of such other entity),
"beneficially owns" (as such term is defined above), directly or indirectly
through one or more intermediaries, more than 50% of the voting power of the
outstanding voting stock of the Company.
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 the Series F Preferred Stock to require the Company to repurchase the
Series F Preferred Stock as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company may be
uncertain. In the event that a holder of the Series F Preferred Stock believes
that there has been a sale, lease, transfer, conveyance or other disposition of
"substantially all" of the Company's assets and that, in connection therewith,
the Company has not complied with its obligations under the terms of the Series
F Preferred Stock, the holder may bring suit to determine and enforce the
Company's obligations.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (a) was a member of the Board of
Directors on the date of original issuance of the Series F Preferred Stock or
(b) was nominated for election to the Board of Directors with the approval of,
or whose election was ratified by, at least two-thirds of the Continuing
Directors who were members of the Board of Directors at the time of such
nomination or election.
Except as described above with respect to a Change of Control, the
Certificate of Designation does not contain provisions that permit the holders
of the Series F Preferred Stock to require that the Company repurchase or redeem
the Series F Preferred Stock in the event of a takeover, recapitalization or
similar transaction. In addition, the Company could enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that
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<PAGE> 31
could affect the Company's capital structure or the value of the Series F
Preferred Stock or the Common Stock, but that would not constitute a Change of
Control.
The Existing Senior Notes or other indebtedness and the Series B Preferred
Stock could restrict the Company's ability to repurchase the Series F Preferred
Stock upon a Change of Control. In the event a Change of Control occurs at a
time when the Company is prohibited from repurchasing the Series F Preferred
Stock, the Company could either (i) repay in full or refinance all such
outstanding indebtedness or Series B Preferred Stock or (ii) obtain the
requisite consents, if any, under all agreements governing outstanding
indebtedness or Series B Preferred Stock to permit the repurchase of Series F
Preferred Stock required by this covenant. The Company must first comply with
the covenants in its outstanding indebtedness or take the actions described in
the preceding sentence before it will be required to repurchase shares of Series
F Preferred Stock in the event of a Change of Control; provided, that if the
Company fails to repurchase shares of Series F Preferred Stock, the sole remedy
to holders of Series F Preferred Stock will be the voting rights arising from a
Voting Rights Triggering Event. See "-- Voting Rights." Moreover, the Company
will not repurchase or redeem any Series F Preferred Stock pursuant to this
Change of Control provision prior to the Company's repurchase of the Series B
Preferred Stock pursuant to the change of control covenants in the Series B
Preferred Stock. As a result of the foregoing, a holder of the Series F
Preferred Stock may not be able to compel the Company to purchase the Series F
Preferred Stock unless the Company is able at the time to refinance all such
indebtedness and the Series B Preferred Stock. See "Risk Factors--Business
Combinations; Change of Control."
The Company will not be required to make a Change of Control Offer to the
holders of Series F Preferred Stock upon a Change of Control if a third party
makes the Change of Control Offer described above in the manner, at the times
and otherwise in compliance with the requirements set forth in the Certificate
of Designation applicable to a Change of Control Offer made by the Company and
purchases all shares of Series F Preferred Stock validly tendered and not
withdrawn under such Change of Control Offer.
VOTING RIGHTS
Holders of record of shares of the Series F Preferred Stock have no voting
rights, except as required by law and as provided in the Certificate of
Designation. The Certificate of Designation provides that upon (a) the
accumulation of accrued and unpaid dividends on the outstanding Series F
Preferred Stock in an amount equal to six quarterly dividends (whether or not
consecutive) or (b) the failure of the Company to make a Change of Control Offer
or to repurchase all of the Series F Preferred Stock tendered in a Change of
Control Offer (each of the events described in clauses (a) and (b) being
referred to herein as a "Voting Rights Triggering Event"), then the holders of a
majority of the outstanding shares of Series F Preferred Stock voting together
with any other subsequently issued Parity Securities then entitled to voting
rights will be entitled to elect such number of members to the Board of
Directors of the Company constituting at least 20% of the then existing Board of
Directors before such election (rounded to the nearest whole number), provided,
however, that such number shall be no less than one nor greater than two, and
the number of members of the Company's Board of Directors will be immediately
and automatically increased by one or two, as the case may be. Voting rights
arising as a result of a Voting Rights Triggering Event will continue until such
time as all dividends in arrears on the Series F Preferred Stock are paid in
full and all other Voting Rights Triggering Events have been cured or waived, at
which time the term of office of any such members of the Board of Directors so
elected shall terminate and such directors shall be deemed to have resigned.
In addition, the Certificate of Designation provides that the Company will
not authorize any class of Senior Securities or any obligation or security
convertible or exchangeable into or evidencing a right to purchase shares of any
class or series of Senior Securities, without the approval of holders of at
least a majority of the shares of Series F Preferred Stock then outstanding,
voting or consenting, as the case may be, as one class. The Certificate of
Designation also provides that the Company may not amend the Certificate of
Designation so as to affect adversely the specified rights, preferences,
privileges or voting rights of holders of shares of the Series F Preferred Stock
or authorize the issuance of any additional shares of Series F Preferred Stock,
without the approval of the holders of at least a majority of the then
outstanding shares of Series F Preferred Stock voting or consenting, as the case
may be, as one class; provided, however, that the Company may not amend the
Change of Control provisions of the
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Certificate of Designation (including the related definitions) without the
approval of the holders of at least 66 2/3% of the then outstanding shares of
Series F Preferred Stock voting or consenting, as the case may be, as one class.
The Certificate of Designation also provides that, except as set forth above
with respect to Senior Securities, (a) the creation, authorization or issuance
of any shares of Junior Securities, Parity Securities or Senior Securities or
(b) the increase or decrease in the amount of authorized capital stock of any
class, including any preferred stock, shall not require the consent of the
holders of Series F Preferred Stock and shall not be deemed to affect adversely
the rights, preferences, privileges, special rights or voting rights of holders
of shares of Series F Preferred Stock. The consent of the holders of Series F
Preferred Stock will not be required for the Company to authorize, create (by
way of reclassification or otherwise) or issue any Junior Securities or Parity
Securities or any obligation or security convertible or exchangeable into or
evidencing a right to purchase, shares of any class or series of Junior
Securities or Parity Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the then
outstanding shares of Series F Preferred Stock, the Company may not consolidate
or merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, any person unless (a) the
entity formed by such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (b) if the Company is not the resulting entity, the
Series F Preferred Stock is converted into or exchanged for and becomes shares
of such resulting entity, having in respect of such resulting entity the same
(or more favorable) powers, preferences and relative, participating, optional or
other special rights thereof that the Series F Preferred Stock had immediately
prior to such transaction; and (c) immediately after giving effect to such
transaction, no Voting Rights Triggering Event has occurred and is continuing.
The resulting entity of such transaction shall thereafter be deemed to be the
"Company" for all purposes of the Certificate of Designation.
While the consent of the holders of a majority of the then outstanding
Series F Preferred Stock is required for the Company to sell, lease, transfer,
convey or otherwise dispose of "substantially all" of its assets, there is no
precise established definition of the phrase "substantially all" under
applicable law. Although there is a developing body of case law interpreting the
phrase, the ability of a holder of the Series F Preferred Stock to enforce this
provision in the event of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of the Company may be uncertain. In
the event that a holder of the Series F Preferred Stock believes that there has
been a sale, lease, transfer, conveyance or other disposition of "substantially
all" of the Company's assets and that, in connection therewith, the Company has
not complied with its obligations under the terms of the Series F Preferred
Stock, the holder may bring suit to determine and enforce the Company's
obligations.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Company's
capital stock, each holder of shares of the Series F Preferred Stock will be
entitled to payment out of the assets of the Company available for distribution
of an amount equal to the Liquidation Preference per share of Series F Preferred
Stock held by such holder, plus accrued and unpaid dividends and Liquidated
Damages, if any, to the date fixed for liquidation, dissolution, winding-up or
reduction or decrease in capital stock, before any distribution is made on any
Junior Securities, including, without limitation, Common Stock. After payment in
full of the Liquidation Preference and all accrued dividends and Liquidated
Damages, if any, to which holders of Series F Preferred Stock are entitled, such
holders will not be entitled to any further participation in any distribution of
assets of the Company. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the amounts payable with respect to
the Series F Preferred Stock and all other Parity Securities are not paid in
full, the holders of the Series F Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of the Company in
proportion to the full liquidation preference and accumulated and unpaid
dividends and Liquidated Damages, if any, to which each is entitled. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with or into one or more persons will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of the Company or reduction or decrease
in capital
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stock, unless such sale, conveyance, exchange or transfer shall be in connection
with a liquidation, dissolution or winding-up of the business of the Company or
reduction or decrease in capital stock.
REPORTS
The Certificate of Designation provides that the Company will file all
annual and quarterly reports and the information, documents, and other reports
that the Company is required to file with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act ("SEC Reports") with the Transfer Agent
within 15 days after it files them with the Commission. In the event the Company
is not required or shall cease to be required to file SEC Reports, pursuant to
the Exchange Act, the Company will nevertheless continue to file such reports
with the Commission (unless the Commission will not accept such a filing).
Whether or not required by the Exchange Act to file SEC Reports with the
Commission, so long as any shares of Series F Preferred Stock are outstanding,
the Company will furnish copies of the SEC Reports to the holders of Series F
Preferred Stock at the time the Company is required to make such information
available to the Transfer Agent and to investors who request it in writing. In
addition, the Company has agreed that, for so long as any shares of Series F
Preferred Stock remain outstanding, it will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company agreed to file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission covering resales of Transfer Restricted Securities (as defined below)
by holders thereof (who satisfied certain conditions relating to the provision
of information to the registrant) on or prior to October 17, 1998, and to use
its reasonable best efforts to cause such Shelf Registration Statement to become
effective on or prior to December 16, 1998.
"Transfer Restricted Securities" for this purpose, means each Depositary
Share, each share of Series F Preferred Stock and each Common Share until (a)
the date on which such security has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (b) the date on which such security is distributed to the public
pursuant to Rule 144 under the Securities Act or may be distributed to the
public pursuant to Rule 144(k) under the Securities Act.
The Registration Statement of which this Prospectus forms a part
constitutes the Shelf Registration statement. The Company is obligated to use
its best efforts to maintain the effectiveness of the Shelf Registration
Statement for a period ending on the earlier of August 18, 2000 and the date
when all Transfer Restricted Securities covered by the Shelf Registration
Statement are sold and the Company will use its reasonable best efforts to
register under the Securities Act the issuance by the Company of Common Stock as
dividends on the Series F Preferred Stock. If the Company is unable to effect
such registration, the Company shall file a shelf registration statement to
enable resales of any Common Stock issued as dividends on the Series F Preferred
Stock that are then restricted stock under the Securities Act. If (i) the Shelf
Registration Statement ceases to be effective or usable for any period of ten
consecutive days or for any 20 days in any 180-day period in connection with
resales of Transfer Restricted Securities (provided, that the Company will have
the option of suspending the effectiveness of the Shelf Registration Statement,
without becoming obligated to pay Liquidated Damages for periods of up to a
total of 60 days in any calendar year if the Board of Directors of the Company
determines that compliance with the disclosure obligations necessary to maintain
the effectiveness of the Shelf Registration Statement at such time could
reasonably be expected to have an adverse effect on the Company or a pending
corporate transaction) or (ii) the Company is unable to pay a dividend in Common
Stock that is freely transferable without restriction under the Securities Act
without delivery of a prospectus (such Common Stock, "Unrestricted Stock") (each
such event referred to in clauses (i) and (ii), a "Registration Default"), then
the Company will pay to each holder of Transfer Restricted Securities or each
holder of Series F Preferred Stock that does not receive a Common Stock dividend
in Unrestricted Stock, as the case may be, liquidated damages ("Liquidated
Damages") at a rate of 0.25% of the Liquidation Preference of the Series F
Preferred Stock constituting Transfer Restricted Securities or 0.25% of the
total dividend payment that was not made in either cash or Unrestricted Stock,
as applicable, which shall accrue from the date of the Registration Default
until
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such Registration Default is cured or such dividend payment is paid in cash or
Unrestricted Stock or any Common Stock paid as a dividend by the Company becomes
Unrestricted Stock. All accrued Liquidated Damages will be paid in shares of
Common Stock valued at the Average Stock Price by the Company on each Dividend
Payment Date specified in the Certificate of Designation. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
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DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share represents a one-hundredth interest in a share of
Series F Preferred Stock deposited under the Deposit Agreement ("Deposit
Agreement"), entered into among Intermedia, Continental Stock Transfer & Trust
Company, as depositary agent ("Continental"), and the holders from time to time
of Depositary Receipts (as defined below) issued thereunder. Subject to the
terms of the Deposit Agreement, each owner of a Depositary Share is entitled
proportionately to all of the rights and preferences of the shares of Series F
Preferred Stock represented thereby (including dividend, voting, redemption and
liquidation rights) contained in the Company's Certificate of Incorporation and
the Certificate of Designation and summarized above under "Description of Series
F Preferred Stock." The Company does not expect that there will be any public
trading market for the Series F Preferred Stock except as represented by the
Depositary Shares.
The Depositary Shares are evidenced by depositary receipts issued pursuant
to the Deposit Agreement ("Depositary Receipts"). The following description of
the material terms of the Depositary Shares does not purport to be complete and
is subject to, and qualified in its entirety by, the provisions of the Deposit
Agreement (which contains the form of Depositary Receipt), a copy of which is
available from the Company, upon written or oral request addressed to Intermedia
Communications Inc., 3625 Queen Palm Drive, Tampa, Florida 33619 (telephone
813-829-0011/facsimile 813-829-2913), Attention: Investor Relations.
ISSUANCE OF DEPOSITARY RECEIPTS
The Series F Preferred Stock was deposited with Continental immediately
preceding the Offering, and Continental in turn executed and delivered the
Depositary Receipts to the Company. The Company delivered the Depositary
Receipts to the Initial Purchasers.
WITHDRAWAL OF SERIES F PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
Continental, the owner of the Depositary Shares evidenced thereby is entitled to
delivery at such office of the number of whole shares of Series F Preferred
Stock represented by such Depositary Shares. Owners of Depositary Shares are
entitled to receive only whole shares of Series F Preferred Stock on the basis
of one share of Series F Preferred Stock for each one hundred Depositary Shares.
In no event will fractional shares of Series F Preferred Stock (or cash in lieu
thereof) be distributed by Continental. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of whole shares of Series F Preferred
Stock to be withdrawn, Continental will deliver to such holder at the same time
a new Depositary Receipt evidencing such excess number of Depositary Shares.
The Company has not applied and does not intend to apply for the listing of
the Depositary Shares or the Series F Preferred Stock on any securities exchange
or for quotation through the Nasdaq National Market.
CONVERSION AND CALL PROVISION
Redemption. As described under "Description of Series F Preferred Stock --
Redemption," the Series F Preferred Stock may be redeemed for cash, in whole or
in part, at the option of the Company on or after October 17, 2001, at the
specified redemption prices specified, together with accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for any
partial dividend period) and Liquidated Damages, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice.
In the event of partial redemptions of Series F Preferred Stock, the shares to
be redeemed will be determined pro rata or by lot, as determined by the Company.
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Whenever the Company shall elect to redeem shares of Series F Preferred
Stock pursuant to the terms of the Series F Preferred Stock, it shall (unless
otherwise agreed in writing with Continental) give Continental not less than 60
days' notice of the date of such proposed redemption of Series F Preferred Stock
and of the number of shares held by Continental to be so redeemed. On the date
of such redemption, provided that the Company shall then have deposited with
Continental the amount of cash necessary to effect such redemption, Continental
shall redeem the number of Depositary Shares representing such Series F
Preferred Stock. Continental shall mail notice of such redemption and the
proposed simultaneous redemption of the number of Depositary Shares representing
the Series F Preferred Stock to be redeemed, by first class postage prepaid, not
less than 30 and not more than 60 days prior to the date fixed for redemption of
such Series F Preferred Stock and Depositary Shares (the "Redemption Date"), to
the holders of record on the record date for such redemption of the Depositary
Receipts evidencing the Depositary Shares to be so redeemed. Each such notice
shall state the record date for the purposes of such redemption; the Redemption
Date; the number of Depositary Shares to be redeemed and, if less than all of
the Depositary Shares held by any such holder are to be redeemed, the number of
such Depositary Shares held by such holder to be so redeemed; the amount of cash
to be received by such holder; the place or places where Depositary Receipts
evidencing Depositary Shares are to be surrendered for cash; and that dividends
in respect of the Series F Preferred Stock represented by the Depositary Shares
to be redeemed will cease to accrue at the close of business on such Redemption
Date. In case less than all the outstanding Depositary Shares are to be
redeemed, the Depositary Shares to be so redeemed shall be selected by lot or
pro rata (as nearly as may be) or in any other equitable manner determined by
Continental to be consistent with the method determined by the Board of
Directors with respect to the Series F Preferred Stock.
From and after the Redemption Date, all dividends in respect of the shares
of Series F Preferred Stock so called for redemption shall cease to accrue, the
Depositary Shares being so redeemed shall be deemed no longer to be outstanding,
all rights of the holders of Depositary Receipts evidencing such Depositary
Shares shall cease and terminate and, upon surrender in accordance with said
notice of the Depositary Receipts evidencing any such Depositary Shares
(properly endorsed or assigned for transfer, if Continental shall so require),
such Depositary Shares shall be redeemed by Continental for the consideration
therefor specified in said notice, plus all money and other property, if any,
represented by such Depositary Shares, including all amounts, if any, paid by
the Company in respect of dividends which on the Redemption Date have accrued on
the shares of Series F Preferred Stock to be so redeemed and have not
theretofore been paid. If less than all of the Depositary Shares evidenced by
any Depositary Receipt are called for redemption, Continental will deliver to
the holder of such Depositary Receipt upon its surrender to Continental,
together with the redemption payment, a new Depositary Receipt evidencing the
Depositary Shares evidenced by such prior Depositary Receipt and not called for
redemption.
Conversion at the Option of Holder. As described under "Description of
Series F Preferred Stock- Conversion Rights," the Series F Preferred Stock may
be converted, in whole or in part, into shares of Common Stock at the option of
the holders of Series F Preferred Stock, unless previously redeemed. The
Depositary Shares held by any holder may, at the option of such holders, be
converted in whole or from time to time in part (but only in lots of 100
Depositary Shares or integral multiples thereof), into shares of Common Stock
upon the same terms and conditions as the Series F Preferred Stock, except that
the number of shares of Common Stock received upon conversion of each Depositary
Share will be equal to the number of shares of Common Stock received upon
conversion of one share of Series F Preferred Stock divided by one hundred. To
effect such an optional conversion, a holder of Depositary Shares must deliver
Depositary Receipts evidencing the Depositary Shares to be converted, together
with a written notice of conversion and a proper assignment of the Depositary
Receipts to the Company or in blank, to Continental or its agent. A Depositary
Share surrendered for conversion during the period from the close of business on
any Record Date for the payment of dividends to the opening of business of the
corresponding Dividend Payment Date must be accompanied by a payment in cash,
Common Stock or a combination thereof, depending on the method of payment that
the Company has chosen to pay the dividend, in an amount equal to the dividend
payable on such Dividend Payment Date, unless such Depositary Share has been
called for redemption on a redemption date occurring during the period from the
close of business on any Record Date for the payment of dividends to the close
of business on the Business Day immediately following the corresponding Dividend
Payment Date. The dividend payment with respect to a Depositary Share called for
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redemption on a date during the period from the close of business on any Record
Date for the payment of dividends to the close of business on the Business Day
immediately following the corresponding Dividend Payment Date will be payable on
such Dividend Payment Date to the record holder of such share on such Record
Date, notwithstanding the conversion of such share after such Record Date and
prior to such Dividend Payment Date. Each optional conversion of Depositary
Shares shall be deemed to have been effected immediately before the close of
business on the date on which the foregoing requirements shall have been
satisfied.
If only a portion of the Depositary Shares evidenced by a Depositary
Receipt is to be converted, a new Depositary Receipt or Receipts will be issued
for any Depositary Shares not converted. No fractional shares of Common Stock
will be issued upon conversion of Depositary Shares, and, if such conversion
would otherwise result in a fractional share of Common Stock being issued, the
number of shares of Common Stock to be issued upon such conversion shall be
rounded up to the nearest whole share.
After the date fixed for conversion or redemption, the Depositary Shares so
converted or called for redemption will no longer be deemed to be outstanding
and all rights of the holders of such Depositary Shares will cease, except the
holder of such Depositary Shares shall be entitled to receive any money or other
property to which the holders of such Depositary Shares were entitled upon such
conversion or redemption, upon surrender to Continental of the Depositary
Receipt or Receipts evidencing such Depositary Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
Continental will distribute all dividends or other distributions in respect
of the Series F Preferred Stock to the record holders of Depositary Receipts in
proportion to the number of Depositary Shares owned by such holders. See
"Description of Series F Preferred -- Stock Dividends."
The amount distributed in any of the foregoing cases will be reduced by any
amount required to be withheld by the Company or Continental on account of
taxes.
RECORD DATE
Whenever (i) any dividend or other distribution shall become payable, any
distribution shall be made, or any rights, preferences or privileges shall be
offered with respect to the Series F Preferred Stock, or (ii) Continental shall
receive notice of any meeting at which holders of Series F Preferred Stock are
entitled to vote or of which holders of Series F Preferred Stock are entitled to
notice, or of any election on the part of the Company to call for redemption any
Series F Preferred Stock, Continental shall in each such instance fix a record
date (which shall be the same date as the record date for the Series F Preferred
Stock) for the determination of the holders of Depositary Receipts (x) who shall
be entitled to receive such dividend, distribution, rights, preference or
privileges or the net proceeds of the sale thereof, (y) who shall be entitled to
give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting, or (z) who shall be subject to such redemption,
subject to the provisions of the Deposit Agreement.
VOTING OF DEPOSITARY SHARES
Holders of record of Depositary Shares have no voting rights, except as
required by law and as provided in the Certificate of Designation in respect of
the Series F Preferred Stock, as described under "Description of Series F
Preferred Stock--Voting Rights."
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipts and any provision of the Deposit Agreement
may at any time be amended by agreement between the Company and Continental.
However, any amendment that imposes any fees, taxes or other charges payable by
holders of Depositary Receipts (other than taxes and other governmental charges,
fees and other expenses payable by such holders as stated under "Charges of
Continental"), or that otherwise prejudices any
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substantial existing right of holders of Depositary Receipts, will not take
effect as to outstanding Depositary Receipts until the expiration of 90 days
after notice of such amendment has been mailed to the record holders of
outstanding Depositary Receipts. Every holder of Depositary Receipts at the time
any such amendment becomes effective shall be deemed to consent and agree to
such amendment and to be bound by the Deposit Agreement, as so amended. In no
event may any amendment impair the right of any owner of Depositary Shares,
subject to the conditions specified in the Deposit Agreement, upon surrender of
the Depositary Receipts evidencing such Depositary Shares, to receive Series F
Preferred Stock or, upon conversion of the Series F Preferred Stock represented
by the Depositary Receipts, to receive shares of Common Stock, and in each case
any money or other property represented thereby, except in order to comply with
mandatory provisions of applicable law.
Whenever so directed by the Company, Continental will terminate the Deposit
Agreement after mailing notice of such termination to the record holders of all
Depositary Receipts then outstanding at least 30 days before the date fixed in
such notice for such termination. Continental may likewise terminate the Deposit
Agreement if at any time 45 days shall have expired after Continental shall have
delivered to the Company a written notice of its election to resign and a
successor depositary shall not have been appointed and accepted its appointment.
If any Depositary Receipts remain outstanding after the date of termination,
Continental thereafter will discontinue the transfer of Depositary Receipts,
will suspend the distribution of dividends to the holders thereof, and will not
give any further notices (other than notice of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that Continental will continue (i) to collect dividends on the Series F
Preferred Stock and any other distributions with respect thereto and (ii) to
deliver the Series F Preferred Stock together with such dividends and
distributions and the net proceeds of any sales or rights, preferences,
privileges or other property, without liability for interest thereon, in
exchange for Depositary Receipts surrendered. At any time after the expiration
of two years from the date of termination, Continental may sell the Series F
Preferred Stock then held by it at public or private sale, at such place or
places and upon such terms as it deems proper and may thereafter hold the net
proceeds of any such sale, together with any money and other property then held
by it, without liability for interest thereon, for the pro rata benefit of the
holders of Depositary Receipts which have not been surrendered. The Company does
not intend to terminate the Deposit Agreement or to permit the resignation of
Continental without appointing a successor depositary.
CHARGES OF CONTINENTAL
The Company will pay all charges of Continental including the distribution
of information to the holders of Depositary Receipts with respect to matters on
which Series F Preferred Stock are entitled to vote, withdrawals of the Series F
Preferred Stock by the holders of Depositary Receipts or redemption or
conversion of the Depositary Receipts, except for taxes (including transfer
taxes, if any) and other governmental charges and such other charges as are
provided in the Deposit Agreement to be at the expense of the holders of
Depositary Receipts or persons depositing Series F Preferred Stock.
GENERAL
Continental will make available for inspection by holders of Depositary
Receipts at its corporate trust office all reports and communications from the
Company that are delivered to Continental and made generally available to the
holders of the Series F Preferred Stock.
Neither Continental nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control from or in performing its
obligations under the Deposit Agreement.
FORM AND DENOMINATION
Global Shares; Book-Entry Form. Depositary Shares sold in reliance on Rule
144A under the Securities Act or to other Accredited Investors pursuant to the
Securities Act and the rules and regulations thereunder will be evidenced
initially by one or more global certificates (the "Depositary Share Global
Certificate") which will
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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 (the "Global Certificate Holder"). Except as set forth below, record
ownership of the Depositary Share Global Certificate may be transferred, in
whole or in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee.
Owners of a beneficial interest in the Depositary Share Global Certificate
may hold their interest in the Depositary Share Global Certificate directly
through the Depositary if such holder is a participant in the Depositary or
indirectly through organizations that are participants in the Depositary.
Persons who are not participants may beneficially own interests in the
Depositary Share Global Certificate held by the Depositary only through
participants or certain banks, brokers, dealers, trust companies and other
parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. So long as Cede & Co., as the
nominee of the Depositary, is the registered owner of the Depositary Share
Global Certificate, Cede & Co. for all purposes will be considered the sole
holder of the Depositary Share Global Certificate. Owners of beneficial interest
in the Depositary Share Global Certificate will be entitled to have certificates
registered in their names and to receive physical delivery of certificates in
definitive form (the "Definitive Securities").
Payment of dividends on and any redemption price with respect to the
Depositary Share Global Certificate will be made to the Global Certificate
Holder, as registered owner of the Depositary Share Global Certificate, by wire
transfer of immediately available funds on each Dividend Payment Date or
redemption date, as applicable. Neither the Company nor the Transfer Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Depositary
Share Global Certificate or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company has been informed by the Depositary that, with respect to any
payment of dividends on, or the redemption price with respect to, the Depositary
Share Global Certificate, the Depositary's practice is to credit participants'
accounts on the payment date therefor, with payments in amounts proportionate to
their respective beneficial interests in the Depositary Shares represented by
the Depositary Share Global Certificate as shown on the records of the
Depositary, unless the Depositary has reason to believe that it will not receive
payment on such payment date. Payments by participants to owners of beneficial
interests in the Depositary Shares represented by the Depositary Share Global
Certificate held through such participants will be the responsibility of such
participants, as is now the case with securities held for the accounts of
customers registered in "street name."
Transfers between participants will be effected in the ordinary way in
accordance with the Depositary's rules and will be settled in immediately
available funds. The laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability to
transfer beneficial interests in the Depositary Share Global Certificate to such
persons may be limited. Because the Depositary can only act on behalf of
participants, who in turn act on behalf of indirect participants and certain
banks, the ability of a person having a beneficial interest in the Depositary
Shares represented by the Depositary Share Global Certificate to pledge such
interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Transfer Agent will have responsibility for the
performance of the Depositary or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations. The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Depositary Shares (including, without
limitation, the presentation of Depositary Shares for exchange) only at the
direction of one or more participants to whose account with the Depositary
interests in the Depositary Share Global Certificate are credited, and only in
respect of the Depositary Shares represented by the Depositary Share Global
Certificate as to which such participant or participants has or have given such
direction.
The Depositary has also advised the Company that the Depositary is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participants and to facilitate
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the clearance and settlement of securities transactions between participants
through electronic book-entry changes to accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the Initial Purchasers.
Certain of such participants (or their representatives), together with other
entities, own the Depositary. Indirect access to the Depositary system is
available to others such as banks, brokers, dealers and trust companies that
clear through, or maintain a custodial relationship with, a participant, either
directly or indirectly.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Depositary Share Global Certificate
among participants, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. If the
Depositary is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the Company
will cause the Depositary Shares to be issued in definitive form in exchange for
the Depositary Share Global Certificate.
Certificated Depositary Shares. Investors in the Depositary Shares may
request that Definitive Securities be issued in exchange for Depositary Shares
represented by the Depositary Share Global Certificate. Furthermore, Definitive
Securities may be issued in exchange for Depositary Shares represented by the
Depositary Share Global Certificate if no successor depositary is appointed by
the Company as set forth above.
Unless determined otherwise by the Company in accordance with applicable
law, Definitive Securities issued upon transfer or exchange of beneficial
interests in Depositary Shares represented by the Depositary Share Global
Certificate will bear a legend setting forth transfer restrictions under the
Securities Act. Any request for the transfer of Definitive Securities bearing
the legend, or for removal of the legend from Definitive Securities, must be
accompanied by satisfactory evidence, in the form of an opinion of counsel, that
such transfer complies with the Securities Act or that neither the legend nor
the restrictions on transfer set forth therein are required to ensure compliance
with the provisions of the Securities Act, as the case may be.
36
<PAGE> 41
FEDERAL INCOME TAX CONSEQUENCES
The following, in the opinion of Kronish Lieb Weiner & Hellman LLP, sets
forth the material United States federal income tax considerations generally
applicable to persons acquiring the Depositary Shares, but does not purport to
be a complete analysis of all potential consequences. The opinion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such changes may be applied retroactively
in a manner that could adversely affect a holder of the Depositary Shares or
Common Stock. The opinion assumes that the holders of Depositary Shares or
Common Stock will hold them as "capital assets" within the meaning of Section
1221 of the Code. The opinion is not binding on the IRS or the courts. The
Company has not sought and will not seek any rulings from the IRS with respect
to the consequences set forth herein, and there can be no assurance that the IRS
will not take a different position concerning the tax consequences of the
purchase, ownership or disposition of the Depositary Shares or Common Stock or
that any such position would not be sustained.
The tax treatment of a holder of the Depositary Shares and Common Stock may
vary depending on such holder's particular situation or status. Certain holders
(including S corporations, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, taxpayers subject to alternative minimum
tax and persons holding Depositary Shares or Common Stock as part of a straddle,
hedging or conversion transaction) may be subject to special rules not discussed
below. The opinion does not consider all aspects of United States federal income
tax that may be relevant to the purchase, ownership and disposition of the
Depositary Shares and Common Stock by a holder in light of such holder's
personal circumstances. In addition, the opinion does not consider the effect of
any applicable foreign, state or local tax laws, or estate or gift tax
considerations. PERSONS CONSIDERING THE PURCHASE OF DEPOSITARY SHARES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS THE TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
For purposes of the opinion, a "U.S. Holder" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in the United States or under the laws of the United States or of any
political subdivision thereof, an estate whose income is includible in gross
income for United States federal income tax purposes regardless of its source or
a trust, if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust. A "Non-U.S. Holder" means a
holder who is not a U.S. Holder.
INTRODUCTION
Holders of Depositary Shares will be treated for United States federal
income tax purposes as if they were owners of the Series F Preferred Stock
represented by such Depositary Shares. Accordingly, holders of Depositary Shares
will recognize the items of income, gain, loss and deduction that they would
recognize if they directly held the Series F Preferred Stock. References in this
"Federal Income Tax Consequences" section to holders of Series F Preferred Stock
include holders of Depositary Shares, and references to Depositary Shares
include Series F Preferred Stock.
37
<PAGE> 42
TAX CONSEQUENCES TO U.S. HOLDERS
DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK
A distribution on the Depositary Shares, whether paid in cash or in shares
of Common Stock, or a cash distribution on Common Stock will be taxable to the
U.S. Holder as ordinary dividend income to the extent that the amount of the
distribution (i.e., the amount of cash and/or the fair market value of the
Common Stock on the date of distribution) does not exceed the Company's current
or accumulated earnings and profits allocable to such distribution (as
determined for federal income tax purposes). To the extent that the amount of
the distribution exceeds the Company's current or accumulated earnings and
profits allocable to such distribution, the distribution will be treated as a
return of capital, thus reducing the holder's adjusted tax basis in the
Depositary Shares or Common Stock with respect to which such distribution is
made. The amount of any such excess distribution that exceeds the U.S. Holder's
adjusted tax basis in the Depositary Shares or Common Stock will be taxed as
capital gain and will be long-term capital gain if the U.S. Holder's holding
period for the Depositary Shares or Common Stock exceeds one year. A U.S.
Holder's initial tax basis in Common Stock received as a distribution on the
Depositary Shares will equal the fair market value of the Common Stock on the
date of the distribution. The holding period for the Common Stock will commence
on the day following the distribution. There can be no assurance that the
Company will have sufficient earnings and profits to cause distributions on the
Series F Preferred Stock or Common Stock to be treated as dividends for federal
income tax purposes. For purposes of the opinion, the term "ordinary dividend"
refers to a distribution paid out of current or accumulated earnings and
profits. Liquidated Damages should be taxed in the same manner as dividend
distributions, except that it is possible that Liquidated Damages might be
treated as payment of a fee and hence as ordinary income with respect to which
no dividends-received deduction is available.
Ordinary dividends received by corporate U.S. Holders will generally be
eligible for the 70% dividends-received deduction under Section 243 of the Code.
There are, however, many exceptions and restrictions relating to the
availability of the dividends-received deduction, such as restrictions relating
to (i) the holding period of the stock on which the dividends are received, (ii)
debt-financed portfolio stock, (iii) dividends treated as "extraordinary
dividends" for purposes of Section 1059 of the Code, and (iv) taxpayers that pay
alternative minimum tax. Corporate U.S. Holders should consult their own tax
advisors regarding the extent, if any, to which such exceptions and restrictions
may apply to their particular factual situations. A corporate holder must
generally satisfy a separate 46-day (91-day, in the case of certain preferred
stock dividends) holding period requirement with respect to each dividend in
order to be eligible for the dividends-received deduction with respect to such
dividend.
REDEMPTION PREMIUM
Under certain circumstances, Section 305(c) of the Code requires that any
excess of the redemption price of preferred stock over its issue price be
treated as constructively distributed on a periodic basis prior to actual
receipt. However, a U.S. Holder of the Depositary Shares will not be required to
include any redemption premium in income under Section 305(c) if the holder and
the Company are not related within the meaning of the Treasury regulations under
Section 305(c) and there are no plans, arrangements or agreements that
effectively require or are intended to compel the Company to redeem the Series F
Preferred Stock.
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations issued under Section 305 of the Code treat certain
adjustments to conversion provisions of stock such as the Series F Preferred
Stock as constructive distributions of stock. Such constructive distributions of
stock would be taxable to U.S. Holders of Depositary Shares as described above
under the caption "Distributions on Depositary Shares and Common Stock." In
general, any adjustment increasing the number of shares of Common Stock into
which the Depositary Shares can be converted could constitute a constructive
distribution of stock to U.S. Holders of Depositary Shares unless made pursuant
to a bona fide, reasonable adjustment formula that has the effect of preventing
dilution of the interest of the holders of Depositary Shares. Any adjustment in
the conversion price to compensate the holders of Depositary Shares for taxable
distributions of cash or property on any of the outstanding
38
<PAGE> 43
Common Stock of the Company could be treated as a constructive distribution of
stock to U.S. Holders of Depositary Shares.
CONVERSION OF SERIES F PREFERRED STOCK
No gain or loss will generally be recognized for United States federal
income tax purposes on conversion of the Series F Preferred Stock solely into
Common Stock. However, if the conversion takes place when there is a dividend
arrearage on the Series F Preferred Stock, a portion of the Common Stock
received could be treated as a distribution taxable as described above under the
caption "Distributions on Depositary Shares and Common Stock" to the extent of
such dividend arrearage. Except for any Common Stock treated as received in such
a distribution, the tax basis of the Common Stock received upon conversion
(including any fractional share deemed received) will be the tax basis of the
Series F Preferred Stock converted, and the holding period of the Common Stock
received upon conversion (including any fractional share deemed received) will
include the holding period of the Series F Preferred Stock converted. The
receipt of cash in lieu of a fractional share of Common Stock upon conversion of
Series F Preferred Stock into Common Stock will generally be treated as a sale
of such fractional share in which the U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount of cash received and the U.S.
Holder's adjusted tax basis in the fractional share redeemed. Such gain or loss
will be capital gain or loss and will be long-term if the U.S. Holder's holding
period for the fractional share exceeds one year.
CONVERSION OF SERIES F PREFERRED STOCK AFTER DIVIDEND RECORD DATE
If a holder whose Series F Preferred Stock has not been called for
redemption surrenders such Series F Preferred Stock for conversion into shares
of Common Stock after a dividend record date for the Series F Preferred Stock
but before payment of the dividend, such holder will be required to pay the
Company an amount equal to such dividend upon conversion. A U.S. Holder will
likely recognize the dividend payment as a distribution taxable as described
above under the caption "Distributions on Depositary Shares and Common Stock"
when it is received and increase the basis of the Common Stock received by the
amount paid to the Company.
REDEMPTION, SALE OR OTHER TAXABLE DISPOSITION OF SERIES F PREFERRED STOCK AND
SALE OR OTHER TAXABLE DISPOSITION OF COMMON STOCK
A redemption of shares of Series F Preferred Stock for cash will be a
taxable event.
A redemption of shares of Series F Preferred Stock for cash will generally
be treated as a sale or exchange if the holder does not own, actually or
constructively within the meaning of Section 318 of the Code, any stock of the
Company other than the Series F Preferred Stock redeemed. If a holder does own,
actually or constructively, other stock of the Company, a redemption of Series F
Preferred Stock may be treated as a distribution taxable as described above
under the caption "Distributions on Depositary Shares and Common Stock." Such
treatment will not be applied if the redemption is "not essentially equivalent
to a dividend" with respect to the holder under Section 302(b)(1) of the Code. A
distribution to a holder will be "not essentially equivalent to a dividend" if
it results in a "meaningful reduction" in the holder's stock interest in the
Company. For this purpose, a redemption of Series F Preferred Stock that results
in a reduction in the proportionate interest in the Company (taking into account
any actual ownership of Common Stock and any stock constructively owned) of a
holder whose relative stock interest in the Company is minimal and who exercises
no control over corporate affairs should be regarded as a meaningful reduction
in the holder's stock interest in the Company.
If a redemption of the Series F Preferred Stock for cash is treated as a
sale or exchange, the redemption will result in capital gain or loss equal to
the difference between the amount of cash received and the holder's adjusted tax
basis in the Series F Preferred Stock redeemed, except to the extent that the
redemption price includes dividends that have been declared by the Board of
Directors of the Company prior to the redemption. Similarly, upon the sale or
other taxable disposition of the Series F Preferred Stock or Common Stock (other
than in a redemption, on conversion or pursuant to a tax-free exchange), the
difference between the sum of the amount of cash and the fair market value of
other property received and the holder's adjusted tax basis in the Series F
Preferred Stock or
39
<PAGE> 44
Common Stock will be capital gain or loss. This gain or loss will be long-term
capital gain or loss if the holder's holding period for the Series F Preferred
Stock or Common Stock exceeds one year.
If a redemption of Series F Preferred Stock is treated as a distribution,
the amount of the distribution will be the amount of cash received by the
holder. The holder's adjusted tax basis in the redeemed Series F Preferred Stock
will be transferred to any remaining stock holdings in the Company, subject to
reduction or possible gain recognition under Section 1059 of the Code with
respect to the non-taxed portion of any ordinary dividend. If the holder does
not retain any actual stock ownership in the Company (having a stock interest
only constructively by attribution), the holder may lose the benefit of the
basis in the Series F Preferred Stock.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK
Ordinary dividends paid to a Non-U.S. Holder of Series F Preferred Stock or
Common Stock that are not effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder will be subject to
United States federal income tax, which generally will be withheld at a rate of
30% of the gross amount of the dividends unless the rate is reduced by an
applicable income tax treaty. Under the currently applicable Treasury
regulations, ordinary dividends paid to an address in a country other than the
United States are subject to withholding (unless the payor has knowledge to the
contrary).
Dividends paid to a Non-U.S. Holder of Series F Preferred Stock or Common
Stock that are effectively connected with a United States trade or business
conducted by such Non-U.S. Holder will be subject to tax at the graduated rates
applicable to United States citizens, resident aliens and domestic corporations
(the "Regular Federal Income Tax") in the same manner as described above for
U.S. Holders under the caption "Distributions on Depositary Shares and Common
Stock," and will not be subject to withholding tax if the Non-U.S. Holder gives
an appropriate statement to the Company or its paying agent in advance of the
dividend payment. In addition to the Regular Federal Income Tax, effectively
connected dividends received by a Non-U.S. Holder that is a corporation may also
be subject to an additional branch profits tax at a rate of 30% (or such lower
rate as may be specified by an applicable income tax treaty).
REDEMPTION, SALE OR OTHER TAXABLE DISPOSITION OF SERIES F PREFERRED STOCK AND
SALE OR OTHER TAXABLE DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States
federal income tax or withholding on gain recognized upon the sale or other
disposition of Series F Preferred Stock or Common Stock unless: (i) the gain is
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder (in which case the branch profits tax also may
apply if the Non-U.S. Holder is a corporation); (ii) in the case of a Non- U.S.
Holder who is a non-resident alien individual and holds the Series F Preferred
Stock or Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other conditions are
met; or (iii) the Series F Preferred Stock or Common Stock constitutes a United
States real property interest by reason of the Company's status as a "United
States real property holding corporation" for federal income tax purposes at any
time within the shorter of the five-year period preceding such disposition or
such Non-U.S. Holder's holding period for such Series F Preferred Stock or
Common Stock.
If a Non-U.S. Holder falls within clause (i) or (iii) in the preceding
paragraph, the holder will be taxed on the net gain derived from the sale under
the Regular Federal Income Tax, and may be subject to withholding under certain
circumstances (and, with respect to corporate Non-U.S. Holders, may also be
subject to the branch profits tax). If an individual Non-U.S. Holder falls under
clause (ii) in the preceding paragraph, the holder generally will be subject to
United States federal income tax at a rate of 30% on the gain derived from the
sale.
40
<PAGE> 45
FEDERAL ESTATE TAXES
An individual Non-U.S. Holder who owns, or is treated as owning, Series F
Preferred Stock or Common Stock at the time of his or her death or has made
certain lifetime transfers of an interest in Series F Preferred Stock or Common
Stock will be required to include the value of such Series F Preferred Stock or
Common Stock in his gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
NEW WITHHOLDING REGULATIONS
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules applicable to Non-U.S. Holders
(the "New Withholding Regulations"). In general, the New Withholding Regulations
do not significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. The New Withholding Regulations are generally
effective for payments made after December 31, 1999, subject to certain
transition rules. NON-U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE IMPACT, IF ANY, OF THE NEW WITHHOLDING REGULATIONS.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will generally be required to report to certain holders of the
Depositary Shares and Common Stock and to the Internal Revenue Service the
amount of any dividends on the Depositary Shares and Common Stock paid to such
holders in each calendar year and the amounts of tax withheld, if any, with
respect to such payments.
A U.S. Holder of Depositary Shares or Common Stock may be subject to backup
withholding at the rate of 31% with respect to dividends paid on, or the
proceeds of a redemption, sale or exchange of, the Depositary Shares or Common
Stock, unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates its exemption or (b) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A U.S. Holder of Depositary Shares or Common Stock
who does not provide the Company with the holder's correct taxpayer
identification number may be subject to penalties imposed by the IRS. A Non-U.S.
Holder of Depositary Shares or Common Stock may also be subject to certain
information reporting or backup withholding if certain requisite certification
is not received or other exemptions do not apply. Any amount paid as backup
withholding would be creditable against the holder's federal income tax
liability.
41
<PAGE> 46
SELLING SECURITYHOLDERS
The following table sets forth, as of April 9, 1999, certain
information regarding the Selling Securityholders' ownership of the Company's
Depositary Shares, Series F Preferred Stock and Common Stock. Unless otherwise
disclosed in the footnotes to the table, no Selling Securityholder has held any
position, office or had any other material relationship with the Company, its
predecessors or affiliates during the past three years. All of the Depositary
Shares and shares of Series F Preferred Stock are registered in the name of
"Cede & Co." on the books of the Company's Transfer Agent. To the knowledge of
the Company, except as disclosed in the table below, the Selling Securityholders
did not own, nor have any rights to acquire, any other Depositary Shares, shares
of Series F Preferred Stock or Common Stock as of the date of this Prospectus.
<TABLE>
<CAPTION>
===================================================================================================================
Common Stock Depositary Shares
- -------------------------------------------------------------------------------------------------------------------
Beneficially Beneficially
Owned Owned
After After
Offered This This
Name of Selling Beneficially Owned Prior for Offering Beneficially Owned Offered Offering
Securityholder(1) to This Offering (2)(3) Sale (2)(3) Prior to This Offering(2) for Sale (2)
-----------------------------------------------------------------------------------------------------------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AGE & Co. 468 * 468 * 0 0 * 0
- ------------------------------------------------------------------------------------------------------------------
Allstate 143,201(5) * 60,588 82,613 100,000 1.25 100,000 0
Insurance Company
- ------------------------------------------------------------------------------------------------------------------
Amoco Corporation 879 * 879 0 0 * 0 0
Master Trust(6)
- ------------------------------------------------------------------------------------------------------------------
Argent Classic 234 * 234 0 0 * 0 0
Convertible
Arbitrage Fund
- ------------------------------------------------------------------------------------------------------------------
BankAmerica 29,708 * 29,708 * 50,000 0 50,000 0
Pension Plan
- ------------------------------------------------------------------------------------------------------------------
Bear, Stearns & 1,123,400(8) 2.2662 982,893 140,507 1,650,000 20.625 1,650,000 0
Co. Inc.(7)
- ------------------------------------------------------------------------------------------------------------------
BNP Arbitrage SNC 18,762 * 18,762 0 30,000 * 30,000 0
- ------------------------------------------------------------------------------------------------------------------
BT Holdings (New 24,236 * 24,236 0 40,000 * 40,000 0
York) Inc.
- ------------------------------------------------------------------------------------------------------------------
CA Public 200,000 * 200,000 0 336,600 4.2075 336,600 0
Employees'
Retirement System
- ------------------------------------------------------------------------------------------------------------------
CIBC Oppenheimer 23,767 * 23,767 0 40,000 * 40,000 0
Corp.
- ------------------------------------------------------------------------------------------------------------------
Conseco Health 41,161(10) * 23,767 17,394 40,000 * 40,000 0
Insurance -
Convertible(9)
- ------------------------------------------------------------------------------------------------------------------
Conseco Senior 41,161(12) * 23,767 17,394 40,000 * 40,000 0
Health
Convertible
Insurance(11)
- ------------------------------------------------------------------------------------------------------------------
Continental 282,234 * 282,234 0 475,000 5.9375 475,000 0
Casualty
Company
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
======================================================================
Series F Preferred Stock
- ----------------------------------------------------------------------
Beneficially
Owned
Beneficially Owned After This
Name of Selling Prior to This Offered Offering
Securityholder(1) Offering(2)(4) for Sale (2)(4)
---------------------------------------------------------------------
Number of
shares Percent
of of
Series F Series F
Preferred Preferred
Stock Stock
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
AGE & Co. 0 * 0 0
- --------------------------------------------------------------------
Allstate 1,000 1.25 1,000 0
Insurance Company
- --------------------------------------------------------------------
Amoco Corporation 0 * 0 0
Master Trust(6)
- --------------------------------------------------------------------
Argent Classic 0 * 0 0
Convertible
Arbitrage Fund
- --------------------------------------------------------------------
BankAmerica 500 * 500 0
Pension Plan
- --------------------------------------------------------------------
Bear, Stearns & 16,500 20.625 16.500 0
Co. Inc.(7)
- --------------------------------------------------------------------
BNP Arbitrage SNC 300 * 300 0
- --------------------------------------------------------------------
BT Holdings (New 400 * 400 0
York) Inc.
- --------------------------------------------------------------------
CA Public 3,366 4.2075 3,366 0
Employees'
Retirement System
- --------------------------------------------------------------------
CIBC Oppenheimer 400 * 400 0
Corp.
- --------------------------------------------------------------------
Conseco Health 400 * 400 0
Insurance -
Convertible(9)
- --------------------------------------------------------------------
Conseco Senior 400 * 400 0
Health
Convertible
Insurance(11)
- --------------------------------------------------------------------
Continental 4,750 5.9375 4,750 0
Casualty
Company
- --------------------------------------------------------------------
</TABLE>
42
<PAGE> 47
<TABLE>
<CAPTION>
=========================================================================================================================
Common Stock Depositary Shares
- -------------------------------------------------------------------------------------------------------------------------
Beneficially Beneficially
Owned Owned
After After
Offered This This
Name of Selling Beneficially Owned Prior for Offering Beneficially Owned Offered Offering
Securityholder(1) to This Offering (2)(3) Sale (2)(3) Prior to This Offering(2) for Sale (2)
- -------------------------------------------------------------------------------------------------------------------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Lipscomb 9 * 9 0 0 * 0 0
University
General Endowment
- -------------------------------------------------------------------------------------------------------------------------
Deephaven Market 17,707 * 17,707 0 19,300 * 19,300 0
Neutral Fund
Limited
- -------------------------------------------------------------------------------------------------------------------------
Deephaven Market 14,433 * 14,433 0 15,700 * 15,700 0
Neutral
Trading, L.P.
- -------------------------------------------------------------------------------------------------------------------------
Deeprock & Co. 11,883 * 11,883 0 20,000 * 20,000 0
- -------------------------------------------------------------------------------------------------------------------------
Equitable Life 88 * 88 0 0 * 0 0
Assurance
Separate Account
Convertibles
- -------------------------------------------------------------------------------------------------------------------------
Excelsior Value 26,737 * 26,737 0 45,000 * 45,000 0
and Restructuring
Fund
- -------------------------------------------------------------------------------------------------------------------------
Federated 21,093 * 21,093 0 35,500 * 35,500 0
Insurance Series,
on behalf of its
Federated Utility
Fund II
- ------------------------------------------------------------------------------------------------------------------------
Federated Utility 194,890 * 194,890 0 328,000 4.1 328,000 0
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Fidelity 214,750(14) * 84,823 129,927 140,000 1.75 140,000 0
Financial Trust:
Fidelity
Convertible
Securities
Fund(13)
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Summer 3,510 * 3,510 0 0 * 0 0
Street Trust:
Fidelity Capital &
Income Fund(13)
- ------------------------------------------------------------------------------------------------------------------------
Forest 13,309 * 13,309 0 22,400 * 22,400 0
Alternative
Strategies
Fund A-5
- ------------------------------------------------------------------------------------------------------------------------
Forest 1,010 * 1,010 0 1,700 * 1,700 0
Alternative
Strategies
Fund A5I
- ------------------------------------------------------------------------------------------------------------------------
Forest 364 * 364 0 600 * 600 0
Alternative
Strategies A5M
- ------------------------------------------------------------------------------------------------------------------------
Forest Global 14,795 * 14,795 0 24,900 * 24,900 0
Convertible
Fund A-5
- -----------------------------------------------------------------------------------------------------------------------
The Frist 9 * 9 0 0 * 0 0
Foundation
- -----------------------------------------------------------------------------------------------------------------------
General Motors 53,475 * 53,475 0 90,000 1.125 90,000 0
Welfare Benefit
Trust
- -----------------------------------------------------------------------------------------------------------------------
Goldman Sachs 609 * 609 0 0 * 0 0
and Company
- -----------------------------------------------------------------------------------------------------------------------
Guaranty National 6,059 * 6,059 0 10,000 * 10,000 0
Insurance Co.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
======================================================================
Series F Preferred Stock
- ----------------------------------------------------------------------
Beneficially
Owned
Beneficially Owned After This
Name of Selling Prior to This Offered Offering
Securityholder(1) Offering(2)(4) for Sale (2)(4)
- ----------------------------------------------------------------------
Number of
shares Percent
of of
Series F Series F
Preferred Preferred
Stock Stock
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Lipscomb 0 * 0 0
University
General Endowment
- ----------------------------------------------------------------------
Deephaven Market 193 * 193 0
Neutral Fund
Limited
- ----------------------------------------------------------------------
Deephaven Market 157 * 157 0
Neutral
Trading, L.P.
- ----------------------------------------------------------------------
Deeprock & Co. 200 * 200 0
- ----------------------------------------------------------------------
Equitable Life 0 * 0 0
Assurance
Separate Account
Convertibles
- ----------------------------------------------------------------------
Excelsior Value 450 * 450 0
and Restructuring
Fund
- ---------------------------------------------------------------------
Federated 355 * 355 0
Insurance Series,
on behalf of its
Federated Utility
Fund II
- ---------------------------------------------------------------------
Federated Utility 3,280 4.1 3,280 0
Funds, Inc.
- ---------------------------------------------------------------------
Fidelity 1,400 1.75 1,400 0
Financial Trust:
Fidelity
Convertible
Securities
Fund(13)
- ---------------------------------------------------------------------
Fidelity Summer 0 * 0 0
Street Trust:
Fidelity Capital &
Income Fund(13)
- --------------------------------------------------------------------
Forest 224 * 224 0
Alternative
Strategies
Fund A-5
- --------------------------------------------------------------------
Forest 17 * 17 0
Alternative
Strategies
Fund A5I
- --------------------------------------------------------------------
Forest 6 * 6 0
Alternative
Strategies A5M
- --------------------------------------------------------------------
Forest Global 249 * 249 0
Convertible
Fund A-5
- --------------------------------------------------------------------
The Frist 0 * 0 0
Foundation
- --------------------------------------------------------------------
General Motors 900 1.125 900 0
Welfare Benefit
Trust
- --------------------------------------------------------------------
Goldman Sachs 0 * 0 0
and Company
- --------------------------------------------------------------------
Guaranty National 100 * 100 0
Insurance Co.
- --------------------------------------------------------------------
</TABLE>
43
<PAGE> 48
<TABLE>
<CAPTION>
=======================================================================================================================
Common Stock Depositary Shares
- -----------------------------------------------------------------------------------------------------------------------
Beneficially Beneficially
Owned Owned
After After
Offered This This
Name of Selling Beneficially Owned Prior for Offering Beneficially Owned Offered Offering
Securityholder(1) to This Offering (2)(3) Sale (2)(3) Prior to This Offering(2) for Sale (2)
---------------------------------------------------------------------------------------------------------------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hartford Capital 713,012 1.4384 713,012 900,000 1,200,000 15 1,200,000 0
Appreciation
Fund, Inc.(15)
- ---------------------------------------------------------------------------------------------------------------------
The High Yield 7,989(17) * 6,346 1,643 10,000 * 10,000 0
Income Fund,
Inc.(16)
- ---------------------------------------------------------------------------------------------------------------------
High Yield 245,056(18) * 145,411 99,645 240,000 3 240,000 0
Portfolio
- ---------------------------------------------------------------------------------------------------------------------
Highbridge 1,170 * 1,170 0 0 * 0 0
Capital
Corporation(19)
- ---------------------------------------------------------------------------------------------------------------------
Hotel Union and 118 * 118 0 0 * 0 0
Hotel Industry of
Hawaii(20)
- ---------------------------------------------------------------------------------------------------------------------
Hudson River 131 * 131 0 0 * 0 0
Trust Balanced
Account
- ---------------------------------------------------------------------------------------------------------------------
Hudson River 98 * 98 0 0 * 0 0
Trust Growth
Investors
- ---------------------------------------------------------------------------------------------------------------------
IDS Bond 60,505(21) * 59,417 1,088 100,000 1.25 100,000 0
Fund Inc.
- ---------------------------------------------------------------------------------------------------------------------
IDS Life Income 36,353 * 36,353 0 60,000 * 60,000 0
Advantage Fund
- ---------------------------------------------------------------------------------------------------------------------
IDS Life Managed 29,708 * 29,708 0 50,000 * 50,000 0
Fund, Inc.
- ---------------------------------------------------------------------------------------------------------------------
IDS Life Special 23,366(22) * 21,806 1,560 36,700 * 36,700 0
Income Fund
- ---------------------------------------------------------------------------------------------------------------------
IDS Utilities 212,058 * 212,058 0 350,000 4.375 350,000 0
Income Fund, Inc.
- ---------------------------------------------------------------------------------------------------------------------
J.P. Morgan & 466,724(23) * 89,126 377,598 150,000 1.875 150,000 0
Co., Inc.
- ---------------------------------------------------------------------------------------------------------------------
JMG Convertible 341,707(24) * 187,705 154,002 310,000 3.875 310,000 0
Investments, L.P.
- ---------------------------------------------------------------------------------------------------------------------
Jefferies & 13 * 13 0 0 * 0 0
Company(25)
- ---------------------------------------------------------------------------------------------------------------------
Kapiolani 53 * 53 0 0 * 0 0
Health(26)
- ---------------------------------------------------------------------------------------------------------------------
LLT Limited(27) 831 * 831 0 1,400 * 1,400 0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
======================================================================
Series F Preferred Stock
- ----------------------------------------------------------------------
Beneficially
Owned
Beneficially Owned After This
Name of Selling Prior to This Offered Offering
Securityholder(1) Offering(2)(4) for Sale (2)(4)
---------------------------------------------------------------------
Number of
shares Percent
of of
Series F Series F
Preferred Preferred
Stock Stock
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hartford Capital 12,000 15 12,000 0
Appreciation
Fund, Inc.(15)
- ----------------------------------------------------------------------
The High Yield 100 * 100 0
Income Fund,
Inc.(16)
- ----------------------------------------------------------------------
High Yield 2,400 3 2,400 0
Portfolio
- ----------------------------------------------------------------------
Highbridge 0 * 0 0
Capital
Corporation(19)
- ----------------------------------------------------------------------
Hotel Union and 0 * 0 0
Hotel Industry of
Hawaii(20)
- ----------------------------------------------------------------------
Hudson River 0 * 0 0
Trust Balanced
Account
- ----------------------------------------------------------------------
Hudson River 0 * 0 0
Trust Growth
Investors
- ----------------------------------------------------------------------
IDS Bond 1,000 1.25 1,000 0
Fund Inc.
- ----------------------------------------------------------------------
IDS Life Income 600 * 600 0
Advantage Fund
- ----------------------------------------------------------------------
IDS Life Managed 500 * 500 0
Fund, Inc.
- ----------------------------------------------------------------------
IDS Life Special 367 * 367 0
Income Fund
- ----------------------------------------------------------------------
IDS Utilities 3,500 4.375 3,500 0
Income Fund, Inc.
- ----------------------------------------------------------------------
J.P. Morgan & 1,500 1.875 1,500 0
Co., Inc.
- ---------------------------------------------------------------------
JMG Convertible 3,100 3.875 3,100 0
Investments, L.P.
- ---------------------------------------------------------------------
Jefferies & 0 * 0 0
Company(25)
- ---------------------------------------------------------------------
Kapiolani 0 * 0 0
Health(26)
- ---------------------------------------------------------------------
LLT Limited(27) 14 * 14 0
- ---------------------------------------------------------------------
</TABLE>
44
<PAGE> 49
<TABLE>
<CAPTION>
========================================================================================================================
Common Stock Depositary Shares
- ------------------------------------------------------------------------------------------------------------------------
Beneficially Beneficially
Owned Owned
After After
Offered This This
Name of Selling Beneficially Owned Prior for Offering Beneficially Owned Offered Offering
Securityholder(1) to This Offering (2)(3) Sale (2)(3) Prior to This Offering(2) for Sale (2)
- ------------------------------------------------------------------------------------------------------------------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Memphis Light, 121 * 121 0 0 * 0 0
Gas & Water
Retirement Fund
- ------------------------------------------------------------------------------------------------------------------------
Millennium 24,236 * 24,236 0 40,000 * 40,000 0
Trading Co., L.P.
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer 194,548(28) * 121,176 73,372 200,000 2.5 200,000 0
Champion Income
Fund
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer 31,029(29) * 19,692 11,338 32,500 * 32,500 0
Variable Account
Funds for the
Oppenheimer
Growth & Income
Fund
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer 3,492(30) * 3,030 462 5,000 * 5,000 0
Variable Account
Funds for the
Oppenheimer
Multiple
Strategies Fund
- ------------------------------------------------------------------------------------------------------------------------
Pepperdine 112 * 112 0 0 * 0 0
University Pool
A#1(31)
- ------------------------------------------------------------------------------------------------------------------------
Peoples Benefit 83,184 * 83,184 0 140,000 1.75 140,000 0
Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------
Prudential High 202,377(33) * 177,739 24,638 280,000 3.5 280,000 0
Yield Fund,
Inc.(32)
- ------------------------------------------------------------------------------------------------------------------------
Prudential High 12,694 * 12,694 0 20,000 * 20,000 0
Yield Total
Return Fund,
Inc.(34)
- ------------------------------------------------------------------------------------------------------------------------
The Prudential 121,510(36) * 57,100 64,410 90,000 1.125 90,000 0
Series Fund, Inc.
High Yield Bond
Portfolio(35)
- ------------------------------------------------------------------------------------------------------------------------
Security 18,177 * 18,177 0 30,000 * 30,000 0
Insurance Company
of Hartford(37)
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica High 24,236 * 24,236 0 40,000 * 40,000 0
Income Fund
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica Inc. 242,351 * 242,351 0 400,000 5 400,000 0
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica Series 9,803 * 9,803 0 16,500 * 16,500 0
Trust, on behalf
of its Federated
Utility Portfolio
- ------------------------------------------------------------------------------------------------------------------------
SunAmerica Series 36,353 * 36,353 0 60,000 * 60,000 0
Trust High Yield
Bond
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
===========================================================================
Series F Preferred Stock
- ---------------------------------------------------------------------------
Beneficially
Owned
Beneficially Owned After This
Name of Selling Prior to This Offered Offering
Securityholder(1) Offering(2)(4) for Sale (2)(4)
--------------------------------------------------------------------------
Number of
shares Percent
of of
Series F Series F
Preferred Preferred
Stock Stock
- ---------------------------------------------------------------------------
Memphis Light, 0 * 0 0
Gas & Water
Retirement Fund
- ---------------------------------------------------------------------------
Millennium 400 * 400 0
Trading Co., L.P.
- ---------------------------------------------------------------------------
Oppenheimer 2,000 2.5 2,000 0
Champion Income
Fund
- ---------------------------------------------------------------------------
Oppenheimer 325 * 325 0
Variable Account
Funds for the
Oppenheimer
Growth & Income
Fund
- ---------------------------------------------------------------------------
Oppenheimer 50 * 50 0
Variable Account
Funds for the
Oppenheimer
Multiple
Strategies Fund
- ---------------------------------------------------------------------------
Pepperdine 0 * 0 0
University Pool
A#1(31)
- ---------------------------------------------------------------------------
Peoples Benefit 1,400 1.75 1,400 0
Life Insurance
Company
- ---------------------------------------------------------------------------
Prudential High 2,800 3.5 2,800 0
Yield Fund,
Inc.(32)
- ---------------------------------------------------------------------------
Prudential High 200 * 200 0
Yield Total
Return Fund,
Inc.(34)
- ---------------------------------------------------------------------------
The Prudential 900 1.125 900 0
Series Fund, Inc.
High Yield Bond
Portfolio(35)
- ---------------------------------------------------------------------------
Security 300 * 300 0
Insurance Company
of Hartford(37)
- ---------------------------------------------------------------------------
SunAmerica High 400 * 400 0
Income Fund
- ---------------------------------------------------------------------------
SunAmerica Inc. 4,000 5 4,000 0
- ---------------------------------------------------------------------------
SunAmerica Series 165 * 165 0
Trust, on behalf
of its Federated
Utility Portfolio
- ---------------------------------------------------------------------------
SunAmerica Series 600 * 600 0
Trust High Yield
Bond
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================================
Common Stock Depositary Shares
- --------------------------------------------------------------------------------------------------------------------------
Beneficially Beneficially
Owned Owned
After After
Offered This This
Name of Selling Beneficially Owned Prior for Offering Beneficially Owned Offered Offering
Securityholder(1) to This Offering (2)(3) Sale (2)(3) Prior to This Offering(2) for Sale (2)
-------------------------------------------------------------------------------------------------------------------------
Number of Percent of
Number of Percent of Depositary Depositary
Shares Shares Shares Shares
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Susquehanna 45,441 * 45,441 0 75,000 * 75,000 0
Capital
Group(38)
- --------------------------------------------------------------------------------------------------------------------------
Tracor Inc., 90 * 90 0 0 * 0 0
Employees
Retirement
Plan(39)
- --------------------------------------------------------------------------------------------------------------------------
Transamerica Life 5,807 * 5,807 0 0 * 0 0
Insurance &
Annuity Company
- --------------------------------------------------------------------------------------------------------------------------
Triton Capital 501,255(40) 1.0112 187,705 313,550 310,000 3.875 310,000 0
Investments, Ltd.
- --------------------------------------------------------------------------------------------------------------------------
Value Line 40,499 * 40,499 0 65,000 * 65,000 0
Aggressive Income
Trust
- --------------------------------------------------------------------------------------------------------------------------
Viacom Pension 30 * 30 0 0 * 0 0
Plan Master
Trust(41)
- --------------------------------------------------------------------------------------------------------------------------
Viking Insurance 285 * 285 0 0 * 0 0
Company of
Wisconsin(42)
- --------------------------------------------------------------------------------------------------------------------------
Warburg Dillon 21,206 * 21,206 0 35,000 * 35,000 0
Read LLC(43)
==========================================================================================================================
</TABLE>
45
<PAGE> 50
<TABLE>
<CAPTION>
============================================================================
Series F Preferred Stock
- ----------------------------------------------------------------------------
Beneficially
Owned
Beneficially Owned After This
Name of Selling Prior to This Offered Offering
Securityholder(1) Offering(2)(4) for Sale (2)(4)
---------------------------------------------------------------------------
Number of
shares Percent
of of
Series F Series F
Preferred Preferred
Stock Stock
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Susquehanna 750 * 750 0
Capital
Group(38)
- ----------------------------------------------------------------------------
Tracor Inc., 0 * 0 0
Employees
Retirement
Plan(39)
- ----------------------------------------------------------------------------
Transamerica Life 0 * 0 0
Insurance &
Annuity Company
- ----------------------------------------------------------------------------
Triton Capital 3,100 3.875 3,100 0
Investments, Ltd.
- ----------------------------------------------------------------------------
Value Line 650 * 650 0
Aggressive Income
Trust
- ----------------------------------------------------------------------------
Viacom Pension 0 * 0 0
Plan Master
Trust(41)
- ----------------------------------------------------------------------------
Viking Insurance 0 * 0 0
Company of
Wisconsin(42)
- -----------------------------------------------------------------------------
Warburg Dillon 350 * 350 0
Read LLC(43)
=============================================================================
</TABLE>
* Less than one percent. Based on 49,571,201 shares of Common Stock
outstanding on April 9, 1999, 8,000,000 Depositary Shares outstanding
on April 9, 1999 and 80,000 shares of Series F Preferred Stock
outstanding on April 9, 1999.
(1) The names of Selling Securityholders and the number of securities
held by Selling Securityholders may be amended subsequent hereto
pursuant to Section 424(b)(3) of the Securities Act.
(2) Under the rules of the Commission, a person is deemed to be the
beneficial owner of a security if such person has or shares the
power to vote or direct the voting of such security or the power
to dispose or direct the disposition of such security. A person
is also deemed to be a beneficial owner of any securities if that
person has the right to acquire beneficial ownership within 60
days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and
investment power with respect to the securities beneficially
owned.
(3) Assuming the conversion of all Depositary Shares and/or shares of
Series F Preferred Stock. The Depositary Shares and the Series F
Preferred Stock as currently convertible into Common Stock.
Unless otherwise indicated by footnote, all the shares of Common
Stock beneficially owned by the Selling Securityholders are
shares issuable upon conversion of the Series F Preferred Stock
and/or Depositary Shares.
46
<PAGE> 51
(4) Assuming the conversion of all Depositary Shares into shares of Series F
Preferred Stock on the basis of one share of Series F Preferred Stock for
each one hundred Depositary Shares.
(5) Includes 32,134 shares of Common Stock issuable upon conversion of 50,000
depositary shares each representing a one-hundredth interest in a share of
the Series D Preferred Stock owned by Allstate Insurance Company; 41,343
shares of Common Stock issuable upon conversion of 100,000 depositary
shares each representing a one-hundredth interest in a share of the Series
E Preferred Stock owned by Allstate Insurance Company; and 9,136 shares of
Common Stock currently owned by Allstate Insurance Company.
(6) SSI Investment Management Inc. is the investment advisor of Amoco
Corporation Master Trust and may be deemed to be the beneficial owner of
the Securities owned by Amoco Corporation Master Trust. See also notes 20,
25, 26, 31, 39 and 41 below.
(7) Bear, Stearns & Co. Inc. provides investment banking services to the
Company and was one of four initial purchasers in a private placement by
the Company of the Series F Preferred Stock. Bear, Stearns & Co. Inc. has
also acted as lead manager in connection with the initial offering of other
securities of the Company. The Company has been advised by Bear, Stearns &
Co. Inc. that the shares of Series F Preferred Stock held by Bear, Stearns
& Co. Inc. were acquired from time to time after the initial placement in
its capacity as a broker-dealer or market-maker. Bear, Stearns & Co. Inc.
is a registered broker-dealer and may be deemed to be an underwriter within
the meaning of the Securities Act with respect to any Securities sold by it
hereunder.
(8) Includes 86,761 shares of Common Stock issuable upon conversion of 135,000
depositary shares each representing a one-hundredth interest in a share of
the Series D Preferred Stock owned by Bear, Stearns & Co. Inc. and 53,746
shares of Common Stock issuable upon conversion of 130,000 depositary
shares each representing a one-hundredth interest in a share of the Series
E Preferred Stock owned by Bear, Stearns & Co. Inc.
(9) Conseco Capital Management, Inc. is the investment advisor of Conseco
Health Insurance - Convertible and may be deemed to be the beneficial owner
of the securities owned by Conseco Health Insurance Convertible. Conseco
Capital Management, Inc. is also the investment advisor of Conseco Senior
Health Convertible and may also be deemed to be the beneficial owner of the
securities owned by Conseco Senior Health Convertible. See also note 11
below.
(10) Includes 17,394 shares of Common Stock issuable upon conversion of 42,075
depositary shares each representing a one-hundredth interest in a share of
the Series E Preferred Stock owned by Conseco Health Insurance -
Convertible.
(11) Conseco Capital Management, Inc. is the investment advisor of Conseco
Senior Health Convertible and may be deemed to be the beneficial owner of
the securities owned by Conseco Senior Health Convertible. Conseco Capital
Management, Inc. is also the investment advisor of Conseco Health Insurance
Convertible and may also be deemed to be the beneficial owner of the
securities owned by Conseco Health Insurance - Convertible. See also note 9
above.
(12) Includes 17,394 shares of Common Stock issuable upon conversion of 42,075
depositary shares each representing a one-hundredth interest in a share of
the Series E Preferred Stock owned by Conseco Senior Health Convertible.
(13) Fidelity Management & Research Company, a Massachusetts corporation and an
investment advisor registered under Section 203 of the Investment Advisers
Act of 1940, as amended, provides investment advisory services to Fidelity
Financial Trust: Fidelity Convertible Securities Fund and Fidelity Summer
Street Trust: Fidelity Capital & Income Fund and may be deemed to be the
beneficial owner of the securities owned by these entities.
47
<PAGE> 52
(14) Includes 109,255 shares of Common Stock issuable upon conversion of 170,000
depositary shares each representing a one-hundredth interest in a share of
the Series D Preferred Stock owned by Fidelity Financial Trust: Fidelity
Convertible Securities Fund and 20,672 shares of Common Stock issuable upon
conversion of 50,000 depositary shares each representing a one-hundredth
interest in a share of the Series E Preferred Stock owned by Fidelity
Financial Trust: Fidelity Convertible Securities Fund.
(15) Wellington Management Co., LLP ("WMC"), is an investment adviser registered
with the SEC under Section 203 of the Investment Advisers Act of 1940, as
amended. WMC, in its capacity as investment advisor to Hartford Capital
Appreciation Fund, Inc. may be deemed to be the beneficial owner of the
securities owned by Hartford Capital Appreciation Fund, Inc. WMC disclaims
true beneficial ownership of the securities owned by Hartford Capital
Appreciation Fund, Inc.
(16) The Prudential Investment Corporation, the investment advisor of The High
Yield Income Fund, Inc., may be deemed to be the beneficial owner of the
Securities owned by The High Yield Income Fund, Inc. The Prudential
Investment Corporation disclaims beneficial ownership of the Securities
owned by The High Yield Income Fund, Inc. See also notes 32 and 34 below.
(17) Includes 1,643 shares of Common Stock issuable upon conversion of 750
warrants of the Company owned by The High Yield Income Fund, Inc.
(18) Includes 99,645 shares of Common Stock issuable upon conversion of 22,750
warrants of the Company owned by High Yield Portfolio.
(19) Highbridge Capital Management, LLC is the trading manager of Highbridge
Capital Corporation and may be deemed to be the beneficial owner of the
Securities owned by Highbridge Capital Corporation.
(20) SSI Investment Management Inc. is the investment advisor of Hotel Union and
Hotel Industry of Hawaii and may be deemed to be the beneficial owner of
the Securities owned by Hotel Union and Hotel Industry of Hawaii. See also
note 6 above and notes 25, 26, 31, 39 and 41 below.
(21) Includes 1,088 shares of Common Stock currently owned by IDS Bond Fund,
Inc.
(22) Includes 1,560 shares of Common Stock currently owned by IDS Life Special
Income Fund.
(23) Includes 377,598 shares of Common Stock currently owned by J.P. Morgan &
Co., Inc.
(24) Includes 154,002 shares of Common Stock issuable upon conversion of 372,500
depositary shares each representing a one-hundredth interest in a share of
the Series E Preferred Stock owned by JMG Convertible Investments, L.P.
(25) SSI Investment Management Inc. is the investment advisor of Jefferies and
Company and may be deemed to be the beneficial owner of the Securities
owned by Jefferies and Company. See also notes 6 and 20 above and notes 26,
31, 39, 41 below.
(26) SSI Investment Management Inc. is the investment advisor of Kapiolani
Health and may be deemed to be the beneficial owner of the Securities owned
by Kapiolani Health. See also notes 6, 20 and 25 above and notes 31, 39 and
41 below.
(27) Forest Investment Management L.P. is the investment manager of LLT Limited
and may be deemed to be the beneficial owner of the Securities owned by LLT
Limited.
48
<PAGE> 53
(28) Includes 73,372 shares of Common Stock currently owned by Oppenheimer
Champion Income Fund.
(29) Includes 11,338 shares of Common Stock currently owned by Oppenheimer
Variable Account Funds for the Oppenheimer Growth & Income Fund.
(30) Includes 462 shares of Common Stock currently owned by Oppenheimer Variable
Account Funds for the Oppenheimer Multiple Strategies Fund.
(31) SSI Investment Management Inc. is the investment advisor of Pepperdine
University Pool A#1 and may be deemed to be the beneficial owner of the
Securities owned by Pepperdine University Pool A#1. See also notes 6, 20,
25 and 26 above and notes 39 and 41 below.
(32) The Prudential Investment Corporation, the investment advisor of Prudential
High Yield Fund, Inc., may be deemed to be the beneficial owner of the
Securities owned by Prudential High Yield Fund, Inc. The Prudential
Investment Corporation disclaims beneficial ownership of the Securities
owned by Prudential High Yield Fund, Inc. See also note 16 above and note
34 below.
(33) Includes 24,638 shares of Common Stock issuable upon conversion of 11,250
warrants of the Company owned by Prudential High Yield Fund, Inc.
(34) The Prudential Investment Corporation, the investment advisor of Prudential
High Yield Total Return Fund, Inc., may be deemed to be the beneficial
owner of the Securities owned by Prudential High Yield Total Return Fund,
Inc. The Prudential Investment Corporation disclaims beneficial ownership
of the Securities owned by Prudential High Yield Total Return Fund, Inc.
See also notes 16 and 32 above.
(35) The Prudential Insurance Company of America, the investment advisor of The
Prudential Series Fund, Inc. High Yield Bond Portfolio, may be deemed to be
the beneficial owner of the Securities owned by The Prudential Series Fund,
Inc. High Yield Bond Portfolio. The Prudential Insurance Company of America
disclaims beneficial ownership of the Securities owned by The Prudential
Series Fund, Inc. High Yield Bond Portfolio.
(36) Includes 6,570 shares of Common Stock issuable upon conversion of 3,000
warrants owned by The Prudential Series Fund, Inc. High Yield Bond
Portfolio and 57,840 shares of Common Stock issuable upon conversion of
90,000 shares of Series D Preferred Stock owned by The Prudential Series
Fund, Inc. High Yield Bond Portfolio.
(37) General Re-New England Asset Management, Inc. is the registered investment
advisor of Securing Insurance Company of Hartford and may be deemed to be
the beneficial owner of the Securities owned by Security Insurance Company
of Hartford. See note 42 below.
(38) Susquehanna Capital Group has entered into a contractual arrangement in
which the Securities owned by Susquehanna Capital Group are pledged to
Merrill Lynch Professional Clearing Corp., as clearing agent.
(39) SSI Investment Management Inc. is the investment advisor of Tracor Inc.,
Employees Retirement Plan and may be deemed to be the beneficial owner of
the Securities owned by Tracor Inc., Employees Retirement Plan. See also
notes 6, 20, 25, 26 and 31 above and note 41 below.
(40) Includes 158,550 shares of Common Stock issuable upon conversion of 383,500
depositary shares each representing a one-hundredth interest in a share of
the Series E Preferred Stock owned by Triton Capital Investments, Ltd., and
155,000 shares of Common Stock currently owned by Triton Capital
Investments, Ltd.
(41) SSI Investment Management Inc. is the investment advisor of Viacom Pension
Plan Master Trust and may be deemed to be the beneficial owner of the
Securities owned by Viacom Pension Plan Master Trust. See also notes 6, 20,
25, 26, 31 and 39 above.
(42) General Re-New England Asset Management, Inc. is the registered investment
advisor of Viking Insurance Company of Wisconsin and may be deemed to be
the beneficial owner of the Securities owned by Viking
49
<PAGE> 54
Insurance Company of Wisconsin. See note 37 above.
(43) Warburg Dillon Read LLC was one of the four initial purchasers in a
private placement by the Company of the Series F Preferred Stock. The
Company has been advised by Warburg Dillon Read LLC that the shares of
Series F Preferred Stock held by Warburg Dillon Read LLC were acquired
from time to time after the initial placement in its capacity as a
broker-dealer or market-maker. Warburg Dillon Read LLC is a registered
broker-dealer and may be deemed to be an underwriter within the meaning
of the Securities Act with respect to any Securities sold by it
hereunder.
The Common Stock, Depositary Shares, Series F Preferred Stock, October 1998
Dividend Shares and the January 1999 Shares and the Dividend Shares and
Liquidated Damages Shares issuable by the Company represent all of the
securities covered by the Registration Statement. The Depositary Shares were
originally issued by the Company and purchased by the Initial Purchasers in the
Offering. The Initial Purchasers, in turn, resold the Depositary Shares in
private sales pursuant to exemption from registration under the Securities Act.
The October 1998 Dividend Shares were issued by the Company in lieu of cash as
dividends on the Series F Preferred Stock on October 15, 1998, and the January
1999 Shares were issued by the Company in lieu of cash as dividends and
liquidated damages on the Series F Preferred Stock on January 15, 1999.
50
<PAGE> 55
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the Securities
or the issuance of the Dividend Shares or Liquidated Damages Shares offered
hereby. The Dividend Shares may be issued by the Company in lieu of cash from
time to time to holders of record of the Series F Preferred Stock, all in
accordance with the Certificate of Designation, during the two year period
commencing on the date of this Prospectus. See "Description of Series F
Preferred Stock -- Dividends." The Liquidated Damages Shares may be issued by
the Company in lieu of cash as liquidated damages to holders of record of the
Series F Preferred Stock in accordance with the provisions of the Registration
Rights Agreement. See "Description of Series F Preferred Stock -- Registration
Rights; Liquidated Damages." The Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Securities through brokers,
dealers or agents who may receive compensation in amounts to be negotiated
immediately prior to the sale in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the
Securities for whom they may act as agent. Additionally, agents, brokers or
dealers may acquire Securities or interests therein as a pledge and may, from
time to time, effect distribution of the Securities or interests in such
capacity. The Selling Securityholders and any such brokers, dealers or agents
who participate in the distribution of the Securities may be deemed to be
"underwriters", and any profits on the sale of the Securities by them and any
discounts, commissions or concessions received by any such brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Securityholders may be deemed to be
underwriters, the Selling Securityholders may be subject to certain statutory
liabilities under the Securities Act and the Exchange Act, including, but not
limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under
the Exchange Act.
The Securities offered hereby may be sold by the Selling Securityholders
from time to time in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The Securities may be sold by one or more of the
following methods, without limitation: (a) a block trade in which the broker or
dealer so engaged will attempt to sell the Securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; (d) an
exchange distribution in accordance with the rules of such exchange; (e)
face-to-face transactions between sellers and purchasers without a
broker-dealer; and (f) through the writing of options. At any time a particular
offer of the Securities is made, a revised Prospectus or Prospectus Supplement,
if required, will be distributed which will set forth the aggregate amount and
type of Securities being offered and the terms of the offering, including the
name or names of any underwriters, dealers or agents, any discounts, commissions
and other items constituting compensation from the Selling Securityholders and
any discounts, commissions or concessions allowed or reallowed or paid to
dealers. Such Prospectus Supplement and, if necessary, a post-effective
amendment to the Registration Statement of which this Prospectus is a part, will
be filed with the Commission to reflect the disclosure of additional information
with respect to the distribution of the Securities. In addition, the Securities
covered by this Prospectus may be sold in private transactions or under Rule 144
under the Securities Act rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Securities offered by it hereunder or that any such
Selling Securityholder will not transfer, devise or gift such Securities by
other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. All of the foregoing may
affect the marketability of the Securities and the ability of any person or
entity to engage in market-making activities with respect to the Securities.
51
<PAGE> 56
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Depositary Shares by the Company, each of the
Company and the applicable Selling Securityholders will be indemnified by the
other against certain liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. The
Company has agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Intermedia's Certificate of Incorporation provides that Intermedia will to
the fullest extent permitted by the DGCL indemnify all persons whom it may
indemnify pursuant thereto. Intermedia's Bylaws contain a similar provision
requiring indemnification of Intermedia's directors and officers to the fullest
extent authorized by the DGCL. The DGCL permits a corporation to indemnify its
directors and officers (among others) against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought (or
threatened to be brought) by third parties, if such directors or officers acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made for expenses (including attorneys'
fees) actually and reasonably incurred by directors and officers in connection
with the defense or settlement of such action if they had acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged liable to Intermedia unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses. The DGCL further provides that, to the extent any
director or officer has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in this paragraph, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith. In addition, Intermedia's Certificate of Incorporation
contains a provision limiting the personal liability of Intermedia's directors
for monetary damages for certain breaches of their fiduciary duty. Intermedia
has indemnification insurance under which directors and officers are insured
against certain liability that may occur in their capacity as such.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Intermedia
pursuant to the foregoing provisions, Intermedia has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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<PAGE> 57
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for the
Company by Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New
York, New York 10036-7798. Ralph J. Sutcliffe, a partner of Kronish Lieb Weiner
& Hellman LLP, beneficially owns 11,490 shares of the Common Stock and owns the
1997 Warrant which permits its holder to purchase 200,000 shares of Common Stock
at an exercise price of $20.75 per share.
EXPERTS
The consolidated financial statements and schedule of the Company and Shared
appearing in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1997, have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and schedule are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of DIGEX appearing in DIGEX's Annual
Report (Form 10-KSB) for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The December 31, 1996 audited financial statements of Shared incorporated
by reference in this Prospectus and in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated statements of operations, stockholders' equity and cash
flows of Shared and subsidiaries for the year ended December 31, 1995
incorporated by reference in this Prospectus have been audited by Rothstein,
Kass & Company, P.C., independent certified public accountants, as indicated in
their report, which includes an explanatory paragraph relating to the changing
of the method of accounting for its investment in one of its subsidiaries, with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
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