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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER: 0-20135
INTERMEDIA COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 59-2913586
(STATE OR OTHER JURISDICTION OF (EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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3625 QUEEN PALM DRIVE
TAMPA, FLORIDA 33619
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 829-0011
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share.
Rights to purchase units of Series C Preferred Stock.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment in this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates(1) of the
registrant on February 14 , 2000: $1,955,396,394
As of February 14, 2000 there were 52,617,646 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT PART OF 10-K INTO WHICH INCORPORATED
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Proxy Statement relating to registrant's Part III
Annual Meeting of Stockholders to be held on May 25, 2000
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(1) As used herein, "voting stock held by non-affiliates" means shares of Common
Stock held by persons other than executive officers, directors and persons
holding in excess of 5% of the registrant's Common Stock. The determination
of market value of the Common Stock is based on the last reported sale price
as reported by the Nasdaq Stock Market on the date indicated. The
determination of the "affiliate" status for purposes of this report on Form
10-K shall not be deemed a determination as to whether an individual is an
"affiliate" of the registrant for any other purposes.
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INTERMEDIA COMMUNICATIONS INC.
INDEX
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 27
Item 3 Legal Proceedings........................................... 28
Item 4 Submission of Matters to a Vote of Security Holders......... 28
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 29
Item 6 Selected Financial and Other Operating Data................. 30
Item 7 Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 32
Item 7A Quantitative and Qualitative Disclosure About Market Risk... 45
Item 8 Financial Statements and Supplementary Data................. 46
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 46
Item 11 Executive Compensation...................................... 46
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13 Certain Relationships and Related Transactions.............. 46
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 47
Signatures.................................................. 52
Glossary.................................................... 53
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PART I
References in this report to "the Company," "Intermedia," "we," or "us"
mean Intermedia Communications Inc. together with its subsidiaries, except where
the context otherwise requires. Certain terms used herein are defined in the
Glossary which begins on page 53. This report contains certain "forward-looking
statements" concerning Intermedia's operations, economic performance and
financial condition, which are subject to inherent uncertainties and risks.
Actual results could differ materially from those anticipated in this report.
When used in this report, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe" and similar expressions are intended to identify
forward-looking statements.
ITEM 1. BUSINESS
OVERVIEW
Intermedia operates in two business segments. Through its Integrated
Communications Services segment, the Company provides integrated data and voice
communications services, including enterprise data solutions (frame relay and
ATM), Internet connectivity, private line data , local and long distance, and
systems integration services to approximately 90,000 business and government
customers throughout the United States. Digex, a publicly-traded subsidiary of
the Company, ("Digex") is a leading provider of managed Web hosting services to
businesses operating mission-critical, multi-functional Websites. Intermedia's
integrated service portfolio allows the Company to meet the sophisticated
telecommunications needs of its business customers and maximizes its network
efficiencies.
As of December 31, 1999, Intermedia is:
- a Tier One Internet service provider through its nationwide data network
of 69 points-of-presence, as well as peering arrangements with the
world's largest ISPs. Intermedia is currently upgrading its network with
an OC-48 fiber optic backbone to service the increasing bandwidth
requirements of its customers;
- the fourth largest nationwide frame relay provider in the United States
(based on frame relay revenues) with 185 data switches installed, 48,973
frame relay nodes in service and 881 network-to-network interfaces
("NNIs") deployed with many leading communications companies, including
BellSouth, US West, Sprint, GTE, Bell Atlantic, Ameritech, SBC and SNET;
- through Digex, a leading and rapidly growing provider of managed Web site
and application hosting services to large corporations and Internet
companies, with state-of-the-art data centers strategically positioned on
the east and west coasts of the United States;
- the largest provider of building centric telecommunications services in
the United States with in-building distribution networks in 650 class A
commercial office buildings representing approximately 195 million square
feet in major metropolitan areas, and access rights to more than 12,800
additional properties nationwide;
- the largest independent provider of competitive local services in the
United States (based on revenues) with 501,094 local access line
equivalents in service, 29 voice switches and 1,457 sales and sales
support staff in 64 cities throughout the United States. Intermedia
recently introduced its unifiedvoice.net(SM) service, which provides
integrated local and long distance with high speed Internet access over a
common access facility and on a single bill to small and medium size
businesses; and
- a leading provider of systems integration services in the United States.
Intermedia engineers, installs, operates and maintains business telephony
customer premise equipment for its customers from leading vendors,
including Nortel and NEC.
The Company is able to directly address a $100 billion telecommunications
market opportunity. Intermedia believes that it has a substantial business
opportunity due to the following industry dynamics: (i) business customers are
demanding integrated telecommunications service offerings; (ii) data and
internet services are growing more rapidly than voice services; (iii) the demand
for value-added differentiated
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applications and telecommunications solutions is increasing; and (iv) regulatory
initiatives are creating enhanced opportunities for competitive entrants.
Intermedia's mission is to be the premier provider of integrated data and
voice communications solutions to business customers. To achieve this objective,
Intermedia's strategy focuses on the following key principles: (i) deliver fully
integrated service solutions, including data (frame relay, ATM, Internet
connectivity and managed Web site and application hosting) and voice (local and
long distance) to business customers over a network that it controls from end to
end; (ii) concentrate sales and marketing efforts on high growth, high margin
service offerings, including Internet, local access and managed Web site and
application hosting; (iii) target communication-intensive small and medium size
businesses in geographic markets with dense concentrations of corporate
customers; (iv) deploy a network infrastructure that drives customer
responsiveness, facilitates service innovation and supports service
customization; and (v) strive to become a low-cost provider of
telecommunications services by deploying capital efficiently, controlling costs
and leveraging marketing partnerships to expand channels of distribution and
efficiently add traffic on its network at low marginal cost.
THE COMPANY'S COMPETITIVE STRENGTHS
Intermedia has core competencies in data and Internet. The Company's data
network is pervasive -- consisting of 185 data switches, 881 NNIs interfaces,
48,973 frame relay nodes, 69 Internet points-of-presence and 49,523 fiber miles.
The Company's network enables it to provision nationwide frame relay, ATM and
Internet related services and to take advantage of several of the highest growth
segments in the telecommunications industry.
Intermedia offers a fully integrated portfolio of service
offerings. Intermedia's integrated service offerings (including, enterprise
data solutions, Internet connectivity, private line data, managed Web site and
application hosting, and local and long distance) enable the Company to provide
comprehensive end-to-end integrated services, thereby managing its customer's
total telecommunications requirements. The Company's integrated approach results
in higher revenue per customer, improved gross margins, lower customer
acquisition costs and lower churn.
Intermedia has a leading and rapidly growing managed Web site and
application hosting business. With approximately 2,300 dedicated Windows NT and
Unix-based servers on-line as of December 31, 1999, Digex delivers mission
critical managed Web site and application hosting solutions to large
corporations and internet companies. The scaleability of its systems allows
Digex to differentiate itself from competitors, by rapidly and cost-efficiently
implementing and expanding its customers' Web site hosting initiatives. Digex
provides Intermedia with a platform to take advantage of the rapid growth in the
managed Web site and application hosting market, projected to increase from
$875.0 million in 1998 to approximately $14.6 billion in 2003.
Intermedia has the largest building centric telecommunications business in
the United States. Through the Company's contracts with Real Estate Investment
Trusts ("REITs") and landlords of large office buildings throughout the country,
Intermedia owns and operates in-building distribution networks in 650 class A
commercial office buildings. Intermedia also has access rights to more than
12,800 additional properties across the United States. These key access points
enable the Company to cost effectively and efficiently sell and provision its
integrated telecommunications offerings to high concentrations of small and
medium size business customers in major metropolitan areas. This
"building-centric" approach, which the Company operates under Intermedia's
Advanced Building Networks brand, allows customers to benefit from a broad
service offering without the expense and risk of deploying their own
telecommunications equipment.
Intermedia benefits from strategic partnerships and alliances. As a result
of the Company's ability to provision nationwide data services, Intermedia has
been selected as a preferred provider for out-of-region data services by several
incumbent local exchange carriers, including Bell Atlantic, US West and
Ameritech. The Company also has partnerships for provisioning nationwide data
services with SBC, BellSouth, Williams and NTT America. These relationships
provide the Company with an extended sales channel for its high-margin data
services, including Internet access, frame relay and ATM. In addition,
Intermedia's strategic alliances with NorthPoint Communications ("Northpoint")
and Rhythms NetConnections provide the Company with
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accelerated access to the most extensive DSL deployment in the United States and
position the Company to provide its customers with value-added broadband data
services while minimizing Intermedia's capital requirements.
Intermedia's "smart build" network strategy allows it to control the key
strategic elements of its network. Owning the intelligent components of its
network, including switches, customer connections, building entries and other
"first mile" elements, allows the Company to be responsive to customer needs and
enhances the utilization of the Company's network. This strategy also allows
Intermedia to pursue success based capital deployment, adding revenue producing
customers before incurring the costs and risks of build-out.
RECENT DEVELOPMENTS
Public Offering of Our Managed Web Site and Application Hosting
Subsidiary. In August 1999, Digex, our managed Web site and application hosting
subsidiary, sold 11.5 million shares of its Class A common stock in an initial
public offering. The net proceeds from the offering were approximately $178.9
million and may be used by Digex to purchase telecommunications related assets
due to restrictions in our debt instruments.
In February 2000, Digex completed a second public offering of 12,650,000
shares of its Class A Common Stock. Pursuant to that offering, Digex offered
2,000,000 shares of its Class A common stock, and the Company sold 10,650,000
shares of Digex Class A common stock it then owned. The shares of Class B common
stock of Digex sold by the Company automatically converted into shares of Digex
class A common stock at the closing of the offering. As a result, the Company
now owns approximately 62.0% of the outstanding Digex common stock. However,
since each share of Digex Class B common stock has ten votes and each share of
Digex Class A common stock has one vote, Intermedia retains approximately 94.2%
voting interest in Digex. The net proceeds to the Company were approximately
$913.8 million and will be used to reduce the Company's outstanding debt and to
purchase telecommunications related assets.
Credit Facility. On December 22, 1999, Intermedia secured a five-year
$100.0 million Revolving Credit Agreement (the "Credit Agreement") with Bank of
America N.A., the Bank of New York, and Toronto Dominion (Texas), Inc. The
Revolving Credit Facility ("Credit Facility") may be repaid and reborrowed from
time to time in accordance with the terms and provisions of the agreement and is
guaranteed by each of the Company's subsidiaries. The Credit Facility is also
secured by a pledge of the stock of each of the Company's subsidiaries, and is
secured by substantially all of the assets of the Company and its subsidiaries.
In addition, Intermedia recently received a commitment from the banks to
increase the size of the Credit Facility, although it is under no obligation to
do so.
In January 2000, Microsoft and a subsidiary of Compaq made a $100.0 million
equity investment in Digex, of which $85.0 million was paid in cash and $15.0
million was paid in the form of equipment credits from Compaq. Digex also
entered into strategic development agreements and joint marketing arrangements
with both companies.
In February 2000, an affiliate of Kohlberg Kravis Roberts & Co. ("KKR")
made a $200 million equity investment in the Company in a private placement
transaction. At closing, two representatives of KKR joined the board of
directors of Intermedia. The proceeds from this investment will be used for
general corporate purposes, including the funding of working capital and the
purchase of telecommunications assets.
SERVICE OFFERINGS
The Company operates its business through two reportable business segments:
Integrated Communications Services and Digex. The Integrated Communications
Services segment provides three groups of service offerings to business and
government customers. Digex is a separate public company, which provides managed
Web site and application hosting services to large companies and Internet
companies operating mission-critical, multi-functional Web sites and Web-based
applications. Each of these segments has separate management teams and
operational infrastructures. The discussion below contains a summary description
of
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the Digex business segment. Additional information about the business of Digex
can be found in Digex's Annual Report on Form 10-K for the year ended December
31, 1999.
Intermedia offers one of the most comprehensive telecommunications service
portfolios in the industry. The Company's integrated portfolio of services fall
into three major categories: (i) data, Internet and Web hosting, which includes
frame relay, ATM, high speed Internet, dedicated private line (interlata and
intralata), and managed Web site and application hosting services; (ii) local
access and voice, which includes local exchange and interexchange (long
distance); and (iii) integration services, which include the design,
installation, sale and on-going maintenance of customer premise equipment such
as private branch exchanges ("PBXs") and key systems.
Intermedia's current and prospective customers demand quality
telecommunications services with simplified vendor interfaces and highly
cost-effective solutions to solve their complex communications challenges. By
offering an integrated package, Intermedia believes it can access a larger
market, improve customer retention, achieve higher total margin, leverage its
sales force and deployed capital, and reduce the cost of acquiring new
customers.
The Company's service offerings are more fully described below:
Data and Internet
Intermedia's data services are provided over its frame relay, ATM and
Internet Protocol ("IP") based networks. These services enable customers with
multiple business locations to economically and securely transmit large volumes
of data from one site to another. All of the customer's locations, whether
domestic or international, are monitored by the Company and can be serviced
through Intermedia's own facilities or through use of interconnected networks.
As the fourth largest frame relay provider in the United States, Intermedia
provides end-to-end guaranteed performance of a customer's entire network,
including the local loop. Intermedia is able to extend this level of guaranteed
performance since it has one of the most highly distributed frame relay networks
in the United States, extending the self-healing benefits of frame relay to most
first, second, and third tier cities throughout the nation. At December 31,
1999, Intermedia served 48,973 frame relay nodes across a nationwide network
utilizing 185 data switches and 881NNIs.
Intermedia's ATM services provide business customers with greater network
capacity; bandwidth on demand to support high-speed applications; broader, more
universal and flexible connectivity; universal application support to enable a
single architectural solution for data, voice and video; and cost efficiencies
that enable network growth and architectural scalability. These services are
designed for high capacity customers requiring the flexibility of serving single
or multiple locations from one originating location.
Intermedia is also well positioned to continue to capitalize on the rapidly
growing Internet services segment of the communications market. Intermedia is a
nationally recognized Tier One service provider of Internet connectivity and
application services. (Tier One providers are generally recognized as those
companies that own and operate their own national IP backbones which have both
public and private peering arrangements, allowing the delivery of IP traffic to
other Tier One Internet providers.) Intermedia has value-added applications such
as on-site firewall installation and integration, IP enabled faxing
capabilities, and other Web-enabled administrative support tools such as Web
based email systems and high speed connectivity. In addition, in the third
quarter of 1999, the Company began expanding its capacity to its Internet
backbone to OC-48 to serve the increasing bandwidth requirements of its business
customers, placing Intermedia in a select group of communications companies with
a backbone of this size.
Digex Web Hosting Segment
Through Digex, the Company is a leading and rapid growing provider of
managed Web site and application hosting services to large corporations and
Internet companies operating mission-critical, multi-functional Web sites and
Web-based applications. The Company provides the hardware, software, network
technology and systems management necessary to provide its customers with
comprehensive, managed Web
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site hosting and application outsourcing solutions. Digex also provides related
enterprise services such as firewall management, stress testing and consulting
services, including capacity and migration planning and database optimization.
With state-of-the-art data centers strategically positioned on the east and west
coasts of the United States, Digex provides hands-on technical expertise,
proactive customer service/support and value-added solutions to companies with
specialty Web-intensive needs. Digex provides such services and expertise
necessary to ensure secure, scalable, high-performance operations of
mission-critical Websites and applications 24 hours a day. As of December 31,
1999, Digex was managing approximately 2,300 Windows NT and UNIX-based web
servers.
In 1999, the Company's data, Internet, and Web hosting services accounted
for approximately 39.9% (or approximately $361.5 million) of Intermedia's total
revenue, compared to approximately 36.7% (or approximately $261.4 million) of
total revenue in 1998. According to industry sources, the market for Internet,
frame relay and ATM transport services will total nearly $15.5 billion by 2000,
of which Internet services will represent 50%, or $7.7 billion. Further, the Web
hosting market is predicted to increase to $14.6 billion in 2003. There can be
no assurance, however, that such market growth will be realized or that the
assumptions underlying such projections are reliable. For financial reporting
purposes, the Company combines its operations in Web hosting with its data and
Internet services.
Local Access and Voice
Intermedia's local exchange services are built around a key service bundle
comprised of full-featured local dial tone, integrated long distance services
and Internet access. Combining these services over a single wide-band facility
enables Intermedia to increase its revenue generating product mix without having
to acquire additional transport facilities, providing a more integrated and
therefore more valuable service package for its target customers. The Company
recently introduced its unifiedvoice.net(SM) service, which provides integrated
local and long distance with high speed Internet access over a common access
facility and on a single bill to small and medium size businesses.
Intermedia has offered long distance services since December 1994. Long
distance services include outbound service, inbound (800 or 888) service, and
calling card telephone service. In 1999, local access and voice accounted for
approximately 45.7% (or approximately $414.2 million) of the Company's total
revenue, compared to approximately 49.1% (or approximately $350.1 million) of
total revenue in 1998. Intermedia believes the revenue from local access and
voice services will continue to grow through the introduction of new service and
service enhancements, as well as increased penetration within existing markets
and entry into new geographic markets.
Integration Services
As part of its integration services, the Company engineers, installs,
operates and maintains PBXs, key systems and other customer premise
communications equipment for thousands of customers nationwide, developing
specialized solutions for customers' specific telecommunications needs.
Intermedia believes such services increase the level of linkage with the
customer, thereby increasing value that Intermedia delivers to its customer.
Target customers for integration services include medium to large commercial
businesses, hotels, government agencies and hospitals. The Company believes the
demand for integration services will continue to grow as businesses take
advantage of emerging technologies and increasingly leverage communications
service. In 1999, integration services accounted for approximately 14.4% (or
approximately $130.3 million) of the Company's total revenue, compared to 14.2%
(or approximately $101.4 million) of total revenue in 1998.
MARKETS SERVED
The following table sets forth the Company's estimates, based upon an
analysis of industry sources, including industry projections and FCC data, of
the market size nationally of certain of the services described above. Only a
limited amount of direct information is currently available and therefore a
significant portion of the information set forth below is based upon estimates
and assumptions made by the Company. Intermedia believes that its estimates are
based upon reliable information and that its assumptions are reasonable. There
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can be no assurance, however, that the estimates will not vary from the actual
market data and that these variances will not be substantial.
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UNITED STATES
COMPETITIVE
TELECOMMUNICATIONS
MARKET OPPORTUNITY
1999 COMPANY ESTIMATES
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(IN MILLIONS)
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Enhanced Data Services(1)................................... $ 3,000
Local Exchange Services(2).................................. 94,000
Access Services............................................. 38,500
Interexchange Services...................................... 101,500
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Total Market Size................................. $237,000
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(1) Enhanced Data Services do not include Internet and managed Web site and
application hosting services market size data. This estimate represents
frame relay and ATM services only.
(2) The Company is currently permitted to offer these services in 38 states and
the District of Columbia.
The market sizes set forth in the above table are not intended to provide
an indication of the Company's total addressable market or the revenue potential
for the Company's services. Intermedia has obtained all certifications necessary
to permit the Company to provide local exchange service in 38 states and the
District of Columbia. In addition, the Company's ability to offer services in
its territory is limited by the size and coverage of its network. The Company
derives its addressable market estimates by multiplying the total national
market size estimated above by the percentage of the population (as derived from
U.S. Census Bureau information) residing in the Company's market areas. This
estimate assumes that per capita telecommunications services usage is the same
in various regions of the United States. The Company estimates that its
addressable market, computed under this methodology, is approximately $100
billion.
Digex has a large and diverse customer base ranging from Fortune 50
companies to small and medium-size businesses that rely heavily on the Internet.
Its customers are primarily in the United States, total over 550, and cover most
major industries, including financial services and insurance, media and
entertainment, manufacturing, retail and distribution, technology and
communications healthcare, travel and hospitality and governmental agencies.
FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Financial information about the Company's business segments for each of the
last three fiscal years is provided in Footnote 15 to the consolidated financial
statements of the Company provided elsewhere in the Annual Report on Form 10-K.
SALES, MARKETING AND SERVICE DELIVERY STRATEGY
The Company builds long-term relationships with its customers by providing
a broad portfolio of integrated services, and by leveraging one or more of its
services into a partnership with the customer in which Intermedia becomes the
single source provider of all of the customer's telecommunications needs.
Intermedia approaches the market through segmentation of its addressable
markets -- defining clusters of potential customers with similar needs that can
be addressed profitably by the Company. By tailoring solutions to select market
segments, rather than selling services at large, Intermedia endeavors to create
value for its customers and a distinct advantage for itself.
Intermedia focuses on five major market categories:
Enterprise Business Segment. These businesses generate significant
amounts of data and voice communications traffic, and include financial
service firms (e.g., banks, securities/brokerage firms,
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insurance companies, real estate companies, etc.), retail stores and call
center operations, and have needs for multi-location data networks.
Small Multi-Application Businesses. Intermedia targets small and
medium sized businesses in information intensive industries (e.g.,
professional services, light manufacturing, etc.) that have relatively high
telecommunications usage ($10,000 to $100,000 per year). Management
believes these customers are easy to identify, typically make purchasing
decisions locally, and recognize the value of quality integrated
communications technology in their businesses. These customers have also
shown a preference for a single bill and single point of contact for their
communications needs.
Tenants of Large Commercial Office Buildings. Intermedia targets high
concentrations of business customers in locations where network, labor, and
selling efficiencies can make Intermedia the low cost provider of
telecommunications services. These high concentrations are found in
multi-tenant commercial office buildings (200,000 square feet and larger)
in major metropolitan areas. Customers benefit from the breadth of data and
voice services offered through Intermedia's on-site facilities and
technical staff -- without the expense, risks and responsibilities of
direct ownership of high technology equipment. To access this market
efficiently, the Company obtains contracts with REITs and other landlords
of class A office buildings to provide telecommunications services to
business tenants throughout the country. This "building centric" approach,
which operates under Intermedia's Advanced Building Networks brand,
provides a cost effective platform for the Company to acquire business
customers.
Strategic Partners. This category is represented by the partnering
arrangements Intermedia has with communications companies such as Bell
Atlantic, US West, Ameritech, Williams, and NTT America, as well as the
informal alliances it has with BellSouth and SBC to provide enhanced data
service to their customers. The result is an integrated extension of the
operational and service delivery functions of Intermedia and its partners,
all transparent to the end user customer. Intermedia benefits from the
reduced cost of acquiring customers through an indirect, extended sales
channel, while the partners benefit from expanding their product
portfolios.
Internet Service Providers. Intermedia's goal is to target Internet
service providers and other aggregators of Internet services, focusing on
the top 100 Internet service providers that connect into Intermedia's IP
and voice network.
As the Company enters a market, the sales force has clearly defined
geographic boundaries based on the margins attainable from delivering the
Company's integrated services. Intermedia's sales force is compensated with
higher incentives when they sell higher margin services and when they sell a
bundled package offering. Sales agents are also compensated for referrals to
other Intermedia marketing specialists which result in sales of additional
services. Intermedia's sales force is backed by highly experienced technical
personnel, including sales engineers and project managers, who are deployed
throughout Intermedia's service territory. Intermedia's service delivery staff
is organized around the delivery of total solutions to each customer. This
includes the proper coordination of service components provided by supporting
vendors, the preparation of the customer's site, if needed, and the
installation, testing and delivery to the customer of the service solution.
Thereafter, Intermedia monitors and maintains the quality and integrity of the
service through its customer service and technical support staff, available 24
hours per day, 365 days per year. Services are monitored at locations in Tampa,
Florida; Albany, New York; and suburban Washington, D.C.
The Company is creating a culture of cross-selling because it recognizes
the benefits of increasing revenues faster than costs and increasing customer
loyalty. Management believes there is also a greater likelihood of customer
loyalty when the customer uses multiple services. In all cases, Intermedia
utilizes its initial service relationship with a customer to cross-sell the
other components of its fully integrated services portfolio.
To reach its targeted customers, Intermedia will continue to introduce new
service offerings and further penetrate markets previously accessed. Intermedia
expects to continue to gain market share by following its segmentation approach
and focusing on the geographic areas where it can attain critical mass and
economies of scale.
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Digex focuses on market segments that have a high propensity to outsource
and to deploy complex, mission-critical Web sites. Services are sold directly
through a highly skilled professional sales force and through referrals received
through an extensive network of business partners. The direct sales force
consisted of 70 experienced, quota-bearing sales representatives as of December
31, 1999. The sales force is organized into three units major accounts,
mid-market/Web centric, and alternate channel. The major accounts unit focuses
on Fortune 2000 companies. The mid-market/Web centric unit addresses the large
and growing number of mid-size businesses requiring mission-critical hosting
services. The alternate channel sales group works closely with Digex's extensive
network of business alliance partners.
NETWORK STRATEGY
Transport and Access
As one of the earliest implementors of a "smart build" strategy, Intermedia
focuses its capital deployment on the areas of its infrastructure that it
believes will provide the highest revenue and cash flow potential and the
greatest intercity long-term competitive advantage. This prudent capital
deployment strategy, which has been applied to its metro and intercity networks,
has provided Intermedia with a high level of revenue per dollar of gross
telecommunications equipment, achieving revenue of $0.48 per dollar of gross
telecommunications equipment (calculated as an average of gross
telecommunications equipment balances as of the year ended December 31, 1998 and
1999) for the year ended December 31, 1999.
In general, Intermedia believes that owning the intelligent components of
the network, including switches (optical, IP, voice), customer connections,
building entries and other "first mile" elements, allows the Company to be
responsive to customer needs and enhances the utilization of the Company's
network. Intermedia believes that its deployment of switching technology and
advanced network electronics enables the Company to better configure its network
to provide cost-effective and customized solutions to its customers.
In cases where the Company believes ownership of the network is not
mandatory, Intermedia utilizes leased facilities to:
- meet customers' needs more rapidly;
- improve the utilization of Intermedia's existing network;
- add revenue producing customers before building out network, thereby
reducing the risks associated with speculative network construction or
emerging technologies; and
- focus capital expenditures in areas where network construction or
acquisition will provide a competitive advantage and clear economic
benefit.
In those markets where Intermedia chooses to deploy broadband fiber, the
Company's strategy is to deploy these network facilities to reach two sets of
targets:
- the ILEC central offices to which the majority of that market's business
access lines connect; and
- the office buildings, office parks or other such high concentrations of
business access lines and potential business customers.
Intermedia chooses to build collocation space only in the highest customer
density ILEC central offices. This allows Intermedia to derive the maximum
benefit from changes in the regulatory environment (i.e. access to Unbundled
Network Elements and Enhanced Extended Loops), as well as enables Intermedia to
utilize new technologies such as Digital Subscriber Line to drive down access
costs. In addition, on high volume intercity routes, Intermedia will
increasingly migrate services to owned fiber, using Dense Wave Division
Multiplexing equipment (DWDM) to drive economies of scale and enable rapid
capacity upgrades. This approach allows the Company to expend the least capital
to reach the greatest number of customers and prospects. Facilities constructed
in this manner may also be combined with facilities leased from another
provider.
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As of December 31, 1999, the Company had fiber optic networks in service in
14 major markets, including Orlando, Tampa/ St. Petersburg, Miami, and
Jacksonville, Florida; Atlanta, Georgia; Cincinnati, Ohio; Raleigh-Durham, North
Carolina; Huntsville, Alabama; and St. Louis and Kansas City, Missouri; New
York, New York; Chicago, Illinois; and Houston and Dallas, Texas; with a smaller
fiber optic presence in certain secondary markets, including Daytona, Ft.
Lauderdale, Gainesville, Pensacola, Tallahassee, and Winter Park, Florida.
Intermedia's city-based networks generally are comprised of fiber optic cables,
integrated switching facilities, advanced electronics, data switching equipment,
transmission equipment and associated wiring and equipment. Intermedia continues
to expand these networks as needed to reach customers and targeted ILEC central
offices.
Switching
The Company has undertaken a significant network expansion to satisfy the
demands of its market driven growth in data and voice offerings, and has
deployed resources, primarily switching equipment, to develop an extensive
network to provide these services. By year end 1999, Intermedia completed the
deployment of a fully meshed network of Nortel DMS 500 voice switches, enabling
the Company to deliver local and long distance services in most major markets
throughout the United States. As of December 31, 1999, Intermedia's network
infrastructure included 29 voice switches and 501,094 local access line
equivalents ("ALEs") in service.
Intermedia's data services are provided over its frame relay, ATM and IP
based networks. Data, Internet, and Web hosting services include specialized
communications services for customers needing to transport various forms of
digital data among multiple locations. As of December 31, 1999, Intermedia had
deployed a network of 185 Frame Relay and ATM data switches, which support
48,973 frame relay nodes. Intermedia pioneered the interconnection of its frame
relay network with those of the ILECs, allowing pervasive, cost-efficient
termination for its customers. The Company has implemented 881 NNIs, including
those with BellSouth, US West, Sprint, GTE, Bell Atlantic, SBC, Ameritech and
SNET. Intermedia has such NNIs in over 90% of the nation's Local Access
Transport Areas ("LATAs"). A LATA is a geographic area in which a local exchange
carrier is permitted to offer switched telecommunications services, including
long distance (local toll).
Intermedia believes that an important aspect of satisfying its customers is
its ability to provide and support services from end to end. This requires
network interconnection with other carriers and operational support systems and
tools to "manage" the customer's total service. Intermedia has deployed, and
continues to integrate, network monitoring and control tools to insure high
levels of service quality and reliability. Among these, Intermedia's
ViewSPAN(SM) service allows the Company and its frame relay network service
customers to have full end-to-end visibility of network performance, even across
interconnections with other carrier's networks.
As of December 31, 1999, the Company had deployed 69 IP points-of-presence.
Each of these points-of-presence typically consists of a series of Cisco GSR
12000 and Cisco 7206VXR routers, which are interconnected via fiber at OC-3,
OC-12 and/or OC-48 speeds. In addition, 34 IP enabled ATM switches have been
deployed throughout the United States, the majority of which are connected
directly to the Company's IP backbone. This, in addition to the nationwide
deployment of frame relay switches, allows Intermedia to deploy integrated
communications services quickly and efficiently, at speeds much greater than
traditional networks. Also, Intermedia has begun deploying DWDM equipment, which
allows for the rapid deployment of additional bandwidth by simply inserting
cards into equipment, requiring no field or outside plant engineering work to
increase network capacity.
Intermedia also has a significant asset in its public and private peering
arrangements with all of the major Tier One Internet service providers and
others. These peers are spread over the country between the metro areas of
Washington, San Francisco, Dallas, Chicago, New York, Los Angeles and Atlanta,
allowing efficient delivery of traffic to the Internet.
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TECHNOLOGY DIRECTION
The Company's telecommunications equipment vendors actively participate in
planning and developing electronic equipment for use in Intermedia's network.
The Company does not believe it is dependent on any single vendor for equipment,
choosing to work instead with a number of the major vendors as strategic
partners in order to develop and exploit new technology. Due to this approach,
Intermedia's research and development expenditures are not material.
Intermedia has deployed a fiber optic backbone network that is being
upgraded to allow all network applications, data and voice, to be carried over a
single infrastructure utilizing an IP based architecture. Intermedia believes
that extending IP based transport and switching to the edges of its network will
provide for both economic advantage and innovative service offerings. A single
access circuit carrying data and voice traffic in packets from the customer
location to the Intermedia network can replace several less efficient circuits.
Once a packet reaches the Intermedia network, it can be efficiently switched and
transported through the IP backbone network, and converted by strategically
placed gateways only when needed to interface with the public telephone network.
Intermedia expects to continue to realize economies of scale on its
intercity network having completed the deployment of its local and long distance
voice switches to serve its rapidly growing customer base, and by combining long
distance voice traffic between switches with intercity enhanced data and
Internet traffic on common transport facilities. Intermedia already uses its
extensive ATM backbone network to transport its long haul frame relay, and
increasingly, voice traffic which is delivered via Intermedia's network of
Nortel DMS 500 switches. Over the next few years, Intermedia expects IP to
become the protocol of choice, through mechanisms such as Multi Protocol Label
Switching (MPLS), with ATM becoming dominant at the edge of the network.
By the end of 2000, Intermedia plans to deliver a new class of voice
services which utilize data protocols ("packet/cell switching") to deliver voice
traffic over Intermedia's network. Intermedia believes that deployment of its
packet/cell switching network will allow it to achieve a cost of service
advantage over the incumbent telephone companies, whose substantial size
advantage over Intermedia is offset in part by the costs, time, operational
difficulty, and inherent challenges that they would have to overcome to replace
their entire network fabric with one such as Intermedia's integrated platform.
However, the timing of such offering will depend on a number of factors,
including the maturation 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 switching
networks 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.
INFORMATION SYSTEMS
Intermedia believes the customer experience and the breadth and quality of
its services will differentiate it in the industry. The Company has addressed
this by implementing web based, customer facing applications which are standards
driven for interoperable communications with customers, partners, and staff.
Intermedia's business processes, including accepting a service order,
implementing the service, providing ongoing technical and customer support and
invoicing and collecting payment for the service are a highly repetitive, data-
oriented set of tasks. Intermedia's information systems are supported by an
underlying data centric architecture which promotes application sharing of
common data repositories. By creating a flexible, unified database and
establishing industry standards-based software, Intermedia expects to allow all
customer support functions (order entry, billing, service implementation,
network management, etc.) efficient access to data. External applications, such
as Access Service Request (ASR), an industry standards based system used by the
ILECs for service orders and billing, have the ability to electronically
interface and interact with this architecture. This integrated system will
enhance Intermedia's ability to deliver and support an integrated
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package of services. Intermedia believes this architecture will offer cost
performance, flexibility and scalability that will support its rapid growth,
provide for high staff productivity, and support its strategy of offering fully
integrated services to its customers.
COMPETITION
Intermedia faces significant competition in each of its three service
categories: data, internet and web hosting; local access and voice services, and
integration services.
Intermedia believes that various legislative initiatives, including the
Telecommunications Act, have removed many of the remaining legislative barriers
to local exchange competition. Rules adopted to carry out the provisions of the
Telecommunications Act, however, remain subject to pending administrative and
judicial proceedings which could materially affect local exchange competition.
Moreover, in light of the passage of the Telecommunications Act, regulators are
providing 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 integrated communication providers and CLECs, including Intermedia,
could be materially adversely affected. In addition, while Intermedia currently
competes with AT&T, MCI WorldCom, Sprint and others in the interexchange
services (commonly referred to as long distance) market, the Telecommunications
Act permits the RBOCs to provide long distance service in the same areas they
are now providing local service once certain criteria are met. Once the RBOCs
begin to provide such services, they will be in a position to offer single
source local and long distance service similar to that being offered by
Intermedia. Furthermore, through acquisitions, AT&T and MCI Worldcom have
entered the local exchange services market, and other interexchange carriers
("IXCs") have announced their intent to enter the local exchange services market
which is facilitated by the Telecommunications Act's requirement that ILECs
permit others to use their local exchange facilities to provide service to
customers. Intermedia cannot predict the number of competitors that will emerge
as a result of existing or new federal and state regulatory or legislative
actions but increased competition with respect to interexchange services and
local exchange services from existing and new entities could have a material
adverse effect on Intermedia's business, financial condition, results of
operations and prospects.
Competition in each of the service categories provided by Intermedia is
discussed below.
Data, Internet and Web hosting Services. Intermedia faces competition in
its high-speed data services from IXCs, ILECs, cable operators and other
telecommunications companies. Many of Intermedia's existing and potential
competitors have financial and other resources significantly greater than those
of Intermedia.
Intermedia competes with the larger IXCs on the basis of service
responsiveness and a rapid response to technology and service trends, and a
regional focus borne of early market successes. All of the major IXCs, including
AT&T, MCI WorldCom and Sprint, offer frame relay, ATM and IP based transport
services, and several of the major IXCs have announced plans to provide Internet
services. Intermedia believes it competes favorably with these providers in its
markets based on the features and functions of its services, the high density of
its networks, its relatively greater experience and its in-house expertise.
Continued aggressive pricing is expected to support continued rapid growth, but
will place increasing pressure on operating margins.
Many of the ILECs now offer services similar to Intermedia's data,
internet, and web hosting service. Because the RBOCs have not yet been
authorized to provide interexchange service inside the regions where they
provide local exchange service, they may offer these services only on an
intraLATA basis within their operating regions. The FCC, however, as a condition
of the merger between SBC and Ameritech, permitted the merged entity to provide
advanced data services using a separate subsidiary. The merged RBOC is forbidden
to favor its subsidiary over competing CLECs and is required to provide data
CLECs with discounted loops and other measures to enhance competition. Other
RBOCs presumably would be able to do the same. Out-of-region RBOCs may also
offer these data services on an interLATA basis. While the RBOCs generally
cannot interconnect their frame relay networks with each other, Intermedia has
interconnected its frame relay network with those of various RBOCs. As a result,
Intermedia can use certain RBOC services to keep its own costs down when
distributing into areas that cannot be more economically serviced on its own
network. Intermedia expects the RBOCs to aggressively expand their data,
internet, and web hosting services
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as regulatory developments permit them to deploy in-region interLATA long
distance networks. When the RBOCs are permitted to provide such services, they
will be in a position to offer single source service similar to that being
offered by Intermedia. As part of its various interconnection agreements,
Intermedia has negotiated favorable rates for unbundled ILEC frame relay service
elements. Intermedia expects such negotiations to decrease its costs, improving
margins for this service.
Intermedia faces competition in its Internet services from various
technology and Internet related companies, including cable-based services. Some
of these companies have financial and other resources significantly greater than
those of Intermedia. Intermedia competes in this highly competitive market based
on its high service level agreements, broad technical expertise, strong customer
service and value-added applications.
The market for managed Web site and application hosting conducted by Digex
is highly competitive. There are few substantial barriers to entry and many of
Digex's current competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than it
possesses. Current and potential competitors in the market include Web hosting
service providers, Internet service providers, commonly known as ISPs,
telecommunications companies and large information technology outsourcing firms.
Competitors may operate in one or more of these areas and include companies such
as AT&T, Cable & Wireless, Concentric Network, Data Return, EDS, Exodus
Communications, Frontier/GlobalCenter, Globix, GTE, IBM, Intel, Level 3
Communications, MCI WorldCom, Navisite, PSINet, Qwest Communications
International, and US internetworking. Digex may be unable to achieve its
operating and financial objectives due to the significant competition in the Web
hosting industry.
Local Access and Voice Services. In each of its geographic markets,
Intermedia faces significant competition for the local services it offers from
RBOCs and other ILECs, which currently maintain dominant market shares in their
local telecommunications markets. These companies all have long-standing
relationships with their customers and have financial, personnel and technical
resources substantially greater than those of Intermedia. Some of these
companies also have indicated their intent to offer services as CLECs in markets
outside of their current territory.
Intermedia also faces competition in most markets in which it operates from
one or more CLECs or integrated communication providers operating fiber optic
networks. Other local service providers without their own fiber networks have
operations or are initiating operations within one or more of Intermedia's
service areas. MCI WorldCom, AT&T and certain cable television providers, either
alone or jointly with AT&T or another carrier, have entered some or all of the
markets that Intermedia presently serves. Intermedia also understands that other
telecommunications companies have indicated their desire to enter the local
exchange services market within specific metropolitan areas served or targeted
by Intermedia. Other potential competitors of Intermedia include utility
companies, other long distance carriers, wireless carriers and private networks
built by individual business customers. Many of these entities are substantially
larger and have substantially greater financial resources than Intermedia.
Intermedia cannot predict the number of competitors that will emerge as a result
of existing or any new federal and state regulatory or legislative actions.
Competition in all of Intermedia's geographic market areas is based on
quality, reliability, customer service and responsiveness, service features and
price. Intermedia has kept its prices at levels competitive with those of the
ILECs while providing, in the opinion of Intermedia, a higher level of service
and responsiveness to its customers.
Although the ILECs are generally subject to greater pricing and regulatory
constraints than other local network service providers, ILECs, as noted above,
are achieving increased pricing flexibility for their local services as a result
of recent legislative and regulatory action designed to increase competition in
the local exchange market. The ILECs have continued to lower rates, resulting in
downward pressure on the price of certain dedicated and switched access
transport services offered by Intermedia and other CLECs. This price erosion has
decreased operating margins for these services. However, Intermedia believes
this effect will be more than offset by the increased revenues available as a
result of access to customers provided through Intermedia's interconnection
co-carrier agreements (see "Agreements") and the opening of local exchange
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service to competition. In addition, Intermedia believes that lower rates for
dedicated access will benefit other services offered by Intermedia.
Intermedia currently competes with AT&T, MCI WorldCom, Sprint and others in
the long distance services market. Many of Intermedia's competitors have
longstanding relationships with their customers and have financial, personnel
and technical resources substantially greater than those of Intermedia. When, as
expected, the RBOCs are permitted to provide long distance services within their
operating regions they may provide substantial new competition to long distance
providers. In providing long distance services, Intermedia focuses on quality,
service and price to distinguish itself in a very competitive marketplace and
has built a loyal customer base by emphasizing its customer service and fully
integrated product portfolio.
Integration Services. Intermedia faces competition in its systems
integration business from equipment manufacturers, RBOCs and other ILECs, long
distance carriers and systems integrators, many of which have financial and
other resources significantly greater than those of Intermedia. Intermedia
competes in this market on the basis of its broad based technical expertise and
strong customer service.
GOVERNMENT REGULATION
Overview. Intermedia's telecommunications services are subject to varying
degrees of federal, state and local regulation. The FCC and state utility
commissions regulate telecommunications common carriers. A telecommunications
common carrier is a company which offers telecommunications services to the
public or to all prospective users on standardized rates and terms. Intermedia's
local exchange, interexchange and international and frame relay services are all
common carrier services. Intermedia's systems integration business and Internet
services are not considered to be common carrier services, although regulatory
treatment of Internet services is evolving and it may become subject, at least
in part, to some form of common carrier regulation.
The FCC exercises jurisdiction over telecommunications common carriers, and
their facilities and services, to the extent they are providing interstate or
international communications. International authorities also may seek to
regulate international telecommunications services originating in the United
States. The various state regulatory commissions retain jurisdiction over
telecommunications carriers, and their facilities and services, to the extent
they are used to provide communications that originate and terminate within the
same state. The degree of regulation varies from state to state.
In recent years, the regulation of the telecommunications industry has been
in a state of transition as the United States Congress and various state
legislatures have passed laws seeking to foster greater competition in
telecommunications markets. The FCC and state utility commissions have adopted
many new rules to implement this legislation and encourage competition. These
changes, which have not been fully implemented, have created new opportunities
and challenges for Intermedia and its competitors. The following summary of
regulatory developments and legislation does not purport to describe all present
and proposed federal, state and local regulations and legislation affecting the
telecommunications industry. Certain of these and other existing federal and
state regulations are currently the subject of judicial proceedings, legislative
hearings and administrative proposals which could change, in varying degrees,
the manner in which this industry operates. Neither the outcome of these
proceedings, nor their impact upon the telecommunications industry or Intermedia
can be predicted at this time.
The regulatory status of telephone service over the Internet is presently
uncertain. Intermedia 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 Company's business. Specific
statutes and regulations addressing this service have not been adopted at this
time and the extent to which current laws and regulations at the state and
federal levels will be interpreted to include such Internet telephone services
has not been determined. The FCC has indicated, for example, that voice
telecommunications carried over the Internet between two telephone sets using
the public switched network may be subject to payment of 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
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determination that existing laws are applicable to them will not have a material
adverse effect on the Company's business.
Federal Regulation. Although Intermedia is currently not subject to price
cap or rate of return regulation at the federal level and is not currently
required to obtain FCC authorization for the installation, acquisition or
operation of its domestic interexchange network facilities, it nevertheless must
comply with the requirements of common carriage under the Communications Act of
1934 (the "Communications Act"), as amended. Pursuant to the Communications Act,
Intermedia is subject to the general requirement that its charges and
regulations for communications services must be "just and reasonable" and that
it may not make any "unjust or unreasonable discrimination" in its charges or
regulations. The FCC also has jurisdiction to act upon complaints against any
common carrier for failure to comply with its statutory obligations. The
Communications Act also requires prior approval for the assignment of an FCC
radio license, such as the microwave licenses Intermedia holds, and for the
assignment of an authorization to provide international service (but not
domestic interexchange service) or the transfer of control (for example, through
the sale of stock) of a company holding radio licenses or an international
authorization. The FCC generally has the authority to modify or terminate a
common carrier's authority to provide domestic interexchange or international
service for failure to comply with federal laws or the rules of the FCC. Fines
or other penalties also may be imposed for such violations. Carriers such as
Intermedia also are subject to a variety of miscellaneous regulations that, for
instance, govern the documentation and verifications necessary to change a
consumer's long distance carrier, require the filing of periodic reports, and
restrict interlocking directors and management. Certain other specific
regulations applicable to Intermedia are discussed below.
Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected plenary changes in regulation at both the
federal and state levels that affect virtually every segment of the
telecommunications industry. The stated purpose of the Telecommunications Act is
to promote competition in all areas of telecommunications. While it will take
years for the industry to feel the full impact of the Telecommunications Act, it
is already clear that the legislation provides Intermedia with both new
opportunities and new challenges.
The Telecommunications Act requires ILECs to provide access to their
networks by competing carriers. Among other things, the Telecommunications Act
requires the ILECs to: (i) provide physical collocation, which allows companies
such as Intermedia and other interconnectors to install and maintain their own
network equipment in ILEC central offices, and virtual collocation only if
requested or if physical collocation is demonstrated to be technically
infeasible; (ii) unbundle components of their local service networks so that
other providers of local service can compete for a wider range of local services
customers; (iii) establish "wholesale" rates for their services to promote
resale by CLECs and other competitors; (iv) establish number portability, which
will allow a customer to retain its existing phone number if it switches from
the ILEC to a competitive local service provider; (v) establish dialing parity,
which ensures that customers will not detect a quality difference in dialing
telephone numbers or accessing operators or emergency services; and (vi) provide
nondiscriminatory access to telephone poles, ducts, conduits and rights-of-way.
In addition, the Telecommunications Act requires ILECs to compensate competitive
carriers for traffic originated by the ILECs and terminated on the competitive
carriers' networks.
The FCC is charged with establishing national guidelines to implement
certain portions of the Telecommunications Act. The FCC did so in its
Interconnection Order on August 8, 1996. On July 18, 1997, however, the United
States Court of Appeals for the Eighth Circuit issued a decision vacating the
FCC's pricing rules, as well as certain other portions of the FCC's
interconnection rules, on the grounds that the FCC had improperly intruded into
matters reserved for state jurisdiction. 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
Telecommunications Act. 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 Supreme Court did not
evaluate the specific pricing methodology adopted by the FCC and has remanded
the case to the Eighth Circuit for further consideration. In its decision
moreover, the Supreme Court also vacated the FCC's rule that identifies the
unbundled network elements that ILECs
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must provide to CLECs. The Supreme Court found that the FCC had not adequately
considered certain statutory criteria for requiring ILECs to make those network
elements available to CLECs and must reexamine the matter. On November 5, 1999,
the FCC released an order reaffirming and clarifying the obligation of ILECs to
provide most of the unbundled network elements it had previously identified,
including local loops, network interface devices and operations support systems.
The FCC also required ILECs to provide additional elements, not previously
widely available. These elements include but are not limited to new types of
loops (including xDSL capable loops, sub loop elements and dark fiber loops),
interoffice dark fiber and high capacity transport and inside wire. These rules
are subject to appeal and many require implementing action by state regulatory
agencies. The Company is unable to predict whether the ILECs or other parties
will challenge this ruling or the outcome of any other proceedings relating to
it.
In order to obtain access to an ILEC's network, a competitive carrier is
required to negotiate an interconnection agreement with the ILEC covering the
network elements it desires to use. In the event the parties can not agree, the
matter is submitted to the state public utility commission for binding
arbitration. To date, the Company has successfully negotiated interconnection
agreements with many of the ILECs in the areas the Company serves. These
interconnection agreements are of fixed duration, however, and several have
expired or will expire in the near future. These agreements must be renegotiated
or re-arbitrated. Expired agreements continue in effect as interim agreements
until replaced by new agreements. When the new agreements take effect they will
supercede the expired agreements and may be applied retroactively.
In addition, on November 18, 1999, the FCC ordered ILECs to share their
telephone lines with providers of high speed Internet access and other data
services. This action permits CLECs to obtain access to the high-frequency
portion of the local loop from the ILECs over which the ILEC, provide voice
services. As a result, CLECs will be able to provide DSL-based services over the
same telephone lines simultaneously used by the ILEC for its voice services, and
will no longer need to purchase a separate local loop from the ILEC in order to
provide DSL services. This ruling may make it easier for CLECs, including the
Company and its competitors to provide DSL services.
As a result of the pro-competitive provisions of the Telecommunications
Act, the Company has taken the steps necessary to be a provider of local
exchange services and has positioned itself as a full service, integrated
telecommunications services provider. The Company has obtained local
certification in 38 states and the District of Columbia. The Company is also
taking the steps necessary to exercise its rights to interconnection,
collocation and unbundled network elements under the Telecommunications Act.
The Telecommunications Act's interconnection requirements apply to
interexchange carriers and to all other providers of telecommunications
services, although the terms and conditions for interconnection provided by
these carriers are not regulated as strictly as interconnection provided by the
ILECs. This may provide the Company with the ability to reduce its access costs
by interconnecting directly with non-ILECs, but may also cause the Company to
incur additional administrative and regulatory expenses in replying to
interconnection requests from other carriers.
As another part of its pro-competitive policies, the Telecommunications Act
frees the RBOCs from the judicial orders that prohibited their provision of
interLATA services. Specifically, the Telecommunications Act permits RBOCs to
provide long distance services outside their local service regions immediately,
and will permit them to provide in-region interLATA service upon demonstrating
to the FCC and state regulatory agencies that they have adhered to the FCC's
local exchange service interconnection regulations. Some RBOCs have filed
applications with various state public utility commissions and the FCC seeking
approval to offer in-region interLATA service. Some states have denied these
applications while others have approved them but, until recently, the FCC has
denied each of the RBOCs' applications brought before it because it found that
the RBOC had not sufficiently made its local network available to competitors.
In December of 1999, however, the FCC approved a Bell Atlantic application for
in region service in New York, and SBC has recently filed an application for in
region interLATA service in Texas. The FCC is also considering a proposal to
permit RBOCs to offer immediately high speed, interLATA data services within
their operating regions if they do so through a separate subsidiary, without
first having to demonstrate that they have adhered to the FCC interconnection
regulations discussed above. In the interim, the FCC, as a condition of the
merger
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between SBC and Ameritech, permitted the merged entity to provide advanced data
services using a separate subsidiary. A similar condition was accepted by Bell
Atlantic as part of the process of obtaining in-region interLATA service
authority in New York. In both these cases, the RBOC is forbidden to favor its
subsidiary over competing CLECs and is required to provide data CLECs with
discounted loops and other measures to enhance competition. Other RBOCs
presumably would be able to do the same.
The Telecommunications Act provides the FCC with the authority to forebear
from imposing any regulations it deems unnecessary, including requiring
non-dominant carriers such as the Company to file tariffs. On November 1, 1996,
in its first major exercise of regulatory forbearance authority granted by the
Telecommunications Act, the FCC issued an order detariffing domestic
interexchange services. The order required mandatory detariffing and gave
carriers such as Intermedia nine months to withdraw federal tariffs and move to
contractual relationships with their customers. This order subsequently was
stayed by a federal appeals court, and it is unclear at this time whether the
detariffing order will be implemented. Until further action is taken by the FCC
or the courts, Intermedia will continue to maintain tariffs for these services.
In June 1997, the FCC issued another order stating that non-dominant carriers,
such as Intermedia, could withdraw their tariffs for interstate access services.
While 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.
The Telecommunications Act also directs the FCC, in cooperation with state
regulators, to establish a Universal Service Fund that will subsidize to
carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the Universal Service Fund also
will be used to provide telecommunications related facilities for schools,
libraries and certain rural health care providers. The FCC released its order in
June 1997. This order requires Intermedia to contribute to the Universal Service
Fund, but may also allow Intermedia to receive payments from the Fund if it is
deemed eligible. Through September 30, 1999, Intermedia's contribution resulting
from these regulations was $6.3 million. For the last quarter of 1999, the FCC
established payment rates for all interexchange carriers, including the Company,
that amount to 5.8% of eligible interstate, and international long distance end
user service revenues for the corresponding period of the previous year. The FCC
allows all interexchange carriers, including the Company, to recover the
international and interstate portions of these payments by passing the charges
through to their customers. In November 1999, the FCC revised its proposed
methodology for subsidizing service in certain high cost areas which may result
in increases in the subsidy program. The FCC's implementation of universal
service requirements remains subject to judicial and additional FCC review.
The FCC has fundamentally restructured the "access charges" that ILECs
charge to interexchange carriers and end user customers to connect to the ILEC's
network to permit ILECs subject to the FCC's price cap rules increased pricing
flexibility as competition becomes established in their markets. In August 1999,
the FCC adopted an order providing additional pricing flexibility to ILECs
subject to price cap regulation in their provision of interstate access
services, particularly special access and dedicated transport. Some of the
actions taken by the FCC would immediately eliminate rate scrutiny for "new
services" and permit the establishment of additional geographic zones within a
market that would have separate rates. Additional and more substantial pricing
flexibility will be given to ILECs as specified levels of competition in a
market are reached through the collocation of competitive carriers and their use
of competitive transport. This flexibility will include, among other items,
customer specific pricing, volume and term discounts for some services and
streamlined tariffing.
As part of the same August order the FCC initiated another proceeding to
consider increased pricing flexibility proposals for ILECs access charges. This
proceeding also will consider the reasonableness of CLEC access rates and seeks
comment on whether the FCC should adopt rules to regulate CLEC access charges.
In addition, the FCC's rulemaking is examining whether any statutory or
regulatory constraints prevent an IXC from declining to accept a CLEC's access
services, and if so under what circumstances. The outcome of this rulemaking is
not possible to predict. Currently, certain IXCs have refused to pay the
Company's access charges or are doing so at a reduced rate. Other CLEC's have
experienced similar problems and the FCC has ruled on a complaint against AT&T
that it must pay such access charges at he CLEC's tariffed rate.
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On May 21, 1999, a United States court of appeals reversed an FCC order
that had established the factors that are currently used to set the annual price
cap for ILEC access charges. The court ordered the FCC to further explain the
methodology it used in establishing those factors. This proceeding also is
ongoing.
On November 9, 1999, the FCC released a decision which concluded that
advanced services, such as Digital Subscriber Line Service, sold by ILECs to
Internet service providers and bundled by the Internet service provider with its
other services are not subject to the resale obligations of the Act. This
decision will allow ILECs to provide ISPs with special rate packages for DSL on
terms and conditions not available to the Company in its activity as a CLEC. The
Company's Internet subsidiaries may obtain such special pricing, however.
A dispute has arisen over the provision of the Telecommunications Act
requiring ILECs to compensate CLECs for local calls originating on the ILEC's
network but terminating on the CLEC's network. Most ILECs argue that they are
not obligated to pay CLECs -- including Intermedia -- for local calls made to
Internet service providers. This dispute has resulted in ILECs withholding
approximately $109.9 million in payments to Intermedia through December 31,
1999. Intermedia and other CLECs have asked state regulatory commissions to
resolve this dispute.
On February 25, 1999, the FCC ruled that Internet service provider traffic
is interstate traffic within the FCC's jurisdiction but that its current rules
neither require nor prohibit the payment of reciprocal compensation for these
calls. The FCC determined that state commissions have authority to interpret and
enforce the reciprocal compensation provisions of existing interconnection
agreements and to determine the appropriate treatment of Internet service
provider traffic in arbitrating new agreements. The FCC also requested comment
on federal rules to govern compensation for these calls in the future.
Prior to the FCC decision, 30 state commissions and several federal and
state courts ruled that reciprocal compensation arrangements under existing
interconnection agreements apply to calls to Internet service providers. Four
states, however, have ruled that in certain situations reciprocal compensation
arrangements are not applicable to calls to Internet service providers under at
least some agreements entered before the FCC decision. Some regional Bell
operating companies have asked state commissions to reopen decisions requiring
the payment of reciprocal compensation on Internet service provider calls.
Subsequent to the FCC decision, at least 19 state commissions have reaffirmed
their prior determinations or ruled for the first time that reciprocal
compensation was due under interconnection agreements existing prior to the FCC
decision. In some states where state commissions have ruled that reciprocal
compensation should be paid, the amount of such payment is being disputed by the
ILEC. In addition, there are ongoing disputes concerning the appropriate
treatment of Internet service provider traffic under new interconnection
agreements. These likely will be resolved in arbitration proceedings or by new
FCC rules.
In 1994 Congress adopted the Communications Assistance for Law Enforcement
Act to insure the law enforcement agencies would be able to conduct properly
authorized electronic surveillance over the new digital and wireless media as
well as traditional wireline carriers. An interim technical standard was
released in 1997 and the FCC recently required carriers to have additional
capabilities requested by law enforcement authorities and directed that the
interim standard be revised. Some in the industry believe that the cost of
providing these additional capabilities are unreasonably high and the FCC's
decision has been appealed. The Company is not able to predict the outcome of
this litigation or the cost of compliance with whatever standards are ultimately
developed.
State Regulation. To the extent that Intermedia provides
telecommunications services which originate and terminate within the same state,
it is subject to the jurisdiction of that state's public service commissions.
Intermedia currently provides some intrastate telecommunication services in all
50 states and is subject to varying degrees of regulation by the public service
commissions of those states. Intermedia is currently certified (or certification
is not required) in all 50 states and the District of Columbia to provide
interexchange services. Intermedia is certified as a CLEC in 38 states and the
District of Columbia. Intermedia is constantly evaluating the competitive
environment and may seek to further expand its intrastate certifications into
additional jurisdictions. Intermedia is not subject to price cap or rate of
return regulation in any state in which it is currently certified to provide
local exchange service.
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The Telecommunications Act preempts state statutes and regulations that
restrict the provision of competitive local services. As a result of this
sweeping legislation, Intermedia will be free to provide the full range of
intrastate local and long distance services in all states in which it currently
operates, and in any states into which it may wish to expand. While this action
greatly increases Intermedia's addressable customer base, it also increases the
amount of competition to which Intermedia may be subject.
Although the Telecommunications Act's prohibition of state barriers to
competitive entry took effect on February 8, 1996, various legal and policy
matters still must be resolved before the Telecommunications Act's policies
promoting local competition are fully implemented. Intermedia continues to
support efforts at the state government level to encourage competition in its
markets under the federal law and to permit integrated communication providers
and CLECs to operate on the same basis and with the same rights as the ILECs.
Despite the still uncertain regulatory environment, Intermedia so far has been
successful in its pursuit of local certificates from state commissions and in
negotiating interconnection agreements with the ILECs which permit Intermedia to
meet its business objectives. However, the Company is now engaged in
negotiations and arbitrations for new interconnection agreements and the outcome
of these negotiations and arbitrations can not now be predicted.
In most states, Intermedia is required to file tariffs setting forth the
terms, conditions and prices for services classified as intrastate (local,
intrastate interexchange and intrastate frame relay). Most states require
Intermedia to list the services provided and the specific rate for each service.
Under different forms of regulatory flexibility, Intermedia may be allowed to
set price ranges for specific services, and in some cases, prices may be set on
an individual customer basis. Some states also require Intermedia to seek the
approval of the local public service commission for the issuance of debt or
equity securities or other transactions which would result in a lien on
Intermedia's property used to provide intrastate service within those states.
Many states also require approval for the sale or acquisition of a
telecommunications company and require the filing of reports and payments of
various fees. Like the FCC, most states also consider complaints relating to a
carrier's services or rates within their jurisdictions.
Local Government Authorizations. Intermedia may be required to obtain from
municipal authorities street opening and construction permits to install and
expand its fiber optic networks in certain cities. In some cities, local
partners or subcontractors may already possess the requisite authorizations to
construct or expand Intermedia's network.
In some of the areas where Intermedia provides service, it may be subject
to municipal franchise requirements and may be required to pay license or
franchise fees based on a percentage of gross revenue or other formula. There
are no assurances that certain municipalities that do not currently impose fees
will not seek to impose fees in the future, nor is there any assurance that,
following the expiration of existing franchises, fees will remain at their
current levels. In many markets, other companies providing local
telecommunications services, particularly the ILECs, currently are excused from
paying license or franchise fees or pay fees that are materially lower than
those required to be paid by Intermedia. The Telecommunications Act requires
municipalities to charge nondiscriminatory fees to all telecommunications
providers, but it is uncertain how quickly this requirement will be implemented
by particular municipalities in which Intermedia operates or plans to operate or
whether it will be implemented without a legal challenge initiated by Intermedia
or another integrated communications provider or CLEC. If any of Intermedia's
existing network agreements were terminated prior to their expiration date and
Intermedia was forced to remove its fiber optic cables from the streets or
abandon its network in place, even with compensation, such termination could
have a material adverse effect on Intermedia.
Intermedia also must obtain licenses to attach facilities to utility poles
to build and expand facilities. Because utilities that are owned by cooperatives
or municipalities are not subject to federal pole attachment regulation, there
is no assurance that Intermedia will be able to obtain pole attachment from
these utilities at reasonable rates, terms and conditions.
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AGREEMENTS
Interconnection Co-carrier Agreements. The Company has interconnection
co-carrier agreements with BellSouth, SBC, US West, GTE, Sprint, Bell Atlantic,
Cincinnati Bell, Inc., SNET and Ameritech. These agreements were executed over
the past few years and have terms ranging from two to three years. The BellSouth
agreement expired on December 31, 1999 and by its terms is continuing on a month
to month basis until replaced by a new agreement. Intermedia is currently
negotiating and/or arbitrating a new agreement with BellSouth. Substantial
modification of the current agreement terms could materially adversely affect
the Company's operations in the applicable markets. Intermedia expects to follow
similar procedures in connection with the expiration of its other
interconnection agreements. Depending on the terms of the new agreements, some
provisions may be retroactive back to the termination date of the prior
contract. Each of these agreements, among other things, provides for mutual and
reciprocal compensation, local interconnection, resale of local exchange
services, access to unbundled network elements, service provider number
portability and access to 911 service, as provided for in the Telecommunications
Act. The agreements further provide that additional terms and conditions will be
set by negotiation between the parties relating to issues which arise that were
not originally contemplated by the agreements. A dispute has arisen over the
reciprocal compensation provisions of these interconnection agreements with most
ILECs arguing that they are not obligated to pay CLECs -- including
Intermedia -- for local calls made to Internet service providers. This dispute
has resulted in two ILECs withholding approximately $109.9 million in payments
to Intermedia through December 31, 1999. Intermedia and other CLECs have asked
state regulatory commissions to resolve this dispute. To date, 30 state
commissions and several federal courts have ruled on the issue finding that
ILECs must pay compensation to competitive carriers for local calls to Internet
service providers located on competitive carriers' networks. Three state
commissions, however, have ruled that reciprocal compensation for service to
Internet service providers is not due under at least some interconnection
agreements. Other states have ongoing proceedings to consider the matter and the
FCC also has initiated a proceeding to deal with reciprocal compensation issues.
Network Agreements. The Company has built its digital fiber optic networks
pursuant to various rights-of-way, conduit and dark fiber leases, utility pole
attachment agreements and purchase arrangements (collectively, the "Network
Agreements"). Substantially all of the Network Agreements (other than utility
pole attachment agreements, which typically can be terminated on 90 days notice)
are long-term and include renewal options.
Although none of the Network Agreements are exclusive, the Company believes
that conduit space, fiber availability and other physical constraints make it
unlikely that the lessors under the various Network Agreements could easily make
similar arrangements available to others. The Company believes that its
relationships with its lessors are satisfactory. Certain of the Network
Agreements require Intermedia to make revenue sharing payments or, in some
cases, to provide a fixed price alternative or dark fiber to the lessor without
an additional charge. In addition, the Company has various other performance
obligations under its Network Agreements, the breach of which could result in
the termination of such agreements. Further, actions by governmental regulatory
bodies could, in certain instances, also result in the termination of certain
Network Agreements. The cancellation of any of the material Network Agreements
could materially adversely affect the Company's business in the affected
metropolitan area. See "Risk Factors -- Risk of Termination, Cancellation or
Non-Renewal of Interexchange Agreements, Network Agreements, Licenses and
Permits."
Interexchange Agreements. Intermedia, from time to time, enters into
purchase agreements with interexchange carriers for the transport and/or
termination of long distance calls outside of its territory. These contracts are
typically two years in duration and customarily include minimum purchase
amounts. The agreement with Williams is the Company's largest interexchange
carrier agreement to date and provided a 20 year indefeasible right of use for
high bandwidth on Williams' nationwide fiber optic network. The Company believes
that the Williams agreement has allowed it to reduce its unit cost for
interexchange transport capacity by up to 50% from previous levels.
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EMPLOYEES
As of December 31, 1999, Intermedia employed a total of 5,073 full-time
employees. 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. The Company also regularly uses the services of contract technicians
for the installation and maintenance of its network. Intermedia believes that
its relations with its employees are good.
RISK FACTORS
Substantial Debt
Substantial Debt. Although the Company has recently announced its
intention to reduce its outstanding debt, Intermedia has a significant amount of
debt. As of December 31, 1999, the Company had outstanding approximately $3.2
billion of debt and other liabilities (including capital lease obligations,
minority interest and current liabilities) and approximately $916.8 million of
obligations with respect to four outstanding series of preferred stock. As a
result, the Company paid cash interest of approximately $186.1 million in 1999
on its outstanding obligations. This amount will increase in 2001 and again in
2002 as well as in 2004 when certain of the Company's outstanding debt which
does not currently pay cash interest is required to pay cash interest.
Insufficient Cash Flow. Historically, Intermedia's cash flow from
operations has been insufficient to cover its operating and investing expenses
and payment of cash dividends on preferred stock. The Company expects this
situation will continue for the next several years. Therefore, unless the
Company develops additional sources of cash flow, it may not be able to pay
interest on its debt and cash dividends on its preferred stock or repay its
obligations at maturity. As an alternative, the Company may refinance all or a
portion of its outstanding debt. However, there can be no assurance that the
Company will be able to refinance its debt or develop additional sources of cash
flow.
Possible Additional Debt. While the terms of Intermedia's outstanding debt
and Credit Facility limit the additional debt the Company may incur, the terms
do not prohibit Intermedia from incurring more debt. The Company may incur
substantial additional debt during the next few years to finance the
construction of networks and purchase of network electronics or for general
corporate purposes, including to fund working capital and operating losses.
Financing Change of Control Offer. Upon the occurrence of certain specific
kinds of change of control events, Intermedia will be required to offer to
repurchase all of its outstanding debt and certain outstanding series of
preferred stock. However, it is possible that the Company will not have
sufficient funds at the time of the change of control to make the required
repurchase.
Consequences of Debt. Intermedia's level of debt could have important
consequences to holders of its common stock. For example, it could:
- require the Company to dedicate a substantial portion of its future cash
flow from operations to the payment of the principal and interest on its
debt, and dividends on and the redemption of its preferred stock, thereby
reducing the funds available for other business purposes;
- make the Company more vulnerable if there is a downturn in its business;
- limit the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions or other purposes; and
- place the Company at a competitive disadvantage compared to competitors
who have less debt than Intermedia.
HISTORY OF NET LOSSES; LIMITED OPERATIONS OF CERTAIN SERVICES; NEED FOR
ADDITIONAL CAPITAL
History of Net Losses. Intermedia has incurred significant operating
losses during the past several years while it has developed its business and
expanded its networks. Although the Company's revenues have increased in each of
the last three years, it has incurred net losses attributable to common
stockholders of
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approximately $284.9 million, $577.6 million and $650.9 million for the years
ended December 31, 1997, 1998, and 1999, respectively. The Company expects net
losses to continue for the next several years.
Limited Operations of Certain Services. Intermedia began operations in
1986. The Company has recently initiated several new services and expanded the
availability of new and existing services in new market areas. The Company also
expects to increase the size of its operations in the near future. Therefore,
there is limited historical financial information upon which to base an
evaluation of the Company's performance and its ability to compete successfully
in the telecommunications business.
Need for Additional Capital. Intermedia will require significant amounts
of capital to expand its existing networks and services and to develop new
networks and services. In addition, the Company may need additional capital in
order to repay its outstanding debts when they become due. See "-- Substantial
Debt." The Company expects to fund its capital needs by using available cash,
joint ventures, debt or equity financing, credit availability and internally
generated funds. The Company expects that its cash requirements will be
satisfied into the second half of 2001. However, the Company's future capital
needs depend upon a number of factors, certain of which it can control (such as
marketing expenses, capital expenditures, staffing levels and customer growth)
and others which it cannot control (such as competitive conditions and
government regulation). Moreover, the Company's outstanding debt (including the
Credit Facility with Bank of America, N.A.) and preferred stock restrict its
ability to incur additional debt or issue additional preferred stock. Depending
on market conditions, the Company may decide to raise additional capital
earlier. However, there can be no assurance that the Company will be successful
in raising sufficient debt or equity on terms that are considered acceptable. If
the Company cannot generate sufficient funds, it may be required to delay or
abandon some of its planned expansion or expenditures. This likely would affect
the Company's growth and its ability to repay its outstanding debt as well.
RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION
Possible Future Acquisitions or Dispositions. Consistent with Intermedia's
strategy, it is currently evaluating and often engaging in discussions regarding
various acquisition or disposition opportunities. However, the Company has not
reached any agreement or agreement in principle to effect any material
acquisition or disposition. There can be no assurance that the Company will be
able to identify, finance and complete suitable acquisition opportunities on
acceptable terms. Any future acquisitions could be funded with cash on hand
and/or by issuing additional securities. It is possible that one or more of such
possible future acquisitions or dispositions, if completed, could adversely
affect 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
could be followed by a decline in the market value of the Company's outstanding
securities, including its common stock.
Failure to Obtain Third Party Consents in Connection with an Acquisition or
Merger. Intermedia consummated a number of acquisitions over the past two
years. The Company may not have obtained or may have elected not to seek, and in
connection with future acquisitions may elect not to seek, all required consents
from third parties with respect to acquired contracts. While the failure to
obtain required third party consents does not give rise to an action to rescind
the acquisition or merger, the third party could assert a breach of the acquired
contract. The Company believes the failure to obtain any such third party
consents should not result in any material adverse consequences. However, there
can be no assurance that no material adverse consequences will result from any
such breach of contract claims.
Expansion Risk. Intermedia has expanded rapidly and expects this rapid
expansion to continue in the near future. This growth has increased the
Company's operating complexity, as well as the level of responsibility for both
existing and new management personnel. In order to manage its expansion
effectively, the Company must continue to implement and improve its operational
and financial systems and expand, train and manage its employee base.
Need to Obtain Permits and Rights-of-Way to Implement Network
Expansion. Intermedia is continuing to expand its existing networks to pursue
market opportunities. To expand the Company's networks requires it to, among
other things, acquire rights-of-way, pole attachment agreements and any required
permits and to
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finance such expansion. There can be no assurance that the Company will be able
to obtain the necessary permits, agreements or financing to expand its existing
networks on a timely basis. If the Company cannot expand its existing networks
in accordance with its plans, the growth of its business could be materially
adversely affected.
Risk of New Service Acceptance by Customers. Intermedia has recently
introduced and will continue to introduce new services, which it 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. The lack of such acceptance could have
a material adverse effect on the growth of the Company's business.
Potential Diminishing Rate of Growth. During the period from 1995 through
1999, Intermedia's revenues grew at a compound annual growth rate of
approximately 120.1% (including the effect of acquisitions). While the Company
expects to continue to grow, as its size increases, it is likely the Company's
rate of growth will decrease.
RISKS RELATED TO INTERNET SERVICES
Maintenance of Peering Relationships. The Internet is comprised of many
Internet service providers who operate their own networks and interconnect with
other Internet service providers at various peering points. Intermedia's peering
relationships with other Internet service providers permit it to exchange
traffic with other Internet service providers without having to pay settlement
charges. Although the Company meets the industry's current standards for
peering, there is no guarantee that other national Internet service providers
will maintain peering relationships with the Company. In addition, the
requirements associated with maintaining peering relationships with the major
national Internet service providers may change. There can be no assurance that
the Company will be able to expand or adapt its network infrastructure to meet
any new requirements on a timely basis, at a commercially reasonable cost, or at
all.
Potential Liability of On-Line Service Providers. The law in the United
States relating to the liability of on-line service providers and Internet
service providers for information carried on, disseminated through or hosted on
their systems is currently unsettled. If liability for materials carried on or
disseminated through their systems is imposed on Internet service providers,
Intermedia would likely implement measures to reduce its exposure to such
liability. Such measures could require the Company to expend substantial
resources or discontinue certain product or service offerings. In addition,
increased attention on liability issues, as a result of lawsuits, legislation
and legislative proposals, could adversely affect the growth of Internet use.
Potential Exposure of Digex to Lawsuits for Customers' Lost Profits or
Other Damages. Because Digex's Web hosting services are critical to its
customers' businesses, any significant interruption in its services could result
in lost profits or other indirect or consequential damages to its customers.
Digex's customers are required to sign server order forms which incorporate its
standard terms and conditions. Although these terms disclaim its liability for
any such damages, a customer could still bring a lawsuit against Digex claiming
lost profits or other consequential damages as the result of a service
interruption or other Web site problems that the customer may ascribe to it.
There can be no assurance a court would enforce any limitations on its
liability, and the outcome of any lawsuit would depend on the specific facts of
the case and legal and policy considerations. Although Digex believes it may
have meritorious defenses to any such claims, there can be no assurance it would
prevail. In such cases, Digex could be liable for substantial damage awards.
Such damage awards might exceed its liability insurance by unknown but
significant amounts, which would seriously harm its business.
DEPENDENCE UPON NETWORK INFRASTRUCTURE
To successfully market its services to business and government users,
Intermedia's network infrastructure must provide superior reliability, capacity
and security. 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 its
customers. Interruptions in service, capacity limitations or security breaches
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could have a material adverse effect on the Company's business, financial
condition, results of operations and prospects.
RAPID TECHNOLOGICAL CHANGES
Communications technology is changing rapidly. While Intermedia believes,
for the foreseeable future, these changes will not materially affect the
continued use of its fiber optic networks or materially hinder its ability to
acquire necessary technologies, the effect of technological changes, such as
changes relating to emerging wire line and wireless transmission technologies,
including software protocols, on the Company's business cannot be predicted.
COMPETITION
In each of Intermedia's markets, when selling local services, the Company
competes with incumbent local exchange carriers ("ILECs"), which currently
dominate their local telecommunications markets. ILECs have longstanding
relationships with their customers which may create competitive barriers. ILECs
also may have the potential to subsidize their competitive services from
revenues they earn from their monopoly services. The Company also faces
competition in most markets in which it operates from one or more integrated
communications providers or competitive local exchange carriers ("CLECs").
Through acquisitions, AT&T and MCI WorldCom have entered the local services
market, and other long distance carriers have announced their intent to enter
the local services market. A continuing trend toward business combinations and
alliances in the telecommunications industry may create significant new or
larger competitors. The mergers of WorldCom and MCI, AT&T and Teleport
Communications Group, AT&T and Tele-Communications and SBC Communications and
Ameritech, as well as the proposed mergers of Bell Atlantic and GTE and MCI
WorldCom and Sprint are examples of this trend.
Recent legislative initiatives, including the Telecommunications Act of
1996 (the "Telecommunications Act"), have removed many of the remaining
legislative barriers to local competition. Rules adopted to carry out the
provisions of the Telecommunications Act, however, remain subject to pending
administrative and judicial proceedings. Intermedia cannot predict the impact
future regulatory developments may have on its ability to compete. However, if
ILECs are permitted to substantially lower their rates or offer significant
volume or term discount pricing, the Company's net income and/or cash flow could
be materially adversely affected.
Intermedia's data, internet, and web hosting services compete with services
offered by ILECs, long distance carriers, very small aperture terminal
(satellite dish) providers, Internet service providers, cable operators and
others. In particular, the market for Internet services is extremely
competitive, and there are limited barriers to entry. When offering long
distance services, the Company competes with AT&T, MCI WorldCom, Sprint and
others. The Telecommunications Act permits the regional Bell operating companies
("RBOCs") to provide long distance services in the same areas where they now
provide local service once certain criteria are met. Once the RBOCs begin to
provide such services, they will be in a position to offer single source local
and long distance service similar to that being offered by Intermedia. The
Company's integration services compete with those offered by equipment
manufacturers, RBOCs and other ILECs long distance carriers and systems
integrators.
The market for managed Web site and application hosting conducted by our
subsidiary, Digex, is highly competitive. There are few substantial barriers to
entry and many of Digex's current competitors have substantially greater
financial, technical and marketing resources, larger customer bases, longer
operating histories, greater name recognition and more established relationships
in the industry than it possesses. Current and potential competitors in the
market include Web hosting service providers, Internet service providers,
telecommunications companies and large information technology outsourcing firms.
Intermedia's competitors may operate in one or more of these areas and include
companies such as AT&T, Cable & Wireless, Concentric Network, Data Return,
Exodus Communications, Frontier/GlobalCenter, Globix, GTE, IBM, Intel, Level 3
Communications, MCI WorldCom, PSINet, Qwest Communications International and
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US internetworking. Digex may be unable to achieve its operating and financial
objectives due to this significant competition in the Web hosting industry.
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,
but increased competition from existing and new entities could have a material
adverse effect on the Company's business. Many of the Company's existing and
potential competitors have financial, personnel and other resources
significantly greater than the Company's which could effect its ability to
compete.
REGULATION
Intermedia is subject to federal, state and local regulation of its
telecommunications business as more fully described below. See
"Business -- Government Regulation." In general, regulation of the
telecommunications industry is in a state of transition. With the passage of the
Telecommunications Act, Congress sought to foster competition in the
telecommunications industry. The Telecommunications Act attempted to create a
framework for companies, such as Intermedia, to offer local exchange service for
business and residential customers in competition with existing local telephone
companies. The Telecommunications Act also sought to open up the long distance
market to additional competition by permitting RBOCs to engage in the long
distance business, under certain conditions, in the same regions where they now
offer local service. These and many other regulations are the subject of ongoing
administrative proceedings at the state and federal levels, litigation in
federal and state courts, and legislation in federal and state legislatures. The
outcome of the various proceedings, litigation and legislation cannot be
predicted and might adversely affect our business and operations.
The Telecommunications Act and the issuance by the Federal Communication
Commission ("FCC") of rules governing local competition, particularly those
requiring the interconnection of all networks and the exchange of traffic among
the ILECs and CLECs, as well as pro-competitive policies already developed by
state regulatory commissions, have caused fundamental changes in the structure
of the markets for local exchange services. On January 25, 1999, the Supreme
Court largely reversed earlier decisions of the Eighth Circuit Court of Appeals
and held that the FCC has general jurisdiction to implement the local
competition provisions of the Telecommunications Act. The Supreme Court stated
that the FCC has authority to set guidelines for CLECs to use various portions
of the ILEC's network necessary for the CLECs to provide service. These portions
of the ILEC's network are called "Unbundled Network Elements" or "UNEs." The
Supreme Court also affirmed the FCC's authority to prevent ILECs from refusing
to sell to CLECs the ILEC's existing combinations of network elements. The
Supreme Court approved the FCC's establishment of "pick and choose" rules
regarding interconnection agreements between ILECs and CLECs (which would permit
a CLEC to "pick and choose" among various terms of service in different
interconnection agreements between the ILEC and other CLECs). The Supreme
Court's decision re-establishes the validity of many of the FCC rules vacated by
the Eighth Circuit. Although the Supreme Court affirmed the FCC's authority to
develop pricing guidelines, the Court did not evaluate the specific pricing
methodology adopted by the FCC and has remanded the case to the Eighth Circuit
for further consideration. In its decision, the Supreme Court also vacated the
FCC's rule that identifies the unbundled network elements that ILECs 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. The FCC recently issued an Order reaffirming in
most respects and clarifying its earlier decision on which UNE's are to be made
available and added several new ones. This ruling, however, also is subject to
further administrative and judicial review and implementing actions by state
commissions. While the Telecommunications Act and the FCC rules implementing it
greatly enhance the opportunity for companies such as Intermedia to compete with
ILECs, the FCC recently also has granted ILECs greater flexibility in pricing
their services to permit them to better compete with CLECs.
Although the passage of the Telecommunications Act should result in
increased opportunities for companies that are competing with 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.
24
<PAGE> 27
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 existing interconnection agreements. Some ILECs have not
paid and/or have disputed these charges, arguing the Internet service provider
traffic is not local traffic as defined by the various agreements. On February
26, 1999, the FCC ruled that Internet service provider traffic is interstate
traffic within the FCC's jurisdiction but that its current rules neither require
nor prohibit the payment of reciprocal compensation for these calls. The FCC
determined that state commissions have authority to interpret and enforce the
reciprocal compensation provisions of existing interconnection agreements and to
determine the appropriate treatment of Internet service provider traffic in
arbitrating new agreements. The FCC also requested comment on federal rules to
govern compensation for these calls in the future.
Prior to the FCC decision, 30 state commissions and several federal and
state courts ruled that reciprocal compensation arrangements under existing
interconnection agreements apply to calls to Internet service providers.
However, one state has ruled that reciprocal compensation arrangements are not
applicable to calls to Internet service providers under such agreements.
Subsequent to the FCC decision, at least 19 state commissions have reaffirmed
their prior determinations or ruled for the first time that reciprocal
compensation was due under interconnection agreements existing prior to the FCC
decision. There are ongoing disputes concerning the appropriate treatment of
Internet service provider traffic under new interconnection agreements which
will be resolved by state commission and the FCC if the parties cannot agree.
The Company accounts for reciprocal compensation with the ILECs, including
activity associated with Internet traffic, as local traffic pursuant to the
terms of our interconnection agreements. Accordingly, revenue is recognized in
the period that the traffic is terminated. The circumstances surrounding the
disputes, including the status of cases that have arisen by reason of similar
disputes, is considered by management periodically in determining whether
reserves against unpaid balances are warranted. As of December 31, 1999,
provisions for reserves have not been considered necessary by management.
However, there can be no assurance that management will not determine that a
reserve is necessary at some point in the future or that ultimately these
receivables will be collected. As of December 31, 1999, approximately $109.9
million of the Company's receivables are related to such reciprocal
compensation. As the Company's Internet service provider traffic grows, these
amounts are expected to increase and will be accounted for in the manner
described above. Traffic arising under new interconnection agreements will be
accounted for consistent with those agreements.
The regulatory status of telephone service over the Internet is presently
uncertain. Intermedia 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 Company's business. Specific
statutes and regulations addressing this service have not been adopted at this
time and the extent to which current laws and regulations at the state and
federal levels will be interpreted to include such Internet telephone services
has not been determined. The FCC has indicated, for example, that voice
telecommunications carried over the Internet between two telephone sets using
the public switched network may be subject to payment of 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.
RISK OF TERMINATION, CANCELLATION OR NON-RENEWAL OF INTEREXCHANGE AGREEMENTS,
NETWORK AGREEMENTS, LICENSES AND PERMITS
Intermedia leases and/or purchases agreements for rights-of-way, utility
pole attachments, conduits and dark fiber for its fiber optic networks. Although
the Company does not believe any of these agreements will be canceled in the
near future, cancellation or non-renewal of certain of such agreements could
materially adversely affect the Company's business in the affected metropolitan
area. In addition, the Company has certain licenses and permits from local
government authorities. The Telecommunications Act requires local government
authorities to treat telecommunications carriers and most utilities, including
most ILECs and
25
<PAGE> 28
electric companies, in a competitively neutral, non-discriminatory manner to
afford alternative carriers access to their poles, conduits and rights-of-way at
reasonable rates on non-discriminatory terms and conditions. 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. The Company and
Williams entered into an agreement in March 1998 which, as amended in March
1999, provides the Company with a 20 year indefeasible right of use from
Williams for high capacity transport of the Company's integrated voice and data
services, connecting major markets throughout the continental United States. The
indefeasible right of use may be terminated by Williams if the Company fails to
make the required payments and, in the event of a bankruptcy of Williams, the
indefeasible right of use may be rejected by Williams in a bankruptcy
proceeding.
DEPENDENCE ON KEY PERSONNEL
Intermedia's continued success depends on the continued employment of
certain members of its senior management team and on its continued ability to
attract and retain highly skilled and qualified personnel. The Company does not
have long-term employment agreements with any of its key employees. The loss of
the services of key personnel or the inability to attract additional qualified
personnel could have a material adverse impact on the Company's business,
financial condition, results of operations and prospects.
BUSINESS COMBINATIONS
Intermedia has from time to time held, and continues to hold, preliminary
discussions with (i) potential investors (both strategic and financial) 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, the Company 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.
LACK OF DIVIDEND HISTORY
Intermedia has never declared or paid any cash dividends on its common
stock, and the Company does not expect to declare any such dividends in the
foreseeable future. Payment of any future dividends will depend upon the
Company's earnings and capital requirements, debt and other factors. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. In addition, the terms of the Company's outstanding debt and
preferred stock restrict the payment of dividends on its common stock.
ANTI-TAKEOVER PROVISIONS
Intermedia's Certificate of Incorporation and Bylaws, the provisions of the
Delaware General Corporation Law and the terms of the Company's outstanding debt
and preferred stock may make it difficult to effect a change of control and
replace the Company's incumbent management. In addition, stockholders, pursuant
to a Stockholders' Rights Plan, have the right to acquire a series of preferred
stock, exercisable upon the occurrence of certain events. The existence of these
provisions may have a negative impact on the price of the Company's common
stock, may discourage third parties from making a bid for the Company or may
reduce any premiums paid to stockholders for their common stock. In addition,
the Company's board of directors 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 without action by
the Company's stockholders.
26
<PAGE> 29
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Intermedia's common stock by existing
stockholders or the issuance of shares of the Company's common stock upon
exercise of options or warrants or conversions of convertible securities, could
materially adversely affect the market price of the Company's common stock and
could impair its future ability to raise capital through an offering of equity
securities. Substantially all of the Companys shares of outstanding common stock
are covered by effective registration statements or are transferable without
restrictions under the Securities Act. The Company cannot make any predictions
as to the effect market sales of such common stock or the availability of such
common stock for future sale will have on the market price of the Company's
common stock from time to time.
YEAR 2000 DATE CONVERSION
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. To ensure that our computer systems and
applications function properly in 2000, through Intermedia, we have implemented
a Year 2000 program. To date, we have not experienced any significant Year 2000
problems.
The Company has substantially completed its Year 2000 program and has made
the necessary modifications to and/or replacements of the impacted software and
hardware. While the Company believes its plan is substantially complete, the
discovery of additional IT or Non-IT systems requiring remediation could
adversely impact the current plan and the resources required to implement the
plan.
FORWARD-LOOKING STATEMENTS
Some of the statements in this Annual Report that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Forward-looking statements can be
identified by the use of words such as "estimates," "projects," "anticipates,"
"expects," "intends," "believes" or comparable terminology, the negative thereof
or other variations thereon or by discussions of strategy that involve risks and
uncertainties. Examples of forward-looking statements include discussions of the
Company's plans to expand its existing networks, introduce new products, build
and acquire networks in new areas, install switches or provide local services,
the estimate of market sizes and addressable markets for the Company's services
and products, the market opportunity presented by larger metropolitan areas, the
Company's ability to successfully complete its year 2000 remediation project and
statements regarding the development of the Company's businesses, anticipated
capital expenditures and regulatory reform.
Management wishes to caution you that all forward-looking statements
contained in this Annual Report are only estimates and predictions. Actual
results could differ materially from those anticipated in this Annual Report as
a result of risks facing us or actual events differing from the assumptions
underlying such statements. Such risks and assumptions include, but are not
limited to, those discussed above. Readers are cautioned not to place undue
reliance on any forward-looking statements contained in this report. The Company
undertakes no obligation to publish the results of any adjustments to these
forward-looking statements that may be made to reflect events on or after the
date of this report or to reflect the occurrence of unexpected events.
ITEM 2. PROPERTIES
Intermedia leases its principal administrative, marketing, warehouse and
service development facilities in Tampa, Florida and leases other space for
storage of its electronics equipment and for administrative, sales and
engineering functions in other cities where the Company operates networks and/or
performs sales functions. Intermedia believes that its properties are adequate
and suitable for their intended purposes.
27
<PAGE> 30
As of December 31, 1999, the Company's total telecommunications and
equipment in service consisted of telecommunications equipment (54%), fiber
optic cable (23%), furniture and fixtures (11%), leasehold improvements (4%) and
construction in progress (8%). Such properties do not lend themselves to
description by character and location of principal units. Fiber optic cable
plant used in providing service is primarily on or under public roads, highways
or streets, with the remainder being on or under private property. Substantially
all of the Company's telecommunications equipment is housed in multiple leased
facilities in various locations throughout the metropolitan areas served by
Intermedia.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or lawsuits
will have a material effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
28
<PAGE> 31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol "ICIX". As of December 31, 1999, based upon 195 holders of record of the
Common Stock and an estimate of the number of individual participants
represented by security position listings, there are approximately 17,242
beneficial holders of the Common Stock. The approximate high and low bid prices
for the Common Stock tabulated below are as reported by The Nasdaq Stock Market
and represent inter-dealer quotations which do not include retail mark-ups,
mark-downs or commissions. Such prices do not necessarily represent actual
transactions. The Company completed a two-for-one stock split (effected as a
stock dividend) on June 15, 1998. Where applicable, the prices have been
adjusted to give effect to the split.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
- ------- -------- --------
<S> <C> <C>
1998
First..................................................... $45.5312 $26.8750
Second.................................................... $40.5625 $30.8125
Third..................................................... $43.0000 $20.3750
Fourth.................................................... $26.3750 $12.7500
1999
First..................................................... $28.5625 $13.0625
Second.................................................... $39.5000 $21.1250
Third..................................................... $37.8750 $18.2500
Fourth.................................................... $42.6875 $20.0000
</TABLE>
Holders of shares of Common Stock are entitled to dividends, when and if
declared by the Board of Directors, out of funds legally available therefor.
Intermedia has never declared or paid cash dividends on its Common Stock.
Intermedia intends to retain its earnings, if any, to finance the development
and expansion of its business, and therefore does not anticipate paying any
dividends on its Common Stock in the foreseeable future. In addition, the terms
of the Company's outstanding indebtedness and preferred stock restrict the
payment of dividends until certain conditions are met. When such restrictions no
longer exist, the decision whether to pay dividends will be made by the Board of
Directors in light of conditions then existing, including the Company's results
of operations, financial condition and capital requirements, business conditions
and other factors. The payment of dividends on the Common Stock is also subject
to the preference applicable to the outstanding shares of the Company's
preferred stock and to the preference that may be applicable to any shares of
the Company's preferred stock issued in the future.
RECENT SALES OF UNREGISTERED SECURITIES
On February 17, 2000, KKR made a $200.0 million equity investment in the
Company. In exchange for this investment, the Company issued 200,000 shares of
Series G Junior Convertible Preferred stock (the Series G Preferred Stock)
(aggregate liquidation preference $200.0 million) in a private placement
transaction. Dividends on the Series G Preferred Stock accumulate at a rate of
7% of the aggregate liquidation preference thereof and are payable quarterly, in
arrears. At the Company's option, dividends are payable in cash, issuance of
shares of Common Stock of the Company, or by some combination thereof. The
Series G Preferred stock is redeemable, at the option of the Company, at any
time on or after February 17, 2005 at rates commencing with 103.5% declining to
100% on February 17, 2008. Net proceeds to the Company were approximately $188.0
million. The proceeds from this investment will be used for general corporate
purposes, including the funding of working capital and operating losses, and the
funding of a portion of the cost of acquiring or constructing telecommunications
related assets.
In addition, KKR received warrants to purchase 1,000,000 shares of the
Company's Common Stock at $40 per share and warrants to purchase 1,000,000
shares of the Company's Common Stock at $45 per share. Based upon
representations by the purchasers, the issuances were made in reliance on the
exemption from the
29
<PAGE> 32
registration provided by Section 4(2) of the Securities Act, as a transaction by
an issuer not involving a public offering.
ITEM 6. SELECTED FINANCIAL AND OTHER OPERATING DATA
The selected financial data and balance sheet data presented below as of
and for the five years in the period ended December 31, 1999 have been derived
from the consolidated financial statements of the Company, which financial
statements have been audited by Ernst & Young LLP, independent certified public
accountants.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements of the Company
and the notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Revenue................................ $ 38,631 $103,397 $ 247,899 $ 712,783 $ 906,035
Expenses
Network expenses, facilities
administration and maintenance,
and cost of goods sold............ 22,989 81,105 199,139 468,780 557,959
Selling, general and
administrative.................... 14,993 35,637 96,995 213,023 294,382
Depreciation and amortization....... 10,196 19,836 53,613 229,747 329,303
Deferred Compensation............... -- 973 1,603 2,086 1,540
Charge for in-process R&D(1)........ -- -- 60,000 63,000 --
Restructuring and other
charges(2)........................ -- -- -- 53,453 27,922
-------- -------- --------- --------- ---------
48,178 137,551 411,350 1,030,089 1,211,106
-------- -------- --------- --------- ---------
Loss from operations..................... (9,547) (34,154) (163,451) (317,306) (305,071)
Other income (expense)
Interest expense....................... (13,767) (35,213) (60,662) (205,760) (295,900)
Interest and other income.............. 4,060 12,168 26,824 35,837 35,752
Income tax benefit..................... 97 -- -- -- --
-------- -------- --------- --------- ---------
Net loss before minority interest...... (19,157) (57,199) (197,289) (487,229) (565,219)
Minority interest in net loss of
subsidiary.......................... -- -- -- -- 6,793
-------- -------- --------- --------- ---------
Net loss before extraordinary item..... (19,157) (57,199) (197,289) (487,229) (558,426)
Extraordinary loss on early retirement
of debt(3).......................... (1,592) -- (43,834) -- --
-------- -------- --------- --------- ---------
Net loss............................... (20,749) (57,199) (241,123) (487,229) (558,426)
Preferred stock dividends and
accretions.......................... -- -- (43,742) (90,344) (92,455)
-------- -------- --------- --------- ---------
Net loss attributable to common
stockholders........................ $(20,749) $(57,199) $(284,865) $(577,573) $(650,881)
======== ======== ========= ========= =========
BASIC AND DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item,
including preferred stock dividends
and accretions...................... $ (0.95) $ (2.04) $ (7.23) $ (13.23) (12.91)
Extraordinary item(3).................. (.08) -- (1.31) -- --
-------- -------- --------- --------- ---------
Net loss per common share.............. $ (1.03) $ (2.04) $ (8.54) $ (13.23) $ (12.91)
======== ======== ========= ========= =========
Weighted average number of shares
outstanding......................... 20,072 28,035 33,340 43,645 50,431
======== ======== ========= ========= =========
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA before certain charges(4)....... $ 649 $(13,345) $ (48,235) $ 30,980 $ 53,694
Net cash used in operating
activities.......................... $ (9,695) $ (7,756) $ (59,073) $(140,192) $(224,184)
Net cash used in investing
activities.......................... (83,687) (134,365) (775,717) (959,864) (602,301)
Net cash provided by financing
activities.......................... 134,171 280,670 1,402,167 730,744 679,701
Capital expenditures..................... 29,962 130,590 260,105 492,421 601,880
Transport Services:(5)
Buildings connected(6)................. 380 487 3,005 4,342 4,398
Route miles............................ 504 655 757 839 1,711
Fiber miles............................ 17,128 24,122 34,956 41,398 49,523
Data Services:(5)
Nodes(7)............................... 2,300 9,777 20,209 35,268 48,973
Switches............................... 31 89 136 177 185
Local Access and Voice Services:(5)
Voice switches in operation............ 1 5 16 23 29
Access line equivalents................ -- 7,106 81,349 347,584 501,094
Employees................................ 287 874 2,036 3,931 5,073
Balance Sheet Data:
Cash and cash equivalents(8)........... $ 50,997 $189,546 $ 756,923 $ 387,611 240,827
Working capital(9)..................... 70,353 206,029 747,246 393,676 333,981
Total assets................... 216,018 512,940 1,874,970 3,049,019 3,296,422
Long-term obligations and preferred
stock (including current
maturities)......................... 165,545 358,507 1,941,219 3,234,674 3,938,046
Total stockholders' equity
(deficit).................... 40,254 114,230 (140,009) (370,648) (852,705)
</TABLE>
- ---------------
(1) A one time charge to earnings was recorded as a result of the purchase of in
process research and development ("R&D") in connection with the acquisition
of DIGEX of $60,000 and with the acquisition of Shared of $63,000.
(2) Restructuring charges include costs associated with management's plan to
transform its separate operating companies into one integrated
communications provider.
(3) The Company incurred extraordinary charges in 1995 and 1997 related to early
retirement of debt.
(4) EBITDA before certain charges consists of earnings (net loss before minority
interest) before interest expense, interest and other income, income taxes,
depreciation, amortization, deferred compensation, charges for in-process
R&D, business integration, restructuring and other costs associated with the
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 accepted
accounting principles and, as a result, the 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.
(5) Amounts reflected in the table are based upon information contained in the
Company's operating records.
(6) Beginning in January 1997, Intermedia changed its definition of "Buildings
connected" to include buildings connected to Intermedia's network via
facilities leased by Intermedia in addition to those connected to
Intermedia's network via facilities constructed by or otherwise owned by
Intermedia. Intermedia believes the new definition is consistent with
industry practice.
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<PAGE> 34
(7) Amount represents an individual point of origination and termination of data
served by the Company's enhanced network.
(8) Cash and cash equivalents excludes investments of $26,675, $6,853, $7,930
and $10,252 in 1996, 1997, 1998 and 1999, respectively, restricted under the
terms of various notes and other agreements.
(9) Working capital includes the restricted investments referred to in Note 8
above whose restrictions either lapse within one year or will be used to pay
current liabilities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Intermedia provides integrated data and voice communications services,
including enterprise data solutions (frame relay and ATM), Internet
connectivity, private line data, managed Web site and application hosting, local
and long distance, and integration services to approximately 90,000 business and
government customers. As of December 31, 1999, Intermedia is the fourth largest
nationwide frame relay provider in the United States (based on frame relay
revenues), a leading Tier One Internet service provider, the largest domestic
independent provider of competitive local services (based on revenues), the
largest provider of shared tenant telecommunications services, and a leading
domestic provider of systems integration services. Intermedia is also a leading
and rapidly growing provider of managed Web site and application hosting
services to large corporations and Internet companies through Digex, its
subsidiary. As more fully discussed in the notes to the financial statements,
the Company operates in primarily two segments, integrated communications
provider and Web and application hosting services. The Company uses a management
approach to report its financial and descriptive information about its operating
segments. Where significant, the revenue, profitability, and cash needs of the
Web and applications hosting segment are discussed below.
Intermedia believes it is well positioned to take advantage of technical,
regulatory and market dynamics that currently promote demand for a fully
integrated set of communications services. Intermedia's services include high
quality guarantees, customer service and technical support for design,
implementation, and operations. Through a combination of internally generated
growth and targeted acquisitions, the Company has expanded its service territory
and substantially increased its customer base since its inception in 1986.
The Company delivers its local access and voice services, primarily through
Company owned local and long distance switches, over a digital transport
network. The Company offers its data and Internet services to its customers on
an extensive inter-city network that connects its customers to locations
nationwide. Through its 881 "NNIs" and 185 data switches, Intermedia has
established one of the most densely deployed frame relay switching networks in
the nation. The Company's nationwide interexchange network carries both its data
and voice traffic.
During 1998, Intermedia entered into enhanced data services agreements with
US West, Ameritech and Williams. Pursuant to the agreements with US West and
Ameritech, Intermedia was selected as the preferred provider for out-of-region
data services. Williams has agreed to use Intermedia's enhanced data services in
areas where it does not have data switching capability.
In March 1998, the Company and Williams executed a Capacity Purchase
Agreement which, as amended in March 1999, provides the Company with the right
to purchase transmission capacity on a non-cancelable indefeasible right of use
basis on the Williams fiber network for 20 years. The agreement covers
approximately 14,000 route miles.
On March 10, 1998, the Company completed its acquisition of Shared
Technologies Fairchild, Inc. ("Shared"), a shared tenant communications services
provider. Aggregate cash consideration for the acquisition was approximately
$782.6 million and was funded with the Company's existing cash reserves in March
1998. For convenience, the operating results of Shared are included in the
Company's consolidated financial statements commencing on January 1, 1998.
On March 31, 1998, the Company acquired Long Distance Savers group of
companies (collectively, "LDS"), a regional interexchange carrier. Aggregate
consideration for the acquisition was approximately $15.7 million in cash, plus
5,320,048 shares of the Company's common stock, valued at approximately $137.2
32
<PAGE> 35
million, the retirement of $15.1 million in LDS's long-term debt and acquisition
related expenses of $3.3 million. The cash portion of the acquisition was funded
with the Company's existing cash reserves in March 1998. The operating results
of LDS for the one day of ownership during the first quarter of 1998 are
considered immaterial. The operating results of LDS are included in the
Company's consolidated financial statements commencing on April 1, 1998.
On April 30, 1998, the Company completed the acquisitions of privately held
National Telecommunications of Florida, Inc. and NTC, Inc. (collectively,
"National"), an emerging switch-based competitive local exchange carrier and
established interexchange carrier. Aggregate consideration for the acquisition
was approximately $59.5 million in cash, plus 2,909,796 shares of the Company's
common stock, valued at approximately $88.7 million, the retirement of $2.8
million in National's long-term debt, and $2.6 million in acquisition related
costs. The cash portion of the acquisition was funded with the Company's
existing cash reserves in April 1998. The operating results of National are
included in the Company's consolidated financial statements commencing on April
1, 1998.
On April 29, 1998, the Company announced that it had committed resources to
a restructuring program (the "Program"), a plan to implement the integration of
acquired businesses to maximize the synergies that will be realized and to
reduce future costs. During the second quarter of 1998, the Company developed
and began implementation of the Program which was designed to streamline and
refocus the Company's operations and transform Intermedia's five separate
operating companies into one integrated communications provider. The significant
activities included in the Program include (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 headcount and related costs.
In connection with the adoption of the Program, the Company recorded a
restructuring charge during the second quarter of 1998 of approximately $32.3
million, which was reduced in the third and fourth quarters of 1998 by $13.5
million, upon renegotiation of a contract and other changes. The Company also
expensed other business restructuring and integration costs associated with the
Program of $34.7 million during 1998. Business restructuring and integration
expense associated with the program of approximately $27.9 million was recorded
by the Company during 1999. The Company expects the Program to continue through
June 2000.
In April 1999, the Company announced that it has entered into strategic
alliances with two DSL (digital subscriber line) companies, NorthPoint and
Rhythms NetConnection. These agreements will allow the Company to purchase DSL
transport to provide additional telecommunications services such as high speed
Internet access, local and long distance services, and frame relay to
Intermedia's small and medium sized customers on a more economical basis.
Intermedia has implemented DSL technology using its own network facilities for
its shared tenant services (Advanced Building Networks) buildings to provide
greater bandwidth for data, voice and Internet access. The NorthPoint and
Rhythms alliances will enable the Company to increase its existing market
coverage for DSL services.
Due to its ability to provision nationwide data services, the Company
announced in August 1999 that it was selected by Bell Atlantic to provide frame
relay services to Bell Atlantic's out-of-region customers. The Company believes
this arrangement will offer customers a single point of contact for sales and
customer care and will enable Intermedia to benefit from Bell Atlantic's
customer relationships and distribution abilities and thereby sell additional
frame relay services. (This is in addition to the preferred provider
partnerships Intermedia entered into with US West and Ameritech in 1998 to
provide out-of-region data services.) The Company expects a continued positive
revenue impact from the strategic partnerships referred to above.
33
<PAGE> 36
In August 1999, Digex sold 11.5 million shares of its Class A common stock
in an initial public offering. In February 2000, Digex completed a second public
offering of 12,650,000 shares of its Class A Common Stock. Digex offered
2,000,000 shares of its Class A Common Stock and the Company sold 10,650,000
shares of Digex Class A Common Stock it then owned. Intermedia owns
approximately 62.0% of the outstanding Common Stock of Digex. However, since
each share of Digex Class B common stock has ten votes and each share of Digex
Class A has one vote, Intermedia retains approximately 94.2% voting interest in
Digex. The net proceeds from the Digex offering to Intermedia were approximately
$913.8 million and can be used to purchase telecommunications related assets or
reduce outstanding debt due to restrictions in Intermedia's debt instruments.
In the third quarter of 1999, the Company expanded its unifiedvoice.net(SM)
(uv.net) service, which provides integrated local, long distance and high-speed
Internet access, to 39 cities. While the Company has offered integrated services
in the past, uv.net will enable Intermedia to increase its addressable market
from 15% to over 85% of the business lines in the markets it serves and offer a
more economical and technologically advanced package of telecommunications
services to small and medium businesses.
PLAN OF OPERATION
The Company believes its revenue growth will be generated primarily from
its data, internet, and web hosting, and local exchange services. Based on the
Company's analysis of Federal Communications Commission market data and its
knowledge of the industry, the Company estimates that the market for enhanced
data, local exchange and interexchange services currently exceeds $100.0 billion
within its service territory.
34
<PAGE> 37
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain
information derived from the Consolidated Statements of Operations of the
Company expressed in percentages of revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ----- -----
<S> <C> <C> <C>
Revenues:
Data, Internet and web hosting............................ 63.7% 36.7% 39.9%
Local access and voice.................................... 33.8 49.1 45.7
Integration............................................... 2.5 14.2 14.4
------ ----- -----
100.0 100.0 100.0
Expenses:
Network expenses.......................................... 66.4 47.4 41.0
Facilities administration and maintenance................. 12.8 9.3 11.4
Cost of goods sold........................................ 1.2 9.1 9.2
Selling, general and administrative....................... 39.1 29.9 32.5
Depreciation and amortization............................. 21.6 32.2 36.3
Deferred compensation..................................... .6 .3 .2
Charge-off of purchased in-process R&D.................... 24.2 8.8 --
Business restructuring, integration and other charges..... -- 7.5 3.1
------ ----- -----
Loss from operations........................................ (65.9) (44.5) (33.7)
Other income (expense):
Interest expense.......................................... (24.5) (28.9) (32.7)
Interest and other income................................. 10.8 5.0 3.9
------ ----- -----
Net loss before minority interest........................... (79.6) (68.4) (62.2)
Minority interest in net loss of subsidiary................. -- -- .7
------ ----- -----
Net loss before extraordinary item.......................... (79.6) (68.4) (61.5)
Extraordinary loss on early retirement of debt.............. (17.7) -- --
------ ----- -----
Net loss.................................................... (97.3) (68.4) (61.5)
Preferred stock dividends and accretions.................... (17.6) (12.7) (10.2)
------ ----- -----
Net loss attributable to common stockholders................ (114.9)% (81.0)% (71.7)%
====== ===== =====
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company's revenue grew from $712.8 million to $906.0 million or 27.1%
from 1998 to 1999. Revenue in 1998 and 1999 for each of the Company's product
lines were as follows:
<TABLE>
<CAPTION>
1998 1999 INCREASE/(DECREASE)
------ ------ -------------------
<S> <C> <C> <C>
Data, Internet and Web hosting.............................. $261.4 $361.5 $100.1
Local access and voice...................................... 350.0 414.2 64.2
Integration................................................. 101.4 130.3 28.9
------ ------ ------
$712.8 $906.0 $193.2
====== ====== ======
</TABLE>
The overall increase in revenue was partially due to the acquisitions of
the affiliated entities known as the LDS on March 31, 1998 and National on April
30, 1998. The operating results of LDS and National are included in the
Company's consolidated financial statements commencing April 1, 1998. The
Company has also continued its efforts to introduce new services and increase
the focus of the Company's sales force on offering a full suite of
telecommunications services to an expanding market. The Company's core strategic
revenue categories continue to grow, and the Company plans to maintain its
emphasis on sales of key enhanced services such as data, Internet connectivity
and managed Web site and application hosting, and local access services.
35
<PAGE> 38
Data, Internet and Web hosting revenue increased 38.3% to $361.5 million in
1999 compared to $261.4 million in 1998. This increase was principally a result
of the expansion of the Company's frame relay and ATM networks as well as strong
growth in Internet and managed Web site application and hosting services.
Intermedia's data network expanded by 201 NNI connections, 13,705 frame relay
nodes, and 8 data switches since December 31, 1998. In addition, the Company
experienced an increase in sales of frame relay services as a result of its data
agreements with US West, Ameritech, and Bell Atlantic. The Company also
experienced increased sales in Internet and managed Web site and application
hosting services due to new customer additions and sales of additional services
to existing customers. As of December 31, 1999, the Company had 2,311 Web
servers on line, an increase of 1,263 from December 31, 1998.
Local access and voice revenue increased 18.3% to $414.2 million in 1999
compared to $350.0 million in 1998. This increase was partially due to the
acquisition of LDS on March 31, 1998 and National on April 30, 1998, and the
continued rollout of local exchange services into additional markets. In
addition, the number of voice switches increased from 23 at December 31, 1998 to
29 at December 31, 1999 as Intermedia expanded its voice switch network into new
geographic markets. The number of access line equivalents increased by 153,510
from December 31, 1998 through December 31, 1999. The additional access line
equivalents were primarily on-switch. These on-switch access line equivalents
contribute to improved gross margins and allow the Company to offer a more
economical package of telecommunications services to its customers. The Company
has also continued its efforts to reduce its base of local customers who utilize
resale lines, which have historically yielded low margins for Intermedia. In
addition, the Company was certified as a CLEC in 38 states and the District of
Columbia at the end of 1999. The increases in local access and voice described
above were offset by decreases in long distance voice sales over 1998. The
decrease was primarily due to the Company's decision during the second quarter
of 1998 to begin its exit of the low margin wholesale long distance business, as
well as per minute long distance pricing declines in the industry. While the
Company is no longer focusing its marketing efforts on sales of long distance
services on a stand alone basis, the Company believes that its integrated
business strategy (including sales of higher margin products such as uv.net)
should more than compensate for the decrease in long distance voice revenue and
should result in an increase in higher overall margins in future periods.
Integration revenue increased 28.5% to $130.3 million in 1999 compared to
$101.4 million in 1998. This increase was principally due to an increased demand
for the installation and sale of telecommunications equipment in 1999 compared
to 1998 resulting from Year 2000 upgrades and the successful expansion of the
Company's sales force on the West Coast.
Revenue from the Digex Web hosting segment, increased 164.6% to $59.8
million in 1999 compared to $22.6 million in 1998. The $37.2 million increase in
revenue was a result of the segment's increased marketing efforts and market
acceptance of our new products, resulting in growth in our number of customers.
Digex also experienced increases in revenue from customers through upgrade and
value-added services. This translated into higher average revenues per server.
Operating expenses in total increased 17.6% to $1,211.1 million in 1999
compared to $1,030.1 million in 1998. Operating expenses decreased to 133.7% of
revenue in 1999 compared to 144.5% of revenue in 1998. The 1998 operating
expenses include a $63.0 million charge for in-process research and development
in connection with the acquisition of Shared. In addition, business
restructuring and integration expenses (discussed below) decreased to $27.9
million in 1999 compared to $53.5 million in 1998. These decreases were offset
by increases in other operating expenses, including increased support costs
relating to the significant expansion of the Company's owned and leased networks
and the increase in personnel to sustain and support the Company's growth, as
well as accelerating growth in Digex Web hosting segment which became a separate
public company in August 1999. Depreciation increased in 1999 compared to 1998
as a result of the Company's telecommunications equipment additions. During
1999, the Company made improvements in its business processes through
implementation of various automated systems including sales order tracking,
switch translation, enterprise resource planning, and continued integration of
its billing systems. The Company has realized savings from these efforts through
improved sales and back office productivity and decreased provisioning time.
36
<PAGE> 39
Network expenses increased 9.9% to $371.2 million in 1999 compared to
$337.6 million in 1998. The Company has incurred increased expenses in leased
network capacity associated with the growth of local access and voice as well as
data and Internet service revenues. These increases were partially offset by
reduced network expenses, as a percentage of revenue, resulting from the
Company's integrated business strategy. The Company has also benefited from
several network agreements, including the Company's network agreement with
Williams. The Williams agreement, executed in March 1998 (and amended in 1999),
positively impacted network expenses as a result of the Company's continued
efforts to consolidate traffic through the Williams backbone network, as well as
through the Company's existing networks in an efficient and cost effective
manner. Finally, the Company has focused its selling efforts on on-switch access
lines, which have better gross margins and improved provisioning time.
Facilities administration and maintenance expenses increased 56.4% to
$103.4 million in 1999 compared to $66.1 million in 1998. The increase resulted
from support costs related to the expansion of the Company's owned and leased
network capacity, increased maintenance expenses due to network expansion and
increased payroll expenses related to additional engineering and operations
staff necessary to support and service the Company's expanding network, as well
as the accelerating growth in the Digex Web hosting segment. These increases
were partially offset by administrative cost efficiencies and synergies that
were realized from the successful completion of the restructuring and
integration program, including the integration of the Company's acquired
businesses.
Cost of goods sold increased 28.1% to $83.4 million in 1999 compared to
$65.1 million in 1998. This increase was principally due to the increase in
integration services revenue as a result of greater demand for
telecommunications equipment in 1999 compared to 1998 resulting from Year 2000
upgrades and the successful expansion of the Company's sales force on the West
Coast.
Selling, general and administrative expenses increased 38.2% to $294.4
million in 1999 compared to $213.0 million in 1998. The Company's core growth
strategy required increases in sales and marketing efforts and other support
costs, including a substantial increase in the number of employees required to
support the Company's managed Web site and application hosting segment. The
Company's sales and marketing related expenses increased approximately $36.7
million, management information services increased approximately $4.8 million,
customer operations increased approximately $15.3 million, and other general
administrative costs to support the administrative departments and corporate
development increased approximately $24.6 million.
Deferred compensation decreased 28.6% to $1.5 million in 1999 compared to
$2.1 million in 1998. The Company recorded deferred compensation for the
Company's Stock Award Plan (discussed further in note 10 to the financial
statements) and for below-market stock options granted to certain employees in
connection with the initial public offering of the Company's web site and
application hosting subsidiary during 1999. The decrease in deferred
compensation expense over 1998 relates to a change in the qualifying vesting
period for the Stock Award Plan during 1999.
Depreciation and amortization expenses increased 43.4% to $329.3 million in
1999 compared to $229.7 million in 1998. This increase was principally due to
depreciation of telecommunications equipment placed in service during 1999 as a
result of ongoing network expansion (including the irrevocable right of use
acquired from Williams). Depreciation expense is expected to increase in future
periods based on the Company's plans to continue expanding its network and
facilities, including its new managed Web site and application hosting
facilities on the East and West Coasts.
The charge for in-process R&D of $63.0 million in the first quarter of 1998
represents the amount of purchased in-process R&D associated with the purchase
of Shared. This allocation represents the estimated fair value based on
risk-adjusted cash flows related to the incomplete projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and in-process R&D had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date and were recorded as a
one-time charge to earnings in the first quarter of 1998. In making its purchase
price allocation, the Company relied on present value calculations of income and
cash flows, an analysis of project accomplishments and completion costs and an
assessment of overall contribution, as well as project risk. The amounts
37
<PAGE> 40
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
In-process R&D included the development and deployment of an innovative
multi-service access platform ("MSAP") which will enable Shared to provision new
data services. These projects were completed by December 31, 1999.
Development efforts for these in-process R & D projects included various
phases of design, development, and testing. As of December 31, 1999, the Company
has deployed digital subscriber loop access management (DSLAMs) as the MSAP in
272 shared tenant (Advanced Building Networks) buildings. These DSLAMs provide
customers with high speed Internet access. While voice and data services are not
currently provided through this single MSAP, the DSLAMs provide the
infrastructure for future phases of this technological development.
Business restructuring and integration expense of approximately $27.9
million was recorded by the Company during 1999 compared to $53.5 million during
1998. During 1998, the Company recorded a one-time charge of $18.8 million
comprised primarily of network integration, back office accounting integration
and information systems integration cost and costs associated with positions
eliminated as a result of the Program. Additional costs of $29.3 million and
$34.7 million were recorded during the year ended December 31, 1999 and 1998,
respectively, representing incremental, redundant, or convergence costs that
result directly from implementation of the Program but which are required to be
expensed as incurred. Such costs were substantially in line with the amounts
expected by management. The Company expects the Program to continue until June
2000 due to the extension of completion dates of certain projects. The
restructuring program reserve and related restructuring expenses were adjusted
during the Program due to changes in estimates relating to various restructuring
projects.
Interest expense increased 43.8% to $295.9 million in 1999 compared to
$205.8 million in 1998. This increase primarily resulted from interest expense
on approximately $300.0 million principal amount at maturity of 9.5% Senior
Notes and $364.0 million principal amount at maturity of 12.25% Senior
Subordinated Discount Notes issued in February 1999. In addition, the increase
partially resulted from increased interest expense on $500.0 million principal
amount of 8.6% Senior Notes issued in May 1998. Interest cost capitalized in
connection with the Company's construction of telecommunications equipment
amounted to approximately $10.4 million and $7.2 million for the years ended
December 31, 1999 and 1998, respectively.
Interest and other income remained constant at $35.8 million in 1999 and
1998. Interest income decreased slightly due to comparatively higher level of
average cash balances during 1998 as compared to 1999. The Company issued
approximately $500.0 million for 8.6% Senior Notes in May 1998 and approximately
$200.0 million for Series F Depositary Shares in August 1998, compared to
approximately $300.0 million for 9.5% Senior Notes and approximately $364.0
million for 12.25% Senior Subordinated Discount Notes early in 1999. In
addition, Digex completed its initial public offering, which raised
approximately $178.9 million net proceeds during August 1999. This decrease in
interest and other income was offset by increases in customer finance charges
during 1999 as compared to 1998.
Net loss before minority interest increased 16.0% to $(565.2) million in
1999 compared to $(487.2) million in 1998. Factors contributing to the increase
in the Company's net loss are described above.
A minority interest in net loss of subsidiary of $6.8 million was recorded
by the Company in 1999. The minority interest in net loss of subsidiary is
approximately 18.7% of the net losses incurred by Digex subsequent to the August
4, 1999 initial public offering. The Company expects this amount to increase in
2000 as the Company decreases its ownership in the subsidiary.
Preferred stock dividends and accretions increased 2.4% to $92.5 million in
1999 compared to $90.3 million in 1998. The slight increase was due to the
dividends accrued on the Series F Preferred Stock that was issued in August
1998. The increase was offset by conversion of approximately 15,000 shares of
the Company's Series D Preferred Stock and approximately 15,000 shares of the
Company's Series E Preferred Stock into common stock in July and August of 1998.
The Company recorded a preferred stock dividend charge of
38
<PAGE> 41
approximately $11.0 million during the third quarter of 1998 representing the
market value of the inducement feature of the conversions.
EBITDA Before Certain Charges
EBITDA before certain charges, as defined below, increased $22.8 million to
$53.7 million in 1999 compared to $30.9 million in 1998. The integration of
recent acquisitions contributed to improved EBITDA before certain charges as a
result of consolidating sales forces and introducing the Company's products into
additional markets. Gross margin, inclusive of network expenses, facilities
administration and maintenance expenses and cost of goods sold, increased to
$348.1 million in 1999 compared to $244.0 million in 1998 as a result of the
Company's continued efforts to consolidate traffic through the Williams backbone
network, as well as through the Company's existing networks in an efficient and
cost effective manner. In addition, the Company has been successful in selling
more of its access lines "on switch," improving customer provisioning time,
rolling out new products and services, and increasing its mix of higher margin
products. Partially offsetting the favorable increase in gross margin was a
$81.4 million increase in selling, general and administrative expenses. The
Company has made significant strides in restructuring back-office and
administrative functions and has integrated its information systems and
resources and expects the Program to continue until June 2000. However, the
Company's core growth strategy and accelerated growth in Digex required
increases in sales and marketing efforts and other support costs which
contributed to the overall increase in selling, general and administrative
expenses.
EBITDA before certain charges consists of earnings (net loss before
minority interest) before interest expense, interest and other income, income
taxes, depreciation, amortization, deferred compensation, charges for in-process
R&D, business integration, restructuring and other costs associated with the
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 accepted accounting principles and,
as a result, the 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.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company's revenue grew from $247.9 million to $712.8 million or 187.5%
from 1997 to 1998. Revenue in 1997 and 1998 for each of the Company's product
lines were as follows:
<TABLE>
<CAPTION>
1997 1998 INCREASE
------ ------ --------
<S> <C> <C> <C>
Data, Internet and Web hosting.............................. $158.0 $261.4 $103.4
Local access and voice...................................... 83.8 350.0 266.2
Integration................................................. 6.1 101.4 95.3
------ ------ ------
$247.9 $712.8 $464.9
====== ====== ======
</TABLE>
The overall increase in revenue was principally the result of the
acquisitions of Shared and LDS in the first quarter of 1998, the acquisition of
National in the second quarter of 1998, the introduction of new services and the
increased focus of the Company's sales force on offering a full suite of
communications services to an expanding market. A portion of the revenue
increase was also attributable to the inclusion of DIGEX (included both Internet
connectivity and Web hosting business units prior to carve out of Digex in 1999)
for 12 months in 1998 compared to six months in 1997. In addition, the Company
has been integrating its acquisitions throughout 1998, and the Company offers a
fully integrated portfolio to a larger customer base.
39
<PAGE> 42
Data, Internet and Web hosting revenue increased 65.4% to $261.4 million in
1998 compared to $158.0 million in 1997. This increase was principally due to
the acquisition of LDS during the first quarter of 1998 and the expansion of the
Company's enhanced data network, as well as the inclusion of the operating
results of DIGEX for 12 months in 1998 compared to six months in 1997. The data
network was expanded by 41 switches, 294 NNI connections, and 15,059 new frame
relay nodes. In addition, the Company experienced a significant increase in
sales of frame relay, Internet and Web hosting services during 1998.
Local access and voice revenue increased 317.6% to $350.0 million in 1998
compared to $83.8 million in 1997. This increase was principally due to the
acquisition of Shared during the first quarter of 1998, the acquisitions of LDS
and National during the second quarter of 1998, and the continued rollout of
local exchange services into additional markets. The number of access line
equivalents increased by 266,235 from December 31, 1997 through December 31,
1998. The Company was certified as a competitive local exchange carrier ("CLEC")
in 37 states and the District of Columbia as of December 31, 1998, versus 36
states and the District of Columbia as of December 31, 1997. Increases in long
distance voice revenue resulted principally from the acquisitions of Shared and
LDS during the first quarter of 1998 and the acquisition of National during the
second quarter of 1998, which were partially offset by the Company's second
quarter decision to exit the wholesale long distance business. However, the
Company also experienced strong growth in long distance switched revenue and
steady growth in interLATA transport.
Integration services revenue increased 1,549.6% to $101.4 million in 1998
compared to $6.1 million for the same period in 1997. This increase was
principally due to the acquisition of Shared during the first quarter of 1998.
Revenue from the Company's operating segment, Digex Web hosting, increased
94.9% to $22.6 million in 1998 compared to $11.6 million in 1997. The $11.0
million increase in revenue was a result of the Company's increased marketing
efforts, and market acceptance of its new products, resulting in growth in the
number of customers. The Company also experienced increases in revenue from
existing customers through upgrades and value-added services. This translated
into higher average revenues per server.
Operating expenses in total increased 150.4% to $1,030.1 million in 1998
compared to $411.4 million in 1997. This increase was principally due to the
acquisition of Shared and LDS during the first quarter of 1998, the acquisition
of National during the second quarter of 1998 and the inclusion of DIGEX's
operating results for the full 12 months in 1998 versus the six months included
in 1997. The increase also resulted from the costs associated with the
significant expansion of the Company's owned and leased network and the
continued increase in personnel to sustain and support the Company's growth. Of
the increase, $53.5 million was related to expenses recorded in connection with
the Program and $63.0 million was related to a one time in-process R&D charge
(discussed below).
Network expenses increased 105.3% to $337.6 million in 1998 compared to
$164.5 million in 1997. The increase resulted principally from the acquisitions
of Shared and LDS in the first quarter of 1998 and the acquisition of National
in the second quarter of 1998. The Company incurred increased expenses in leased
network capacity associated with the growth of local network service, data
service and interexchange service revenues. The Williams agreement positively
impacted network operations expenses in 1998 by eliminating certain backbone
network costs that were previously accounted for as operating leases. This
positive impact was substantially offset by depreciation expense associated with
the underlying irrevocable right of use.
Facilities administration and maintenance increased 108.5% to $66.1 million
in 1998 compared to $31.7 million in 1997. The increase in the combined costs of
facilities administration and maintenance and cost of goods sold was principally
the result of the acquisitions of Shared and LDS in the first quarter of 1998
and the acquisition of National in the second quarter of 1998. The increase also
resulted from support costs relating to the expansion of the Company's owned and
leased network capacity, increases in maintenance expense due to network
expansion, and increased payroll expenses related to hiring additional
engineering and operations staff to support and service the expanding network,
including the increase in anticipated volume relating to the US West, Ameritech,
and Bell Atlantic agreements.
40
<PAGE> 43
Cost of goods sold increased 2,070% to $65.1 million in 1998 compared to
$3.0 million in 1997. The increase in cost of goods sold was principally due to
the acquisition of Shared during the first quarter of 1998.
Selling, general and administrative expenses increased 119.6% to $213.0 in
1998 compared to $97.0 in 1997. The increase was principally due to the
acquisitions of Shared and LDS in the first quarter of 1998 and the acquisition
of National in the second quarter of 1998. The acquisitions of Shared, LDS, and
National contributed to the increase by approximately $38.4 million, $12.1
million, and $7.1 million, respectively. In addition, the Company has
experienced continued personnel growth, represented by departmental expense
increases in sales of approximately $42.2 million, marketing of approximately
$10.0 million, management information services of approximately $7.0 million and
customer operations of approximately $12.5 million. The growth in headcount was
related to the expansion in all of the Company's service lines.
Depreciation and amortization expense increased 328.5% to $229.7 million in
1998 compared to $53.6 million in 1997. This increase primarily resulted from
additions to telecommunications equipment placed in service during 1997 and 1998
relating to ongoing network expansion (including the irrevocable right of use
acquired from Williams), as well as the acquisitions of Shared, LDS, and
National which contributed $662.8 million, $143.1 million, and $146.7 million,
respectively, of intangible assets in 1998. In addition, the acquisition of
DIGEX in July 1997 contributed approximately $113.4 million of intangible
assets. The amortization related to the DIGEX acquisition was included as part
of amortization expense for 12 months in 1998 compared to six months in 1997.
Deferred compensation expense increased 31.3% in 1998 to $2.1 million
compared to $1.6 million in 1997. The Company recorded increased deferred
compensation expense in 1998 related to the Company's Stock Award Plan
(discussed further in Note 10 to the financial statements) as compared to 1997.
The charge for in-process R&D of $63.0 million in the first quarter of 1998
represents the amount of purchased in-process R&D associated with the purchase
of Shared. This allocation represents the estimated fair value based on
risk-adjusted cash flows related to the incomplete projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and in-process R&D had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date and were recorded as a
one-time charge to earnings in the first quarter of 1998. In making its purchase
price allocation, the Company relied on present value calculations of income and
cash flows, an analysis of project accomplishments and completion costs and an
assessment of overall contribution, as well as project risk. The amounts
assigned to the in-process R&D were determined by identifying significant
research projects for which technological feasibility had not been established.
In-process R&D included the development and deployment of an innovative
multi-service access platform ("MSAP") which will enables Shared to provision
new data services. These projects were completed by December 31, 1999.
Development efforts for these in-process R&D projects included various
phases of design, development, and testing. The Company has deployed digital
subscriber loop access management (DSLAMs) as the MSAP in 272 shared tenant
(Advanced Building Networks) buildings in 17 markets. These DSLAMs provide
customers with high speed Internet access. While voice and data services are not
currently provided through this single MSAP, the DSLAMs provide the
infrastructure for future phases of this technological development.
Charge for in-process R&D of $60 million represents the amount of purchased
in-process R&D associated with the purchase of DIGEX. In connection with this
acquisition, the Company allocated $60 million of the purchase price to
in-process R&D projects. This allocation represents the estimated fair value
based on risk-adjusted cash flows related to the incomplete products. At the
date of acquisition, the development of these projects had not yet reached
technological feasibility and the in-process R&D had no alternative future uses.
Accordingly, these costs were expensed as a one-time charge to earnings in the
third quarter of 1997.
In making its purchase price allocation, the Company relied on present
value calculations of income, an analysis of project accomplishments and
completion costs and an assessment of overall contribution and project risk. The
amounts assigned to the in-process R&D were determined by identifying
significant research
41
<PAGE> 44
projects for which technological feasibility had not been established. These
projects included development, engineering, and testing activities associated
with specific and substantial network projects including new router technology
related to traffic management and very high speed data streams, as well as
value-added services such as multicasting and new advanced web management
capabilities.
The value assigned to purchased in-process R&D was determined by estimating
the costs to develop the purchased in-process R&D into commercially viable
products and services, estimating the resulting net cash flows from the
projects, and discounting the net cash flows to their present value.
Remaining development efforts for these in-process R&D projects included
various phases of design, development, and testing. These projects were
completed by December 31, 1999. The estimated costs to complete the projects
were approximately $2.4 through December 31, 1998.
Business restructuring and integration expense of approximately $53.5
million was recorded by the Company during the twelve months ended December 31,
1998. As more fully discussed in Note 3 of the Consolidated Financial
Statements, these costs arose from businesses exited, contract terminations and
integration and other restructuring activities and costs, including incremental,
redundant or convergence costs that result directly from implementation of the
Program. Additional incremental, redundant and convergence costs were be
expensed as incurred over the Program implementation period, which will be
continued until June 2000.
Interest expense increased 239.2% to $205.8 million in 1998 compared to
$60.7 million in 1997. This increase primarily resulted from interest expense on
approximately $1.2 billion of senior notes issued from the fourth quarter of
1997 and in 1998 and the non-cash imputed interest charges of $5.1 million and
$1.0 million related to the acquisitions of Shared and National, respectively.
In addition, the Company recorded interest expense of $40.3 million during the
year ended December 31, 1998, related to the capital lease with Williams.
Included in 1998 interest expense is $156.3 million of debt discount
amortization and $4.5 million of deferred loan cost amortization, both of which
are non-cash items. Interest expense capitalized in connection with the
Company's construction of telecommunications equipment amounted to approximately
$7.2 million and $5.0 million for the years ended December 31, 1998 and 1997,
respectively.
Interest and other income increased 33.6% to $35.8 million in 1998 compared
to $26.8 million in 1997. This increase was primarily the result of interest
earned on the cash available from the proceeds of the issuance of securities in
1997 and 1998.
Loss from operations from the Company's operating segment, Digex Web
hosting, decreased by $12.4 million in 1998 from $16.7 million compared to $29.1
million in 1997. The increase is primarily attributable to the segment's
allocated portion (approximately $15 million) of the in-process R&D as more
fully discussed above. The decrease was partially offset by an increase in costs
associated with this segment's growth strategy. Costs associated with the
administration and maintenance of the new data centers and increased selling,
general and administrative costs represent a large portion of this segment's
expenses during its expansion in 1998
Extraordinary loss of $43.8 million in 1997 consisted of pre-payment
penalties relating to the early retirement of certain outstanding indebtedness
of the Company from the proceeds of a new issuance of senior notes and the
write-off of the unamortized deferred financing costs associated with the
retired indebtedness.
Preferred stock dividends and accretions increased 106.5% to $90.3 million
in 1998 compared to $43.7 million for 1997. The increase was attributable to the
dividend payments on the two series of preferred stock issued during October
1997 and August 1998 and the conversion of approximately $75 million liquidation
preference of outstanding preferred stock into Common Stock. The Company
recorded a preferred stock dividend charge of approximately $11.0 million during
the third quarter of 1998 representing the market value of the inducement
feature of the conversions. Preferred stock dividends were paid in the form of
Common Stock and preferred stock. Management does not expect to pay cash
dividends in the foreseeable future.
EBITDA before certain charges, as defined below, increased to $30.9 million
in 1998 compared to $(48.2) million for the same period in 1997. The increase
was principally the result of the acquisitions of
42
<PAGE> 45
Shared and LDS in the first quarter of 1998 and the acquisition of National in
the second quarter of 1998. The acquisitions also contributed to improved EBITDA
before certain charges by consolidating sales forces and introducing the
Company's products into additional markets. The Company has continued its
efforts to consolidate traffic through the Williams backbone network, as well as
through the Company's existing networks in an efficient manner. In addition, the
Company has been successful in selling more of its access lines "on switch" and
increasing its mix of higher margin products. The business restructuring and
integration program has yielded benefits by rationalizing and integrating the
recent acquisitions, including eliminating redundant costs. In addition, the
Company has reduced network operation expenses, facilities administration and
maintenance expenses and selling, general and administrative expenses as a
percentage of revenue in 1998 compared to 1997.
EBITDA before certain charges consists of earnings (loss) before
extraordinary loss on early extinguishment of debt, interest expense, interest
and other income, income taxes, depreciation, amortization, deferred
compensation, charges for in-process R&D, business restructuring, integration
and other costs associated with the 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have required substantial capital investment for
the purchase of telecommunications equipment and the design, construction and
development of the Company's networks. Cash payments for capital assets for the
Company were approximately $260.1 million, $492.0 million, and $602.3 million
for the years ended December 31, 1997, 1998 and 1999, respectively, excluding
capital leases and telecommunications equipment acquired in connection with
business acquisitions. The Company expects that it will continue to have
substantial capital requirements in connection with the (i) expansion and
improvement of the Company's existing networks, (ii) design, construction and
development of new networks, primarily on a demand driven basis, (iii)
connection of additional buildings and customers to the Company's networks, and
(iv) continued expansion of data centers related to the development of the Digex
Web hosting segment.
The substantial capital investment required to build the Company's network
has resulted in negative cash flow after consideration of investing activities
over the last five years. The Company expects to continue to experience negative
cash flow after investing activities for the next several years due to the
continuous expansion and the development of the Company's networks. With respect
to the Digex Web hosting segment, the Company anticipates significant cash
requirements for several years for data center capacity, increasing the employee
base to support expanding operations and investing in its marketing and research
and development efforts. Until sufficient cash flow after investing activities
is generated, the Company will be required to utilize its current and future
capital resources, including the issuance of additional debt and/or equity
securities, to meet its cash flow requirements.
In February 1999, the Company sold $300.0 million principal amount of 9.5%
Senior Notes and $364.0 million principal amount at maturity of 12.25% Senior
Subordinated Discount Notes in a private placement transaction. Net proceeds to
the Company amounted to approximately $488.4 million from both issuances. The
proceeds of the offering of the 9.5% Senior Notes cannot be used for working
capital purposes and can solely be used to fund up to 80% of the cost of
acquiring or constructing telecommunications related assets. The proceeds from
the offering of the 12.25% Senior Subordinated Discount Notes will be used for
general corporate purposes, including the funding of working capital and
operating losses, and the funding of a portion of the cost of acquiring or
constructing telecommunications related assets.
43
<PAGE> 46
In August 1999, Digex, sold 11.5 million shares of its Class A common stock
in an initial public offering. The shares sold represented approximately 18.7%
of the aggregate number of shares of Digex common stock outstanding. However,
the Company retained a 97.8% voting interest in Digex during 1999. The net
proceeds from the Digex initial public offering were approximately $178.9
million and can be used to purchase telecommunications related assets due to
restrictions in Intermedia's debt instruments. The Company reduced its ownership
in Digex in 2000 as explained below.
On December 22, 1999, the Company had secured a five-year $100.0 million
Revolving Credit Agreement (the "Credit Agreement") outstanding with three
financial institutions. The Revolving Credit Facility ("Credit Facility") may be
repaid and reborrowed from time to time in accordance with the terms and
provisions of the agreement, and is guaranteed by each of the Company's
subsidiaries. The Credit Facility is secured by a pledge of the stock of each of
the Company's subsidiaries, and is secured by substantially all of the assets of
the Company and its subsidiaries. The interest rate on the revolving credit
facility is based on either a LIBOR or an alternative base rate option, and is
paid quarterly in arrears. The Credit Agreement contains covenants customary for
facilities of this nature, including limitations on incurrence of additional
debt, asset sales, acquisitions, investments, amount others. At December 31,
1999, the Company had $50.0 million outstanding under the credit facility which
was repaid in February 2000. In addition, the Company has recently received a
commitment from the banks to increase the size of the Credit Facility, although
it is under no obligation to do so.
On January 12, 2000, Digex sold 100,000 shares of its preferred stock,
designated as Series A Convertible Preferred Stock (the "Preferred Stock"), with
detachable warrants to purchase 1,065,000 shares its Class A common stock (the
"Warrants"), for an aggregate of $100 million, of which $15 million was in the
form of equipment purchase credits. The Preferred Stock has an aggregate
liquidation preference of $100 million, and is convertible into approximately
1,462,000 shares of Class A Common Stock. The Warrants can be exercised at any
time over their three-year term at a price of $57 per share (the fair value of
the Company's common stock on the transaction commitment date). The proceeds
from the offering will be allocated between the Preferred Stock and the Warrants
based upon their relative fair values, which have not yet been determined by the
Company. Following the allocation, the Preferred Stock will be accreted up to
its liquidation preference through charges to accumulated deficit.
On February 16, 2000, Digex completed its second public offering of
12,650,000 shares of its Class A common stock. Digex offered 2,000,000 shares of
its Class A common stock, and the Company sold 10,650,000 shares of Digex Class
A common stock. Intermedia now owns approximately 62.0% of the outstanding
Common Stock of Digex. However, since each share of Digex Class B common stock
has ten votes and each share of Digex Class A has one vote, Intermedia retains
approximately 94.2% voting interest in Digex. The net proceeds to Intermedia
were approximately $913.8 million and will be used to reduce the Company's
outstanding debt and to purchase telecommunications related assets.
On February 17, 2000, the KKR made a $200 million equity investment in the
Company in a private placement transaction. In exchange for this investment, the
Company issued 200,000 shares of Series G Junior Convertible Preferred Stock
(the Series G Preferred Stock) (aggregate liquidation preference $200 million)
in a private placement transaction. Dividends on the Series G Preferred Stock
accumulate at a rate of 7% of the aggregate liquidation preference thereof and
are payable quarterly, in arrears. At the Company's option, dividends are
payable in cash, issuance of shares of common stock of the Company, or by some
combination thereof. The Series G Preferred Stock is redeemable, at the option
of the Company, at any time on or after February 17, 2005 at rates commencing
with 103.5% declining to 100% on February 17, 2008. At closing, two
representatives of KKR joined the board. Net proceeds to the Company were
approximately $188.0 million. The proceeds from this investment will be used for
general corporate purposes, including the funding of working capital and
operating losses, and the funding of a portion of the cost of acquiring or
constructing telecommunications related assets.
In addition, KKR received warrants to purchase 1,000,000 shares of the
Company's Common Stock at $40 per share and warrants to purchase 1,000,000
shares of the Company's Common Stock at $45 per share.
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<PAGE> 47
The Company believes that its business plan will be funded into the second
half of 2001. However, the Company's future capital needs depend upon a number
of factors, certain of which it controls (such as marketing expenses, staffing
levels, customer growth and capital costs) and others which it cannot control
(such as competitive conditions and government regulation). Moreover, the terms
of the Company's outstanding indebtedness (including the Credit Facility with
Bank of America, N.A.) and preferred stock impose certain restrictions upon the
Company's ability to incur additional indebtedness or issue additional preferred
stock. Depending on market conditions, the Company may decide 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.
The Company has from time to time held, and continues to hold, preliminary
discussions with (i) potential investors (i.e. strategic investors in the same
or a related business and financial investors) who have expressed an interest in
making an investment in or acquiring the Company, (ii) potential joint venture
partners looking toward formation of strategic alliances that would expand the
reach of the Company's network or services without necessarily requiring an
additional investment in or by the Company and (iii) companies that represent
potential acquisition opportunities for the Company. There can be no assurance
that any agreement with any potential strategic or financial investor, joint
venture partner or acquisition target will be reached nor does management
believe that any such transaction is necessary to successfully implement its
strategic plans.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer-controller systems using two
digits rather than four to define the applicable year. For example, computer
programs that have date-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. To date, the Company has not
experienced any significant Year 2000 problems.
As of December 31, 1999, the Company had spent $15.6 million on external
costs, $4.8 million on internal costs, and $7.3 million on hardware and software
costs pursuant to our compliance program. The internal costs are comprised of
employee hours, and external costs are comprised of outside consultant costs.
The costs presented do not include system upgrades that would otherwise result
as part of the Company's capital expenditure program.
INCOME TAXES
The Company recorded no current net income tax expense in 1999. At December
31, 1999, a full valuation allowance was provided on net deferred tax assets of
$446.1 million based upon the Company's history of losses over the past several
years and the uncertainty surrounding the Company's ability to recognize such
assets. The valuation allowance relates primarily to net operating losses and
high yield debt obligations. Due to the sale of Digex stock in February 2000,
the Company will recognize a gain on sale of stock and could utilize net
operating losses in the future.
IMPACT OF INFLATION
Inflation has not had a significant impact on Intermedia's operations over
the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
While all of the Company's long term debt bears fixed interest rates, the
fair market value of the Company's fixed rate long-term debt is sensitive to
changes in interest rates. The Company runs the risk that market rates will
decline and the required payments will exceed those based on current market
rate. Under its current policies, the Company does not use interest rate
derivative instruments to manage its exposure to interest rate changes.
45
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 14 are included in this report
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference from
the information captioned "Proposal One: Election of Directors" and "Executive
Officers" to be included in the Company's proxy statement to be filed in
connection with the annual meeting of stockholders, to be held on May 25, 2000
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from
the information captioned "Executive Compensation," "Compensation Committee
Interlocks and Insider Participation" and "Comparative Stock Performance" to be
included in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from
the information captioned "Beneficial Ownership" to be included in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by the Item 13 is incorporated by reference from
the information captioned "Certain Relationships and Related Transactions" to be
included in the Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENT AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Company and the
notes thereto, the related reports thereon of the independent certified public
accountants, and financial statement schedules, are filed pursuant to Item 8 of
this Report:
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheets at December 31, 1998 and 1999... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998, and 1999......................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1998, and 1999..... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998, and 1999......................... F-6
Notes to Consolidated Financial Statements.................. F-7
FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts............ F-33
</TABLE>
All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission (the
"Commission") are not required pursuant to the instructions to Item 8 or are
inapplicable and therefore have been omitted.
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<PAGE> 50
INTERMEDIA REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the fourth quarter of
1999:
Intermedia filed a Current Report on Form 8-K, dated November 3, 1999,
reporting under Item 5 the issuance of a press release discussing the Company's
third quarter results. The Company also reported under Item 7 the filing of the
press release as an exhibit to the Form 8-K.
Intermedia filed a Current Report on Form 8-K, dated December 29, 1999,
reporting under Item 5 that the Company entered into a Revolving Credit
Agreement with Bank of America N.A., the Bank of New York, and Toronto Dominion
(Texas), Inc.
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<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------- -------
<S> <C> <C>
1.1 -- Senior Note Purchase Agreement, dated as of February 19,
1999, among Intermedia and Bear, Stearns, & Co. Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon
Smith Barney Inc., NationsBanc Montgomery Securities LLC and
Warburg Dillon Read LLC (the "Initial Purchasers"). Exhibit
1.1 to Intermedia's Registration Statement on Form S-4 filed
with the Commission on April 15, 1999 is incorporated herein
by reference.
1.2 -- Senior Subordinated Note Purchase Agreement, dated as of
February 19, 1999, among Intermedia and the Initial
Purchasers. Exhibit 1.2 to Intermedia's Registration
Statement on Form S-4 filed with the Commission on April 15,
1999 is incorporated herein by reference.
1.3 -- Purchase Agreement, dated August 12, 1998, among the Company
and the Initial Purchasers, Exhibit 1.1 to Intermedia's
Registration Statement on Form S-3/A filed January 12, 1999,
is incorporated herein by reference.
2.1 -- Agreement and Plan of Merger, dated as of June 4, 1997,
among Intermedia, Daylight Acquisition Corp. and DIGEX.
Exhibit 99(c)(1) to Intermedia's Schedule 14D-1 filed with
the Commission on June 11, 1997 is incorporated herein by
reference.
2.2 -- Agreement and Plan of Merger, dated as of November 20, 1997,
by and among Intermedia, Moonlight Acquisition Corp. and
Shared. Exhibit 99(c)(1) to Intermedia's
Schedule 14D-1 and Schedule 13D filed with the Commission on
November 26, 1997 is incorporated herein by reference.
2.3 -- Acquisition Agreement, dated as of December 17, 1997, among
Intermedia and the holders of interest in the Long Distance
Savers companies. Exhibit 2.3 to Amendment No. 1 to
Intermedia's Registration Statement on Form S-3 filed with
the Commission on January 14, 1998 (No. 333-42999) is
incorporated herein by reference.
2.4 -- Agreement and Plan of Merger, dated as of February 11, 1998,
among Intermedia, Sumter One Acquisition, Inc., Sumter Two
Acquisition, Inc., National Telecommunications of Florida,
Inc., NTC, Inc. and the stockholders of National. Exhibit
2.4 to Intermedia's Registration Statement on Form S-3 filed
with the Commission on February 13, 1998 (No. 333-46369) is
incorporated herein by reference.
3.1 -- Restated Certificate of Incorporation of Intermedia,
together with all amendments thereto. Exhibit 3.1 to
Intermedia's Registration Statement on Form S-4 filed with
the Commission on June 16, 1998 (No. 333-56939) (the "Form
S-4") incorporated herein by reference.
3.2 -- By-laws of Intermedia, together with all amendments thereto.
Exhibit 3.2 to Intermedia's Registration Statement on Form
S-1, filed with the Commission on November 8, 1993 (No.
33-69052) (the "Form S-1") is incorporated herein by
reference.
4.1 -- Indenture, dated as of June 2, 1995, between Intermedia and
SunBank National Association, as trustee. Exhibit 4.1 to
Intermedia's Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on June 20, 1995 (No.
33-93622) is incorporated herein by reference.
4.1(a) -- Amended and Restated Indenture, dated as of April 26, 1996,
between Intermedia and SunTrust Bank, Central Florida,
National Association, as trustee. Exhibit 4.1 to
Intermedia's Current Report on Form 8-K filed with the
Commission on April 29, 1996 is incorporated herein by
reference.
4.2 -- Indenture, dated as of May 14, 1996, between Intermedia and
SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to Amendment No. 1 to Intermedia's
Registration Statement on Form S-3 filed with the Commission
on April 18, 1996 (No. 33-34738) is incorporated herein by
reference.
4.3 -- Indenture, dated as of July 9, 1997, between Intermedia and
SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to Intermedia's Current Report on Form
8-K filed with the Commission on July 17, 1997 is
incorporated herein by reference.
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------- -------
<S> <C> <C>
4.4 -- Indenture, dated as of October 30, 1997, between Intermedia
and SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.1 to Intermedia's Current Report on Form
8-K filed with the Commission on November 6, 1997 is
incorporated herein by reference.
4.5 -- Indenture, dated as of December 23, 1997, between Intermedia
and SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.5 to Intermedia's Registration Statement
on Form S-3 (Commission File No. 333-44875) filed with the
Commission on April 18, 1996 is incorporated herein by
reference.
4.6 -- Indenture, dated as of May 27, 1998, between Intermedia and
SunTrust Bank, Central Florida, National Association, as
trustee. Exhibit 4.6 to Intermedia's Form S-4 is
incorporated herein by reference.
4.7 -- Rights Agreement dated as of March 7, 1996, between
Intermedia and Continental Stock Transfer and Trust Company.
Exhibit 4.1 to Intermedia's Current Report on Form 8-K filed
with the Commission on March 12, 1996 is incorporated herein
by reference.
4.7(a) -- Amendment to Rights Agreement, dated as of February 20, 1997
between Intermedia and Continental Stock Transfer & Trust
Company. Exhibit 4.4(a) to Intermedia's Annual Report on
Form 10-K for the year ended December 31, 1996 is
incorporated herein by reference.
4.7(b) -- Amendment to Rights Agreement, dated as of January 27, 1998
between Intermedia and Continental Stock Transfer & Trust
Company. Exhibit 4.6(b) to Intermedia's Annual Report on
Form 10-K (the "1997 Form 10-K") is incorporated herein by
reference.
4.8 -- Certificate of Designation of Voting Power, Designation
Preferences and Relative, Participating, Optional and Other
Special Rights and Qualifications, Limitations and
Restrictions of 7% Series F Junior Convertible Preferred
Stock of the Company filed with the Secretary of State of
the State of Delaware August 17, 1998, Exhibit 4.8 to
Intermedia's Registration Statement on Form S-3/A filed
February 1, 1999, is incorporated herein by reference.
4.9 -- Registration Rights Agreement, dated August 18, 1998, among
the Company and the Initial Purchasers, Exhibit 4.7 to
Intermedia's Registration Statement on Form S-3/A filed
January 12, 1999, is incorporated herein by reference.
4.10 -- Deposit Agreement, dated August 18, 1999, among the Company
and Continental Stock Transfer & Trust Company, Exhibit 4.9
to Intermedia's Registration Statement on
Form S-3/A filed January 12, 1999, is incorporated herein by
reference.
4.11 -- Senior Note Indenture, dated February 24, 1999, between
Intermedia and SunTrust Bank, Central Florida National
Association, as trustee, Exhibit 4.7 to Intermedia's
Registration Statement on Form S-4 filed April 15, 1999,
(No. 333-76363) is incorporated herein by reference.
4.12 -- Senior Subordinated Note Indenture, dated February 24, 1999,
between Intermedia and SunTrust Bank, Central Florida,
National Association, as trustee, Exhibit 4.8 to
Intermedia's Registration Statement on Form S-4 filed April
15, 1999, (No. 333-76363) is incorporated herein by
reference.
4.13 -- Senior Note Registration Rights Agreement, dated February
24, 1999, among Intermedia and the Initial Purchasers,
Exhibit 4.9 to Intermedia's Registration Statement on Form
S-4 filed April 15, 1999, (No. 333-76363) is incorporated
herein by reference.
4.14 -- Senior Subordinated Note Registration Rights Agreement,
dated February 24, 1999, among Intermedia and the Initial
Purchasers, Exhibit 4.10 to Intermedia's Registration
Statement on Form S-4 filed April 15, 1999, (No. 333-76363)
is incorporated herein by reference.
10.1 -- 1992 Stock Option Plan. Exhibit 10.1 to the Form S-1 is
incorporated herein by reference.
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------- -------
<S> <C> <C>
10.1(a) -- Amendment to 1992 Stock Option Plan dated May 20, 1993.
Exhibit 10.1(b) to the
Form S-1 is incorporated herein by reference.
10.1(b) -- Amendment to 1992 Stock Option Plan dated as of December 16,
1997. Exhibit 10.1(b) to Intermedia's Annual Report on Form
10-K for the year ended December 31, 1997 (the "1997 Form
10-K") is incorporated herein by reference.
10.2 -- Long Term Incentive Plan. Exhibit 10.1(c) to Intermedia's
Annual Report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K") is incorporated herein by
reference.
10.2(a) -- Amendment to Long Term Incentive Plan dated as of December
16, 1997. Exhibit 10.2(a) to Intermedia's 1997 Form 10-K is
incorporated herein by reference.
10.3 -- 1997 Equity Participation Plan for the Benefit of Employees
of DIGEX. Exhibit 10.3 to Intermedia's 1997 Form 10-K is
incorporated herein by reference.
10.4 -- 1997 Stock Option Plan for the Benefit of employees of
DIGEX. Exhibit 10.4 to Intermedia's 1997 Form 10-K is
incorporated herein by reference.
10.5 -- David C. Ruberg Employment Agreement, dated May 1, 1993,
between David C. Ruberg and Intermedia. Exhibit 10.2 to
Intermedia's 1995 Form 10-K is incorporated herein by
reference and amended on December 1, 1999.
10.6 -- Letter Agreement dated August 27, 1996 between Robert M.
Manning and Intermedia. Exhibit 10.6 to Intermedia's 1997
Form 10-K is incorporated herein by reference and amended on
December 1, 1999.
10.8 -- Letter Agreement dated April 21, 1998 between E. Trevor
Dignall and Intermedia filed in Intermedia's Annual Report
on Form 10-K for the year ended December 31, 1998 is
incorporated herein by reference.
10.9 -- Letter Agreement dated December 23, 1998 between Richard J.
Buyens and Intermedia amended on December 1, 1999.
10.10 -- Sublease, dated August 28, 1995, between Intermedia and
Pharmacy Management Services, Inc. for its principal
executive offices located at 3625 Queen Palm Drive, Tampa,
Florida. Exhibit 10.3 to Intermedia's 1995 Form 10-K is
incorporated herein by reference.
10.11 -- 401(k) Plan. Exhibit 10.20 to Intermedia's Form S-1 is
incorporated herein by reference.
10.12 -- Revolving Credit Agreement, dated December 22, 1999, between
Intermedia, Bank of America N.A., the Bank of New York and
Toronto Dominion (Texas), Inc.
10.13 -- Letter Agreement dated December 1, 1999 between Richard W.
Marchant and Intermedia.
10.14 -- Letter Agreement dated December 1, 1999 between Alfred G.
Binford and Intermedia.
10.15 -- Letter Agreement dated December 1, 1999 between Patricia A.
Kurlin and Intermedia.
12.1 -- Statement Re: Computation of Ratios.
21 -- Subsidiaries of Intermedia.
23.1 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERMEDIA COMMUNICATIONS INC.
(Registrant)
By: /s/ DAVID C. RUBERG
------------------------------------
David C. Ruberg
Chairman of the Board, President and
Chief Executive Officer
March 20, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- --------------
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ DAVID C. RUBERG Chairman of the Board, March 20, 2000
- ----------------------------------------------------- President and Chief Executive
David C. Ruberg Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICERS:
/s/ ROBERT M. MANNING Senior Vice President and Chief March 20, 2000
- ----------------------------------------------------- Financial Officer
Robert M. Manning
/s/ JEANNE M. WALTERS Vice President, Controller and March 20, 2000
- ----------------------------------------------------- Chief Accounting Officer
Jeanne M. Walters
OTHER DIRECTORS:
/s/ JOHN C. BAKER March 20, 2000
- -----------------------------------------------------
John C. Baker
/s/ GEORGE F. KNAPP March 20, 2000
- -----------------------------------------------------
George F. Knapp
/s/ PHILIP A. CAMPBELL March 20, 2000
- -----------------------------------------------------
Philip A. Campbell
/s/ JAMES H. GREEN March 20, 2000
- -----------------------------------------------------
James H. Greene
/s/ ALEX NAVAB March 20, 2000
- -----------------------------------------------------
Alex Navab
/s/ RALPH SUTCLIFF March 20, 2000
- -----------------------------------------------------
Ralph Sutcliff
</TABLE>
52
<PAGE> 55
GLOSSARY
Access Charges -- The charges paid by a carrier to a LEC for the
origination or termination of the carrier's traffic.
Access Line -- A circuit that connects a telephone user (customer) to the
public switched network. The access line can connect directly to a telephone at
the customer's end, or to a customer's key system or PBX.
Access Line Equivalents ("ALEs") -- Represents Intermedia's method of
quantifying its local exchange service by estimating end user customer stations
connected to the Intermedia network. ALEs are calculated by adding the number of
"line service" local switch ports (those connecting to a telephone instrument or
equivalent device) to the product of 2.5 to 4 times the number of "trunk
service" ports (those connecting to a PBX, Key System, modem bank, or similar
device) depending on what combination of PSTN access and terminating equipment
the customer has in service.
ATM (Asynchronous Transfer Mode) -- A modern information transfer standard
that allows "packets" of voice and data to share a transmission circuit. ATM
provides much greater efficiency than the traditional method of transmitting
voice signal over a Circuit Switched Network.
Bandwidth -- The bit rate of digital signals that can be supported by a
circuit or device. The bandwidth of a particular circuit is generally determined
by the medium itself (wire, fiber optic cable, etc.) and the device that
transmits the signal to the transmission medium (laser, audio amplifier, etc.).
Central Office -- The switching center and/or central circuit termination
facility of a local telephone company.
Centrex -- A central office based business telephone service that roughly
provides the user with the same services as a PBX, without the capital
investment in the PBX. Centrex services include station to station dialing (2
through 5 digits), customized long distance call handling and user-input
authorization codes.
Circuit Switched Network -- A telecommunications network that establishes
connections by linking together physical telecommunications circuits, either as
pairs of wires or dedicated channels on high capacity transport facilities such
as fiber optic systems. These connections are maintained for the duration of the
call through one or more telephone switches, as opposed to packet or cell
switched connections, which are virtual, often utilizing many physical paths or
routes to connect the communicating parties. Traditional voice telephone
networks are circuit switched networks.
CLEC (Competitive Local Exchange Carrier) -- A telephone service provider
(carrier) that offers services similar to the former monopoly local telephone
company. A CLEC may also provide other types of telecommunications services
(long distance, data, etc.).
CLEC Certification -- Granted by a state public service commission or
public utility commission, this certification provides a telecommunications
services provider with the legal standing to offer local exchange telephone
services in direct competition with the ILEC and other CLECs. Such
certifications are granted on a state by state basis.
Collocation -- A location serving as the interface point for the
interconnection of a CLEC's network to the network of an ILEC or another CLEC.
Collocation can be 1) physical, where the CLEC "builds" a fiber optic network
extension into the ILEC's or CLEC's central office, or 2) virtual, where the
ILEC or CLEC leases a facility, similar to that which it might build, to affect
a presence in the ILEC's or CLEC's central office.
Communications Act of 1934 -- The first major federal legislation that
established rules for broadcast and non-broadcast communications, including both
wireless and wire line telephone service.
Connected Building -- A building that is connected to a carrier's network
via a non-switched circuit that is managed and monitored by that carrier.
53
<PAGE> 56
CPE (Customer Premises Equipment) -- The devices and systems that interface
a customer's voice or data telecommunications application to a provider's
network. CPE includes devices and systems such as PBXs, key systems, routers and
ISDN terminal adapters.
Dedicated Access -- A circuit, not shared among multiple customers, that
connects a customer to a carrier's network.
DSL (Digital Subscriber Line) -- A modern telephone technology that allows
high-speed voice and data traffic to travel over ordinary copper telephone
wires.
DWDM (Dense Wavelength Division Multiplexing) -- A technology that allows
multiple optical signals to be combined so that they can be aggregated as a
group and transported over a single fiber to increase capacity.
Enhanced Data Services -- Data networking services provided on a
sophisticated, software managed transport and switching network, such as a frame
relay or ATM data network.
Ethernet -- A popular standard for local area networks. The Ethernet
connects servers and clients within a building or within other proximate areas.
Ethernets typically pass data at 10 million bits per second (Mbs) or 100 Mbs.
Dark Fiber -- Fiber which does not have connected to it the electronics
required to transmit data on such fiber.
FCC (Federal Communications Commission) -- The U.S. Government organization
charged with the oversight of all public communications media.
Frame Relay -- A transport technology that organizes data into units called
frames, with variable bit length, designed to move information that is "bursty"
in nature.
ICP (Integrated Communications Provider) -- A telecommunications carrier
that provides packaged or integrated services from among a broad range of
categories, including local exchange service, long distance service, enhanced
data service, Internet service and other communications services.
ILEC (Incumbent Local Exchange Carrier) -- The local exchange carrier that
was the monopoly carrier, prior to the opening of local exchange services to
competition.
Integration Services -- The provision of specialized equipment to meet
specific customer needs, as well as the services to implement and support this
equipment.
Interconnection (co-carrier) Agreement -- A contract between an ILEC and a
CLEC for the interconnection of the two's networks, for the purpose of mutual
passing of traffic between the networks, allowing customers of one of the
networks to call users served by the other network. These agreements set out the
financial and operational aspects of such interconnection.
Interexchange Services -- Telecommunications services that are provided
between two exchange areas, generally meaning between two cities. These services
can be either voice or data.
ISDN (Integrated Services Digital Network) -- A modern telephone technology
that combines voice and dataswitching in an efficient manner.
ISP (Internet Service Provider) -- A telecommunications service provider
who provides access to the Internet, for dial access, and/or dedicated access.
IXC (Interexchange Carrier) -- A provider of telecommunications services
that extend between exchanges (LATAS), or cities, also called long distance
carrier.
Kbps -- Kilobits per second, or thousands of bits per second, a unit of
measure of data transmission.
Key System -- A device that allows several telephones to share access to
multiple telephone lines and to dial each other with abbreviated dialing schemes
(1 to 4 digits). Modern key sets often include features such as speed dial, call
forward, and others.
54
<PAGE> 57
LAN (Local Area Network) -- A connection of computing devices within a
building or other small area, which may extend up to a few thousand feet. The
LAN allows the data and applications connected to one computer to be available
to others on the LAN.
LATA (Local Access Transport Area) -- A geographic area inside of which a
LEC can offer switched telecommunications services, including local toll
service. There are 161 LATAs in the continental United States.
LEC (Local Exchange Carrier) -- Any telephone service provider offering
local exchange services.
Local Exchange -- An area inside of which telephone calls are generally
completed without any toll, or long distance charges.Local exchange areas are
defined by the state regulator of telephone services.
Local Exchange Services -- Telephone services that are provided within a
local exchange. These usually refer to local calling services (dial tone
services). Business local exchange services include Centrex, access lines and
trunks, and ISDN.
Mbps -- Megabits per second, or millions of bits per second, a unit of
measure for the transmission of data.
Number Portability -- The ability of a local exchange service customer of
an ILEC to keep their existing telephone number, while moving their service to a
CLEC.
Packet/Cell Switching Network -- A method of transmitting messages as
digitized bits, assembled in groups called packets or cells. These packets and
cells contain industry-standard defined numbers of data bits, along with
addressing information and data integrity bits. Packet/Cell Switching networks,
originally used only for the transmission of digital data, are being implemented
by carriers such as Intermedia to transport digitized voice, along with other
data. The switching (or routing) of the packets or cells of data replace the
"circuit-switching" of traditional voice telephone calls. Packet and cell
switching is considered to be a more cost efficient method of delivering voice
and data traffic.
PBX (Private Branch Exchange) -- A telephone switching system designed to
operate on the premises of the user. The PBX functions much like a telephone
company central office. A PBX connects stations (telephones) to each other and
to lines and trunks that connect the PBX to the public network and/or private
telephone networks. A PBX usually provides telephone service to a single
company, but, as in the case of shared tenant services, a PBX can be operated
within a building to provide service to multiple customers.
Peering -- The commercial practice under which nationwide ISPs exchange
traffic without the payment of settlement charges.
Peering Points -- A location at which ISPs exchange traffic.
Point of Presence -- A location where a carrier, usually an IXC, has
located transmission and terminating equipment to connect its network to the
networks of other carriers, or to customers.
Public Switched Network -- The collection of ILEC, CLEC and IXC telephone
networks (switches and transmission routes) that allow telephones and other
devices to dial a standardized number and reach any other device connected to
the public network. This is contrasted to private networks, access to which is
limited to certain users, typically offices of a business or governmental
agency.
RBOC (Regional Bell Operating Company) -- One of the ILECs created by the
court ordered divestiture of the local exchange business by AT&T. These are
BellSouth, Bell Atlantic, Ameritech, US West, and SBC.
Shared Tenant Services -- The provision of telecommunications services to
multiple tenants within a building or building complex by allowing these users
to have shared access to telephone lines and other telephone services, for the
purpose of reducing the user's need to own and operate its own
telecommunications equipment and to reduce cost.
55
<PAGE> 58
Special Access Service -- Private, non-switched connections between an IXC
and a customer, for the purpose of connecting the customer's long distance calls
to the IXC's network, without having to pay the LEC's access charges.
Tier-one national ISP -- An Internet services provider whose network
connects directly to other such Internet providers at the nation's six major
peering points.
VSAT (Very Small Aperture Terminal) -- A satellite communication system
that comprises a small diameter (approximately 1 meter in diameter) antennae and
electronics to establish a communications terminal, used mostly for data. VSAT
networks compete with other, land-line based networks such as private lines and
frame relay.
Web Site -- A server connected to the Internet from which Internet users
can obtain information.
World Wide Web or Web -- A collection of computer systems supporting a
communications protocol that permits multi-media presentation of information
over the Internet.
56
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Intermedia Communications Inc.
We have audited the accompanying consolidated balance sheets of Intermedia
Communications Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14. These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Intermedia
Communications Inc. and Subsidiaries at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material aspects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Tampa, Florida
February 15, 2000
F-1
<PAGE> 60
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 387,611 $ 240,827
Restricted investments.................................... 7,930 10,252
Accounts receivable, less allowance for doubtful accounts
of $22,229 in 1998 and $29,056 in 1999.................. 179,864 287,771
Prepaid expenses and other current assets................. 25,144 38,289
---------- ----------
Total current assets........................................ 600,549 577,139
Telecommunications equipment, net........................... 1,370,700 1,713,220
Intangible assets, net...................................... 1,023,874 948,215
Other assets................................................ 53,896 57,848
---------- ----------
Total assets....................................... $3,049,019 $3,296,422
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 104,525 $ 106,918
Accrued taxes............................................. 17,258 15,542
Accrued interest.......................................... 23,213 32,822
Other accrued expenses.................................... 27,139 33,967
Advance billings.......................................... 12,858 21,832
Current portion of long-term debt......................... 661 5,632
Current portion of capital lease obligations.............. 21,219 26,445
---------- ----------
Total current liabilities.......................... 206,873 243,158
Long term debt.............................................. 1,847,858 2,503,911
Capital lease obligations................................... 502,648 431,299
Minority interest........................................... -- 53,964
Series B redeemable exchangeable preferred stock and accrued
dividends, $1.00 par value; 600,000 shares authorized;
381,900 and 436,127 shares issued and outstanding in 1998
and 1999, respectively.................................... 371,678 426,889
Series D junior convertible preferred stock, $1.00 par
value; 69,000 shares authorized; 54,129 and 53,728 Issued
and outstanding in 1998 and 1999, respectively............ 133,686 133,268
Series E junior convertible preferred stock, $1.00 par
value; 87,500 shares authorized; 64,892 Shares issued and
outstanding in 1998 and 1999, respectively................ 160,086 160,778
Series F junior convertible preferred stock, $1.00 par
value; 92,000 shares authorized; 80,000 and 79,600 shares
issued and outstanding in 1998 and 1999, respectively..... 196,838 195,860
Commitments and contingencies (Notes 13 and 14)
Stockholders' equity (deficit):
Preferred stock, $1.00 par value; 1,111,500 shares
authorized in 1998 and 1999, no shares issued........... -- --
Series C preferred stock, $1.00 par value; 40,000 shares
authorized, no shares issued............................ -- --
Common stock, $.01 par value; 150,000,000 shares
authorized in 1998 and 1999; 48,648,993 and 51,834,098
shares issued and outstanding in 1998 and 1999,
respectively............................................ 486 518
Additional paid-in capital................................ 587,413 767,456
Accumulated deficit....................................... (953,579) (1,604,459)
Deferred compensation..................................... (4,968) (16,220)
---------- ----------
Total stockholders' deficit........................ (370,648) (852,705)
---------- ----------
Total liabilities, redeemable preferred stock and
stockholders' deficit............................ $3,049,019 $3,296,422
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 61
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Data, Internet and Web hosting........................ $ 158,003 $ 261,369 $ 361,457
Local access and voice................................ 83,752 350,060 414,242
Integration........................................... 6,144 101,354 130,336
----------- ----------- -----------
247,899 712,783 906,035
Expenses:
Network expenses...................................... 164,461 337,625 371,180
Facilities administration and maintenance............. 31,663 66,061 103,417
Cost of goods sold.................................... 3,015 65,094 83,362
Selling, general, and administrative.................. 96,995 213,023 294,382
Depreciation and amortization......................... 53,613 229,747 329,303
Deferred compensation................................. 1,603 2,086 1,540
Charge off of purchased in-process R&D................ 60,000 63,000 --
Business restructuring, integration and other
charges............................................ -- 53,453 27,922
----------- ----------- -----------
411,350 1,030,089 1,211,106
----------- ----------- -----------
Loss from operations.................................... (163,451) (317,306) (305,071)
Other income (expense):
Interest expense...................................... (60,662) (205,760) (295,900)
Interest and other income............................. 26,824 35,837 35,752
----------- ----------- -----------
Loss before extraordinary item.......................... (197,289) (487,229) (565,219)
Extraordinary loss on early retirement of debt.......... (43,834) -- --
----------- ----------- -----------
Loss before minority interest........................... (241,123) (487,229) (565,219)
Minority interest in net loss of subsidiary............. -- -- 6,793
----------- ----------- -----------
Net loss................................................ (241,123) (487,229) (558,426)
Preferred stock dividends and accretions................ (43,742) (90,344) (92,455)
----------- ----------- -----------
Net loss attributable to common stockholders............ $ (284,865) $ (577,573) $ (650,881)
=========== =========== ===========
Basic and diluted loss per common share:
Net loss attributable to common stockholders
before extraordinary item............................. $ (7.23) $ (13.23) $ (12.91)
Extraordinary item...................................... (1.31) -- --
----------- ----------- -----------
Net loss per common share............................... $ (8.54) $ (13.23) $ (12.91)
----------- ----------- -----------
Weighted average number of shares
outstanding -- basic and diluted...................... 33,340,180 43,645,067 50,431,324
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 62
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------- PAID-IN ACCUMULATED DEFERRED EQUITY
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION (DEFICIT)
---------- ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996..................... 32,570,680 $326 $212,647 $ (91,141) $ (7,602) $ 114,230
Exercise of stock options and warrants at
prices ranging from $0.26 to $13.53 per
share........................................ 1,816,192 18 4,952 -- -- 4,970
Issuance of 19,350 stock options under
long-term compensation plan.................. -- -- 179 -- (179) --
Issuance of common stock under long-term
compensation plan............................ 330,000 3 4,947 -- (4,950) --
Net changes to stock options................... -- -- (2,836) -- 2,836 --
Amortization of deferred compensation.......... -- -- -- -- 1,603 1,603
Issuance of 2,355,674 stock options in
connection with the DIGEX acquisition........ -- -- 19,380 -- -- 19,380
Issuance of stock warrant in conjunction with
STFI acquisition............................. -- -- 1,455 -- -- 1,455
Issuance of common stock for dividends on
Series D Preferred Stock..................... 173,728 2 3,216 (3,218) -- --
Preferred stock dividends and accretions....... -- -- -- (40,524) -- (40,524)
Net loss....................................... -- -- -- (241,123) -- (241,123)
---------- ---- -------- ----------- -------- ---------
BALANCE AT DECEMBER 31, 1997..................... 34,890,600 349 243,940 (376,006) (8,292) (140,009)
Exercise of stock options and warrants at
prices ranging from $0.26 to $29.00 per
share........................................ 1,245,665 12 8,423 -- -- 8,435
Issuance of common stock for dividends on
Series D Preferred Stock..................... 371,307 4 11,421 (11,425) -- --
Issuance of common stock for dividends on
Series E Preferred Stock..................... 413,566 4 12,790 (12,794) -- --
Issuance of common stock for dividends on
Series F Preferred Stock..................... 93,602 1 2,216 (2,217) -- --
Issuance of shares of common stock for LDS
business combination......................... 5,359,748 54 137,122 -- -- 137,176
Issuance of shares of common stock for National
business combination......................... 2,909,796 29 88,720 -- -- 88,749
Conversion of Series D Preferred Stock to
Common Stock................................. 2,028,940 20 40,917 (4,702) -- 36,235
Conversion of Series E Preferred Stock to
Common Stock................................. 1,422,953 14 43,011 (6,278) -- 36,747
Forfeitures of and other changes to stock
options and stock grants..................... (97,000) (1) (1,237) -- 1,238 --
Amortization of deferred compensation.......... -- -- -- -- 2,086 2,086
Other equity adjustments....................... 9,816 -- 90 -- -- 90
Preferred stock dividends and accretions....... -- -- -- (52,928) -- (52,928)
Net loss....................................... -- -- -- (487,229) -- (487,229)
---------- ---- -------- ----------- -------- ---------
BALANCE AT DECEMBER 31, 1998..................... 48,648,993 486 587,413 (953,579) (4,968) (370,648)
Exercise of stock options and warrants at
prices ranging from $0.26 to $35 per share... 1,371,216 14 11,310 11,324
Issuance of Common Stock for dividends on
Series D Preferred Stock..................... 517,979 5 9,450 (9,455) --
Issuance of common stock for dividends on
Series E Preferred Stock..................... 537,091 5 11,350 (11,355) --
Issuance of common stock for dividends on
Series F Preferred Stock..................... 663,081 7 14,041 (14,048) --
Conversion of Series D Preferred Stock to
Common Stock................................. 51,543 1 979 980
Conversion of Series F Preferred Stock to
Common Stock................................. 23,768 -- 974 974
Issuance of common stock for acquisition of
Entier....................................... 60,117 1 1,298 1,299
Minority interest from IPO of subsidiary, net
of issuance costs............................ 118,146 118,146
Deferred compensation.......................... 13,510 (13,510) --
Amortization of deferred compensation.......... 2,258 2,258
Other equity adjustments....................... (39,690) (1) (1,015) (1,016)
Preferred stock dividends and accretions....... (57,596) (57,596)
Net loss....................................... (558,426) (558,426)
---------- ---- -------- ----------- -------- ---------
BALANCE AT DECEMBER 31, 1999..................... 51,834,098 $518 $767,456 $(1,604,459) $(16,220) $(852,705)
========== ==== ======== =========== ======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 63
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(241,123) $(487,229) $(558,426)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 55,531 234,275 335,061
Amortization and other changes in deferred compensation... 1,603 3,323 2,258
Non cash restructuring charges............................ -- 17,510 (4,862)
Accretion of interest on notes payable.................... 44,629 84,864 104,530
Imputed interest related to business acquisitions......... -- 6,164 --
Extraordinary loss........................................ 43,834 -- --
Charge off of purchased in-process R&D.................... 60,000 63,000 --
Provision for doubtful accounts........................... 6,858 14,786 20,499
Loss on sale of telecommunications equipment.............. -- -- 376
Minority interest in net loss of subsidiary............... -- -- (6,793)
Changes in operating assets and liabilities:
Accounts receivable..................................... (40,858) (92,689) (133,638)
Prepaid expenses and other current assets............... (554) (11,219) (13,145)
Other assets............................................ (1,948) (3,812) (59)
Accounts payable........................................ 15,079 13,242 2,393
Other accrued expenses and taxes........................ (2,143) 18,964 18,649
Advance billings........................................ 19 (1,371) 8,973
--------- --------- ---------
Net cash used in operating activities....................... (59,073) (140,192) (224,184)
INVESTING ACTIVITIES
Purchases of telecommunications equipment, net.............. (260,105) (492,421) (601,880)
Purchase of business, net of cash acquired.................. (551,956) (466,366) --
Purchases/maturities of restricted investments.............. 30,303 (1,077) (2,322)
Purchases/maturities of short-term investments.............. 6,041 -- --
Proceeds from sale of fixed assets.......................... -- -- 1,901
--------- --------- ---------
Net cash used in investing activities....................... (775,717) (959,864) (602,301)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance
costs..................................................... 957,661 537,300 534,991
Proceeds from sale of preferred stock, net of issuance
costs..................................................... 648,352 193,485 --
Payments on long term debt.................................. (200,966) (759) (1,964)
Payments on capital leases.................................. (7,850) (7,717) (43,552)
Exercise of stock warrants and options...................... 4,970 8,435 11,323
Proceeds from sale of common stock of subsidiary, net of
issuance costs............................................ -- -- 178,903
--------- --------- ---------
Net cash provided by financing activities................... 1,402,167 730,744 679,701
--------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 567,377 (369,312) (146,784)
Cash and cash equivalents at beginning of year.............. 189,546 756,923 387,611
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 756,923 $ 387,611 $ 240,827
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid............................................... $ 12,917 $ 97,940 $ 186,132
Schedule of noncash investing and financing activities:
Assets acquired under capital lease obligations and note
payable................................................. 15,666 511,251 15,569
Amendment to capital lease obligation..................... -- -- (28,743)
Common stock, warrants and options issued in purchase of
businesses.............................................. 19,380 225,925 1,299
Common stock issued as dividends on preferred stock....... 3,218 55,168 34,858
Preferred stock issued as dividends on preferred stock.... -- 32,140 54,226
Accretion of preferred stock.............................. 1,217 3,036 3,444
</TABLE>
See accompanying notes.
F-5
<PAGE> 64
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Intermedia Communications Inc. and Subsidiaries ("Intermedia" or "the
Company") provides integrated data and voice communications, including
enterprise data solutions (including frame relay and ATM), Internet
connectivity, private line data, managed Web site and application hosting, local
and long distance and integration services to business and government customers.
The Company offers its full product package of telecommunications services to
business customers throughout the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority and wholly owned subsidiaries. The consolidated financial
statements include 100% of the assets and liabilities of these subsidiaries and
the ownership interests of minority participants are recorded as "minority
interest." All significant intercompany transactions and balances have been
eliminated in consolidation.
SALE OF SUBSIDIARY COMMON STOCK
The Company has accounted for the initial public offering of common shares
of its Digex subsidiary as a financing transaction. As such, no gain has been
recorded in the accompanying financial statements related to that sale.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
RESTRICTED INVESTMENTS
Restricted investments consist of certificates of deposit which are
restricted to collateralize certain letters of credit required by the different
municipalities to ensure the Company's performance related to network expansion.
TELECOMMUNICATIONS EQUIPMENT
Telecommunications equipment is stated at cost. Equipment held under
capital leases is stated at the lower of fair value of the asset or the net
present value of the minimum lease payment at the inception of the lease.
Depreciation expense is generally calculated using the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Telecommunications equipment.............................. 2-7 years
Fiber optic cable......................................... 20 years
Furniture and fixtures.................................... 5-7 years
Equipment held under capital leases....................... Lease term
</TABLE>
F-6
<PAGE> 65
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leasehold improvements are amortized using the straight-line method over
the shorter of the term of the lease or the estimated useful life of the
improvements.
The Company constructs certain of its own transmission systems and related
facilities. Internal costs related directly to the construction of such
facilities, including interest, overhead costs and salaries or certain
employees, are capitalized.
INTANGIBLE ASSETS
Intangible assets arose in connection with business combinations. They are
stated at cost and include purchased customer lists, developed technology,
workforce, tradenames and goodwill. Identifiable intangible assets are amortized
using the straight-line method over their estimated useful lives ranging from
two to ten years. Goodwill is amortized using the straight-line method over
periods of eight to forty years, with a weighted average life of approximately
nineteen years at December 31, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of (SFAS 121), the Company reviews its long-lived assets
for impairment when events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. This review consists of a
comparison of the carrying value of the asset with the asset's expected future
undiscounted cash flows without interest costs. Estimates of expected future
cash flows represent management's best estimate based on reasonable and
supportable assumptions and projections. If the expected future cash flow
exceeds the carrying value of the asset, no impairment is recognized. If the
carrying value of the asset exceeds the expected future cash flows, an
impairment exists and is measured by the excess of the carrying value over the
fair value of the asset. Any impairment provisions recognized are permanent and
may not be restored in the future. Impairment expense of $0, $2,800 and $0 was
recognized in 1997, 1998 and 1999, respectively, and were included as a
component of business restructuring, integration and other charges in the
accompanying consolidated statement of operations.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, note payable and
capital lease obligation approximate their fair market values.
DEBT ISSUANCE COSTS
Debt issuance costs are amortized using the effective interest method over
the term of the debt agreements. The related amortization is included as a
component of interest expense in the accompanying consolidated statements of
operations. Debt issuance costs included in other assets were $43,500 and
$50,493 at December 31, 1998 and 1999, respectively. Amortization of debt
issuance costs amounted to $1,918, $4,721 and $5,937 in 1997, 1998 and 1999,
respectively.
REVENUE RECOGNITION
The Company recognizes revenue in the period the service is provided or the
goods are shipped for equipment product sales. Unbilled revenue included in
accounts receivable represent revenues earned for telecommunications services
which will be billed in the succeeding month and totaled $29,920 and $35,590 as
of December 31, 1998 and 1999, respectively. The Company invoices customers one
month in advance for recurring services resulting in advance billings at
December 31, 1998 and 1999 of $12,858 and $21,832, respectively.
F-7
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INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue for the Company's Web site and application hosting services segment
consists of installation fees and monthly service fees charged to customers
under contracts having terms that typically range from one to three years.
Installation fees are recognized upon the customer-approved completion of the
managed Web hosting solution. Monthly service fees are recognized in the month
the service is rendered over the contract period. Certain customer payments for
managed Web hosting services received in advance of service delivery are
deferred until the service is performed. Additional services are recognized in
the month the services are performed.
A portion of the Company's revenues are also related to the sale and
installation of telecommunications equipment and services and maintenance after
the sale. For these systems installations, which usually require three to five
months, the Company uses the percentage-of-completion method, measured by costs
incurred versus total estimated cost at completion. The Company bills certain
equipment rentals, local telephone access service, and maintenance contracts in
advance. The deferred revenue is relieved when the revenue is earned. Systems
equipment sales are recognized at time of shipment.
INCOME TAXES
The Company has applied the provisions of SFAS No. 109, Accounting for
Income Taxes, which requires an asset and liability approach in accounting for
income taxes for all years presented. Deferred income taxes are provided for in
the consolidated financial statements and principally relate to net operating
losses and basis differences for intangible assets and telecommunications
equipment. Valuation allowances are established to reduce the deferred tax
assets to the amounts expected to be realized.
LOSS PER SHARE
The Company has applied the provisions of SFAS No. 128, Earnings Per Share
(SFAS 128), which establishes standards for computing and presenting earnings
per share. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. The calculation of diluted earnings per share includes the
effect of dilutive common stock equivalents. No dilutive common stock
equivalents existed in any year presented.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk, as defined by SFAS No. 105, Disclosure of Information About
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, are primarily cash and cash equivalents and
accounts receivable.
The Company places its cash and temporary cash investments with
high-quality institutions. As of December 31, 1999, cash equivalents totaling
approximately $228,800 were held by three financial institutions. Such amounts
were primarily government treasury instruments and liquid cash accounts.
Accounts receivable are due from residential and commercial
telecommunications customers. Credit is extended based on evaluation of the
customer's financial condition and generally collateral is not required.
Anticipated credit losses are provided for in the consolidated financial
statements and have been within management's expectations.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with APB No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, because the alternative fair value accounting provided under
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), is not
required. Accordingly, in cases where exercise prices equal or exceed fair
market value, the Company
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INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognizes no compensation expense for the stock option grants. In cases where
exercise prices are less than fair value, compensation expense is recognized
over the period of performance or the vesting period.
The Company accounts for non-employee stock-based compensation in
accordance with SFAS 123. Pro forma financial information, assuming that the
Company had adopted the measurement standards of SFAS 123 for all stock-based
compensation, is included in Note 10.
STOCK SPLIT
All share and per share information presented herein, and in the Company's
Consolidated Financial Statements, has been retroactively restated to reflect a
two-for-one stock split of the Company's Common Stock, par value $.01 per share
("Common Stock"), which occurred on June 15, 1998. The stock split was paid in
the form of a stock dividend to holders of record on June 1, 1998.
SEGMENT REPORTING
During 1998, the Company adopted the SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 uses a
management approach to report financial and descriptive information about a
Company's operating segments. The Company adopted this standard in 1998.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(SFAS 130). SFAS 130 requires that total comprehensive income be disclosed with
equal prominence as net income. Comprehensive income is defined as changes in
stockholders' equity exclusive of transactions with owners such as capital
contributions and dividends. The Company adopted this Standard in 1998. The
Company did not report any comprehensive income items in any of the years
presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). The Statement will require the
recognition of all derivatives on the Company's consolidated balance sheet at
fair value. In June 1999, the FASB issued Statement of Accounting Standards No.
137, which deferred the effective date of SFAS 133 to all fiscal quarters of the
fiscal year beginning after June 15, 2000. The Company does not anticipate that
the adoption of this Statement will have a significant effect on its results of
operations or financial position.
On January 22, 1999, the Company repriced its outstanding stock options to
the current fair market value on that date. On March 31, 1999 the FASB issued an
exposure draft, Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB No. 25. If the exposure draft is issued
in its current form, the options that were repriced by the Company (2,046,455
options) would be accounted for as a variable grant from the effective date of
the new Interpretation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1999
presentation.
2. BUSINESS ACQUISITIONS
During July 1997, the Company acquired Business Internet, Inc. (previously
known as DIGEX, Incorporated), a leading nationwide business Internet services
provider, including the Web site and application hosting unit. Aggregate cash
consideration for the acquisition was approximately $160,000. In
F-9
<PAGE> 68
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, the Company issued options and warrants for 1,177,837 shares of Common
Stock valued at $19,380, which was included as a component of the purchase
price, to replace outstanding DIGEX options. The acquisition was accounted for
by the purchase method of accounting, with the purchase price allocated to the
fair value of assets acquired and liabilities assumed.
The original purchase price allocation for Business Internet was as
follows:
<TABLE>
<S> <C>
Purchase price.............................................. $179,873
Less:
Estimated fair value of DIGEX net assets acquired less
assumed liabilities.................................. 6,450
--------
Excess of purchase price over fair value of net assets
acquired............................................... $173,423
========
</TABLE>
On April 26, 1999, the Company's majority owned subsidiary, Digex,
Incorporated (the Web site and application hosting unit known as "Digex") was
incorporated, under the laws of the State of Delaware.
The total amount allocated to in-process R&D ($60,000) was recorded as a
one-time charge to operations in 1997 because the technology was not fully
developed and had no future alternative use. In connection with the
incorporation and subsequent carve-out IPO and contribution of assets to Digex
during 1999, the original $60,000 in-process R&D was allocated between the two
subsidiaries.
The acquired in-process R&D represents the proprietary projects for the
development of technologies associated with creating significant infrastructure
and high bandwidth connections so that the Company can offer a range of advanced
Internet services. These projects were completed by December 31, 1999. A brief
description of the three categories of in-process R&D projects is presented
below:
R&D Related to Next Generation Routers. These R&D projects are
related to the development of technology embedded in various components of
the network's connection points, primarily routers, to support greater
transmission capacity. These projects were valued at approximately $36,000.
These proprietary projects include the development of VIP2/40 based
technology, CT3 technology, and the realization of a new routing
architecture design for national deployment. The estimated costs to
complete the project were approximately $1,500.
R&D Related to Next Generation Web Management Services. These R&D
projects are related to the development of DIGEX's next generation of Web
management services, and were valued at approximately $12,000. The
estimated costs to complete the project were approximately $500.
Multicasting. These R&D projects are related to the development of
multicasting services, and were valued at approximately $12,000. The
estimated costs to complete the project were approximately $500.
The components of developed technologies acquired in the DIGEX acquisition
were (i) router technologies within the existing network infrastructure and (ii)
Web management technologies. The developed technologies were designed to provide
basic Internet services and did not have the capability to provide the
sophisticated, value-added services required by high-end corporate users. The
developed technologies were characterized by inherent weaknesses which made them
unable to support future growth requirements and continuously expanding customer
operations. The following points further expand upon the nature of the developed
technology.
Web Management. The developed technology acquired in this category
was related only to the group of servers hosting customers' Websites
located at DIGEX's Beltsville headquarters. This site was inadequate to
service the increasing number of sites under management by the Company. The
software used in the Beltsville headquarters at the time of acquisition had
limited functionality and required the
F-10
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INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
integration of more sophisticated tools to handle complex network
management activities. The in-process R&D was considered to be a
significant step forward since it involved the development, construction,
and integration of an additional Web site management facility and a back-up
operations center on the west coast. This technologically advanced Web site
management facility will incorporate new software arising from Digex's
joint development efforts with Microsoft Corporation. Additionally, this
facility will incorporate the next generation routers. These advancements
will ultimately result in faster and easier installation of customers and
efficient traffic management with significantly less overhead.
Multicasting Services. Multicasting services enable a user to send a
transmission to multiple recipients at the same time. The technology
involved avoids the redundancy of sending separate packets to each
recipient, which results in the use of less bandwidth. The developed
technology was unable to handle multicasting.
On November 20, 1997, the Company, through Moonlight Acquisition Corp., a
wholly-owned subsidiary of the Company, entered into a definitive merger
agreement with Shared Technologies Fairchild, Inc. ("Shared"). The total
purchase price for Shared was approximately $782,151 including $62,300 of
certain transaction expenses and fees relating to certain agreements. The
Company initially purchased 1,100,000 shares, or 6% of Shared for $16,300 on
November 20, 1997. The initial investment was recorded using the cost method.
On December 30, 1997, an additional 4,000,000 shares were purchased for
$60,000, increasing the Company's ownership percentage to 28%. Accordingly,
accounting for the investment was changed to the equity method. At December 31,
1997, the Company's investment in Shared also included $62,800 for convertible
preferred stock of Shared; $175,000 for Senior Subordinated Discount Notes of
Shared; a warrant valued at $1,455 redeemable for 100,000 shares of common stock
of Shared issued as compensation for consulting services related to the
acquisition and advances of $88,000 used by Shared to retire previously
outstanding Special Preferred Stock and pay certain fees related to termination
of a previous merger agreement.
On March 10, 1998, the Company completed its acquisition of Shared, a
shared tenant communications services provider. The operating results of Shared
are included in the Company's consolidated financial statements commencing on
January 1, 1998. Imputed interest of $5,130 was recorded based on the cash
consideration paid after the effective date of the acquisition in the first
quarter of 1998, and the cost for Shared was reduced accordingly. Aggregate
consideration for the acquisition was approximately $589,800 in cash, plus the
retirement of $175,600 in Shared's long-term debt, and acquisition related
expenses of $17,200. The acquisition was accounted for by the purchase method of
accounting, with the purchase price allocated to the fair value of assets
acquired and liabilities assumed, principally goodwill.
The purchase price allocation was as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $782,566
LESS:
Interest expense adjustment............................... 5,130
Estimated fair value of Shared net assets acquired less
assumed liabilities.................................... 51,245
--------
Excess of purchase price over fair value of net assets
acquired.................................................. $726,191
========
</TABLE>
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<PAGE> 70
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The allocation of purchase price to goodwill and identifiable intangibles
and estimated lives are:
<TABLE>
<CAPTION>
VALUE AMORTIZATION
ALLOCATED PERIOD IN YEARS
--------- ---------------
<S> <C> <C>
Developed technology........................................ $100,000 10
Tradename................................................... 10,000 2
In-process R&D.............................................. 63,000 --
Goodwill.................................................... 502,191 20
Customer lists.............................................. 48,000 10
Work force.................................................. 3,000 10
</TABLE>
The amount allocated to in-process R&D ($63,000) was recorded as a one-time
charge to operations in the accompanying consolidated statements of operations
because the technology was not fully developed and had no future alternative
use. The developed technology was comprised of an intelligent infrastructure
which integrated a host of telecommunications systems, including infrastructure
(network hardware and software), service provider networks, and inter-building
communications networks. The acquired in-process R&D represents the development
of technologies associated with creating infrastructure and the associated
systems so that the Company can offer a wide range of data telecommunications
services. These proprietary projects included the development of a multi-service
access platform ("MSAP"). The MSAP enables the client provisioning of multiple
data services as well as the realization of Shared's existing voice services. A
brief description of the three categories of in-process R&D projects is
presented below:
Access Technology Development. These R&D projects were related to the
development of access technology, including copper connectivity and
deployment, DSL technology development and development of T-1 interfaces.
These projects were valued at approximately $47,000. The estimated costs to
complete the project were approximately $1,800.
R&D Related to Networking and Networking Management. These R&D
projects are related to the development of systems related to networking
management, and were valued at approximately $15,000. The estimated costs
to complete the project were approximately $600.
Advanced Networking. These R&D projects are related to the
development of advanced networking functions, and were valued at
approximately $1,000. The estimated costs to complete the project were
approximately $200.
The distinction between developed technology and acquired in-process R&D is
basically the difference between legacy voice technologies and the emerging data
technologies that are required by Intermedia's high-end corporate users; these
are very different technologies from a telecommunications perspective. The
completion of the in-process R&D will enable Shared to provide new data services
(asynchronous transfer mode, frame relay, Internet, and others) through Shared's
existing architecture. Prior to the acquisition, Shared's services portfolio did
not include data products. Historically, Shared could provide its customer base
with local access and long distance voice services and customer premise
equipment products. However, Shared lost data revenue opportunities to its
competitors.
The amortization period for the customer lists was determined based on
historical customer data, including customer retention and average sales per
customer. The basis for the life assigned to assembled workforce was annual
turnover rates.
On March 31, 1998, the Company acquired the Long Distance Savers group of
companies (collectively, LDS, a regional interexchange carrier). The operating
results of LDS are included in the Company's consolidated financial statements
commencing on April 1, 1998. Aggregate consideration for the acquisition was
approximately $15,700 in cash, plus 5,320,048 shares of the Company's Common
Stock valued at approximately $137,176, the retirement of $15,100 of LDS's
long-term debt, and acquisition related expenses
F-12
<PAGE> 71
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $3,300. The acquisition was accounted for by the purchase method of
accounting, with the purchase price to be allocated to the fair value of assets
acquired and liabilities assumed, principally goodwill ($144,300). This goodwill
is being amortized over its estimated useful life of 20 years.
On April 30, 1998, the Company completed the acquisition of privately held
National Telecommunications of Florida, Inc. and NTC, Inc. (collectively,
National), an emerging switch-based competitive local exchange carrier and
established interexchange carrier. The operating results of National are
included in the Company's consolidated financial statements commencing on April
1, 1998. Aggregate consideration for the acquisition was approximately $59,500
in cash, plus 2,909,796 shares of the Company's Common Stock, valued at
approximately $88,749, the retirement of $2,800 in National's long-term debt,
and $2,600 in acquisition related costs. The acquisition was accounted for by
the purchase method of accounting, with the purchase price allocated to the fair
value of assets acquired and liabilities assumed, principally goodwill
($147,100). This goodwill is being amortized over its estimated useful life of
20 years.
The 20 year amortization period assigned to the goodwill arising from the
Company's acquisitions of Shared, LDS and National is based on the Company's
analysis of their businesses. The Company considered the general stability of
these companies (i.e. the length of time that these three entities have already
successfully conducted business operations) particularly during periods of
increasing competition and technological developments.
The following unaudited pro forma results of operations present the
consolidated results of operations as if the acquisitions of LDS, National, and
Shared had occurred at the beginning of the respective periods. These pro forma
results do not purport to be indicative of the results that actually would have
occurred if the acquisition had been made as of these dates or of results which
may occur in the future.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
--------------------
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $567,278 $760,692
Loss before extraordinary item.............................. (361,093) (478,237)
Net loss attributable to common stockholders................ (429,211) (568,581)
Basic and diluted loss per common share..................... (9.60) (12.25)
</TABLE>
3. BUSINESS RESTRUCTURING AND INTEGRATION PROGRAM
During the second quarter of 1998, management committed to and commenced
implementation of the restructuring program (the Program) which was designed to
streamline and refocus the Company's operations and facilitate the
transformation of the Company's five separate operating companies into one an
integrated communications provider. The significant activities included in the
Program include (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 headcount and related costs. The Company expects the Program to
continue until June 2000.
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<PAGE> 72
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the significant components and activity in
the restructuring program reserve since the inception of the Program:
<TABLE>
<CAPTION>
EMPLOYEE OTHER
TERMINATION BUSINESS
BENEFITS CONTRACT ASSET INTEGRATION
ACTIVITY (VII) TERMINATIONS IMPAIRMENTS COSTS TOTAL
-------- ----------- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Network integration(i)..................... $ -- $ 900 $ -- $ -- $ 900
Sales force consolidation and
branding(ii)............................. 400 -- -- -- 400
Consolidation of financial
functions(iii)........................... 900 -- -- -- 900
Information systems integration(iv)........ 700 -- -- -- 700
Campus consolidation(v).................... -- 2,300 -- -- 2,300
Exiting non-core businesses(vi)............ 600 11,500 13,400 1,600 27,100
------ ------- ------- ------ -------
Total provisions recorded during
the quarter ended June 30,
1998........................... 2,600 14,700 13,400 1,600 32,300
Payments and other adjustments............. 1,400 11,700 13,300 400 26,800
------ ------- ------- ------ -------
Balance in accrual at December 31, 1998.... 1,200 3,000 100 1,200 5,500
------ ------- ------- ------ -------
Payments and other adjustments during
1999..................................... 1,200 2,600 100 900 4,800
Balance in accrual at December 31,
1999(viii)............................... $ 0 $ 400 $ 0 $ 300 $ 700
====== ======= ======= ====== =======
</TABLE>
- ---------------
(i) This activity consists primarily of the consolidation, rationalization and
integration of network facilities, collocations, network management and
network facility procurement. Contract terminations represent the estimated
costs of terminating two contracts with MCI Communications Corporation.
(ii) This activity consists primarily of the 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)This activity consists of the centralization of accounting and financial
functions, including the reduction of redundant headcount and related
costs.
(iv) This activity consists of the 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. The only costs included in this category in the table
above relate to the termination of certain employees as described in (vii)
below.
(v) This activity relates to the consolidation of office space. Contract
termination costs represent the estimated costs of lease terminations for
property exited as part of the Program.
(vi) This activity consists of the exiting of non-strategic businesses including
the elimination of redundant headcount and related costs. Contract
termination costs include the estimated cost to cancel a switched services
contract with WorldCom, Inc. (WorldCom) ($10,100) and lease termination
payments. On September 30, 1998, the Company amended its agreement with
WorldCom to provide the Company with an option for an earlier termination
date and lower monthly minimum usage amounts. On October 27, 1998, the
Company exercised its option, and, in connection therewith, paid $3,300 to
WorldCom. As a result, restructuring charges were reduced by $10,100 during
the third quarter of 1998. The option payment of $3,300 was recorded in
October 1998 as a deferred charge and is being amortized into operations
over the remaining period of the contract. Asset impairments relate to
$9,200 of accounts receivable balances from four customers that were
reserved as a result of the Company's exit of the wholesale long-distance
business. In addition, this category also includes $2,800 related to
equipment write-downs. The impaired assets consist of terminal servers with
an estimated fair value of $400 as of June 30, 1998. The fair value
estimate was based on the Company's review of the historical operations and
cash flows of the related Internet business that such assets support. The
impairment loss of $2,800 was recognized in connection with the Company's
decision to outsource these services and to dispose of
F-14
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INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these assets. The remaining life of the assets of six months correlates to
the time required to migrate the business to the third party provider. The
revenue generated from operations that the Company has exited amounted to
$17.0 for the period during the year ended December 31, 1998 that such
business was operated. No revenue was generated in 1999 from operations
exited by the Company.
(vii) The total number of employees affected by the restructuring program was
280. The terminated employees were notified that their termination was
involuntary and of their associated benefit arrangements, prior to June
30, 1998.
(viii) The remaining accrual at December 31, 1999 resulted from the timing of
certain payments that are part of the conclusion of the Program. These
amounts will be paid in 2000.
As provided for in the Program, the Company also expensed other business
restructuring and integration costs that were incurred during 1998 and 1999.
These costs represent incremental, redundant, or convergence costs that resulted
directly from implementation of the Program, but that are required to be
expensed as incurred.
The following table summarizes total Program costs and sets forth the
components of all business restructuring and integration costs that were
expensed as incurred during 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Business restructuring charges (as discussed above)......... $18,800 $(1,386)
Integration costs
Network integration(A)................................. 23,353 13,266
Department and employee realignment(B)................. 2,200 5,268
Functional re-engineering(C)........................... 1,800 8,477
Other(D)............................................... 7,300 2,297
------- -------
Total............................................. $53,453 $27,922
======= =======
</TABLE>
- ---------------
(A) Consists primarily of redundant network expense, with some employee salary
costs of severed employees through their severance date.
(B) Consists of branding, training and relocation expenses.
(C) Consists of consultant costs and some employee salary costs.
(D) Consists of losses on divested businesses, employee salary costs, legal,
accounting and consulting costs and facilities integration.
4. TELECOMMUNICATIONS EQUIPMENT
Telecommunications equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Telecommunications equipment................................ $ 778,710 $1,179,432
Fiber optic cable......................................... 529,656 503,144
Furniture and fixtures.................................... 150,313 251,563
Leasehold improvements.................................... 24,989 94,135
Construction in progress.................................. 124,404 174,356
---------- ----------
1,608,072 2,202,630
Less accumulated depreciation............................. (237,372) (489,410)
---------- ----------
$1,370,700 $1,713,220
========== ==========
</TABLE>
F-15
<PAGE> 74
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense totaled $43,960, $155,711 and $252,932 in 1997, 1998,
and 1999, respectively.
Telecommunications equipment and construction in progress included $562,207
and $530,482 of equipment recorded under capitalized lease arrangements at
December 31, 1998 and 1999, respectively. Accumulated depreciation of assets
recorded under capital leases amounts to $56,053 and $108,408 at December 31,
1998 and 1999, respectively. Amortization of these assets is included in
depreciation expense for the years ended December 31, 1998 and 1999.
During 1998, the Company entered into two agreements to purchase capacity
from other telecommunications companies. The agreements allow the Company to
utilize the purchased capacity for a 20 year period. Total payments related to
these agreements were $7,600 and $1,133 during 1998 and 1999, respectively.
5. INTANGIBLE ASSETS
Intangible assets consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Goodwill.................................................... $ 929,334 $ 904,575
Customer lists.............................................. 58,172 71,172
Tradename................................................... 10,000 19,750
Developed technology........................................ 110,165 108,000
Workforce................................................... 3,000 8,000
---------- ----------
1,110,671 1,111,497
Less accumulated amortization............................... (86,797) (163,282)
---------- ----------
$1,023,874 $ 948,215
========== ==========
</TABLE>
Amortization of intangible assets amounted to $9,653 in 1997, $74,036 in
1998 and $76,371 in 1999.
6. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
12.5% Senior Discount Notes................................. $ 247,524 $ 279,455
11.25% Senior Discount Notes................................ 440,069 491,121
8.875% Senior Notes......................................... 260,250 260,250
8.5% Senior Notes........................................... 400,000 400,000
8.6% Senior Notes........................................... 500,000 500,000
9.5% Senior Notes........................................... -- 298,725
12.25% Senior Subordinated Discount Notes................... -- 221,883
Revolving Line of Credit.................................... -- 50,000
Other notes payable......................................... 676 8,109
---------- ----------
1,848,519 2,509,543
Less current portion...................................... (661) (5,632)
---------- ----------
$1,847,858 $2,503,911
========== ==========
</TABLE>
During June 1995, Intermedia issued $160,000 principal amount of 13.5%
Senior Notes due 2005 (13.5% Senior Notes) and warrants to purchase 700,800
shares of the Company's Common Stock at $5.43 per share. The Company allocated
$1,051 of the proceeds to the warrants, representing the estimated fair value at
the
F-16
<PAGE> 75
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of issuance. During 1997, the Company used a portion of the proceeds of the
11.25% Senior Discount Notes, described below, to retire the 13.5% Senior Notes.
This retirement resulted in an extraordinary loss, as shown in the accompanying
1997 consolidated statement of operations, of approximately $43,834.
During May 1996, the Company issued $330,000 principal amount of 12.5%
Senior Discount Notes, due May 15, 2006 (the 12.5% Senior Discount Notes). The
original issue discounted price for each $1,000 face value 12.5% Senior Discount
Note was $545. Net proceeds to the Company amounted to approximately $171,000.
The original issue discount is being amortized over the term of the 12.5% Senior
Discount Notes using the effective interest method. Commencing on November 15,
2001, cash interest on the 12.5% Senior Discount Notes will be payable
semiannually in arrears on May 15 and November 15 at a rate of 12.5% per annum.
The 12.5% Senior Discount Notes are redeemable at the option of the Company
after May 15, 2001, at a premium declining to par in 2004 and are on a parity
with all other senior indebtedness.
On July 9, 1997, the Company sold $606,000 principal amount at maturity of
11.25% Senior Discount Notes due 2007 (11.25% Senior Discount Notes) in a
private placement transaction. Subsequent thereto, the over-allotment option
with respect to the 11.25% Senior Discount Notes was exercised and the Company
sold an additional $43,000 principal amount at maturity of 11.25% Senior
Discount Notes. The issue price of the 11.25% Senior Discount Notes was $577.48
per $1,000 principal amount at maturity of the 11.25% Senior Discount Notes. Net
proceeds to the Company amounted to approximately $363,000. The original issue
discount is being amortized over the term of the 11.25% Senior Discount Notes
using the effective interest method. Cash interest will not accrue on the 11.25%
Senior Discount Notes prior to July 15, 2002. Commencing January 15, 2003, cash
interest on the 11.25% Senior Discount Notes will be payable semi-annually in
arrears on July 15 and January 15 at a rate of 11.25% per annum. The 11.25%
Senior Discount Notes will be redeemable, at the Company's option at any time on
or after July 15, 2002 and are on a parity with all other senior indebtedness.
On October 30, 1997, the Company sold $250,000 principal amount of 8.875%
Senior Notes due 2007 (8.875% Senior Notes) in a private placement transaction.
Subsequent thereto, the over-allotment option with respect to the 8.875% Notes
was exercised and the Company sold an additional $10,250 principal amount at
maturity of 8.875% Notes. Net proceeds to the Company amounted to approximately
$253,000. Cash interest on the 8.875% Senior Notes is payable semi-annually in
arrears on May 1 and November 1 at a rate of 8.875% per annum. The 8.875% Senior
Notes will be redeemable, at the Company's option at any time on or after
November 1, 2002 and are on a parity with all other senior indebtedness.
On December 23, 1997, the Company sold $350,000 principal amount of 8.5%
Senior Notes due 2008 (8.5% Senior Notes) in a private placement transaction.
Subsequent to December 31, 1997, the over-allotment option with respect to the
8.5% Senior Notes was exercised and the Company sold an additional $50,000
principal amount at maturity of 8.5% Senior Notes. Net proceeds to the Company
amounted to approximately $390,000. Cash interest on the 8.5% Senior Notes is
payable semi-annually in arrears on January 15 and July 15. The 8.5% Senior
Notes, which mature on January 15, 2008, will be redeemable at the option of the
Company at any time on or after January 15, 2003 and are on a parity with all
other senior indebtedness.
On May 27, 1998, the Company sold $450,000 principal amount of 8.6% Senior
Notes due 2008 (8.6% Senior Notes) in a private placement transaction.
Subsequent thereto, the over-allotment option with respect to the 8.6% Senior
Notes was exercised and the Company sold an additional $50,000 principal amount
at maturity of 8.6% Senior Notes. Net proceeds to the Company amounted to
approximately $488,900. Cash interest on the 8.6% Senior Notes is payable
semi-annually in arrears on June 1 and December 1. The 8.6% Senior Notes, which
mature on June 1, 2008, are redeemable at the option of the Company at various
rates as set forth in the indenture governing the 8.6% Senior Notes and at any
time on or after June 1, 2003 and are on a parity with all other senior
indebtedness.
F-17
<PAGE> 76
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 24, 1999, the Company sold $300,000 principal amount of 9.5%
Senior Notes due 2009 (the "9.5% Senior Notes") and $364,000 principal amount at
maturity of 12.25% Senior Subordinated Discount Notes due 2009 (the "12.25%
Senior Subordinated Discount Notes") in a private placement transaction. Net
proceeds to the Company amounted to approximately $488,200 from both issuances.
Cash interest on the 9.5% Senior Notes is payable semi-annually in arrears
on March 1 and September 1 of each year, commencing September 1, 1999. The
proceeds of the offering of the 9.5% Senior Notes cannot be used for working
capital purposes and can only be used to fund up to 80% of the cost of acquiring
or constructing telecommunications related assets. The 9.5% Senior Notes are
redeemable at the option of the Company at any time at various prices as set
forth in the indenture governing the 9.5% Senior Notes. The 9.5% Senior Notes
rank on par with all of the other outstanding senior indebtedness of the
Company.
The 12.25% Senior Subordinated Discount Notes will accrete in value through
March 1, 2004 at a fixed annual rate of 12.25%, compounded every six months.
After March 1, 2004, the 12.25% Senior Subordinated Discount Notes will accrue
interest at an annual rate of 12.25%, payable in cash every six months on March
1 and September 1, commencing September 1, 2004. The proceeds from the offering
of the 12.25% Senior Subordinated Discount Notes will be used for general
corporate purposes, including the funding of working capital and operating
losses, and the funding of a portion of the costs of acquiring or constructing
telecommunications related assets. The 12.25% Senior Subordinated Discount Notes
will be redeemable at the option of the Company at any time at various prices as
set forth in the indenture governing the 12.25% Senior Subordinated Discount
Notes.
At December 22, 1999, the Company entered into five-year secured $100,000
Revolving Credit Agreement (the "Credit Agreement") outstanding with three
financial institutions. The Revolving Credit Facility ("Credit Facility") may be
repaid and reborrowed from time to time in accordance with the terms and
provisions of the agreement, and is guaranteed by each of the Company's
subsidiaries. The Credit Facility is secured by a pledge of the stock of each of
the Company's subsidiaries, and is secured by substantially all of the assets of
the Company and its subsidiaries. The interest rate on the revolving credit
facility is based on either a LIBOR or an alternative base rate option, and is
paid quarterly in arrears. The Credit Agreement contains covenants customary for
facilities of this nature, including limitations on incurrence of additional
debt, asset sales, acquisitions, investments, among others. At December 31,
1999, the Company had $50,000 outstanding under the credit facility which was
repaid in Feburary 2000. The Credit Agreement extends to 2004.
Long-term debt maturities as of December 31, 1999 for the next five years
are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 5,632
2001........................................................ 1,175
2002........................................................ 1,302
2003........................................................ --
2004........................................................ 50,000
Thereafter.................................................. 2,451,434
----------
$2,509,543
==========
</TABLE>
F-18
<PAGE> 77
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............................. $387,611 $387,634 $240,827 $240,827
Restricted investments, current and non-current....... 7,930 7,930 10,252 10,252
Accounts receivable................................... 179,864 179,864 287,771 287,771
Liabilities:
Accounts payable.................................... 104,525 104,525 106,918 106,918
Long-term debt:
12.5% Senior Discount Notes...................... 247,524 258,225 279,455 288,750
11.25% Senior Discount Notes..................... 440,069 441,320 491,121 480,260
8.875% Senior Notes.............................. 260,250 251,141 260,250 243,334
8.5% Senior Notes................................ 400,000 378,000 400,000 367,000
8.6% Senior Notes................................ 500,000 475,000 500,000 461,250
9.5% Senior Notes................................ -- -- 298,725 288,750
12.25% Senior Subordinated Discount Notes........ -- -- 221,883 218,400
Revolving Line of Credit......................... -- -- 50,000 50,000
Other notes payable.............................. 676 676 8,109 8,109
Series B redeemable exchangeable preferred
stock.......................................... 371,678 384,573 426,889 427,404
Series D junior convertible preferred stock...... 133,686 143,442 133,268 278,042
Series E junior convertible preferred stock...... 160,086 126,539 160,778 221,443
Series F junior convertible preferred stock...... 196,838 132,000 195,860 211,648
</TABLE>
The following methods and assumptions are used in estimating fair values
for financial instruments:
Cash and cash equivalents: The fair value of cash equivalents is
based on negotiated trades for the securities.
Investments: These investments are classified as held-to-maturity, in
accordance with SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities. At December 31, 1999, the fair value of these
investments approximates their carrying amounts.
Accounts receivable and accounts payable: The carrying amounts
reported in the consolidated balance sheets for accounts receivable and
accounts payable approximate their fair value.
Long-term and short-term debt: The estimated fair value of the
Company's borrowing is based on negotiated trades for the securities as
provided by the Company's investment banker or by using discounted cash
flows at the Company's incremental borrowing rate.
F-19
<PAGE> 78
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted loss
per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item........................ $ (197,289) $ (487,229) $ (565,219)
Extraordinary item.................................... (43,834) -- --
----------- ----------- -----------
Net loss before minority interest..................... (241,123) (487,229) (565,219)
Minority interest in net loss of subsidiary........... -- -- 6,793
----------- ----------- -----------
Net loss.............................................. (241,123) (487,229) (558,426)
Preferred stock dividends and accretions.............. (43,742) (90,344) (92,455)
----------- ----------- -----------
Numerator for basic loss per share -- loss
attributable to common stockholders................ (284,865) (577,573) (650,881)
Effect of dilutive securities......................... -- -- --
----------- ----------- -----------
Numerator for diluted loss per share -- loss
attributable to common stockholders after assumed
conversions........................................ $ (284,865) $ (577,573) $ (650,881)
=========== =========== ===========
Denominator:
Denominator for basic loss per share -- weighted
average shares..................................... 33,340,180 43,645,067 50,431,324
Effect of dilutive securities......................... -- -- --
----------- ----------- -----------
Denominator for diluted loss per share -- adjusted
weighted average shares and assumed conversions.... 33,340,180 43,645,067 50,431,324
=========== =========== ===========
Basic loss per common share............................. $ (8.54) $ (13.23) $ (12.91)
=========== =========== ===========
Diluted loss per common share........................... $ (8.54) $ (13.23) $ (12.91)
=========== =========== ===========
</TABLE>
Unexercised options to purchase 7,066,262, 7,553,690 and 8,885,973 shares
of Common Stock for 1997, 1998 and 1999, respectively, and unexercised
convertible preferred stock outstanding convertible into 7,741,872, 17,076,495
and 17,012,228 shares of Common Stock for 1997, 1998 and 1999, respectively,
were not included in the computations of diluted loss per share because assumed
conversion would be antidilutive.
9. REDEEMABLE PREFERRED STOCK
On March 7, 1997, the Company sold 30,000 shares (aggregate liquidation
preference $300,000) of its Series A Redeemable Exchangeable Preferred Stock due
2009 (Series A Preferred Stock) in a private placement transaction. Net proceeds
to the Company amounted to approximately $288,000. On June 6, 1997, the Company
issued 300,000 shares (aggregate liquidation preference $300,000) of its 13.5%
Series B Redeemable Exchangeable Preferred Stock due 2009 (Series B Preferred
Stock) in exchange for all outstanding shares of the Series A Preferred Stock
pursuant to a registered exchange offer. Dividends on the Series B Preferred
Stock accumulate at a rate of 13.5% 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 shares of 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 its 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.
F-20
<PAGE> 79
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is accreting the Series B Preferred Stock to its liquidation
preference through the due date of the Series B Preferred Stock. The accretion
for the year ended December 31, 1999 was approximately $911.
During 1997, 1998 and 1999 the Company issued 34,417, 47,484 and 54,226
additional shares, respectively, of Series B Preferred Stock, in lieu of cash,
with an aggregate liquidation preference of $34,417, $47,484 and $54,226 as
payment of the required quarterly dividends.
On July 9, 1997, the Company sold 6,000,000 Depositary Shares (Series D
Depositary Shares) (aggregate liquidation preference $150,000) each representing
a one-hundredth interest in a share of the Company's 7% Series D Junior
Convertible Preferred Stock (Series D Preferred Stock), in a private placement
transaction. Subsequent thereto, the over-allotment option with respect to the
Series D Depositary Shares was exercised and the Company sold an additional
900,000 Series D Depositary Shares (aggregate liquidation preference of
$22,500). Net proceeds to the Company amounted to approximately $167,000.
Dividends on the Series D Preferred Stock will accumulate at a rate of 7% 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
shares of Common Stock of the Company. The Series D Preferred Stock will be
redeemable at the option of the Company at any time on or after July 19, 2000 at
rates commencing with 104%, declining to 100% on July 19, 2004.
The Series D Preferred Stock is convertible, at the option of the holder,
into Common Stock of the Company at a conversion price of $19.45 per share of
Common Stock, subject to certain adjustments. Further, in the event of a change
in control, the holder may compel the Company to redeem the Series D Preferred
Stock at a price equal to 100% of liquidation preference or $2,500 per share.
The Company is accreting the Series D Preferred Stock to its liquidation
preference through the due date of the Series D Preferred Stock. The accretion
for the year ended December 31, 1999 was approximately $597.
On October 30, 1997, the Company sold 7,000,000 Depositary Shares (Series E
Depositary Shares) (aggregate liquidation preference $175,000) each representing
a one-hundredth interest in a share of the Company's 7% Series E Junior
Convertible Preferred Stock (Series E Preferred Stock), in a private placement
transaction. Subsequent thereto, the over-allotment option with respect to the
Series E Depositary Shares was exercised and the Company sold an additional
1,000,000 Series E Depositary Shares (aggregate liquidation preference $25,000).
Net proceeds to the Company amounted to approximately $194,000. Dividends on the
Series E Preferred Stock will accumulate at a rate of 7% 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 shares of
Common Stock of the Company. The Series E Preferred Stock will be redeemable at
the option of the Company at any time on or after October 18, 2000 at rates
commencing with 104%, declining to 100% on October 18, 2004.
The Series E Preferred Stock is convertible, at the option of the holder,
into Common Stock of the Company at a conversion price of $30.235 per share of
Common Stock, subject to certain adjustments. Further, in the event of a change
in control, the holder may compel the Company to redeem the Series E Preferred
Stock at a price equal to 100% of liquidation preference or $2,500 per share.
The Company is accreting the Series E Preferred Stock to its liquidation
preference through the due date of the Series E Preferred Stock. The accretion
for the year ended December 31, 1999 was approximately $642.
On August 18, 1998, the Company sold 8,000,000 Depositary Shares (the
Series F Depositary Shares) (aggregate liquidation preference $200,000) each
representing a one-hundredth interest in a share of the Company's 7% Series F
Junior Convertible Preferred Stock (the Series F Preferred Stock), in a private
placement transaction. Net proceeds to the Company amounted to approximately
$193,500. Dividends on the Series F Preferred Stock accumulate at a rate of 7%
of the aggregate liquidation preference thereof and are payable quarterly, in
arrears. Dividends are payable in cash or, at the Company's option, by issuance
of shares
F-21
<PAGE> 80
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Common Stock of the Company. The Series F Preferred Stock is redeemable, at
the option of the Company, in whole or part, at any time on or after October 17,
2001, at rates commencing with 104%, declining to 100% on October 17, 2005.
The Series F Preferred Stock is convertible, at the option of the holder,
into Common Stock of the Company at a conversion price of $42.075 per share of
Common Stock, subject to certain adjustments. Further, in the event of a change
in control, the holder may compel the Company to redeem the Series F Preferred
Stock at a price equal to 100% of liquidation preference or $2,500 per share.
The Company is accreting the Series F Preferred Stock to its liquidation
preference through the due date of the Series F Preferred Stock. The accretion
for the year ended December 31, 1999 was approximately $827.
During July and August 1998, the Company exchanged (a) approximately
2,029,000 shares of its Common Stock for approximately 1,487,000 Series D
Depositary Shares and (b) approximately 1,423,000 shares of its Common Stock for
approximately 1,511,000 Series E Depositary Shares, pursuant to exchange
agreements with certain holders. In connection with the conversion of shares,
the Company recorded additional preferred stock dividends of approximately
$10,980 during the third quarter of 1998 representing the market value of the
inducement feature of the conversions. During July, September and December 1999,
the Company exchanged approximately 51,500 shares of its Common Stock for
approximately 40,000 Series D Depositary Shares. During July and September 1999,
the Company exchanged approximately 23,800 shares of its Common Stock for
approximately 40,000 Series F Depositary Shares.
10. STOCKHOLDERS' EQUITY
Stock Options: The Company has a 1992 Stock Option Plan and a 1996
Long-Term Incentive Plan (the Plans) under which options to acquire or award
covering an aggregate of 2,692,000 shares and 10,000,000 shares, respectively,
of Common Stock may be granted to employees, officers, directors and consultants
of the Company. The Plans authorize the Board of Directors (the Board) to issue
incentive stock options (ISOs), as defined in Section 422A(b) of the Internal
Revenue Code, and stock options that do not conform to the requirements of that
Code section (Non-ISOs). The Board has discretionary authority to determine the
types of stock options to be granted, the persons among those eligible to whom
options will be granted, the number of shares to be subject to such options, and
the terms of the stock option agreements. Options may be exercised in the manner
and at such times as fixed by the Board, but may not be exercised after the
tenth anniversary of the grant of such options.
F-22
<PAGE> 81
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the transactions for the three years ended
December 31, 1999 relating to the Plans:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES OPTION PRICE
---------- -------------
<S> <C> <C>
Outstanding, December 31, 1996.............................. 4,353,342
Granted................................................... 4,771,424 0.26 - 26.63
Exercised................................................. (809,378) 0.26 - 13.53
Canceled.................................................. (1,249,126) 0.26 - 12.94
----------
Outstanding, December 31, 1997.............................. 7,066,262
Granted................................................... 3,030,810 14.56 - 44.00
Exercised................................................. (1,187,568) 0.26 - 29.00
Canceled.................................................. (1,355,814) 0.26 - 38.19
----------
Outstanding, December 31, 1998.............................. 7,553,690
Granted................................................... 6,462,470 13.88 - 38.56
Exercised................................................. (1,064,833) 0.26 - 34.63
Canceled.................................................. (4,065,354) 0.26 - 44.00
----------
Outstanding, December 31, 1999.............................. 8,885,973
==========
Exercisable, December 31, 1999.............................. 2,917,289
==========
Exercisable, December 31, 1998.............................. 2,299,011
==========
Exercisable, December 31, 1997.............................. 2,099,876
==========
</TABLE>
The Board of Directors has reserved 608,776 shares of Common Stock for
issuance in connection with stock warrants, and 8,284,563 shares of Common Stock
for issuance to employees, officers, directors, and consultants of the Company
pursuant to stock options and stock award plans as may be determined by the
Board of Directors.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method set forth in SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.1% 5.4% 5.4%
Volatility factor of the expected market price of the
Company's Common Stock.................................... 58% 53% 57%
Dividend yield.............................................. -- -- --
Weighted average expected life of options................... 5 years 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-23
<PAGE> 82
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net loss attributable to common stockholders...... $(289,927) $(583,296) $(660,744)
Pro forma loss per common share............................. $ (8.70) $ (13.37) $ (13.10)
</TABLE>
The following table summarizes the weighted average exercise prices of
option activity for the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 9.39 $ 9.52 $18.78
Granted..................................................... 12.91 26.81 21.92
Exercised................................................... 3.12 7.22 9.68
Canceled.................................................... 5.96 10.48 22.62
Balance at end of period.................................... $ 9.52 $18.78 $17.52
</TABLE>
As of December 31, 1999, the weighted average exercise price of exercisable
options was $11.71. Outstanding options as of December 31, 1999 had a weighted
average remaining contractual life of 8.1 years. The per share weighted average
fair value of options granted during the years ended December 31, 1997, 1998 and
1999 were $14.25, $14.84 and $12.01, respectively.
Stock Award Plans: The Company has entered into restricted share
agreements with certain executive officers that provide stock award incentives.
Pursuant to the agreements, up to an aggregate of 900,000 restricted shares of
Common Stock have been contingently awarded to the respective officers which
awards become effective upon the attainment of certain stock price milestones
ranging from $10 to $20. The unvested shares also partially vest upon the
achievement of specific financial results and upon the purchase of five percent
or more of the Company's stock by a strategic investor. Shares awarded under
these arrangements vest over a period from two to twenty years following the
award. During 1997, 1998, and 1999, 330,000, 5,000 and 10,000 shares were
awarded with a fair value of $4,950, $98 and $150, respectively. These amounts
are being amortized over the vesting periods.
Stock Warrants: At December 31, 1999, warrants to purchase the following
shares of the Company's Common Stock were outstanding:
<TABLE>
<CAPTION>
PRICE
SHARES PER SHARE EXPIRATION DATE
- ------ --------- -----------------
<S> <C> <C>
408,776................................................. $ 5.43 June 1, 2000
200,000................................................. $20.75 November 11, 2002
</TABLE>
As further discussed in Note 6, the Company issued warrants to purchase
700,800 shares of Common Stock in connection with the issuance of the 13.5%
Senior Notes. These warrants will expire on June 1, 2000. The Company also has a
warrant outstanding that has been issued for consulting services that will allow
the holder to purchase 200,000 shares of the Company's Common Stock.
Shareholder Rights Plan: On March 7, 1996, the Board of Directors adopted
a Shareholder Rights Plan and declared a dividend of one common stock Purchase
Right (a Right) for each outstanding share of Common Stock to shareholders of
record on March 18, 1996. Such Rights only become exercisable, or transferable
apart from the Common Stock, ten business days after a person or group (an
Acquiring Person) acquires beneficial ownership of, or commences a tender or
exchange offer for, 15% or more of the Company's Common Stock.
Each Right then may be exercised to acquire 1/1000th of a share of the
Company's Series C preferred stock at an exercise price of $200. Thereafter,
upon the occurrence of certain events, the Rights entitle holders
F-24
<PAGE> 83
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other than the Acquiring Person to acquire the existing Company's preferred
stock or Common Stock of the surviving company having a value of twice the
exercise price of the Rights.
The Rights may be redeemed by the Company at a redemption price of $.01 per
Right at any time until the 10th business day following public announcement that
a 15% position has been acquired or ten business days after commencement of a
tender or exchange offer.
11. INCOME TAXES
At December 31, 1998 and 1999, the Company had temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts measured by tax laws. The Company also has net operating loss (NOL)
carryforwards available to offset future taxable income. Significant components
of the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
----------------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1998 1999
- ----------------------------------- --------- ---------
<S> <C> <C>
Tax over book depreciation................................ $ (9,477) $ --
Intangible assets......................................... (78,496) (58,122)
Other..................................................... (463) (1,554)
--------- ---------
Total deferred tax liabilities.................... (88,436) (59,676)
Book over tax depreciation................................ -- 22,442
Net operating loss carryforwards.......................... 273,813 423,456
High yield debt obligations............................... 35,434 45,552
Other..................................................... 15,166 14,355
--------- ---------
Total deferred tax assets......................... 324,413 505,805
Less valuation allowance.................................. (235,977) (446,129)
--------- ---------
88,436 59,676
--------- ---------
Net deferred tax liabilities.............................. $ -- $ --
========= =========
</TABLE>
At December 31, 1999, the Company's net operating loss carryforward for
federal income tax purposes is approximately $1,100,000, expiring in various
amounts from 2003 to 2019. Limitations apply to the use of the net operating
loss carryforwards.
RATE RECONCILIATION
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax benefit at U.S. statutory rates...... $(81,989) (34.0)% $(165,632) (34.0)% $(192,174) (34.0)%
State income taxes, net of federal
benefit................................ (8,440) (3.5) (17,050) (3.5) (18,199) (3.2)
In-Process R&D........................... 20,400 8.5 21,403 4.4 -- --
Other.................................... (1,722) (1.2) 10,291 2.1 221 --
Change in valuation allowance............ 67,157 27.8 150,989 31.0 210,152 37.2
-------- ----- --------- ----- --------- -----
$ -- --% $ -- --% $ -- --%
======== ===== ========= ===== ========= =====
</TABLE>
12. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) profit-sharing plan. Employees 21
years or older with at least three months of service are eligible to participate
in the plan. Participants may elect to contribute, on a tax-deferred basis, up
to 15% of their compensation, not to exceed $10 in 1998. The Company will match
one-half
F-25
<PAGE> 84
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of a participant's contribution, up to a maximum of 7% of the participant's
compensation. The Company's matching contribution fully vests after three years
of service. The Company's contributions to the plan were approximately $735,
$3,823 and $4,337 in 1997, 1998 and 1999, respectively.
13. COMMITMENTS
The Company is a party to various other capital lease agreements for fiber
optic cable, underground conduit equipment and utility poles which extend
through the year 2018.
In March 1998, the Company and Williams Communications, Inc. (Williams)
executed a Capacity Purchase Agreement which provides the Company with right to
purchase transmission capacity on a non-cancelable indefeasible right of use
basis on the Williams fiber network. The agreement, as amended in 1999, covers
approximately 14,000 route miles of network facilities. The capitalized asset,
consisting of the Company's rights to use network facilities, including, but not
limited to, fiber, optronics/electronics, digital encoders, telephone lines and
microwave facilities, in the amount of $426,300, is being depreciated over the
20-year estimated useful life of the primary underlying network asset, the
fiber.
Future minimum lease payments for assets under capital leases (including
the Williams agreement) at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 71,585
2001........................................................ 55,910
2002........................................................ 51,811
2003........................................................ 55,726
2004........................................................ 55,739
Thereafter.................................................. 688,483
--------
979,254
Less amount representing interest........................... (521,510)
--------
Present value of future minimum lease payments.............. 457,744
Less current portion........................................ (26,445)
--------
$431,299
========
</TABLE>
Certain executory costs, principally maintenance, associated with capital
leases are being expensed as incurred.
The Company also leases fiber optic cable, terminal facility space, and
office space under operating lease arrangements. The leases generally contain
renewal options which range from one year to fifteen years, with certain
rights-of-way and cable conduit space being renewable indefinitely after the
minimum lease term subject to cancellation notice by either party to the lease.
Lease payments in some cases may be adjusted for related revenues, increases in
property taxes, operating costs of the lessor, and increases in the Consumer
Price Index. Operating lease expense was $9,857, $36,273 and $34,305 for 1997,
1998 and 1999, respectively.
F-26
<PAGE> 85
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under non-cancelable operating leases with
original terms of more than one year as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
FIBER TERMINAL
OPTIC FACILITY OFFICE
CABLE SPACE SPACE TOTAL
------ -------- -------- --------
<S> <C> <C> <C> <C>
2000..................................................... $ 680 $ 6,081 $ 30,596 $ 37,357
2001..................................................... 680 5,383 24,926 30,989
2002..................................................... 680 4,536 20,923 26,139
2003..................................................... 680 4,022 18,830 23,532
2004..................................................... 430 3,638 11,123 15,191
Thereafter............................................... -- 9,014 29,217 38,231
------ ------- -------- --------
$3,150 $32,674 $135,615 $171,439
====== ======= ======== ========
</TABLE>
14. CONTINGENCIES
The Company is not a party to any pending legal proceedings except for
various claims and lawsuits arising in the normal course of business. The
Company does not believe that these normal course of business claims or lawsuits
will have a material effect on the Company's financial condition, results of
operations or cash flows.
The Company maintains interconnection agreements with incumbent local
exchange carriers ("ILECs") in Florida, Georgia, North Carolina, Tennessee, and
in numerous other states across the country. These contracts govern the
reciprocal amounts to be billed by competitive carriers for terminating local
traffic to Internet service providers ("ISPs") in each state. During 1997 and
1998, the Company recognized aggregate revenue from these ILECs of approximately
$47.0 million for these services. During the year ended December 31, 1999, the
Company recognized approximately $97.8 million in revenue for these services. As
of December 31, 1999, $109.9 million has not been collected.
The Company accounts for reciprocal compensation with the ILECs, including
the activity associated with the disputed ISP traffic, as local network
services, fully subject to reciprocal compensation, pursuant to the terms of the
Company's interconnection agreements. Accordingly, revenue is recognized in the
period that the traffic is terminated. A number of ILECs have refused to pay
these reciprocal compensation amounts in whole or in part, however, citing a
variety of legal theories. The circumstances surrounding the disputes, including
the status of cases that have arisen by reason of similar disputes referred to
below, are considered by management periodically in determining whether reserves
against unpaid balances are warranted. As of December 31, 1999, such provisions
have not been considered necessary by management.
Management believes the issue related to reciprocal compensation for
Internet traffic to be an industry wide matter that will ultimately be resolved
on a state-by-state basis. As of December 31, 1999, 30 state commissions had
issued final orders finding that ILECs must pay reciprocal compensation to
competitive carriers for local calls to ISPs located on competitive carriers'
networks, and no state commission had ruled to the contrary. A February 25, 1999
decision by the FCC generated some uncertainties about mutual compensation. The
FCC's order declared that ISP-bound traffic is predominantly "interstate"
traffic that is subject to federal jurisdiction.
Most current interconnection agreements -- including Intermedia's
agreements with BellSouth -- provide that compensation is owed for the
termination of "local" traffic, and the FCC's order established that, for
purposes of determining jurisdiction, dial-up calls to ISPs are not local. As a
result, many ILECs asked state commissions to overturn their earlier decisions
that called for payment of compensation for this traffic. However, while the
FCC's order did find that most ISP-bound traffic is jurisdictionally interstate,
the FCC went on to clarify that this jurisdictional determination does not
preclude parties from including ISP-bound
F-27
<PAGE> 86
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
traffic within the scope of the reciprocal compensation provisions included in
their interconnection agreements.
Subsequent to the FCC's February 25th order, at least 19 states have
reaffirmed prior determinations or affirmed for the first time that ILECs are
required to compensate competitive local exchange carriers ("CLECs") for
terminating ISP-bound traffic under existing agreements. Florida, Georgia, North
Carolina, and Tennessee are among the states that have confirmed that reciprocal
compensation must be paid. To date, nine courts have also upheld state decisions
requiring compensation under the interconnection agreements for traffic
terminated to ISPs.
This trend in state decisions is no longer unanimous, however. Two state
commissions, the Massachusetts Department of Telecommunications and Energy and
the Missouri Public Service Commission, have issued orders that raise questions
as to whether a CLEC may receive reciprocal compensation for ISP-bound traffic
under specific interconnection agreements, but these decisions do not positively
determine whether or not a CLEC has the right to collect such compensation. The
New Jersey Board of Public Utilities and the Louisiana Public Service Commission
have issued orders which found that reciprocal compensation is not due in
certain situations. To date, these are the only two state commissions in the
country to expressly rule against reciprocal compensation for Internet-bound
traffic under existing interconnection agreements, although the New Jersey
holding may not apply to all existing agreements. The South Carolina Public
Service Commission has ruled that reciprocal compensation for ISP-bound traffic
is not required for agreements subsequent to the FCC's order.
Despite the decisions by the New Jersey, Louisiana, and South Carolina
commissions, management believes that the overall pattern of decisions,
including decisions that have been reached subsequent to the FCC's February 25th
order, are strong evidence of a trend suggesting that other state commissions
will take the same position as those that require the payment of reciprocal
compensation, though the Company cannot predict with certainty what the outcome
of future decisions will be. Management is pursuing this matter vigorously and
believes that the ILECs will ultimately pay all amounts due in full. Information
contained herein reflects decisions relevant to the Company's existing
agreements and does not include decisions that may affect the Company
prospectively or that may relate to future agreements entered into by the
Company with ILECs.
15. SEGMENT INFORMATION
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS 131 uses a management approach
to report financial and descriptive information about a Company's operating
segments. The Company has determined, based on different products and customer
bases, that it has two reportable segments.
The Company's core business is its integrated communications services
segment which provides three principal groups of service offerings to business
and government customers, as reported in the Company's statements of operations.
The Company also owns an 81.3% interest in Digex, (which was reduced to 62% in
February 2000) a separate public company, which provides managed Web site and
application hosting services to large businesses and Internet companies
operating mission-critical, multi-functional Web sites and Web-based
applications. Each of these segments has separate management teams and
operational infrastructures. Substantially all of the Company's revenue is
attributable to customers in the United States. Additionally, all of the
Company's assets are located within the United States. During the periods
presented below, no single customer accounted for 10% or more of the Company's
total revenue.
F-28
<PAGE> 87
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The table below summarizes the Company's segment reporting data (in
millions). Eliminations include intersegment revenues, receivables and
investment related accounts.
<TABLE>
<CAPTION>
INTEGRATED
COMMUNICATIONS CONSOLIDATED
SERVICES DIGEX ELIMINATIONS INTERMEDIA
-------------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Revenue from external customers........................... $ 846.2 $59.8 $ -- $ 906.0
Intersegment revenue...................................... 9.2 -- (9.2) --
Depreciation and amortization............................. 300.2 29.1 -- 329.3
Loss from operations...................................... (232.9) (72.2) -- (305.1)
Interest expense.......................................... (294.8) (1.1) -- (295.9)
Interest and other income................................. 32.3 3.5 -- 35.8
Year ended December 31, 1998
Revenue from external customers........................... 690.2 22.6 -- 712.8
Intersegment revenue...................................... 6.5 -- (6.5) --
Depreciation and amortization............................. 221.6 8.1 -- 229.7
Loss from operations...................................... (300.6) (16.7) -- (317.3)
Interest expense.......................................... (205.8) -- -- (205.8)
Interest and other income................................. 35.8 -- -- 35.8
Year ended December 31, 1997
Revenue from external customers........................... 236.3 11.6 -- 247.9
Intersegment revenue...................................... 5.6 -- (5.6) --
Depreciation and amortization............................. 50.3 3.3 -- 53.6
Loss from operations...................................... (134.4) (29.1) -- (163.5)
Interest expense.......................................... (60.7) -- -- (60.7)
Interest and other income................................. 26.8 -- -- 26.8
Extraordinary loss on early retirement of debt............ (43.7) -- -- (43.7)
Total assets at December 31, 1999................... 2,955.2 344.3 (3.1) 3,296.4
Total assets at December 31, 1998................... 3,042.1 77.7 (70.8) 3,049.0
</TABLE>
16. INITIAL PUBLIC OFFERING OF SUBSIDIARY AND MINORITY INTEREST
In August 1999, the Company's managed Web site and application hosting
subsidiary, Digex, sold 11.5 million shares of its Class A Common Stock in an
initial public offering (the "Digex Offering"). The shares sold represented
approximately 18.7% of the aggregate number of shares of Digex Common Stock
outstanding. After the Digex offering, the Company retained a 97.8% voting
interest in Digex. The net proceeds from the Digex Offering were approximately
$178,903 and may be used only to purchase telecommunications related assets due
to restrictions in the Company's debt instruments. The Company includes the
accounts of the majority-owned subsidiary in its consolidated financial
statements and presents the 18.7% ownership by the minority shareholders as
minority interest in the accompanying balance sheet.
17. RELATED PARTY
A director of the Company has an indirect financial interest in an
organization engaged by the Company during 1998 to support the implementation of
an enterprise-wide information system. The organization engaged to perform the
implementation was selected by a task force of Company employees from among
several proposing organizations. During 1998, no amounts were paid or payable
under a $450 services contract. The Company paid approximately $7,100 to this
organization during 1999.
F-29
<PAGE> 88
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
--------------------- --------------------- --------------------- ---------------------
1998(A) 1999 1998(B) 1999 1998 1999 1998 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 136,786 $ 204,722 $ 190,230 $ 217,889 $ 192,353 $ 234,666 $ 193,414 $ 248,759
Operating expenses............ (250,389) (266,672) (280,467) (285,339) (233,574) (308,876) (265,659) (350,220)
--------- --------- --------- --------- --------- --------- --------- ---------
Loss from operations.......... (113,603) (61,950) (90,237) (67,450) (41,221) (74,210) (72,245) (101,461)
Other income (expense)........ (38,572) (55,620) (41,818) (55,475) (44,632) (61,165) (44,901) (87,888)
--------- --------- --------- --------- --------- --------- --------- ---------
Loss before minority
interest.................... (152,175) (117,570) (132,055) (122,925) (85,853) (135,375) (117,146) (189,349)
Minority interest in net loss
of subsidiary............... -- -- -- -- -- 2,608 -- 4,185
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss...................... (152,175) (117,570) (132,055) (122,925) (85,853) (132,767) (117,146) (185,164)
--------- --------- --------- --------- --------- --------- --------- ---------
Preferred stock dividends and
accretions.................. (18,594) (22,483) (18,876) (22,965) (30,647) (23,338) (22,227) (23,669)
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss attributable to
common stockholders......... $(170,769) $(140,053) $(150,931) $(145,890) $(116,500) $(156,105) $(139,373) $(208,833)
========= ========= ========= ========= ========= ========= ========= =========
Net loss per common share..... $ (4.83) $ (2.84) $ (3.49) $ (2.92) $ (2.48) $ (3.08) $ (2.87) $ (4.05)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
- ---------------
(a) Results of first quarter reflect the acquisition of Shared effective January
1, 1998 and a resulting $63,000 in-process R&D charge.
(b) Results of second quarter reflect the acquisitions of LDS and National
effective March 31, 1998 and April 1, 1998, respectively.
19. SUBSEQUENT EVENTS
On January 12, 2000, Digex sold 100,000 shares of its preferred stock,
designated as Series A Convertible Preferred Stock (the "Digex Series A
Preferred Stock"), with detachable warrants to purchase 1,065,000 shares of its
Class A Common Stock (the "Warrants"), for an aggregate of $100,000, of which
$15,000 was in the form of equipment purchase credits. The Digex Series A
Preferred Stock has an aggregate liquidation preference of $100,000, and is
convertible into approximately 1,462,000 shares of Class A Common Stock of
Digex. The Digex Warrants can be exercised at any time over their three-year
term at a price of $57 per share (the fair value of the Digex's common stock on
the transaction commitment date). The proceeds from the offering will be
allocated between the Digex Series A Preferred Stock and the Warrants based upon
their relative fair values, which have not yet been determined by the Digex.
Following the allocation, the Digex Series A Preferred Stock will be accreted up
to its liquidation preference through charges to accumulated deficit.
On February 16, 2000, Digex completed its second public offering of
12,650,000 shares of its Class A Common Stock. Digex offered 2,000,000 shares of
its Class A Common Stock and received net proceeds of approximately $171,718.
Also, as part of that offering, the Company sold 10,650,000 shares of Digex's
Class B Common Stock. The Class B Common Stock sold by the Company automatically
converted into Class A Common Stock at the closing of the offering. Intermedia
now owns approximately 62.0% of the outstanding Common Stock of Digex. In
addition, the Company retains approximately 94.2% voting interest in Digex. The
net proceeds were approximately $913,800 and will be used to reduce the
Company's outstanding debt and to purchase telecommunications related assets.
Due to the sale of Digex stock in February 2000, the Company will recognize a
gain on sale of stock and could utilize net operating losses.
On February 17, 2000, the Company completed its $200,000 agreement to
receive capital investment funds from an investment bank ("the investor") . In
exchange for this investment, the Company issued
F-30
<PAGE> 89
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
200,000 shares of Series G Junior Convertible Preferred Stock (the Series G
Preferred Stock) (aggregate liquidation preference $200,000) in a private
placement transaction. Dividends on the Series G Preferred Stock accumulate at a
rate of 7% of the aggregate liquidation preference thereof and are payable
quarterly, in arrears. At the Company's option, dividends are payable in cash,
issuance of shares of Common Stock of the Company, or by some combination
thereof. The Series G Preferred Stock is redeemable, at the option of the
Company, at any time on or after February 17, 2005 at rates commencing with
103.5% declining to 100% on February 17, 2008. Net proceeds to the Company were
approximately $188,000. The proceeds from this investment will be used for
general corporate purposes, including the funding of working capital and
operating losses and the funding of a portion of the cost of acquiring or
constructing telecommunications related assets.
In addition, the investor received warrants to purchase 1,000,000 shares of
the Company's Common Stock at $40 per share and warrants to purchase 1,000,000
shares of the Company's Common Stock at $45 per share.
F-31
<PAGE> 90
INTERMEDIA COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS -- END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DESCRIBE PERIOD
- ----------- ------------ ---------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 1,346 $ 6,858 $1,464(1) $ 5,417(2) $ 4,251
======== ======== ======== ========== ========
Allowance for deferred tax assets.... 29,529 71,750 -- -- 101,279
======== ======== ======== ========== ========
For the year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 4,251 24,461 2,680 9,163 22,229
======== ======== ======== ========== ========
Allowance for deferred tax assets.... 101,279 134,698 -- -- 235,977
-------- -------- -------- ---------- --------
Restructuring reserve..................... -- 32,300(3) -- 26,800(3) 5,500
======== ======== ======== ========== ========
For the year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts...... $ 22,229 $ 20,499 $ -- $ 13,672(2) $ 29,056
======== ======== ======== ========== ========
Allowance for deferred tax assets.... 235,977 210,152 -- -- 446,129
-------- -------- -------- ---------- --------
Restructuring reserve..................... 5,500 4,800(3) 700
======== ======== ======== ========== ========
</TABLE>
- ---------------
(1) Amount represents allowance for accounts purchased in the Shared and
National business combinations.
(2) Uncollectible accounts written off, net of recoveries.
(3) Amounts represent accruals, payments and other reductions as disclosed in
the Notes to the Company's Consolidated Financial Statements.
F-32
<PAGE> 1
Exhibit 10.5
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
David C. Ruberg
3625 Queen Palm Drive
Tampa, FL 33619
Dear David:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any employee of the Company who was employed by the
Company or its subsidiaries on the date of your termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of at
least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to the
terms of this letter or otherwise) (a "Payment") would constitute an "excess
parachute payment" within the meaning of Section 49999 of the internal revenue
code, then the Payments, in the aggregate, shall be reduced (in a manner
elected by you, or the Company if you fail to make such an election) to the
greatest amount that could be paid to you so that no portion thereof shall be
subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original Employment Agreement,
dated May 5, 1993, continue in full force and effect. If the foregoing is
acceptable to you, please sign in the space provided below and return to me one
fully executed copy of this letter. Nothing in this letter will be deemed to
affect the at-will status of your continued employment by Intermedia.
Intermedia Communications Inc.
------------------------------
John C. Baker,
Compensation Committee of the
Board of Directors
/s/ George Knapp
------------------------------
George Knapp, Director
Compensation Committee of the
Board of Directors
Agreement with terms
of letter confirmed:
- -----------------------
David C. Ruberg
<PAGE> 1
Exhibit 10.6
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
Robert M. Manning
3625 Queen Palm Drive
Tampa, FL 33619
Dear Rob:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any employee of the Company who was employed by the
Company or its subsidiaries on the date of your termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of at
least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to the
terms of this letter or otherwise) (a "Payment") would constitute an "excess
parachute payment" within the meaning of Section 49999 of the internal revenue
code, then the Payments, in the aggregate, shall be reduced (in a manner
elected by you, or the Company if you fail to make such an election) to the
greatest amount that could be paid to you so that no portion thereof shall be
subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original offer letter continue in
full force and effect. If the foregoing is acceptable to you, please sign in the
space provided below and return to me one fully executed copy of this letter.
Nothing in this letter will be deemed to affect the at-will status of your
continued employment by Intermedia.
Intermedia Communications Inc.
/s/ David C. Ruberg
------------------------------
David C. Ruberg
President and CEO
Agreement with terms
of letter confirmed:
/s/ Robert M. Manning
- -----------------------
Robert M. Manning
<PAGE> 1
Exhibit 10.9
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
Richard J. Buyens
3625 Queen Palm Drive
Tampa, FL 33619
Dear Rick:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any employee of the Company who was employed by the
Company or its subsidiaries on the date of your termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of
at least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to
the terms of this letter or otherwise) (a "Payment") would constitute an
"excess parachute payment" within the meaning of Section 49999 of the internal
revenue code, then the Payments, in the aggregate, shall be reduced (in a
manner elected by you, or the Company if you fail to make such an election) to
the greatest amount that could be paid to you so that no portion thereof shall
be subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original offer letter continue in
full force and effect. If the foregoing is acceptable to you, please sign in the
space provided below and return to me one fully executed copy of this letter.
Nothing in this letter will be deemed to affect the at-will status of your
continued employment by Intermedia.
Intermedia Communications Inc.
/s/ David C. Ruberg
------------------------------
David C. Ruberg
President and CEO
Agreement with terms
of letter confirmed:
/s/ Richard J. Buyens
- -----------------------
Richard J. Buyens
<PAGE> 1
Exhibit 10.12
REVOLVING CREDIT AGREEMENT 1 *
among
INTERMEDIA COMMUNICATIONS INC.,
Borrower
BANK OF AMERICA, N.A.,
Administrative Agent
BANC OF AMERICA SECURITIES LLC,
Sole Lead Arranger and Book Manager
BNY CAPITAL MARKETS, INC.,
Syndication Agent
and
TORONTO DOMINION (TEXAS), INC.,
Documentation Agent,
The Arranging Agents defined herein
and
THE LENDERS NAMED HEREIN,
Lenders
$100,000,000
DATED AS OF DECEMBER 22, 1999
- -------------------
*CONFORMED TO REFLECT SIGNATURES.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 1 DEFINITIONS AND TERMS 1
1.1 Definitions 1
1.2 Number and Gender of Words; Other References 20
1.3 Accounting Principles 20
SECTION 2 BORROWING PROVISIONS 20
2.1 Revolver Facility 20
2.2 Telecommunications Facility 20
2.3 Optional Receivables Facility 21
2.4 Termination of Commitments 22
2.5 Borrowing Procedure 24
SECTION 3 TERMS OF PAYMENT 25
3.1 Notes and Payments 25
3.2 Interest and Principal Payments 25
3.3 Interest Options 26
3.4 Quotation of Rates 26
3.5 Default Rate 26
3.6 Interest Recapture 26
3.7 Interest Calculations 27
3.8 Maximum Rate 27
3.9 Interest Periods 27
3.10 Conversions 27
3.11 Order of Application 28
3.12 Sharing of Payments, Etc. 28
3.13 Offset 29
3.14 Booking Borrowings 29
SECTION 4 CHANGE IN CIRCUMSTANCES 29
4.1 Increased Cost and Reduced Return 29
4.2 Limitation on Types of Loans 30
4.3 Illegality 30
4.4 Treatment of Affected Loans 31
4.5 Compensation 31
4.6 Taxes 31
SECTION 5 FEES 33
5.1 Treatment of Fees 33
5.2 Fees of Administrative Agent and Arranging Agents 33
5.3 Revolver Facility Commitment Fees 33
SECTION 6. SECURITY; GUARANTIES 34
6.1 Collateral 34
6.2 Guaranties 34
6.3 Future Liens 35
6.4 Release of Collateral 35
6.5 Negative Pledge 35
6.6 Control; Limitation of Rights 36
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 7 CONDITIONS PRECEDENT 36
7.1 Conditions Precedent to Closing 36
7.2 Conditions Precedent to a Permitted Acquisition 36
7.3 Conditions Precedent to Each Borrowing 36
SECTION 8 REPRESENTATIONS AND WARRANTIES 37
8.1 Purpose of Credit Facility37
8.2 Existence, Good Standing, Authority, and Authorizations 37
8.3 Subsidiaries; Capital Stock 38
8.4 Authorization and Contravention 38
8.5 Binding Effect 38
8.6 Financial Statements 38
8.7 Litigation, Claims, Investigations 39
8.8 Taxes 39
8.9 Environmental Matters 39
8.10 Employee Benefit Plans 39
8.11 Properties; Liens 40
8.12 Government Regulations 40
8.13 Transactions with Affiliates 40
8.14 Debt 40
8.15 Material Agreements 40
8.16 Insurance 40
8.17 Labor Matters 40
8.18 Solvency 40
8.19 Intellectual Property 41
8.20 Compliance with Laws 41
8.21 Permitted Acquisitions 41
8.22 Regulation U 41
8.23 Trade Name 41
8.24 Year 2000 Compliance 41
8.25 No Default 42
8.26 Full Disclosure 42
SECTION 9 COVENANTS 42
9.1 Use of Proceeds 42
9.2 Books and Records 42
9.3 Items to be Furnished 42
9.4 Inspections 44
9.5 Taxes 44
9.6 Payment of Obligations 44
9.7 Maintenance of Existence, Assets, and Business 45
9.8 Insurance 45
9.9 Preservation and Protection of Rights 46
9.10 Employee Benefit Plans 46
9.11 Environmental Laws 46
9.12 Debt and Guaranties 46
9.13 Liens 48
9.14 Loans, Advances, and Investments 49
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9.15 Distributions 50
9.16 Sale of Assets 50
9.17 Sale-Leaseback Financings 51
9.18 Mergers and Dissolutions; Sale of Capital Stock 51
9.19 Restrictions on Subsidiaries 51
9.20 Compliance with Laws and Documents 51
9.21 Government Regulations 51
9.22 Transactions with Affiliates 52
9.23 New Business 52
9.24 Permitted Acquisitions, Subsidiary Guaranties, and
Collateral Documents 52
9.25 Fiscal Year and Accounting Methods 52
9.26 Financial Hedges 52
9.27 Assignment 53
9.28 Affiliate Subordination Agreements 53
9.29 Year 2000 53
9.30 Amendments to Documents 53
9.31 Management Fees 53
9.32 Financial Covenants 53
9.33 Regulatory Matters; License Company 56
SECTION 10 DEFAULT 56
10.1 Payment of Obligation 56
10.2 Covenants 56
10.3 Debtor Relief 56
10.4 Judgments and Attachments 57
10.5 Government Action 57
10.6 Misrepresentation 57
10.7 Change of Control 57
10.8 Authorizations 57
10.9 Default Under Other Debt and Agreements 57
10.10 Validity and Enforceability of Loan Documents 58
10.11 Material Adverse Effect 58
10.12 Environmental Liability 58
10.13 Employee Benefit Plans 58
10.14 Pledged Stock 58
10.15 Dissolution 58
10.16 Payment of Certain Other Agreements 58
10.17 Default or Acceleration under Certain Other Agreements 59
10.18 Redemption of Certain Other Debt or Obligation 59
SECTION 11 RIGHTS AND REMEDIES 59
11.1 Remedies Upon Default 59
11.2 Company Waivers 59
11.3 Performance by Administrative Agent 60
11.4 Delegation of Duties and Rights 60
11.5 Not in Control 60
11.6 Course of Dealing 60
11.7 Cumulative Rights 60
11.8 Application of Proceeds 60
11.9 Certain Proceedings 61
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C>
11.10 Limitation of Rights 61
11.11 Expenditures by Lenders 61
11.12 Indemnification 61
SECTION 12 AGREEMENT AMONG LENDERS 62
12.1 Administrative Agent 62
12.2 Expenses 63
12.3 Proportionate Absorption of Losses 63
12.4 Delegation of Duties; Reliance 63
12.5 Limitation of Liability 64
12.6 Default; Collateral 65
12.7 Limitation of Liability 66
12.8 Relationship of Lenders 66
12.9 Benefits of Agreement 66
12.10 Agents 66
12.11 Obligations Several 67
12.12 Financial Hedges 67
SECTION 13 MISCELLANEOUS 67
13.1 Headings 67
13.2 Nonbusiness Days 67
13.3 Communications 67
13.4 Form and Number of Documents 68
13.5 Exceptions to Covenants 68
13.6 Survival 68
13.7 Governing Law 68
13.8 Invalid Provisions 68
13.9 Entirety 68
13.10 Jurisdiction; Venue; Service of Process; Jury Trial 68
13.11 Amendments, Consents, Conflicts, and Waivers 69
13.12 Multiple Counterparts 70
13.13 Successors and Assigns; Assignments and Participations 70
13.14 Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances 72
13.15 Confidentiality 72
</TABLE>
iv
<PAGE> 6
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule 1 - Special Regulatory Approval Jurisdictions
Schedule 2.1 - Lenders and Commitments
Schedule 7.1 - Conditions Precedent to Closing
Schedule 7.1(a) - Post-Closing Conditions
Schedule 7.2 - Conditions Precedent to Permitted Acquisitions
Schedule 8.2 - FCC and PUC Licenses
Schedule 8.3 - Capital Stock and Partnership Interests
Schedule 8.15 - Material Agreements
Schedule 8.23 - Trade Names
Schedule 9.12 - Existing Debt
Schedule 9.13 - Existing Liens
Schedule 9.14 - Loans, Advances, and Investments
Schedule 9.33 - Transfer Approval Jurisdictions
Exhibit A-1 - Form of Revolver Note
Exhibit A-2 - Form of Telecommunications Note
Exhibit A-3 - Form of Receivables Note
Exhibit B-1 - Form of Notice of Borrowing
Exhibit B-2 - Form of Notice of Conversion
Exhibit C - Form of Guaranty
Exhibit D-1 - Form of Pledge Agreement
Exhibit E-1 - Form of Compliance Certificate
Exhibit E-2 - Form of Permitted Acquisition Compliance Certificate
Exhibit E-3 - Form of Permitted Acquisition Loan Closing Certificate
Exhibit F - Form of Assignment and Acceptance Agreement
Exhibit G-1 - Form of Opinion of Counsel of Borrower
Exhibit G-2 - Form of Opinion of Special Regulatory Counsel
Exhibit G-3 - Form of Opinion of Local Counsel
Exhibit H - Form of Affiliate Subordination Agreements
</TABLE>
v
<PAGE> 7
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT is entered into as of December 22,
1999, among INTERMEDIA COMMUNICATIONS INC., a Delaware corporation ("BORROWER"),
Lenders (hereinafter defined), BANC OF AMERICA SECURITIES, LLC, as Sole Lead
Arranger and Book Manager, BNY CAPITAL MARKETS, INC., as Syndication Agent
(hereinafter defined), TORONTO DOMINION (TEXAS), INC., as Documentation Agent
(hereinafter defined), BANK OF AMERICA, N.A., as Administrative Agent
(hereinafter defined), and BANK OF AMERICA, N.A., THE BANK OF NEW YORK, and
TORONTO DOMINION (TEXAS), INC., as Arranging Agents (hereinafter defined).
RECITALS
A. Borrower has requested that Lenders extend credit to Borrower in the form of
this Revolving Credit Agreement (the "AGREEMENT"), providing for a revolving
loan facility in the aggregate principal amount of $75,000,000, a facility for
telecommunications assets for an aggregate principal amount of $25,000,000, and
an uncommitted discretionary receivables facility for refinancing the
acquisition/construction facility for an aggregate principal amount of up to
$25,000,000.
B.
C. Upon and subject to the terms and conditions of this Agreement, Lenders are
willing to extend such credit to Borrower.
D.
E. Accordingly, in consideration of the mutual covenants contained herein,
Borrower, Administrative Agent, Syndication Agent, Documentation Agent,
Arranging Agents, and Lenders agree, as follows:
1. SECTION DEFINITIONS AND TERMS.
2.
2.1 DEFINITIONS. As used herein:
2.2
2.3 ACQUISITION means any transaction or series of related transactions for
the purpose of, or resulting in, directly or indirectly, (a) the acquisition by
any Company of (i) all or substantially all of the assets of a Person, (ii) any
business or division of a Person, or (iii) to the extent not properly classified
as a Capital Expenditure in accordance with GAAP, any telecommunication asset or
group of assets currently in operation and generating cash flow and revenue, (b)
the acquisition by any Company of more than 50% of any class of Voting Stock (or
similar ownership interests) of any Person (provided that, formation or
organization of any entity shall not constitute an "Acquisition" to the extent
that the amount of the loan, advance, investment, or capital contribution in
such entity constitutes a permitted investment under SECTION 9.14); or (c) a
merger, consolidation, amalgamation, or other combination by any Company with
another Person if a Company is the surviving entity; provided that, in any
merger involving Borrower, Borrower must be the surviving entity.
2.4
2.5 ADJUSTED EURODOLLAR RATE means, for any Eurodollar Rate Borrowing for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal
to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar
Rate Borrowing for such Interest Period by (b) 1 minus the Reserve Requirement
for such Eurodollar Rate Borrowing for such Interest Period.
2.6
2.7 ADMINISTRATIVE AGENT means Bank of America, N.A., and its permitted
successors or assigns as "Administrative Agent" for Lenders under this
Agreement.
1
<PAGE> 8
2.8
2.9 AFFILIATE of any Person means any other individual or entity who
directly or indirectly controls, or is controlled by, or is under common control
with, such Person, and, for purposes of this definition only, "control,"
"controlled by," and "under common control with" mean possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract, or
otherwise).
2.10
2.11 AGENTS means, collectively, the Administrative Agent, the Syndication
Agent, the Documentation Agent, and Arranging Agents.
2.12
2.13 AGREEMENT means this Revolving Credit Agreement (as the same may
hereafter be amended, modified, supplemented, or restated from time to time).
2.14
2.15 ANNUALIZED OPERATING CASH FLOW means, at any date of determination, the
Operating Cash Flow of the Companies (determined on a consolidated basis) for
the three-calendar month period then most recently ended, multiplied by four.
2.16
2.17 APPLICABLE LENDING OFFICE means, for each Lender and for each Type of
Borrowing, the "Lending Office" of such Lender (or an affiliate of such Lender)
designated on SCHEDULE 2.1 attached hereto or such other office that such Lender
(or an affiliate of such Lender) may from time to time specify to Administrative
Agent and Borrower by written notice in accordance with the terms hereof.
2.18
2.19 APPLICABLE MARGIN means either:
2.20
(a) with respect to Borrowings occurring on or prior to June
30, 2001, 1.75% for Base Rate Borrowings and 2.750% for Eurodollar Rate
Borrowings; or
(b) on any date of determination occurring after June 30,
2001, the percentage per annum set forth in the table below for the
Type of Borrowing that corresponds to the Total Leverage Ratio at such
date of determination, as calculated based on the quarterly compliance
certificate of Borrower most recently delivered pursuant to SECTION 9.3
hereof (or the most recent Permitted Acquisition Compliance Certificate
for a Permitted Acquisition, as the case may be):
<TABLE>
<CAPTION>
TOTAL LEVERAGE RATIO APPLICABLE MARGIN
-----------------------------------------------------------
BASE RATE BORROWINGS EURODOLLAR RATE BORROWINGS
- ------------------------------------ -------------------- --------------------------
<S> <C> <C>
LESS THAN 5.00:1.0 0.625% 1.625%
GREATER THAN OR EQUAL TO 5.00 : 1.0, 0.875% 1.875%
BUT LESS THAN 7.00:1.0
GREATER THAN OR EQUAL TO 7.00:1.0, 1.250% 2.250%
BUT LESS THAN 10.00:1.0
GREATER THAN OR EQUAL TO 10.00:1.0, 1.500% 2.500%
BUT LESS THAN 12.00:1.0
GREATER THAN OR EQUAL TO 12.00:1.0 1.750% 2.750%
</TABLE>
(i) With respect to any adjustments in the
Applicable Margin as a result of changes in the Total Leverage
Ratio, such adjustment shall be effective commencing on the
second Business Day after the delivery of Financial Statements
(and related Compliance Certificate) pursuant to SECTIONS
9.3(a) and 9.3(b) or the most recent
2
<PAGE> 9
Permitted Acquisition Compliance Certificate for a Permitted
Acquisition, as the case may be.
(ii) If Borrower fails to timely furnish to Lenders
the Financial Statements and related Compliance Certificates
as required to be delivered pursuant to SECTIONS 9.3(a) and
9.3(b), and such failure shall not be remedied within five
days, then (unless the Default Rate has been effected by
Required Lenders pursuant to SECTION 3.5) the Applicable
Margin shall be the maximum Applicable Margin specified in the
table above.
ARRANGING AGENTS means, collectively, Bank of America, N.A., The Bank
of New York, and Toronto Dominion (Texas), Inc., and their respective permitted
successors and assigns as "Arranging Agent" under this Agreement.
ASSUMED TAXES means, (a) with respect to any Equity Issuance, an amount
equal to such incremental annual increase in franchise Taxes as Borrower
estimates in good faith shall be payable as a result of such Equity Issuance,
and (b) with respect to any Significant Sale, an amount equal to such percentage
as Borrower estimates in good faith to be its effective rate of the taxable gain
for federal and state income tax purposes with respect to such Significant Sale.
AUTHORIZATIONS means all filings, recordings, and registrations with,
and all validations or exemptions, approvals, orders, authorizations, consents,
franchises, licenses, certificates, and permits from, any Governmental Authority
(including, without limitation, the FCC and applicable PUCs), including without
limitation, any of the foregoing authorizing or permitting the acquisition,
construction, or operation of any network facility or any other
telecommunication system.
BANK OF AMERICA means Bank of America, N.A., in its individual capacity
as a Lender, and its successors and assigns.
BASE RATE means, for any day, the rate per annum equal to the higher of
(a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and
(b) the Prime Rate for such day. Any change in the Base Rate due to a change in
the Prime Rate or the Federal Funds Rate shall be effective on the effective
date of such change in the Prime Rate or the Federal Funds Rate.
BASE RATE BORROWING means a Borrowing bearing interest at the sum of
the Base Rate plus the Applicable Margin for Base Rate Borrowings.
BENEFICIAL OWNER means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (a) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (b) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
BORROWER is defined in the preamble to this Agreement.
BORROWING means any amount disbursed (a) by one or more Lenders to
Borrower under the Loan Documents (under the Revolver Facility, the
Telecommunications Facility, or the Receivables Facility),
3
<PAGE> 10
whether such amount constitutes an original disbursement of funds or the
continuation of an amount outstanding, or (b) by any Lender in accordance with,
and to satisfy the obligations of any Company or Guarantor under, any Loan
Document.
BORROWING DATE is defined in SECTION 2.5(a).
BUDGET means the most recently delivered of the (a) annual financial
budget for the Companies delivered on the Closing Date as required in ITEM 22 on
SCHEDULE 7.1 delivered pursuant to SECTION 7.1 or (b) the Budget delivered
pursuant to SECTION 9.3(d), together with any adjustments to any Budget (whether
described in CLAUSE (a) or (b)) made from time to time based on projections
delivered in connection with Permitted Acquisitions pursuant to SECTION 7.2 and
the requirements of a "Permitted Acquisition" as set forth in this SECTION 1.1
so long as such projections have been approved by Administrative Agent.
BUSINESS DAY means (a) for all purposes, any day other than Saturday,
Sunday, and any other day on which commercial banking institutions are required
or authorized by Law to be closed in Dallas, Texas, or such other location as
Administrative Agent may select upon 30 days prior written notice to Borrower,
Arranging Agents, and Lenders, and (b) in addition to the foregoing, in respect
of any Eurodollar Rate Borrowing, a day on which dealings in United States
dollars are conducted in the London interbank market and commercial banks are
open for international business in London.
CAPACITY PURCHASE AGREEMENT means the Williams Agreement, any other
capacity purchase agreements or dark fiber leases (where a Company is lessee)
entered into by Borrower with third parties from time to time.
CAPITAL EXPENDITURE means an expenditure for any fixed asset having a
useful life of more than one (1) year, or any improvements or additions thereto,
including the direct or indirect acquisition of such assets, and, including any
obligations to pay deferred circuit costs.
CAPITAL LEASE means any capital lease or sublease which should be
capitalized on a balance sheet in accordance with GAAP, other than obligations
arising under any Capacity Purchase Agreement.
CAPITAL STOCK means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights, or other equivalents (however designated) of
corporate stock, and (iii) in the case of a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
CASH EQUIVALENTS means:
(a) Readily marketable, direct, full faith and credit
obligations of the United States of America, or obligations guaranteed
by the full faith and credit of the United States of America, maturing
within not more than one year from the date of acquisition;
(b) Short term certificates of deposit and time deposits,
which mature within one year from the date of issuance and which are
fully insured by the Federal Deposit Insurance Corporation;
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(c) Commercial paper maturing in 365 days or less from the
date of issuance and rated either "P1" by Moody's Investors Service,
Inc. ("MOODY'S"), or "A-1" by Standard and Poor's Rating Group (a
division of McGraw-Hill, Inc., "S&P");
(d) Debt instruments of a domestic issuer which mature in one
year or less and which are rated "A" or better by Moody's or S&P on the
date of acquisition of such investment; and
(e) Demand deposit accounts which are maintained in the
ordinary course of business.
CLOSING DATE means the date upon which this Agreement has been executed
by Borrower, Lenders, and Administrative Agent and all conditions precedent
specified in SECTION 7.1 have been satisfied or waived, but must be, if at all,
a Business Day occurring no later than December 22, 1999.
CLOSING PRICE on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on Nasdaq National Market but the issuer
is a Foreign Issuer (as defined in Rule 3b4(b) under the Exchange Act) and the
principal securities exchange on which such shares are listed or admitted to
trading is a Designated Offshore Securities Market (as defined in Rule 902(a)
under the Securities Act), the average of the reported closing bid and asked
prices regular way on such principal exchange, or, if such shares are not listed
or admitted to trading on any national securities exchange or quoted on Nasdaq
National Market and the issuer and principal securities exchange do not meet
such requirements, the average of the closing bid and asked prices in the
overthecounter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Borrower for that purpose and is
reasonably acceptable to Administrative Agent.
CODE means the Internal Revenue Code of 1986, as amended, together with
the rules and regulations promulgated thereunder.
COLLATERAL means all the items and types of property described as
"Collateral" in the Collateral Documents and all cash and non-cash proceeds
thereof.
COLLATERAL DOCUMENTS means all security agreements, pledge agreements,
assignments of partnership interests, and Guaranties at any time delivered to
Administrative Agent to create or evidence Liens securing the Obligation,
together with all reaffirmations, amendments, and modifications thereof or
supplements thereto.
COMMITMENT PERCENTAGE means, at any date of determination, for any
Lender with respect to a particular Facility, the proportion (stated as a
percentage) that its Committed Sum for such Facility bears to the aggregate
Committed Sums of all Lenders for such Facility.
COMMITTED SUM means, for any Lender at any date of determination, as
the case may be, (a) with respect to the Revolver Facility and the
Telecommunications Facility, the amount stated beside such Lender's name on the
most-recently amended SCHEDULE 2.1 to the Agreement (which amount is subject to
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increase, reduction, or cancellation in accordance with this Agreement), and (b)
with respect to the Receivables Facility, the Receivables Commitment of any
Lender then in effect.
COMMON STOCK of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution, or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
COMMUNICATIONS ACT means, collectively, The Federal Communications Act
of 1934, as amended from time to time, and the rules and regulations in effect
at any time thereunder.
COMPANIES means, at any date of determination thereof, Borrower and
each of its Subsidiaries; and COMPANY means, on any date of determination,
Borrower or any of its Subsidiaries.
COMPLIANCE CERTIFICATE means a certificate signed by a Responsible
Officer, substantially in the form of EXHIBIT E-1.
CONSEQUENTIAL LOSS means any loss or expense which any Lender may
reasonably incur in respect of a Eurodollar Rate Borrowing as a consequence of
any event described in SECTION 4.5.
CONSTRUCTION PROJECT means a project undertaken by any Borrower or any
Domestic Subsidiary of Borrower relating to the construction of
Telecommunications Assets which are wholly-owned by such Company.
CONTEMPLATED EQUITY INFUSION means one or more investments or capital
contributions (including common and preferred stock) in Borrower or one or more
of its Domestic Subsidiaries aggregating up to $400,000,000, as reflected in the
Budget delivered by Borrower to Lenders on or prior to the Closing Date, so long
as such investments are made within a six month period immediately following the
Closing Date.
CONTINUING DIRECTORS means, as of any date of determination, any member
of the board of directors of Borrower who (i) was a member of such board of
directors on the Closing Date or (ii) was nominated for election or elected to
such board of directors with the affirmative vote of a majority of the
Continuing Directors who were members of such board at the time of such
nomination or election.
CURRENT FINANCIALS means, at the time of any determination thereof, the
more recently delivered to Lenders of either (a) the Financial Statements for
the fiscal year ended December 31, 1998, and the nine-month period ended
September 30, 1999, calculated on a consolidated basis for the Companies; or (b)
the Financial Statements required to be delivered under SECTIONS 9.3(a) or
9.3(b), as the case may be, calculated on a consolidated basis for the
Companies.
DEBT means (without duplication), for any Person, the sum of the
following: (a) all liabilities, obligations, and indebtedness of such Person
which in accordance with GAAP should be classified upon such Person's balance
sheet as liabilities (but excluding accrued taxes and accrued expenses) in
respect of (i) money borrowed, including, without limitation, the Principal
Debt, (ii) obligations of such Person under Capital Leases,(iii) all obligations
arising under the Williams Agreement or any other Capacity Purchase Agreement,
and (iv) obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations, and obligations under any
title retention agreement (but excluding trade accounts payable which are for
goods furnished or services rendered in the ordinary course of business and are
payable in accordance with customary trade terms); (b) all obligations of the
type referred to in CLAUSES (a)(i) through (a)(iv) preceding of other Persons
for the payment of which such
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<PAGE> 13
Person is responsible or liable as obligor, guarantor, or otherwise; (c) all
obligations of the type referred to in CLAUSES (a)(i) through CLAUSE (a)(iv) and
CLAUSE (b) preceding of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; (d) the face
amount of all letters of credit and banker's acceptances issued for the account
of such Person, and without duplication, all drafts drawn and unpaid thereunder,
other than letters of credit or banker's acceptances that are completely secured
with cash collateral; and (e) net payments under Financial Hedges.
DEBT ISSUANCE means any Subordinated Debt of Borrower or any Company
issued or incurred after the Closing Date in accordance with SECTION 9.12(g).
DEBTOR RELIEF LAWS means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, fraudulent
transfer or conveyance, suspension of payments, or similar Laws from time to
time in effect affecting the Rights of creditors generally.
DEFAULT is defined in SECTION 10.
DEFAULT RATE means a per annum rate of interest equal from day to day
to the lesser of (a) the sum of the Base Rate plus the Applicable Margin for
Base Rate Borrowings plus 2% and (b) the Maximum Rate.
DISTRIBUTION for any Person means, with respect to any shares of any
capital stock or other equity securities issued by such Person, (a) the
retirement, redemption, purchase, or other acquisition for value of any such
securities, other than the redemption of Preferred Stock for common stock and
the conversion of Preferred Stock into Permitted Debt, (b) the declaration or
payment of any dividend on or with respect to any such securities, (c) any other
payment by such Person with respect to such securities, and (d) other than in
connection with a Permitted Refinancing, voluntary prepayments of principal and
interest on, and any redemptions or repurchases of, Subordinated Debt.
DOLLARS and the symbol $ means lawful money of the United States of
America.
DOMESTIC SUBSIDIARY means a direct or indirect Subsidiary of Borrower
that is organized or incorporated under the Laws of a jurisdiction of the United
States, other than a direct or indirect Domestic Subsidiary of a Foreign
Subsidiary of Borrower.
ELIGIBLE ASSIGNEE means (a) a Lender; (b) an Affiliate of a Lender (so
long as such assignment is not made in conjunction with the sale of such
Affiliate); and (c) any other commercial bank or other financial institution
approved by Administrative Agent (which approval will not be unreasonably
withheld or delayed by Administrative Agent) and -- unless a Default or
Potential Default has occurred and is continuing at the time any assignment is
effected in accordance with SECTION 13.13 -- Borrower, such approval not to be
unreasonably withheld or delayed by Borrower and such approval to be deemed
given by Borrower if no objection is received by the assigning Lender and the
Administrative Agent from Borrower within five Business Days after notice of
such proposed assignment has been provided by the assigning Lender to Borrower;
provided, however, that neither Borrower nor any Affiliate of Borrower shall
qualify as an Eligible Assignee.
EMPLOYEE PLAN means an employee pension benefit plan covered by Title
IV of ERISA and established or maintained by Borrower or any ERISA Affiliate,
but not including any Multiemployer Plan.
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ENVIRONMENTAL LAW means any applicable Law that relates to (a) the
condition or protection of air, groundwater, surface water, soil, or other
environmental media, (b) the environment, including natural resources or any
activity which affects the environment, (c) the regulation of any pollutants,
contaminants, wastes, substances, and Hazardous Substances, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Clean Air Act (42
U.S.C. ss. 7401 et seq.), the Federal Water Pollution Control Act, as amended by
the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Emergency
Planning and Community Right to Know Act of 1986 (42 U.S.C. ss. 11001 et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the
National Environmental Policy Act of 1969 (42 U.S.C. ss. 4321 et seq.), the Oil
Pollution Act (33 U.S.C. ss. 2701 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.), the Rivers and Harbors Act (33 U.S.C.
ss. 401 et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 201 and ss. 300f et
seq.), the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984 (42
U.S.C. ss. 6901 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et seq.), and analogous state and local Laws, as any of the foregoing may have
been and may be amended or supplemented from time to time, and any analogous
future enacted or adopted Law, or (d) the Release or threatened Release of
Hazardous Substances.
EQUITY ISSUANCE means the issuance on and after the Closing Date by any
Company of any shares of any class of stock, warrants, or other equity
interests, other than (a) present and future shares of stock, options, or
warrants issued to employees, directors, or consultants of the Companies, and
(b) if no Default or Potential Default then exists or arises after giving effect
thereto, the Contemplated Equity Infusion.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and rulings thereunder.
ERISA AFFILIATE means any company or trade or business (whether or not
incorporated) which, for purposes of Title IV of ERISA, is a member of
Borrower's controlled group or which is under common control with Borrower
within the meaning of Section 414(b), (c), (m), or (o) of the Code.
ERISA EVENT means any of the following: (a) the occurrence of a
Reportable Event; (b) the application for a minimum funding waiver with respect
to an Employee Plan, or becoming obligated to file with the PBGC a notice of
failure to make a required payment with respect to any Employee Plan; (c) the
provision by the administrator of any Employee Plan of a notice of intent to
terminate such Employee Plan; (d) the withdrawal by any Company or ERISA
Affiliate, in whole or in part, from a Multiemployer Plan; (e) the occurrence of
any condition (under ERISA, the Code, or otherwise) for the imposition of a Lien
in favor of the PBGC on the assets of any Company; (f) the adoption of an
amendment to an Employee Plan requiring the provision of security to such
Employee Plan; (g) institution by the PBGC of proceedings to terminate or impose
liability in respect of (other than premiums under Section 4007 of ERISA), any
Employee Plan, or the occurrence of any event or condition that constitutes
grounds for termination of, or the appointment of a trustee to administer, any
Employee Plan; (h) institution by the sponsor of a Multiemployer Plan of
proceedings to terminate or reorganize such Multiemployer Plan, or to impose
withdrawal liability on any Company or ERISA Affiliate with respect to such
Multiemployer Plan; (i) the cessation of operations at a facility of any Company
or any ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; or (j) any Company or ERISA Affiliate has engaged in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to an Employee Plan or Multiemployer Plan.
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<PAGE> 15
EURODOLLAR RATE means, for any Eurodollar Rate Borrowing for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) appearing on Bridge Telerate Screen Page 3750 (or any
successor page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "Eurodollar Rate" shall mean,
for any Eurodollar Rate Borrowing for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
EURODOLLAR RATE BORROWING means a Borrowing bearing interest at the sum
of the Adjusted Eurodollar Rate plus the Applicable Margin for Eurodollar Rate
Borrowings.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder.
EXHIBIT means an exhibit to this Agreement unless otherwise specified.
EXISTING SENIOR NOTES means, collectively, (i) the 8-7/8% Senior Notes
due 2007, issued by Borrower pursuant to an Indenture dated as of October 30,
1997, between Borrower and SunTrust Bank, Central Florida, National Association,
as trustee; (ii) the 8.60% Senior Notes due 2008, issued by Borrower pursuant to
an Indenture dated as of May 27, 1998, between Borrower and SunTrust Bank,
Central Florida, National Association, as trustee; (iii) the 11-1/4% Senior
Notes due 2007, issued by Borrower pursuant to an Indenture dated as of July 9,
1997, between Borrower and SunTrust Bank, Central Florida, National Association,
as trustee; (iv) the 12-1/2% Senior Notes due 2006, issued by Borrower pursuant
to an Indenture dated as of May 14, 1996, between Borrower and SunTrust Bank,
Central Florida, National Association, as trustee; (v) the 8-1/2% Senior Notes
due 2008, issued by Borrower pursuant to an Indenture dated as of December 23,
1997, between Borrower and SunTrust Bank, Central Florida, National Association,
as trustee; and (vi) the 9-1/2% Senior Notes due 2009, issued by Borrower
pursuant to an Indenture dated as of February 24, 1999, between Borrower and
SunTrust Bank, Central Florida, National Association, as Trustee.
EXISTING SUBORDINATED NOTES means, the 12-1/4% Senior Subordinated
Discount Notes due 2009, issued by Borrower pursuant to an Indenture dated as of
February 24, 1999, between Borrower and SunTrust Bank, Central Florida, National
Association, as Trustee.
FACILITIES means, collectively, the Revolver Facility, and either the
Telecommunications Facility or the Receivables Facility (but only if such
Facility is substituted for the Telecommunications Facility in accordance with
the requirements of the Loan Documents). FACILITY means the Revolver Facility,
or the Telecommunications Facility, or the Receivables Facility (but only if
such Facility is substituted for the Telecommunications Facility in accordance
with the requirements of the Loan Documents).
FCC means the Federal Communications Commission and any successor
regulatory body.
FEDERAL FUNDS RATE means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined (which
determination shall be conclusive and binding, absent manifest error) by
Administrative Agent to be equal to the weighted average of the rates on
overnight
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Federal funds transactions with member banks of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day; provided
that (a) if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate charged to the Administrative Agent (in its
individual capacity) on such day on such transactions as determined by the
Administrative Agent (which determination shall be conclusive and binding,
absent manifest error).
FINANCIAL HEDGE means a swap, collar, floor, cap, or other contract
which is intended to reduce or eliminate the risk of fluctuations in interest
rates, including, without limitation, the Financial Hedges entered into by any
Company in accordance with SECTION 9.26.
FINANCIAL STATEMENTS means balance sheets, statements of operations,
statements of shareholders' equity (deficits), and statements of cash flows
prepared in accordance with GAAP, which statements of operations and statements
of cash flows shall be in comparative form to the corresponding period of the
preceding fiscal year, and which balance sheets and statements of shareholder's
equity (deficits) shall be in comparative form to the prior fiscal year-end
figures.
FIRST QUALIFYING DATE means February 15, 2000, so long as no Default or
Potential Default then exists.
FOREIGN SUBSIDIARY means a Subsidiary of Borrower that is organized or
incorporated under the Laws of any jurisdiction other than a jurisdiction of the
United States.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board which are applicable from time to time.
GOVERNMENTAL AUTHORITY means any (a) local, state, municipal, or
federal judicial, executive, or legislative instrumentality, (b) private
arbitration board or panel, or (c) central bank.
GUARANTOR means any Person, including, but not limited to, any Domestic
Subsidiary of Borrower, who undertakes to be liable for all or any part of the
Obligation by execution of a Guaranty or otherwise.
GUARANTY means (a) a Guaranty in substantially the form and upon the
terms of EXHIBIT C, executed and delivered by any Person pursuant to the
requirements of the Loan Documents; and (b) any amendments, modifications,
supplements, restatements, ratifications, or reaffirmations of any Guaranty made
in accordance with the Loan Documents.
HAZARDOUS SUBSTANCE means (a) any substance that is designated,
defined, or classified as a hazardous waste, hazardous material, pollutant,
contaminant, or toxic or hazardous substance under any Environmental Law,
including without limitation, any hazardous substance within the meaning of
Section 101(14) of CERCLA, (b) petroleum, oil, gasoline, natural gas, fuel oil,
motor oil, waste oil, diesel fuel, jet fuel, and other petroleum hydrocarbons,
(c) regulated asbestos and asbestos-containing materials in any form, (d)
polychlorinated biphenyls, or (e) urea formaldehyde foam.
IMMATERIALITY CERTIFICATE means an officer's certificate in form and
substance acceptable to Administrative Agent, executed and delivered by a
Responsible Officer of Borrower, stating that (a) the
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annual Revenue of Financial Place Communications Company does not exceed
$3,000,000, and (b) in the reasonable estimation of Borrower, Financial Place
Communications Company has and will in the future have net assets not to exceed
$1,000,000.00.
INTEREST COVERAGE RATIO means, for the Companies on a consolidated
basis, at any date of determination for the twelve-calendar month period then
most recently ended, the ratio of (i) the Operating Cash Flow of the Companies
(determined on a consolidated basis) for such period to (ii) the aggregate
amount of cash interest due and payable on the Total Debt during such period,
expressly including imputed interest on Capital Lease transactions and Capacity
Purchase Agreements, but excluding accreted interest and interest on capitalized
labor costs.
INTEREST EXPENSE means, for any period of calculation thereof, the
aggregate gross interest expense for the Companies on a consolidated basis
(including commitment fees) on all Debt of the Companies, whether paid in cash
or accrued as a liability and payable in cash during such period determined in
conformity with GAAP (including, without limitation, imputed interest on Capital
Lease obligations and Capacity Purchase Agreements; the interest portion of any
deferred payment obligation; net costs associated with Financial Hedges).
INTEREST PERIOD is determined in accordance with SECTION 3.9.
LAWS means all applicable statutes, laws, treaties, ordinances, tariff
requirements, rules, regulations, orders, writs, injunctions, decrees,
judgments, opinions, or interpretations of any Governmental Authority.
LEAD ARRANGER means Banc of America Securities LLC, and its successors
and assigns, in its capacity as Sole Lead Arranger and Book Manager.
LENDERS means, on any date of determination, the financial institutions
named on SCHEDULE 2.1 (as the same may be amended from time to time by
Administrative Agent to reflect the assignments made in accordance with SECTION
13.13(c) of this Agreement or to reflect any additional Lenders under the
Receivables Facility subject to and in accordance with SECTION 2.3(b)), and
subject to the terms and conditions of this Agreement, and their respective
successors and assigns; provided that, if permitted by this Agreement, the
Existing Senior Notes, the Existing Subordinated Notes, and any permitted
issuances of Debt pursuant to SECTION 9.12, solely for purposes of any
Collateral Document and SECTION 12 and SECTIONS 3.12 and 3.13, "LENDERS" shall
also include any Lender or Affiliate of a Lender who is party to a Financial
Hedge with Borrower and their respective successors and assigns (for purposes
hereof, each Lender shall be deemed to have entered into this Agreement for and
on behalf of any Affiliate now or hereafter party to a Financial Hedge with
Borrower).
LICENSE COMPANY has the meaning specified in SECTION 9.33.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind, and any other
Right of or arrangement with any creditor (other than under or relating to
subordination or other intercreditor arrangements) to have its claim satisfied
out of any property or assets, or the proceeds therefrom, prior to the general
creditors of the owner thereof.
LITIGATION means any action by or before any Governmental Authority.
LOAN DOCUMENTS means (a) this Agreement, the Notes, and the Collateral
Documents, (b) all agreements, documents, or instruments in favor of Agents or
Lenders ever delivered pursuant to this
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Agreement or otherwise delivered in connection with all or any part of the
Obligation, and (c) any and all future renewals, extensions, restatements,
reaffirmations, or amendments of, or supplements to, all or any part of the
foregoing.
MATERIAL ADVERSE EVENT means any set of one or more circumstances or
events which, individually or collectively, could reasonably be expected to
result in any (a) material impairment of the ability of any Company to perform
any of its payment or other material obligations under the Loan Documents or the
ability of Administrative Agent or any Lender to enforce any such obligations or
any of their respective Rights under the Loan Documents, (b) material and
adverse effect on the business, properties, condition (financial or otherwise)
or results of operations of any Company, either singly or in the aggregate, or
(c) Default or Potential Default.
MATERIAL AGREEMENT means any material written or oral agreement,
contract, commitment, or understanding to which any Company is a party, by which
such Company is directly or indirectly bound, or to which any assets of such
Company may be subject (excluding purchase orders for material and inventory in
the ordinary course of business), which involves (i) revenue payable to any
Company in excess of 5% of the total consolidated Revenues of the Companies in
the aggregate during any 12month period, or (ii) financial obligations of any
Company in excess of 10% of the total consolidated expenses of the Companies in
the aggregate during any 12month period, and which is not cancellable by such
Company upon 30 days or less notice without liability for further payment (other
than nominal penalties), or any other agreement which, in the determination of
Borrower is material to its business, whether or not more specifically set forth
on SCHEDULE 8.15, together with any amendments or modifications to any such
Material Agreement permitted pursuant to SECTION 9.30.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for each Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest which,
under applicable Law, such Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MAXIMUM RECEIVABLES COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to the lesser of (i) $25,000,000 or (ii)
an amount equal to 80% of the accounts receivables of the Companies which
satisfy "eligibility" requirements specified in the related Receivable Credit
Documents.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Company
or any ERISA Affiliate is making, or has made, or is accruing, or has accrued,
an obligation to make contributions or has, within any of the preceding five
plan years, made or accrued an obligation to make contributions.
NET CASH PROCEEDS means (a) with respect to any Significant Sale, cash
(freely convertible into Dollars) received, on or after the date of consummation
of such Significant Sale, by any Company from such Significant Sale, after (i)
deduction of Assumed Taxes, (ii) payment of all usual and customary brokerage
commissions and all other reasonable fees and expenses related to such
Significant Sale (including, without limitation, reasonable attorneys' fees and
closing costs incurred in connection with such Significant Sale), (iii)
deduction of appropriate amounts to be provided by Borrower or any Company as a
reserve, in accordance with GAAP, against any liabilities retained by any
Company after such Significant Sale, which liabilities are associated with the
asset or assets being sold, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
Significant Sale, and (iv) deduction for the amount of any Permitted Debt (other
than the Obligation) secured by the respective asset or assets being sold, which
Permitted Debt is required to be repaid as a result of such
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Significant Sale; (b) with respect to any incurrence of Debt, cash (freely
convertible into Dollars) received, on or after the date of incurrence of such
Debt, by any Company from the incurrence of such Debt after (i) payment of all
reasonable attorneys' fees and usual and customary underwriting commissions,
closing costs, and other reasonable expenses associated with such incurrence of
Debt, (ii) deduction of all deposits, escrow amounts, or other reserves required
to be maintained by any Company in connection with such Debt, and (iii)
deductions for the amount of any other Debt (other than the Obligation) which is
required to be repaid concurrently with or otherwise as a result of the
incurrence of such Debt; and (c) with respect to any Equity Issuance, cash
(freely convertible into Dollars) (including any cash received by way of
deferred payment pursuant to a promissory note, or otherwise, but only as and
when received) received, on or after the date of such Equity Issuance, by any
Company from such Equity Issuance, net of usual and customary transaction costs
and expenses and Assumed Taxes.
NEW SENIOR NOTES is defined in SECTION 9.12(h).
NOTES means, at the time of any determination thereof, all outstanding
and unpaid Revolver Notes, Telecommunications Notes, and Receivables Notes.
NOTICE OF BORROWING is defined in SECTION 2.5(a).
NOTICE OF CONVERSION is defined in SECTION 3.10.
OBLIGATION means all present and future indebtedness, liabilities, and
obligations, and all renewals and extensions thereof, or any part thereof, now
or hereafter owed to Administrative Agent, any other Agent, any Lender, or any
Affiliate of any Lender by any Company arising from, by virtue of, or pursuant
to any Loan Document, together with all interest accruing thereon, fees, costs,
and expenses (including, without limitation, all attorneys' fees and expenses
incurred in the enforcement or collection thereof) payable under the Loan
Documents; provided that, all references to the "Obligation" in the Collateral
Documents and in SECTIONS 3.11, 3.12 and 3.13, shall, in addition to the
foregoing, if permitted by this Agreement, the Existing Senior Notes, the
Existing Subordinated Notes, and any permitted issuances of Debt pursuant to
SECTION 9.12, also include all present and future indebtedness, liabilities, and
obligations (and all renewals and extensions thereof or any part thereof) now or
hereafter owed to any Lender or any Affiliate of a Lender arising from, by
virtue of, or pursuant to any Financial Hedge entered into by any Company.
OPERATING CASH FLOW means, for the Companies on a consolidated basis,
as calculated at any date of determination with respect to the then most
recently ended Rolling Period (unless otherwise indicated), the sum (without
duplication and excluding any extraordinary losses or gains during such period)
of (a) net income or deficit during such period, plus (b) to the extent already
deducted in computing such net income (i) income Tax expense, (ii) Interest
Expense during such period, (iii) depreciation, amortization, and other
non-cash-expense items during such period, less (c) interest and dividend
income, less (d) other non-cash components of income; calculations of Operating
Cash Flow shall be adjusted as required to take into account any minority
ownership interests (other than minority ownership interests in Digex). In
determining Operating Cash Flow for the Companies:
(a) Operating Cash Flow shall be calculated after giving
effect to Acquisitions and divestitures of such Companies (to the
extent such transactions are permitted by the Loan Documents) during
such period as if such transactions had occurred on the first day of
such period, regardless of whether the effect is positive or negative;
and
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(b) For the Rolling Periods ending in fiscal years 1999 and
2000, Operating Cash Flow of the Companies may be increased by the
following amounts during the periods indicated (to the extent such
amounts were deducted in determining net income for such periods and
have not otherwise been added-back in calculating Operating Cash Flow
for such periods): one-time adjustments for non-recurring restructuring
charges not to exceed (i) $5,400,000 in the aggregate for the first
fiscal quarter of fiscal year 1999; (ii) $3,440,000 in the aggregate
for the second fiscal quarter of fiscal year 1999; (iii) $5,512,000 in
the aggregate for the third fiscal quarter of fiscal year 1999; and
(iv) up to $7,000,000 in the aggregate for the fourth fiscal quarter of
fiscal year 1999, to the extent such charges are accrued.
PARTICIPANT is defined in SECTION 13.13(e).
PBGC means the Pension Benefit Guaranty Corporation, or any successor
thereof, established pursuant to ERISA.
PERMITTED ACQUISITION means:
(a) Acquisitions by any Company of businesses which are
primarily engaged in the Telecommunications Business, with respect to
which each of the following requirements shall have been satisfied:
(i) At any time the Total Leverage Ratio
(calculated after giving pro forma effect to any proposed
Acquisition) exceeds 5.00 to 1.00, the aggregate Purchase
Price for all Acquisitions consummated on or subsequent to the
Closing Date through any date of determination must be less
than or equal to the sum of $100,000,000 plus 100% of Net Cash
Proceeds from any Equity Issuance (excluding $300,000,000 of
the Contemplated Equity Infusion). At any time and so long as
the Total Leverage Ratio (calculated after giving pro forma
effect to any proposed Acquisition) is less than or equal to
5.00 to 1.00, the aggregate purchase price for such
Acquisitions must be less than or equal to the sum of
$250,000,000 plus 100% of Net Cash Proceeds from any Equity
Issuance (excluding $300,000,000 of the Contemplated Equity
Infusion);
(ii) As of the closing of any Acquisition, the
Acquisition has been approved and recommended by the board of
directors of the Person to be acquired or from which such
business is to be acquired;
(iii) Not less than 15 Business Days prior to the
closing of any Acquisition, Borrower shall have delivered to
Administrative Agreement a Permitted Acquisition Compliance
Certificate with respect to such Acquisition, together with
such other information concerning the Acquisition as
Administrative Agent may reasonably request. Not less than 5
Business Days prior to the closing of any Acquisition,
Borrower shall have delivered to Administrative Agent a
Compliance Certificate, demonstrating pro forma compliance
with the terms and conditions of the Loan Documents, after
giving effect to the Acquisition, together with (A) pro forma
income and balance sheet projections for the Companies (after
giving effect to the Acquisition), and (B) five year cash flow
projections for the Acquisition demonstrating compliance with
the Companies' applicable financial covenants and debt
amortization schedules;
(iv) Prior to consummation of any Acquisition,
Borrower shall have satisfied the conditions precedent set
forth in SECTION 7.2;
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(v) As of the closing of any Acquisition, after
giving effect to such Acquisition, the acquiring party must be
Solvent and the Companies, on a consolidated basis, must be
Solvent;
(vi) As of the closing of any Acquisition, no
Default or Potential Default shall exist or occur as a result
of, and after giving effect to, such Acquisition; and
(vii) As of the closing of any Acquisition, (A) if
such Acquisition is structured as a merger, Borrower, (or if
such merger is with any Subsidiary of Borrower, then such
Subsidiary) must be the surviving entity after giving effect
to such merger; and (B) if such Acquisition is structured as a
stock/equity Acquisition, the acquiring Company shall own not
less than a 75% interest in the entity being acquired and such
acquired Company shall become a Guarantor; or
(b) any other Acquisition for which the prior written consent
of Required Lenders has been obtained.
Notwithstanding the foregoing, to the extent that CLAUSE (a)(iii) and
(a)(iv) require the delivery of compliance certificates and projections in
connection with a Permitted Acquisition, such compliance certificates and
projections shall not be required for any Permitted Acquisition for which the
Purchase Price is less than $10,000,000.
PERMITTED ACQUISITION COMPLIANCE CERTIFICATE means a certificate signed
by a Responsible Officer of Borrower, substantially in the form of EXHIBIT E-2.
PERMITTED ACQUISITION LOAN CLOSING CERTIFICATE means a certificate
signed by a Responsible Officer of Borrower, substantially in the form of
EXHIBIT E3.
PERMITTED DEBT means Debt permitted under SECTION 9.12 as described in
such Section.
PERMITTED LIENS means Liens permitted under SECTION 9.13 as described
in such Section.
PERMITTED REFINANCINGS shall have the meaning set forth in CLAUSE (i)
of SECTION 9.12.
PERSON means any individual, entity, or Governmental Authority.
POTENTIAL DEFAULT means the occurrence of any event or existence of any
circumstance which, with the giving of notice or lapse of time or both, would
become a Default.
PREFERRED STOCK means, collectively, (i) 53,729 shares of 7% Series D
Junior Convertible Preferred Stock issued by Borrower which is evidenced by a
Certificate of Designation dated as of July 7, 1997; (ii) 64,892 shares of 7%
Series E Junior Convertible Preferred Stock which is evidenced by a Certificate
of Designation dated as of October 29, 1997; (iii) 79,600 shares of 7% Series F
Junior Convertible Preferred Stock issued by Borrower which is evidenced by a
Certificate of Designation dated as of August 17, 1998; (iv) 300,000 shares of
13-1/2% Series B Redeemable Exchangeable Preferred Stock issued by Borrower
which is mandatorily redeemable in 2009 and which is evidenced by a Certificate
of Designation dated as of March 3, 1997; (v) any additional Preferred Stock (in
substantially identical terms as the Preferred Stock with respect to which such
stock is being issued) issued as dividends on the Preferred Stock described in
ITEM (iv); and (vi) any additional Preferred Stock issued after the Closing
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Date on terms no less favorable to Lenders than the Preferred Stock existing on
the Closing Date; provided that, no cash Distribution may be paid or declared
with respect to such additional Preferred Stock until Borrower demonstrates to
Administrative Agent's satisfaction that the Total Leverage Ratio is less than
5.00 to 1.00.
PRIME RATE means the per annum rate of interest established from time
to time by Bank of America as its prime rate, which rate may not be the lowest
rate of interest charged by Bank of America to its customers.
PRINCIPAL DEBT means, at the time of any determination thereof, the sum
of the Revolver Principal Debt and the Telecommunications Principal Debt (or the
Receivables Principal Debt, if the Receivables Facility has replaced the
Telecommunications Facility in accordance with the requirements of SECTION 2.3).
PRO RATA or PRO RATA PART, for each Lender, means on any date of
determination (a) for purposes of sharing any amount or fee payable to any
Lender in respect of a Facility, the proportion which the portion of the
Principal Debt for the applicable Facility owed to such Lender bears to the
Principal Debt under the applicable Facility owed to all Lenders at the time in
question, and (b) for all other purposes, the proportion which the portion of
the Principal Debt owed to such Lender bears to the Principal Debt owed to all
Lenders at the time in question, or if no Principal Debt is outstanding, then
the proportion that the aggregate of such Lender's Committed Sums then in effect
under the Facilities bears to the Total Commitment then in effect.
PUC means any state or local regulatory agency or governmental
authority that exercises jurisdiction over the rates or services or the
ownership, construction, or operation of network facilities or
telecommunications systems or over Persons who own, construct, or operate
network facilities or telecommunications systems.
PURCHASE PRICE means, with respect to any Acquisition, all direct,
indirect, and deferred cash payments made to or for the benefit of the Person
being acquired (or whose assets are being acquired), its shareholders, officers,
directors, employees, or Affiliates in connection with such Acquisition,
including, without limitation, the amount of any Debt being assumed in
connection with such Acquisition (and subject to the limitations on Permitted
Debt hereunder), seller financing, and payments under non-competition or
consulting agreements entered into in connection with such Acquisition and
similar agreements (but expressly excluding any non-cash consideration and the
value of any stock, options, or warrants or other Rights to acquire stock issued
as part of the consideration in such transaction); provided that, for the
purposes hereof, non-competition agreements and consulting agreements shall be
valued at their present value discounted over the term of such agreement at the
Base Rate in effect at the time of the Acquisition.
RECEIVABLES COMMITMENT means, for any Receivables Lender with respect
to any Receivables Facility, the commitment amount designated for such Lender
pursuant to the Receivables Credit Documents.
RECEIVABLES CREDIT DOCUMENTS has the meaning as defined in SECTION
2.3(a).
RECEIVABLES FACILITY means the uncommitted, discretionary receivables
revolver facility described in, and subject to, the limitations of SECTION 2.3,
and the applicable Receivables Credit Documents.
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RECEIVABLES LENDER means, at any date of determination, any Lender that
has a Committed Sum under the Receivables Facility.
RECEIVABLES NOTE means a promissory note substantially in the form of
EXHIBIT A-3, and all renewals, extensions, or replacements of all or any part
thereof.
RECEIVABLES PRINCIPAL DEBT means, at any date of determination, the
aggregate unpaid principal balance of all Borrowings under the Receivables
Facility.
REGISTER is defined in SECTION 13.13(c).
REGULATION D means Regulation D of the Board of Governors of the
Federal Reserve System, as amended.
REGULATION U means Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
RELEASE means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposal,
deposit, dispersal, migrating, or other movement into the air, ground, or
surface water, or soil.
REPORTABLE EVENT shall have the meaning specified in Section 4043 of
ERISA or the regulations issued thereunder in connection with an Employee Plan,
excluding events for which the notice requirement is waived under applicable
PBGC regulations other than those events described in Sections 4043.21, 4043.24
and 4043.28 of such regulations, including each such provision as it may
subsequently be renumbered.
REPRESENTATIVES means representatives, officers, directors, employees,
attorneys, and agents.
REQUIRED LENDERS means (a) on any date of determination prior to the
Termination Date, those Lenders holding greater than 50% of the Total
Commitment, or (b) on any date of determination occurring after the Termination
Date, those Lenders holding greater than 50% of the outstanding Principal Debt.
RESERVE REQUIREMENT means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against, in the case of
Eurodollar Rate Borrowings, "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks with respect to (a) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be determined,
or (b) any category of extensions of credit or other assets which include
Eurodollar Rate Borrowings. The Adjusted Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve
Requirement.
RESPONSIBLE OFFICER means the chairman, president, chief executive
officer, chief financial officer, chief accounting officer, senior vice
president, or treasurer of Borrower, or, for all purposes under the Loan
Documents, any other officer designated from time to time by the board of
directors of Borrower, which designated officer is acceptable to Administrative
Agent.
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REVENUES means, at any date of determination for the Rolling Period
most recently ended, the total aggregate amount of cash received, or accounts
receivable established, by the Companies (on a consolidated basis) resulting
from the sale of goods or rendering of services by such Companies less unearned
Revenue solely as a result of Borrower's ordinary and customary advance billing
practices.
REVOLVER COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to $75,000,000.
REVOLVER FACILITY means the credit facility as described in and subject
to the limitations set forth in SECTION 2.1 hereof.
REVOLVER LENDER means, on any date of determination, any Lender that
has a Committed Sum under the Revolver Facility.
REVOLVER NOTE means a promissory note in substantially the form of
EXHIBIT A-1, and all renewals and extensions of all or any part thereof.
REVOLVER PRINCIPAL DEBT means, on any date of determination, the
aggregate unpaid principal balance of all Borrowings under the Revolver
Facility.
RIGHTS means rights, remedies, powers, privileges, and benefits.
ROLLING PERIOD means, on any date of determination, the most recent
four fiscal quarters ended on March 31, June 30, September 30, or December 31
(as the case may be).
SCHEDULE means, unless specified otherwise, a schedule attached to this
Agreement, as the same may be supplemented and modified from time to time in
accordance with the terms of the Loan Documents.
SECOND QUALIFYING DATE means the date upon which (i) no Default or
Potential Default then exists, and (ii) first priority Liens have been recorded
in favor of Administrative Agent (for the ratable benefit of Lenders) in and to
all assets of the Companies with respect to which the Lenders requested Liens on
or prior to February 15, 2000.
SECURITIES ACT means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder.
SENIOR DEBT means, at any date of determination, all Debt of the
Companies, excluding Subordinated Debt of the Companies.
SENIOR SECURED DEBT means, at any date of determination, the aggregate
principal amount of all Senior Debt of the Companies(determined on a
consolidated basis), which is secured by Liens on all or any portion of the
assets of the Companies.
SIGNIFICANT SALE means any sale, lease, transfer, or other disposition
of any property or assets (tangible or intangible) by any Company to any other
Person (other than any sale, lease, transfer, or other disposition contemplated
by SECTIONS 9.16(a) through (e)) with respect to which the Net Cash Proceeds
realized by the Companies for such asset disposition (or when aggregated with
the Net Cash Proceeds from all such other asset dispositions occurring in the
same calendar year) equals or exceeds $5,000,000.
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SOLVENT means, as to a Person, that (a) the aggregate fair market value
of such Person's assets exceeds its liabilities (whether contingent,
subordinated, unmatured, unliquidated, or otherwise), (b) such Person has
sufficient cash flow to enable it to pay its debts as they mature, and (c) such
Person does not have unreasonably small capital to conduct such Person's
businesses.
SPECIAL REGULATORY APPROVALS means all necessary approvals,
authorizations, consents, adjudications, or orders of any PUC in the
jurisdiction listed on SCHEDULE 1 with respect to any Borrowings or the granting
of Liens on the Collateral pursuant to the Collateral Documents, which
approvals, authorizations, consents, adjudications, or orders were not obtained
as of the Closing Date.
SUBORDINATED DEBT means the Existing Subordinated Notes and any
Subordinated Debt incurred in accordance with SECTION 9.12.
SUBSIDIARY of any Person means (a) any entity of which an aggregate of
more than 50% (in number of votes) of the stock is owned of record or
beneficially, directly or indirectly, by such Person, or (b) any partnership
(limited or general) of which such Person shall at any time be the controlling
general partner determined in accordance with GAAP, or own fifty percent (50%)
or more of the issued and outstanding partnership interests, provided that, for
all purposes under this Agreement, Financial Place Communications Company shall
not be considered to be a Subsidiary of Borrower if the Immateriality
Certificate has been delivered on or prior to the Closing Date.
SYNDICATION AGENT means BNY Capital Markets, Inc. and its respective
permitted successors or assigns as "Syndication Agent" under this Agreement.
TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon such Person, its income, or any of its
properties, franchises, or assets.
TELECOMMUNICATIONS ASSETS means assets, Rights (contractual or
otherwise), and properties, whether tangible or intangible, owned by Borrower or
any Domestic Subsidiary of Borrower and used in connection with such Company's
Telecommunications Business.
TELECOMMUNICATIONS BUSINESS means the business of (i) transmitting or
providing services related to the transmission of voice, video, or data through
owned or leased transmission facilities; (ii) creating, developing, or marketing
communications related network equipment, software, and other services for use
in a Telecommunications Business; or (iii) evaluating, participating or pursuing
any other activity or opportunity that is related to those identified in CLAUSES
(i) or (ii) above; provided that, the determination of what constitutes a
Telecommunications Business of any Company shall be made in good faith by the
board of directors of Borrower.
TELECOMMUNICATIONS COMMITMENT means an amount (subject to reduction or
cancellation as herein provided) equal to $25,000,000.
TELECOMMUNICATIONS FACILITY means the credit facility as described in
and subject to the limitations of SECTION 2.2.
TELECOMMUNICATIONS LENDER means, at any date of determination, each
Lender who has a Committed Sum under the Telecommunications Facility.
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TELECOMMUNICATIONS NOTE means a promissory note substantially in the
form of EXHIBIT A-2, and all renewals, extensions, or replacements of all or any
part thereof.
TELECOMMUNICATIONS PRINCIPAL DEBT means, at any date of determination,
the aggregate unpaid principal balance of all Borrowings under the
Telecommunications Facility.
TERMINATION DATE means the earlier of (i) December 22, 2004, and (ii)
with respect to any Facility, the effective date of any other termination or
cancellation of Lenders' commitments to lend under such Facility, in accordance
with this Agreement.
TOTAL CAPITALIZATION means, at any date of determination, the Total
Debt plus the amount of paid-in-capital of the Companies (including, without
limitation, to the extent included in paid-in-capital, (a) the liquidation value
of all Preferred Stock, (b) other equity securities issued in lieu of cash
dividends on the Preferred Stock or other issued and outstanding equity
securities, and (c) the value of any equity issued by any Company as part of the
consideration for an Acquisition).
TOTAL COMMITMENT means, on any date of determination, the sum of all
Committed Sums for all Lenders in respect of the Revolver Facility and the
Telecommunications Facility (or the Receivables Facility, if the Receivables
Facility has replaced the Telecommunications Facility in accordance with the
terms and conditions of SECTION 2.3) (as the same may have been reduced or
canceled as provided in the Loan Documents) then in effect.
TOTAL COMMON EQUITY of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding primary
shares of Common Stock of such Person on such day (which shall not include any
options or warrants on, or securities convertible or exchangeable into, shares
of Common Stock of such Person) and (ii) the average Closing Price of such
Common Stock over the 20 consecutive Trading Days immediately preceding such
day. If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (ii) of the preceding sentence
shall be determined by the board of directors of Borrower in good faith and
evidenced by a resolution of the board of directors.
TOTAL DEBT means, on any date of determination, the sum of (i) the
aggregate principal amount of all Debt of the Companies (determined on a
consolidated basis), plus (ii) the aggregate amount of any past due interest
accrued and unpaid on any such Debt.
TOTAL LEVERAGE RATIO means, at any date of determination thereof, the
ratio of (a) Total Debt to (b) Annualized Operating Cash Flow.
TRADING DAY with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
TRANSFER APPROVALS has the meaning set forth in SECTION 9.33.
TYPE means any type of Borrowing determined with respect to the
interest option applicable thereto.
UCC means the Uniform Commercial Code as enacted in New York or other
applicable jurisdiction, as amended at the time in question.
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VOTING STOCK of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
WHOLLY-OWNED when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by Borrower or
one or more of its Wholly-owned Subsidiaries.
WILLIAMS AGREEMENT means the Capacity Purchase Agreement dated January
5, 1998, by and between Williams Communications, Inc. and Borrower, as amended
through November 5, 1999, and as further amended from time to time pursuant to
SECTION 9.30.
2.21 NUMBER AND GENDER OF WORDS; OTHER REFERENCES. Unless otherwise
specified in the Loan Documents, (a) where appropriate, the singular includes
the plural and vice versa, and words of any gender include each other gender,
(b) heading and caption references may not be construed in interpreting
provisions, (c) monetary references are to currency of the United States of
America, (d) section, paragraph, annex, schedule, exhibit, and similar
references are to the particular Loan Document in which they are used, (e)
references to "telecopy," "facsimile," "fax," or similar terms are to facsimile
or telecopy transmissions, (f) references to "including" mean including without
limiting the generality of any description preceding that word, (g) the rule of
construction that references to general items that follow references to specific
items are limited to the same type or character of those specific items is not
applicable in the Loan Documents, (h) references to any Person include that
Person's heirs, personal representatives, successors, trustees, receivers, and
permitted assigns, (i) references to any Law include every amendment or
supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
2.22 ACCOUNTING PRINCIPLES. All accounting and financial terms used in the
Loan Documents and the compliance with each financial covenant therein shall be
determined in accordance with GAAP, and, all accounting principles shall be
applied on a consistent basis so that the accounting principles in a current
period are comparable in all material respects to those applied during the
preceding comparable period. If Borrower or any Lender determines that a change
in GAAP from that in effect on the date hereof has altered the treatment of
certain financial data to its detriment under this Agreement, such party may, by
written notice to the others and Administrative Agent not later than ten (10)
days after the effective date of such change in GAAP, request renegotiation of
the financial covenants affected by such change. If the Borrower and Required
Lenders have not agreed on revised covenants within thirty (30) days after
delivery of such notice, then, for purposes of this Agreement, GAAP will mean
generally accepted accounting principles on the date just prior to the date on
which the change that gave rise to the renegotiation occurred.
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3. SECTION BORROWING PROVISIONS.
4.
4.1 REVOLVER FACILITY. Each Revolver Lender severally, but not jointly,
agrees to lend to Borrower such Revolver Lender's Commitment Percentage of one
or more Borrowings under the Revolver Facility not to exceed such Revolver
Lender's Committed Sum under the Revolver Facility, which Borrowings may be
repaid and reborrowed from time to time in accordance with the terms and
provisions of the Loan Documents; provided that, (a) each such Borrowing must
occur on a Business Day and no later than the Business Day immediately preceding
the Termination Date for the Revolver Facility; (b) each such Borrowing shall be
in an amount not less than $5,000,000 or a greater integral multiple of
$1,000,000 if a Eurodollar Rate Borrowing, or $1,000,000 or a greater integral
multiple of $100,000 if a Base Rate Borrowing; and (c) on any date of
determination, the Revolver Principal Debt shall never exceed the Revolver
Commitment.
4.2 TELECOMMUNICATIONS FACILITY. Each Telecommunications Lender severally,
but not jointly, agrees to lend to Borrower such Lender's Commitment Percentage
of one or more Borrowings under the Telecommunications Facility not to exceed
such Telecommunications Lender's Committed Sum under the Telecommunications
Facility, which Borrowings may be repaid and reborrowed from time to time in
accordance with the terms and provisions of the Loan Documents; provided that,
(a) each such Borrowing must occur on a Business Day and no later than the
Business Day immediately preceding the Termination Date for the
Telecommunications Facility; (b) on any date of determination, the
Telecommunications Principal Debt shall never exceed the Telecommunications
Commitment; (c) the proceeds of any Borrowing under the Telecommunications
Facility may only be used to finance a portion of the costs of the acquisition
or construction of Telecommunications Assets of Borrower or its Domestic
Subsidiaries; and (d) the amount of each such Borrowing (i) shall not exceed 80%
of the costs of the Telecommunications Assets being acquired or constructed with
the proceeds of such Borrowing and (ii) shall not be less than $5,000,000 or a
greater integral multiple of $1,000,000 if a Eurodollar Rate Borrowing, or
$1,000,000 or a greater integral multiple of $100,000 if a Base Rate Borrowing.
4.3
4.4 OPTIONAL RECEIVABLES FACILITY.
(a) At any time after the Closing Date, if no Default or
Potential Default then exists or would arise as a result thereof,
Borrower may request the consent of Lenders and Administrative Agent to
the establishment of a Receivables Facility to replace and refinance in
full the Telecommunications Facility and the outstanding Obligation
arising thereunder. No Lender shall be obligated to consent to such
request, and the consent by any Lender to such request shall not be
deemed to be a commitment to lend under the Receivables Facility, which
commitment shall only be made and evidenced in accordance with the
procedures set forth in SECTION 2.3(b). Any consent by Lenders and
Administrative Agent to the establishment of the Receivables Facility
shall be expressly subject to the following: (i) the Receivables
Principal Debt and the aggregate commitments of any Receivables Lender
(committed in accordance with the procedures set forth in SECTION
2.3(b)), shall not exceed the Maximum Receivables Commitment, but must
be in an amount sufficient to repay the Telecommunications Facility in
full; (ii) the initial Borrowing under the Receivables Facility shall
repay the Telecommunications Facility in full, and the
Telecommunications Commitment shall be automatically terminated as a
result thereof; (iii) the proceeds of any Borrowing under the
Receivables Facility may only be used for the purposes set forth in
SECTION 8.1(c); (iv) the portion of the Obligation arising under the
Receivables Facility may only be secured by certain accounts receivable
of the Companies, and no other portion of the Collateral shall secure
the Obligation arising under the Receivables Facility; (v) prior to the
effectiveness of the Receivables Facility or any Borrowing thereunder,
the Revolver Lenders,
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Receivables Lenders, and Administrative Agent shall have entered into
an intercreditor agreement with respect to the relative Rights of such
parties in and to the Collateral consisting of accounts receivable,
which intercreditor agreement must be acceptable in form and substance
to Revolver Lenders and Administrative Agent, in their sole discretion;
it being expressly understood that the consent of Revolver Lenders and
Administrative Agent to the establishment of the Receivables Facility
does not constitute an agreement by such parties to subordinate or
release their Liens in and to any Collateral in favor of Receivables
Lenders; (vi) such Maximum Receivables Commitment shall not terminate
prior to the Termination Date of the Revolver Facility; and (vii)
Borrower, Guarantors, Receivables Lenders, Revolver Lenders, and
Administrative Agent shall execute and deliver additional Loan
Documents to effect the terms and conditions of this SECTION 2.3(a),
and to memorialize, among other things, the Receivables Facility, the
Maximum Receivables Commitment, the standards for "eligibility" of
accounts receivable, the respective Committed Sums of the Receivables
Lenders under the Receivables Facility, the Collateral securing such
Receivables Facility, the allocation and sharing of payments and
prepayments of the Obligation between the Revolving Facility and the
Receivables Facility, any fronting fees or other applicable fees
payable in respect of such Receivables Facility, the effective date of
such Receivables Facility, and such other terms and conditions of the
Receivables Facility to which such parties may agree (collectively, the
"RECEIVABLES CREDIT DOCUMENTS"), which Receivables Credit Documents
must be in form and substance acceptable to Revolving Lenders and
Administrative Agent.
(b) After the Lenders and Administrative Agent have consented
in writing to the establishment of a Receivables Facility (but not
their respective commitments thereunder) subject to the terms and
conditions set forth in SECTION 2.3(a), then Borrower shall deliver to
Administrative Agent a RECEIVABLES COMMITMENT REQUEST (herein so
called), together with such other pro forma financial information,
information with respect to accounts receivable, and other information
as Administrative Agent and Lenders may request. Each Lender interested
in making a commitment to lend under the Receivables Facility shall
notify the Administrative Agent and Borrower of its intent to so commit
and the maximum amount of its proposed commitment to lend (a
"RECEIVABLES COMMITMENT NOTICE"). If the Receivables Commitment Notices
received by Borrower result in aggregate commitments from Lenders of
less than the Maximum Receivables Commitment, then Borrower shall have
the right to add one or more financial institutions (which institution
must satisfy the requirements of an "ELIGIBLE ASSIGNEE") as Receivables
Lenders (as used in this Section, a "NEW LENDER"). Each Lender and New
Lender which submit a commitment to lend under the Receivables Facility
shall become a Receivables Lender under this Agreement by execution of
the Receivables Credit Documents.
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4.5 TERMINATION OF COMMITMENTS.
4.6
(a) Voluntary Commitment Reduction. Without premium or
penalty, and upon giving not less than three (3) Business Days prior
written and irrevocable notice to Administrative Agent, Borrower may
terminate in whole or in part the unused portion of the Revolver
Commitment, the Telecommunications Commitment, or the Maximum
Receivables Commitment (to the extent available hereunder); provided
that: (i) each partial termination shall be in an amount of not less
than $5,000,000 or a greater integral multiple of $1,000,000; (ii) on
any date of determination, the amount of the Revolver Commitment may
not be reduced below the Revolver Principal Debt, the
Telecommunications Commitment may not be reduced below the
Telecommunications Principal Debt, and the Maximum Receivables
Commitment (to the extent available hereunder) may not be reduced below
the Receivables Principal Debt; and (iii) each reduction of the
commitments under any Facility pursuant to this SECTION 2.4 shall be
allocated among the Lenders under such Facility in accordance with
their respective Commitment Percentages under such Facility. Promptly
after receipt of such notice of termination or reduction,
Administrative Agent shall notify each affected Lender of the proposed
cancellation or reduction. Such termination or partial reduction of any
commitment under a Facility shall be effective on the Business Day
specified in Borrower's notice (which date must be at least five
Business Days after Borrower's delivery of such notice). In the event
that the Total Commitment is reduced to zero at a time when there shall
be no Principal Debt, this Agreement shall be terminated to the extent
specified in SECTION 13.14, and all commitment fees and other fees then
earned and unpaid hereunder and all other amounts of the Obligation
then due and owing shall be immediately due and payable, without notice
or demand by Administrative Agent or any Lender.
(b) Mandatory Commitment Reductions/Prepayments. Until such
time as the Principal Debt has been repaid in full and the Total
Commitment has been fully terminated or canceled, the Total Commitment
shall be permanently reduced, in the amounts and upon the occurrence of
the following events:
(i) Concurrently with any Debt Issuance of
Subordinated Debt (other than Debt Issuances of Borrower which
individually or when aggregated have a principal amount not to
exceed $300,000,000) by any Company occurring prior to the
First Qualifying Date, the Total Commitment shall be
permanently reduced, in the order and manner herein specified,
in an amount equal to 100% of the Net Cash Proceeds realized
by any Company from such Debt Issuance; provided that, on and
after the First Qualifying Date, if a Default exists or arises
immediately after giving effect to any Debt Issuance, then
notwithstanding the provisions of this SECTION 2.4(b)(i),
Borrower shall make the Total Commitment reductions required
in SECTION 2.4(b)(iv).
(ii) Concurrently with any Equity Issuance by any
Company occurring prior to the First Qualifying Date, the
Total Commitment shall be permanently reduced, in the order
and manner herein specified, by an amount equal to 100% of the
Net Cash Proceeds realized by any Company from such Equity
Issuance; provided that, if a Default exists or arises
immediately after giving effect to any Equity Issuance, then
notwithstanding the provisions of this SECTION 2.4(c)(II),
Borrower shall make the mandatory Total Commitment reductions
required in SECTION 2.4(b)(IV).
(iii) If any portion of the Net Cash Proceeds
realized by any Company from any Significant Sale (including
any deferred purchase price therefor and any Net Cash
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Proceeds of any asset disposition which constitutes a
Significant Sale as a result of aggregation with other asset
dispositions in the same calendar year) has not been
reinvested in Telecommunications Assets of the Companies
within 255 days from the receipt by any Company of such Net
Cash Proceeds (including receipt of any deferred payments for
any such Significant Sale or portion thereof, if and when
received) and if no Default or Potential Default exists or
arises as a result of any such Significant Sale, then on the
255th day after receipt of such Net Cash Proceeds, the Total
Commitment shall be permanently reduced, in the order and
manner specified herein, by an amount equal to 100% of all
such Net Cash Proceeds not reinvested in Telecommunications
Assets of the Companies.
(iv) At any time a Default exists or arises after
giving effect to any Debt Issuance, any Equity Issuance, or
any Significant Sale, then, concurrently with such Debt
Issuance, Equity Issuance, or Significant Sale (including any
asset disposition which constitutes a Significant Sale as a
result of aggregation with other asset dispositions in the
same calendar year), the Total Commitment shall be permanently
reduced by an amount equal to 100% of the Net Cash Proceeds
realized by such Company from any such Debt Issuance, Equity
Issuance, or Significant Sale.
(v) If any Company is required to apply (or offer
to apply) any Net Cash Proceeds from any sale of assets (even
if such sale is not a Significant Sale) to repayment of any
Debt other than the Obligation, unless such Company pays or
commits to pay all or a part of such Net Cash Proceeds to
payment of the Obligation or reduction of the Total Commitment
on or prior to a particular date, then at least fifteen (15)
days prior to the date such repayment or offer of repayment is
required to be made on such other Debt, such Company shall
permanently reduce the Total Commitment and/or make a
mandatory prepayment of the Principal Debt by an amount equal
to the amount that will excuse the Company from making such
repayment or offer of repayment under such other Debt.
(c) Application of Reductions. Each commitment reduction under
SECTION 2.4(b) shall be applied to the Total Commitment ratably to the
Revolver Commitment and to the Telecommunications Commitment (for
purposes hereof, "ratably" shall mean the proportion in which the
Revolver Commitment or Telecommunications Commitment (as the case may
be) bears to Total Commitment). All commitment reductions for the
Revolver Facility, or the Telecommunications Facility, as applicable,
shall be applied ratably among the Lenders under such Facility in the
proportion that each Lender's Committed Sum under the applicable
Facility bears to the sum of the Committed Sums of all Lenders under
such Facility on any date of determination.
(d) Ratable Allocation of Commitment Reductions. At the time
of any commitment reduction under any Facility pursuant to SECTION
2.4(c), Borrower shall pay to Administrative Agent, for the account of
the Lenders under such Facility, as applicable, any amounts that may
then be due under SECTION 3.2(c), the commitment under such Facility
shall be reduced by the amount of such payment, and the Committed Sum
of each Lender under such Facility shall be ratably reduced by the
amount of such payment.
1.1 BORROWING PROCEDURE. The following procedures apply to Borrowings:
1.2
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(a) Borrowing Request. Each Borrowing shall be made on
Borrower's notice (a "NOTICE OF BORROWING," substantially in the form
of EXHIBIT B-1) to Administrative Agent requesting that Lenders fund a
Borrowing on a certain date (the "BORROWING DATE"), which notice (i)
shall be irrevocable and binding on Borrower, (ii) shall specify the
Facility or Facilities under which such Borrowing is being made, (iii)
shall specify the Borrowing Date, amount, Type, and (for a Borrowing
comprised of Eurodollar Rate Borrowings) Interest Period, (iv) must be
received by Administrative Agent no later than 10:00 a.m. Dallas, Texas
time on the third Business Day preceding the Borrowing Date for any
Eurodollar Rate Borrowing or on the Business Day immediately preceding
the Borrowing Date for any Base Rate Borrowing; and (v) with respect to
each Borrowing under the Telecommunications Facility, shall identify
the Telecommunications Assets which have been or are being acquired in
part or constructed in part with the proceeds of such Borrowing (the
"FINANCED ASSETS"), detailing the total costs of such Financed Assets,
and providing all invoices or other information relative to the
Financed Assets as Administrative Agent may request; and (vi) with
respect to each Borrowing under the Receivables Facility (to the extent
available hereunder), specifying such other matters as are required by
the Receivables Credit Documents. Administrative Agent shall timely
notify each Lender with respect to each Notice of Borrowing.
(b) Funding. Each Lender shall remit its Commitment Percentage
for the relevant Facility of each requested Borrowing to Administrative
Agent's principal office in Dallas, Texas, in funds which are or will
be available for immediate use by Administrative Agent by 1:00 p.m.
Dallas time on the Borrowing Date. Subject to receipt of such funds,
Administrative Agent shall (unless to its actual knowledge any of the
conditions precedent therefor have not been satisfied by Borrower or
waived by the requisite Lenders under SECTION 13.11) make such funds
available to Borrower by causing such funds to be deposited to
Borrower's account as designated to Administrative Agent by Borrower.
(c) Funding Assumed. Notwithstanding the foregoing, unless
Administrative Agent shall have been notified by a Lender prior to a
Borrowing Date that such Lender does not intend to make available to
Administrative Agent such Lender's Commitment Percentage of the
requested Borrowing available to Administrative Agent on the applicable
Borrowing Date, Administrative Agent may assume that each Lender has
made its Commitment Percentage of the requested Borrowing available to
Administrative Agent on the applicable Borrowing Date, and
Administrative Agent may, in reliance upon such assumption (but shall
not be required to), make available to Borrower a corresponding amount.
If a Lender fails to make its Commitment Percentage of any requested
Borrowing available to Administrative Agent on the applicable Borrowing
Date, Administrative Agent may recover the applicable amount on demand,
(i) from that Lender together with interest, commencing on the
Borrowing Date and ending on (but excluding) the date Administrative
Agent recovers the amount from that Lender, at an annual interest rate
equal to the Federal-Funds Rate, or (ii) if that Lender fails to pay
its amount upon demand, then from Borrower. No Lender is responsible
for the failure of any other Lender to make its Commitment Percentage
of any Borrowing available as required by SECTION 2.5(b); however,
failure of any Lender to make its Commitment Percentage of any
Borrowing so available does not excuse any other Lender from making its
Commitment Percentage of any Borrowing so available.
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1 SECTION TERMS OF PAYMENT.
2
2.1 NOTES AND PAYMENTS.
(a) Notes. The Principal Debt owed to each Lender shall be
evidenced by one or more of the following Notes (as the case may be):
(i) a Revolver Note (with respect to Revolver Principal Debt); (ii) a
Telecommunications Note (with respect to the Telecommunications
Principal Debt); and, if applicable, (iii) a Receivables Note (with
respect to the Receivables Principal Debt).
(b) Payment. All payments of principal, interest, and other
amounts to be made by Borrower under this Agreement and the other Loan
Documents shall be made to Administrative Agent at its principal office
in Dallas, Texas in Dollars and in funds which are or will be available
for immediate use by Administrative Agent by 2:00 p.m. Dallas, Texas
time on the day due, without setoff, deduction, or counterclaim.
Payments made after 2:00 p.m., Dallas, Texas, time shall be deemed made
on the Business Day next following. Administrative Agent shall pay to
each Lender any payment of principal, interest, or other amount to
which such Lender is entitled hereunder on the same day Administrative
Agent shall have received the same from Borrower; provided such payment
is received by Administrative Agent prior to 2:00 p.m., Dallas, Texas
time, and otherwise before 2:00 p.m. Dallas, Texas time on the Business
Day next following.
(c) Payment Assumed. Unless Administrative Agent has received
notice from Borrower prior to the date on which any payment is due
under this Agreement that Borrower will not make that payment in full,
Administrative Agent may assume that Borrower has made the full payment
due and Administrative Agent may, in reliance upon that assumption,
cause to be distributed to the appropriate Lender on that date the
amount then due to such Lenders. If and to the extent Borrower does not
make the full payment due to Administrative Agent, each Lender shall
repay to Administrative Agent on demand the amount distributed to that
Lender by Administrative Agent together with interest for each day from
the date that Lender received payment from Administrative Agent until
the date that Lender repays Administrative Agent (unless such repayment
is made on the same day as such distribution), at an annual interest
rate equal to the Federal Funds Rate.
1.1 INTEREST AND PRINCIPAL PAYMENTS.
1.2
(a) Interest. Accrued interest on each Eurodollar Rate
Borrowing is due and payable on the last day of its respective Interest
Period and on the Termination Date for the applicable Facility;
provided that, if any Interest Period is greater than three months,
then accrued interest shall also be due and payable at the end of each
three-month period occurring after the commencement of such Interest
Period until such Eurodollar Rate Borrowing is paid or converted.
Accrued interest on each Base Rate Borrowing shall be due and payable
as it accrues on each March 31, June 30, September 30, and December 31,
and on the Termination Date for the applicable Facility.
(b) Principal Debt. Principal Debt outstanding under each
Facility is due and payable on the Termination Date for the applicable
Facility.
(c) Mandatory Prepayments. On any date of determination (i) if
the Revolver Principal Debt exceeds the Revolver Commitment, (ii) if
the Telecommunications Principal Debt exceeds the Telecommunications
Commitment, (iii) if the Receivables Principal Debt exceeds the Maximum
Receivables Commitment, or (iv) if the Principal Debt exceeds the Total
Commitment, then
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Borrower shall make a mandatory prepayment of the Principal Debt
arising under the affected Facility, in at least the amount of such
excess, together with (x) all accrued and unpaid interest on the
principal amount so prepaid and (y) any Consequential Loss arising as a
result thereof. All mandatory commitment reductions or prepayments
hereunder for each Facility shall be applied Pro Rata to each Lender's
Committed Sum thereunder.
(d) Voluntary Prepayments. After giving Administrative Agent
advance written notice of the intent to prepay, Borrower may
voluntarily prepay all or any part of the Principal Debt from time to
time and at any time, in whole or in part, without premium or penalty;
provided that: (i) such notice must be received by Administrative Agent
by 12:00 noon Dallas, Texas time on (A) the third Business Day
preceding the date of prepayment of a Eurodollar Rate Borrowing, and
(B) the Business Day of a prepayment of a Base Rate Borrowing; (ii)
each such partial prepayment must be in a minimum amount of at least
$5,000,000 or a greater integral multiple of $1,000,000 thereof (if a
Eurodollar Rate Borrowing or a Base Rate Borrowing); (iii) all accrued
interest on any Eurodollar Rate Borrowing being prepaid must also be
paid in full, to the date of such prepayment; and (iv) Borrower shall
pay any related Consequential Loss within ten (10) days after demand
therefor. Each notice of prepayment shall specify the prepayment date,
the Facility hereunder being prepaid, and the Type of Borrowing(s) and
amount(s) of such Borrowing(s) to be prepaid and shall constitute a
binding obligation of Borrower to make a prepayment on the date stated
therein.
1.1 INTEREST OPTIONS. Except that the Eurodollar Rate may not be selected
where a Default or Potential Default exists and except where specifically
otherwise provided, Borrowings shall bear interest at a rate per annum equal to
the lesser of (a) as to the respective Type of Borrowing (as designated by
Borrower in accordance with this Agreement), the Base Rate plus the Applicable
Margin for Base Rate Borrowings for the applicable Facility or the Adjusted
Eurodollar Rate plus the Applicable Margin for Eurodollar Rate Borrowings for
the applicable Facility, and (b) the Maximum Rate. Each change in the Base Rate
or the Maximum Rate, subject to the terms of this Agreement, will become
effective, without notice to Borrower or any other Person, upon the effective
date of such change.
1.2
1.3 QUOTATION OF RATES. It is hereby acknowledged that a Responsible
Officer or other appropriately designated employees of Borrower may call
Administrative Agent on or before the date on which a Notice of Borrowing is to
be delivered by Borrower in order to receive an indication of the rates then in
effect, but such indicated rates shall neither be binding upon Administrative
Agent or Lenders nor affect the rate of interest which thereafter is actually in
effect when the Notice of Borrowing is given.
1.4
1.5 DEFAULT RATE. At the option of Required Lenders and to the extent
permitted by Law, all past-due Principal Debt and accrued interest thereon shall
bear interest from maturity (stated or by acceleration) at the Default Rate
until paid, regardless whether such payment is made before or after entry of a
judgment.
1.6
1.7 INTEREST RECAPTURE. If the designated rate applicable to any Borrowing
exceeds the Maximum Rate, the rate of interest on such Borrowing shall be
limited to the Maximum Rate, but any subsequent reductions in such designated
rate shall not reduce the rate of interest thereon below the Maximum Rate until
the total amount of interest accrued thereon equals the amount of interest which
would have accrued thereon if such designated rate had at all times been in
effect. In the event that at maturity (stated or by acceleration), or at final
payment of the Principal Debt, the total amount of interest paid or accrued is
less than the amount of interest which would have accrued if such designated
rates had at all times been in effect, then, at such time and to the extent
permitted by Law, Borrower shall pay an amount equal to the difference between
(a) the lesser of the amount of interest which would have accrued if such
designated
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rates had at all times been in effect and the amount of interest which would
have accrued if the Maximum Rate had at all times been in effect, and (b) the
amount of interest actually paid or accrued on the Principal Debt.
1.1 INTEREST CALCULATIONS. Interest shall be calculated on the basis of
actual number of days (including the first day but excluding the last day)
elapsed but computed as if each calendar year consisted of 360 days in the case
of a Eurodollar Rate Borrowing (unless such calculation would result in the
interest on the Borrowings exceeding the Maximum Rate, in which event such
interest shall be calculated on the basis of a year of 365 or 366 days, as the
case may be), and 365 or 366 days, as the case may be, in the case of a Base
Rate Borrowing. All interest rate determinations and calculations by
Administrative Agent shall be conclusive and binding absent manifest error.
1.1 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document, neither Administrative Agent nor any Lender shall ever be entitled to
contract for, charge, take, reserve, receive, or apply, as interest on all or
any part of the Obligation, any amount in excess of the Maximum Rate, and, if
Lenders ever do so, then such excess shall be deemed a partial prepayment of
principal and treated hereunder as such and any remaining excess shall be
refunded to Borrower. In determining if the interest paid or payable exceeds the
Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted under
applicable Law, (a) treat all Borrowings as but a single extension of credit
(and Lenders and Borrower agree that such is the case and that provision herein
for multiple Borrowings is for convenience only), (b) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude voluntary prepayments and the effects thereof, and (d) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the Obligation; provided that, if the Obligation is paid
and performed in full prior to the end of the full contemplated term thereof,
and if the interest received for the actual period of existence thereof exceeds
the Maximum Amount, Lenders shall refund such excess, and, in such event,
Lenders shall not, to the extent permitted by Law, be subject to any penalties
provided by any Laws for contracting for, charging, taking, reserving, or
receiving interest in excess of the Maximum Amount. If the Laws of the State of
Texas are applicable for purposes of determining the "Maximum Rate" or the
"Maximum Amount," then those terms mean the "weekly ceiling" from time to time
in effect under Texas Finance Code ss. 303.305, as amended. Borrower agrees that
Chapter 346 of the Texas Finance Code, as amended (which regulates certain
revolving credit loan accounts and revolving tri-party accounts), does not apply
to the Obligation.
1.2
1.3 INTEREST PERIODS. When Borrower requests any Eurodollar Rate Borrowing,
Borrower may elect the interest period (each an "INTEREST PERIOD") applicable
thereto, which shall be, at Borrower's option, one, two, three, or six months,
or other periods requested by Borrower to the extent available from all Lenders;
provided, however, that: (a) the initial Interest Period for a Eurodollar Rate
Borrowing shall commence on the date of such Borrowing (including the date of
any conversion thereto), and each Interest Period occurring thereafter in
respect of such Borrowing shall commence on the day on which the next preceding
Interest Period applicable thereto expires; (b) if any Interest Period for a
Eurodollar Rate Borrowing begins on a day for which there is no numerically
corresponding Business Day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the next Business Day immediately
following what otherwise would have been such numerically corresponding day in
the calendar month at the end of such Interest Period (unless such date would be
in a different calendar month from what would have been the month at the end of
such Interest Period, or unless there is no numerically corresponding day in the
calendar month at the end of the Interest Period; whereupon, such Interest
Period shall end on the last Business Day in the calendar month at the end of
such Interest Period); (c) no Interest Period may be chosen with respect to any
portion of the Principal Debt which would extend beyond the scheduled repayment
date (including any dates on which mandatory
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prepayments are required to be made) for such portion of the Principal Debt; and
(d) no more than an aggregate of five (5) Interest Periods shall be in effect at
one time.
1.4
1.5 CONVERSIONS. Borrower may (a) convert a Eurodollar Rate Borrowing on
the last day of an Interest Period to a Base Rate Borrowing, (b) convert a Base
Rate Borrowing at any time to a Eurodollar Rate Borrowing, and (c) elect a new
Interest Period (in the case of a Eurodollar Rate Borrowing), by giving notice
(a "NOTICE OF CONVERSION," substantially in the form of EXHIBIT B-2) of such
intent no later than 10:00 a.m. Dallas, Texas time on the third Business Day
prior to the date of conversion or the last day of the Interest Period, as the
case may be (in the case of a conversion to a Eurodollar Rate Borrowing or an
election of a new Interest Period), and no later than 10:00 a.m. Dallas, Texas
time one Business Day prior to the last day of the Interest Period (in the case
of a conversion to a Base Rate Borrowing); provided that, the principal amount
converted to, or continued as, a Eurodollar Rate Borrowing shall be in an amount
not less than $5,000,000 or a greater integral multiple of $1,000,000 (or such
lesser amount as may be outstanding under the applicable Facility).
Administrative Agent shall timely notify each Lender with respect to each Notice
of Conversion. Absent Borrower's Notice of Conversion or election of a new
Interest Period, a Eurodollar Rate Borrowing shall be deemed converted to a Base
Rate Borrowing effective as of the expiration of the Interest Period applicable
thereto. No Eurodollar Rate Borrowing may be either made or continued as a
Eurodollar Rate Borrowing, and no Base Rate Borrowing may be converted to a
Eurodollar Rate Borrowing, after the occurrence of a Default or if the interest
rate for such Eurodollar Rate Borrowing would exceed the Maximum Rate. The Right
to convert from a Base Rate Borrowing to a Eurodollar Rate Borrowing shall not
be available during the occurrence of a Default or Potential Default.
1.1 ORDER OF APPLICATION.
1.2
(a) No Default. Payments and prepayments of the Obligation
shall be applied in the order and manner specified in this Agreement;
provided, however, if no order is otherwise specified and no Default or
Potential Default has occurred and is continuing, payments and
prepayments of the Obligation shall be applied first to fees, second to
accrued interest then due and payable on the Principal Debt, and then
to the remaining Obligation in the order and manner as Borrower may
direct.
(b) Default. If a Default or Potential Default has occurred
and is continuing (or if Borrower fails to give directions as permitted
under SECTION 3.11(a)), any payment or prepayment (including proceeds
from the exercise of any Rights) shall be applied to the Obligation in
the following order: (i) to the ratable payment of all fees, expenses,
and indemnities for which Agents or Lenders have not been paid or
reimbursed in accordance with the Loan Documents (as used in this
SECTION 3.11(b)(i), a "ratable payment" for any Lender or any Agent
shall be, on any date of determination, that proportion which the
portion of the total fees, expenses, and indemnities owed to such
Lender or such Agent bears to the total aggregate fees and indemnities
owed to all Lenders and Agents on such date of determination); (ii) to
the ratable payment of accrued and unpaid interest on the Principal
Debt (as used in this SECTION 3.11(b)(ii), "ratable payment" means, for
any Lender, on any date of determination, that proportion which the
accrued and unpaid Principal Debt owed to such Lender bears to the
total accrued and unpaid interest on the Principal Debt owed to all
Lenders); (iii) to the ratable payment of the Principal Debt (as used
in this SECTION 3.11(b)(iii), "ratable payment" means for any Lender,
on any date of determination, that proportion which the Principal Debt
owed to such Lender bears to the Principal Debt owed to all Lenders;
and (iv) to the payment of the remaining Obligation in the order and
manner Required Lenders deem appropriate.
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Subject to the provisions of SECTION 12 and provided that Administrative Agent
shall not in any event be bound to inquire into or to determine the validity,
scope, or priority of any interest or entitlement of any Lender and may suspend
all payments or seek appropriate relief (including, without limitation,
instructions from Required Lenders or an action in the nature of interpleader)
in the event of any doubt or dispute as to any apportionment or distribution
contemplated hereby, Administrative Agent shall promptly distribute such amounts
to each Lender in accordance with the Agreement and the related Loan Documents.
1.1 SHARING OF PAYMENTS, ETC. If any Revolver Lender or Telecommunications
Lender shall obtain any payment or prepayment with respect to the Obligation
(whether voluntary, involuntary, or otherwise, including, without limitation, as
a result of exercising its Rights under SECTION 3.13) which is in excess of its
share of any such payment, then such Lender shall purchase from the other
Lenders such participations as shall be necessary to cause such purchasing
Lender to share the excess payment with each other Revolver Lender or
Telecommunications Lender, as applicable. If all or any portion of such excess
payment is subsequently recovered from such purchasing Lender, then the purchase
shall be rescinded and the purchase price restored to the extent of such
recovery. Borrower agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section may, to the fullest extent permitted by
Law, exercise all of its Rights of payment (including the Right of offset) with
respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation.
1.2
1.3 OFFSET. If a Default exists, each Lender shall be entitled to exercise
(for the benefit of all Lenders in accordance with SECTION 3.12) the Rights of
offset and/or banker's Lien against each and every account and other property,
or any interest therein, which Borrower or any Guarantor may now or hereafter
have with, or which is now or hereafter in the possession of, such Lender to the
extent of the full amount of the Obligation.
1.4
1.5 BOOKING BORROWINGS. To the extent permitted by Law, any Lender may
make, carry, or transfer its Borrowings at, to, or for the account of any of its
branch offices or the office of any of its Affiliates; provided that, no
Affiliate shall be entitled to receive any greater payment under SECTION 4 than
the transferor Lender would have been entitled to receive with respect to such
Borrowings.
1 SECTION CHANGE IN CIRCUMSTANCES.
2
2.1 INCREASED COST AND REDUCED RETURN.
2.2
(a) Changes in Law. If, after the date hereof, the adoption of
any applicable Law or any change in any applicable Law or any change in
the interpretation or administration thereof by any Governmental
Authority, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force
of law) of any such Governmental Authority:
(i) shall subject such Lender (or its Applicable
Lending Office) to any Tax or other charge with respect to any
Eurodollar Rate Borrowing, its Notes, or its obligation to
loan Eurodollar Rate Borrowings, or change the basis of
taxation of any amounts payable to such Lender (or its
Applicable Lending Office) under the Loan Documents in respect
of any Eurodollar Rate Borrowings (other than taxes imposed on
the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable
Lending Office);
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(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than the Reserve Requirement utilized in the
determination of the Adjusted Eurodollar Rate) relating to any
extensions of credit or other assets of, or any deposits with
or other liabilities or commitments of, such Lender (or its
Applicable Lending Office), including the commitment of such
Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or the London interbank market any other
condition affecting this Agreement or its Notes or any of such
extensions of credit or liabilities or commitments; and the
result of any of the foregoing is to increase the cost to such
Lender (or its Applicable Lending Office) of making,
converting into, continuing, or maintaining any Eurodollar
Rate Borrowings or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under the Loan
Documents with respect to any Eurodollar Rate Borrowing, then
Borrower shall pay to such Lender on demand such amount or
amounts as will compensate such Lender for such increased cost
or reduction. If any Lender requests compensation by Borrower
under this SECTION 4.1(a), Borrower may, by notice to such
Lender (with a copy to Administrative Agent), suspend the
obligation of such Lender to loan or continue Borrowings of
the Type with respect to which such compensation is requested,
or to convert Borrowings of any other Type into Borrowings of
such Type, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions
of SECTION 4.4 shall be applicable); provided, that such
suspension shall not affect the Right of such Lender to
receive the compensation so requested.
(a) Capital Adequacy. If, after the date hereof, any Lender
shall have determined that the adoption of any applicable Law regarding
capital adequacy or any change therein or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority has or would have the effect of
reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request,
or directive (taking into consideration its policies with respect to
capital adequacy), then from time to time upon demand Borrower shall
pay to such Lender such additional amount or amounts as will compensate
such Lender for such reduction.
(b) Changes in Applicable Lending Office. Compensation
Statement. Each Lender shall promptly notify Borrower and
Administrative Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation
pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section shall furnish to Borrower and
Administrative Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be conclusive in the
absence of manifest error. In determining such amount, such Lender may
use any reasonable averaging and attribution methods.
1.1 LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any
Interest Period for any Eurodollar Rate Borrowing:
1.2
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(a) Inability to Determine Eurodollar Rate. Administrative
Agent determines (which determination shall be conclusive) that by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period; or
(b) Cost of Funds. Required Lenders determine (which
determination shall be conclusive) and notify Administrative Agent that
the Adjusted Eurodollar Rate will not adequately and fairly reflect the
cost to the Lenders of funding Eurodollar Rate Borrowings for such
Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof specifying
the relevant amounts or periods, and so long as such condition remains in
effect, the Lenders shall be under no obligation to fund additional Eurodollar
Rate Borrowings, continue Eurodollar Rate Borrowings, or to convert Base Rate
Borrowings into Eurodollar Rate Borrowings, and Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Eurodollar
Rate Borrowings, either prepay such Borrowings or convert such Borrowings into
Base Rate Borrowings in accordance with the terms of this Agreement.
1.1 ILLEGALITY. Notwithstanding any other provision of the Loan Documents,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Rate Borrowings hereunder, then
such Lender shall promptly notify Borrower thereof and such Lender's obligation
to make or continue Eurodollar Rate Borrowings and to convert other Base Rate
Borrowings into Eurodollar Rate Borrowings shall be suspended until such time as
such Lender may again make, maintain, and fund Eurodollar Rate Borrowings (in
which case the provisions of SECTION 4.4 shall be applicable).
1.2
1.3 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to fund
Eurodollar Rate Borrowings or to continue, or to convert Base Rate Borrowings
into Eurodollar Rate Borrowings, shall be suspended pursuant to SECTIONS 4.1,
4.2, or 4.3 hereof, such Lender's Eurodollar Rate Borrowings shall be
automatically converted into Base Rate Borrowings on the last day(s) of the then
current Interest Period(s) for Eurodollar Rate Borrowings (or, in the case of a
conversion required by SECTION 4.3 hereof, on such earlier date as such Lender
may specify to Borrower with a copy to Administrative Agent) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in SECTIONS 4.1, 4.2, or 4.3 hereof that gave rise to such conversion
no longer exist:
1.4
(a) to the extent that such Lender's Eurodollar Rate
Borrowings have been so converted, all payments and prepayments of
principal that would otherwise be applied to such Lender's Eurodollar
Rate Borrowings shall be applied instead to its Base Rate Borrowings;
and
(b) all Borrowings that would otherwise be made or continued
by such Lender as Eurodollar Rate Borrowings shall be made or continued
instead as Base Rate Borrowings, and all Borrowings of such Lender that
would otherwise be converted into Eurodollar Rate Borrowings shall be
converted instead into (or shall remain as) Base Rate Borrowings.
If such Lender gives notice to Borrower (with a copy to Administrative Agent)
that the circumstances specified in SECTIONS 4.1, 4.2, or 4.3 hereof that gave
rise to the conversion of such Lender's Eurodollar Rate Borrowings pursuant to
this SECTION 4.4 no longer exist (which such Lender agrees to do promptly upon
such circumstances ceasing to exist) at a time when Eurodollar Rate Borrowings
made by other Lenders are outstanding, such Lender's Base Rate Borrowings shall
be automatically converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Rate Borrowings, to the extent
necessary so that, after giving effect thereto, all Eurodollar Rate Borrowings
held by the
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Lenders and by such Lender are held pro rata (as to principal amounts, Types,
and Interest Periods) in accordance with their respective Commitments.
1.1 COMPENSATION. Upon the request of any Lender, Borrower shall pay to
such Lender such amount or amounts as shall be sufficient (in the reasonable
opinion of such Lender) to compensate it for any loss, cost, or expense
(including loss of anticipated profits) incurred by it as a result of:
1.2
(a) any payment, prepayment, or conversion of a Eurodollar
Rate Borrowing for any reason (including, without limitation, the
acceleration of the loan pursuant to SECTION 11.1) on a date other than
the last day of the Interest Period for such Borrowing; or
(b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in SECTION
7.3 to be satisfied) to borrow, convert, continue, or prepay a
Eurodollar Rate Borrowing on the date for such borrowing, conversion,
continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, continuation, or conversion under this
Agreement.
1.1 TAXES.
1.2
(a) General. Any and all payments by Borrower to or for the
account of any Lender or Administrative Agent hereunder or under any
other Loan Document shall be made free and clear of and without
deduction for any and all present or future Taxes, excluding, in the
case of each Lender and Administrative Agent, Taxes imposed on its
income and franchise Taxes imposed on it by the jurisdiction under the
Laws of which such Lender (or its Applicable Lending Office) or
Administrative Agent (as the case may be) is organized, or in which its
principal office is located, or any political subdivision thereof. If
Borrower shall be required by Law to deduct any Taxes from or in
respect of any sum payable under this Agreement or any other Loan
Document to any Lender or Administrative Agent, (i) the sum payable
shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable
under this SECTION 4.6) such Lender or Administrative Agent receives an
amount equal to the sum it would have received had no such deductions
been made, (ii) Borrower shall make such deductions, (iii) Borrower
shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable Law, and (iv) Borrower
shall furnish to Administrative Agent, at its address listed in
SCHEDULE 2.1, the original or a certified copy of a receipt evidencing
payment thereof.
(b) Stamp and Documentary Taxes. In addition, Borrower agrees
to pay any and all present or future stamp or documentary taxes and any
other excise or property taxes or charges or similar levies which arise
from any payment made under this Agreement or any other Loan Document
or from the execution or delivery of, or otherwise with respect to,
this Agreement or any other Loan Document (hereinafter referred to as
"OTHER TAXES").
(c) Indemnification for Taxes. Borrower agrees to indemnify
each Lender and Administrative Agent for the full amount of Taxes and
Other Taxes which Borrower is obligated to pay under this Section 4.6
(including, without limitation, any Taxes or Other Taxes imposed or
asserted by any jurisdiction on amounts payable under this SECTION 4.6)
paid by such Lender or Administrative Agent (as the case may be) and
any liability (including penalties, interest, and expenses) arising
therefrom or with respect thereto.
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(d) Withholding Tax Forms. Each Lender organized under the
laws of a jurisdiction outside the United States, on or prior to the
date of its execution and delivery of this Agreement in the case of
each Lender listed on the signature pages hereof and on or prior to the
date on which it becomes a Lender in the case of each other Lender, and
from time to time thereafter if requested in writing by Borrower or
Administrative Agent (but only so long as such Lender remains lawfully
able to do so), shall provide Borrower and Administrative Agent with
(i) Internal Revenue Service Form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying
that such Lender is entitled to benefits under an income tax treaty to
which the United States is a party which reduces the rate of
withholding Tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States, (ii) Internal
Revenue Service Form W8 or W9, as appropriate, or any successor form
prescribed by the Internal Revenue Service, and (iii) any other form or
certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code),
certifying that such Lender is entitled to an exemption from or a
reduced rate of tax on payments pursuant to this Agreement or any of
the other Loan Documents. Each Lender which so delivers a Form W-8,
Form 1001, or Form 4224 further undertakes to deliver to Borrower and
Administrative Agent additional forms (or a successor form) on or
before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so
delivered by it, in each case certifying that such Lender is entitled
to receive payments from Borrower under any Loan Document without
deduction or withholding (or at a reduced rate of deduction or
withholding) of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law, or regulation)
has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or
which would prevent such Lender from duly completing and delivering any
such form with respect to it and such Lender advises Borrower and
Administrative Agent that it is not capable of receiving such payments
without any deduction or withholding of United States federal income
Tax.
(e) Failure to Provide Withholding Forms; Changes in Tax Laws.
For any period with respect to which a Lender has failed to provide
Borrower and Administrative Agent with the appropriate form pursuant to
SECTION 4.6(d) (unless such failure is due to a change in Law occurring
subsequent to the date on which a form originally was required to be
provided), such Lender shall not be entitled to indemnification under
SECTION 4.6(a) or 4.6(b) with respect to Taxes imposed by the United
States; provided, however, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding Tax, become
subject to Taxes because of its failure to deliver a form required
hereunder, Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such Taxes.
(f) Changes in Applicable Lending Office. If Borrower is
required to pay additional amounts to or for the account of any Lender
pursuant to this SECTION 4.6, then such Lender will agree to use
reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Lender,
is not otherwise disadvantageous to such Lender.
(g) Tax Payment Receipt. Within thirty (30) days after the
date of any payment of Taxes, Borrower shall furnish to Administrative
Agent, promptly upon request by Administrative Agent, the original or a
certified copy of a receipt evidencing such payment.
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(h) Survival. Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this SECTION 4.6 shall survive the termination of
the Total Commitment and the payment in full of the Obligation.
1 SECTION FEES.
2
2.1 TREATMENT OF FEES. Except as otherwise provided by Law, the fees
described in this SECTION 5: (a) do not constitute compensation for the use,
detention, or forbearance of money, (b) are in addition to, and not in lieu of,
interest and expenses otherwise described in the Loan Documents, (c) shall be
payable in accordance with SECTION 3.1, (d) shall be non-refundable, (e) shall,
to the fullest extent permitted by Law, bear interest, if not paid when due, at
the Default Rate, and (f) shall be calculated on the basis of actual number of
days (including the first day but excluding the last day) elapsed, but computed
as if each calendar year consisted of 360 days, unless such computation would
result in interest being computed in excess of the Maximum Rate in which event
such computation shall be made on the basis of a year of 365 or 366 days, as the
case may be.
1.1 FEES OF ADMINISTRATIVE AGENT AND ARRANGING AGENTS. Borrower shall pay
to (a) Administrative Agent, the fees described in that certain separate letter
agreement dated as of December 2, 1999, between Borrower and Administrative
Agent; and (b) each Arranging Agent, the fees specified in the letter dated
December 2, 1999, between Arranging Agents and Borrower, which fee payments
shall be made on the dates specified, and in amounts calculated in accordance
with, such letter agreement.
1.2
1.3 REVOLVER FACILITY COMMITMENT FEES. Following the Closing Date, Borrower
shall pay to Administrative Agent, for the ratable account of Lenders, a
commitment fee, payable in installments in arrears, on each March 31, June 30,
September 30, and December 31 and on the Termination Date of each Facility;
commencing March 31, 2000. Each installment shall be, in an amount equal to the
amount by which (a) the sum of the average daily Total Commitment exceeds (b)
the average daily Principal Debt, in each case during the period from and
including the last payment date to and excluding the payment date for such
installment multiplied by a percentage equal to (i) 1.250%, if the sum of the
average daily Principal Debt for such period is less than or equal to 33.0% of
the average daily Total Commitment for such period; (ii) 1.00%, if the average
daily Principal Debt during such period is greater than 33.0% of the average
daily Total Commitment during said period, but less than or equal to 67.0% of
the average daily Total Commitment during such period; and (iii).750%, if the
average daily Principal Debt during such period is greater than 67.0% of the
average daily Total Commitment during such period; provided that, each such
installment of commitment fees shall be calculated in accordance with SECTION
5.1(f). Solely for the purposes of this SECTION 5.3, "ratable" shall mean, for
any period of determination, with respect to any Lender, that proportion which
(x) the sum of the average daily unused Committed Sums of such Lender under all
Facilities during such period bears to (y) the average daily unused Total
Commitment during such period.
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1 SECTION. SECURITY; GUARANTIES.
1.1 COLLATERAL.
1.2
(a) On the Closing Date, to secure full and complete payment
and performance of the Obligation arising under the Revolver Facility
and the Telecommunications Facility, Borrower shall (and shall cause
each other Company that is a Domestic Subsidiary of Borrower to) enter
into Collateral Documents (in form and substance satisfactory to
Administrative Agent), pursuant to which, among other things, each such
entity shall, to the extent permitted by Applicable Law, grant, pledge,
assign, and create first priority Liens in favor of Administrative
Agent (for the ratable benefit of Lenders) in and to each such entity's
Rights, titles, and interests in (i) 100% of the issued and outstanding
stock or other equity or investment securities of each Domestic
Subsidiary of such entity; and (ii) 65% of the issued and outstanding
stock or other equity or investment securities of each directly-owned
Foreign Subsidiary of such entity.
(b) On or prior to February 15, 2000, to secure full and
complete payment of the Obligation arising under the Revolver Facility
and the Telecommunications Facility, Borrower shall (and shall cause
each other Company that is a Domestic Subsidiary of Borrower to) enter
into Collateral Documents (in form and substance satisfactory to
Administrative Agent), pursuant to which, among other things, each such
entity shall, to the extent permitted by Applicable Law, grant, pledge,
assign, and create first priority Liens in favor of Administrative
Agent (for the ratable benefit of Lenders) in and to all assets of each
Company to the extent Liens in such assets (other than fixtures) are
capable of being perfected by possession or the filing of financing
statements pursuant to the UCC.
(c) Upon request of Administrative Agent or Lenders (which
requests may be made from time to time), Borrower shall (or shall cause
each other Company to), within a reasonably acceptable period of time,
enter into additional Collateral Documents (in form and substance
reasonably satisfactory to Administrative Agent) creating Liens in
favor of Administrative Agent in and to any domestic assets of the
Companies (including, without limitation, fixtures and real property)
to secure full and complete payment and performance of the Obligation
arising under the Revolver Facility and the Telecommunications
Facility.
(d) Nothing in this SECTION 6 shall be deemed to be a waiver
of any Default or Potential Default existing on February 15, 2000, or
on any date additional Collateral is requested pursuant to SECTIONS
6.1(c), 6.3, or 6.5, or otherwise under the Loan Documents, or to limit
or modify any Rights Administrative Agent or Lenders may have with
respect to any such Default or Potential Default then existing.
1.1 GUARANTIES. As an inducement to Agents and Lenders to enter into this
Agreement, Borrower shall cause each Company that is a Domestic Subsidiary to
execute and deliver to Administrative Agent a Guaranty substantially in the form
and upon the terms of EXHIBIT C, providing for the guaranty of payment and
performance of the Obligation. In addition, promptly after the designation,
formation, or Acquisition of any new Company that is a Domestic Subsidiary of
Borrower, Borrower shall cause such new Company to execute and deliver to
Administrative Agent a Guaranty substantially in the form and upon the terms of
EXHIBIT C, providing for the guaranty of payment and performance of the
Obligation.
1.2
1.3 FUTURE LIENS. Promptly after (a) the acquisition of any material assets
(real, personal, tangible, or intangible) by any Company, (b) the removal,
termination, or expiration of any prohibitions upon the
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granting of a Lien in any asset (real, personal, tangible, or intangible) of
Borrower, any Company that is a Domestic Subsidiary, or (c) upon the
designation, formation, or acquisition of any new Subsidiary (the assets and
stock of such new Subsidiary and the assets described in CLAUSES (a) and (c)
hereof are referred to herein as the "ADDITIONAL ASSETS"), Borrower shall (or
shall cause such other Company to) execute and deliver to Administrative Agent
all further instruments and documents (including, without limitation, Collateral
Documents and all certificates and instruments representing shares of stock or
evidencing Debt and any realty appraisals as Administrative Agent may require
with respect to any such Additional Assets), and shall take all further action
that may be necessary or desirable, or that Administrative Agent may reasonably
request, to grant, perfect, and protect Liens in favor of Administrative Agent
for the benefit of Lenders in such Additional Assets, as security for the
Obligation to the extent Liens are required in such assets pursuant to SECTION
6.1; it being expressly understood that the granting of such additional security
for the Obligation is a material inducement to the execution and delivery of
this Agreement by each Lender. Upon satisfying the terms and conditions hereof,
such Additional Assets shall be included in the "COLLATERAL" for all purposes
under the Loan Documents, and all references to the "COLLATERAL" in the Loan
Documents shall include the Additional Assets.
1.1 RELEASE OF COLLATERAL.
1.2
(a) Upon any sale, transfer, or disposition of Collateral
which is expressly permitted pursuant to the Loan Documents (or is
otherwise authorized by Lenders), and upon ten (10) Business Days'
prior written request by Borrower (which request must be accompanied by
true and correct copies of (a) all documents of transfer or
disposition, including any contract of sale, (b) a preliminary closing
statement and instructions to the title company, if any, and (c) all
requested release instruments), Administrative Agent shall (and is
hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of Liens granted to
Administrative Agent for the benefit of Lenders pursuant hereto in such
Collateral; provided that, (i) no such release of Lien shall be granted
if any Default or Potential Default has occurred and is continuing,
including, without limitation, the failure to make certain mandatory
prepayments in accordance with SECTION 3.2(c) in conjunction with the
sale or transfer of such Collateral; and (ii) Administrative Agent
shall not be required to execute any such document on terms which, in
Administrative Agent's opinion, would expose Administrative Agent to
liability or create any obligation or entail any consequence other than
the release of such Liens without recourse or warranty.
(b) All releases pursuant to this SECTION 6.4 shall not in any
manner discharge, affect, or impair the Obligation, or Liens upon (or
obligations of any Company in respect of) all interests retained by the
Companies, including (without limitation) the proceeds of any sale, all
of which shall continue to constitute Collateral.
1.1 NEGATIVE PLEDGE. Until such time as Administrative Agent or Required
Lenders otherwise require, the Companies shall not be required (i) to perfect
Liens on any assets, other than those identified in SECTION 6.1, (ii) to grant
specific assignments of easements, licenses, permits, certificates of
compliance, and certificates of approval issued by regulatory authorities,
franchises, or like grants of authority or service agreements, or (iii)
notwithstanding the requirements of SECTION 6.1, to grant specific assignments
of the Companies Rights under contracts or agreements which expressly prohibit
such assignments, provided that, nothing herein shall be deemed a waiver of the
Lender's Rights to assert Liens in and to the proceeds of such contracts or
agreements. To the extent Administrative Agent and Required Lenders agree to
delay the perfection or attachment of any Lien granted pursuant to this SECTION
6, for whatever reason, the Companies hereby covenant and agree not to directly
create, incur, grant, suffer, or permit to be created or incurred any Lien on
any such assets, other than Permitted Liens.
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Furthermore, within 45 days of the request of Administrative Agent or Lenders
(whether pursuant to SECTION 6.1(c), this SECTION 6.5, or otherwise, Borrower
shall (or shall cause each Company to) execute and deliver to Administrative
Agent all instruments and documents (including, without limitation,
certificates and instruments and documents representing shares of stock or
evidencing Debt) and shall take all further action that may be necessary or
desirable, or that Administrative Agent may reasonably request, to grant,
perfect, and protect Liens in favor of Administrative Agent for the benefit of
Lenders, in such assets, as security for the Obligation; it being expressly
understood that the provisions of this negative pledge are a material
inducement to the execution and delivery of this Agreement by each Lender.
1.2
1.3 CONTROL; LIMITATION OF RIGHTS. Notwithstanding anything herein or in
any other Loan Document to the contrary, (a) the transactions contemplated
hereby (i) do not and will not constitute, create, or have the effect of
constituting or creating, directly or indirectly, actual or practical ownership
of the Companies by Agents or Lenders, or control, affirmative or negative,
direct or indirect, by Agents or Lenders over the management or any other
aspect of the operation of the Companies, which ownership or control remains
exclusively and at all times in the Companies, and (ii) do not and will not
constitute the transfer, assignment, or disposition in any manner, voluntary or
involuntary, directly or indirectly, of any Authorization at any time issued by
the FCC or any PUC to the Companies, or the transfer of control of the
Companies within the meaning of Section 310(d) of the Communications Act of
1934, as amended; and (b) Administrative Agent shall not, without first
obtaining the approval of the FCC or any applicable PUC, take any action
pursuant to this Agreement or any other Loan Document that would constitute or
result in any assignment of any Authorization or any change of control of the
Companies, if such assignment or change of control would require, under then
existing Law (including the written rules and regulations promulgated by the
FCC or any such PUC), the prior approval of the FCC or any such PUC.
1SECTION 7. CONDITIONS PRECEDENT.
2
2.1 CONDITIONS PRECEDENT TO CLOSING. This Agreement shall not become
effective, and Lenders shall not be obligated to advance any Borrowing, unless
Administrative Agent has received all of the agreements, documents,
instruments, and other items described on SCHEDULE 7.1.
1.1 CONDITIONS PRECEDENT TO A PERMITTED ACQUISITION. On or prior to the
consummation of any Acquisition, (whether or not the purchase price for such
Acquisition, is funded by Borrowings), Borrower shall have satisfied the
conditions and delivered, or caused to be delivered, to Administrative Agent,
all documents and certificates set forth on SCHEDULE 7.2 by no later than the
dates specified for satisfaction of such conditions on SCHEDULE 7.2. Promptly
upon receipt of each Permitted Acquisition Compliance Certificate, and each
Permitted Acquisition Loan Closing Certificate, Administrative Agent shall
provide copies of such certificates to Lenders. All documentation delivered and
satisfaction of conditions pursuant to the requirements of SECTION 7.2 must be
satisfactory to Administrative Agent. To the extent any Borrowing is being
requested in connection with the consummation of the Acquisition, the
conditions set forth in SECTIONS 7.2 and 7.3 hereof must be satisfied prior to
the making of any such Borrowing.
1.2
1.3 CONDITIONS PRECEDENT TO EACH BORROWING. In addition to the conditions
stated in SECTION 7.1 AND SECTION 7.2, Lenders will not be obligated to fund
(as opposed to continue or convert) any Borrowing, unless on the date of such
Borrowing (and after giving effect thereto): (a) Administrative Agent shall
have timely received therefor a Notice of Borrowing; (b) all of the
representations and warranties of any Company set forth in the Loan Documents
are true and correct in all material respects (except to the extent that (i)
the representations and warranties speak to a specific date or (ii) the facts
on which such representations and warranties are based have been changed by
transactions contemplated or permitted by the Loan Documents); (c) no change in
the financial condition, business operations, or
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prospects since September 30, 1999, of any Company which could reasonably be
expected to be a Material Adverse Event shall have occurred; (d) no Default or
Potential Default shall have occurred and be continuing; (e) the funding of
such Borrowings, is permitted by Law; (f) evidence satisfactory to
Administrative Agent that the proceeds of such Borrowing are being used by the
Companies in accordance with the terms of the Existing Senior Notes and
Existing Subordinated Notes; and (g) all matters related to such Borrowing must
be satisfactory to Required Lenders and their respective counsel in their
reasonable determination, and upon the reasonable request of Administrative
Agent, Borrower shall deliver to Administrative Agent evidence substantiating
any of the matters in the Loan Documents which are necessary to enable Borrower
to qualify for such Borrowing. Each Notice of Borrowing delivered to
Administrative Agent shall constitute the representation and warranty by
Borrower to Administrative Agent that the statements above are true and correct
in all respects. Each condition precedent in this Agreement is material to the
transactions contemplated in this Agreement, and time is of the essence in
respect of each thereof. Subject to the prior approval of Required Lenders,
Lenders may fund any Borrowing, without all conditions being satisfied, but, to
the extent permitted by Law, the same shall not be deemed to be a waiver of the
requirement that each such condition precedent be satisfied as a prerequisite
for any subsequent funding or issuance, unless Required Lenders specifically
waive each such item in writing.
1SECTION REPRESENTATIONS AND WARRANTIES. Borrower and each Guarantor represent
and warrant to Administrative Agent and Lenders, as follows:
2
2.1 PURPOSE OF CREDIT FACILITY .
(a) Borrower will use (or will loan such proceeds to its Domestic
Subsidiaries to so use) all proceeds of Borrowings under the Revolver
Facility for one or more of the following: (i) to finance Permitted
Acquisitions; (ii) to finance Capital Expenditures; (iii) to finance
working capital; and (iv) for general corporate purposes.
(a) Borrower will use (or will loan such proceeds to its Domestic
Subsidiaries to so use) all proceeds of Borrowings under the
Telecommunications Facility for the Acquisition or construction of
Telecommunications Assets of Borrower or its Domestic Subsidiaries,
provided however, that the Telecommunications Principal Debt shall not
exceed 80% of the cost of the Acquisition or construction of the
applicable Telecommunications Assets financed thereby.
(a) Borrower will use (or will loan such proceeds to its Domestic
Subsidiaries to so use) all proceeds of Borrowings under the
Receivables Facility (if any), (i) to refinance all Telecommunications
Principal Debt, (ii) to finance working capital, (iii) to finance
capital expenditures, (iv) to finance general corporate purposes, and
(v) to finance Permitted Acquisitions.
(a) No Company is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" within the meaning of
Regulation U. No part of the proceeds of any Borrowing will be used,
directly or indirectly, for a purpose which violates any Law,
including, without limitation, the provisions of Regulations T, U, or
X (as enacted by the Board of Governors of the Federal Reserve System,
as amended).
1.1 EXISTENCE, GOOD STANDING, AUTHORITY, AND AUTHORIZATIONS. Borrower and
each Guarantor is duly organized, validly existing, and in good
standing under the Laws of its jurisdiction of organization (such
jurisdictions being identified on SCHEDULE 8.3, as supplemented and
modified in writing from time
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to time to reflect any changes to such Schedule as a result of transactions
permitted by the Loan Documents). Borrower and each Guarantor is duly qualified
to transact business and is in good standing in each jurisdiction where the
nature and extent of its business and properties require the same. Borrower and
each Guarantor possesses all the Authorizations, franchises, permits, licenses,
certificates of compliance, and approvals and grants of authority necessary,
including, without limitation, any Authorization issued by the FCC, all of
which are described on SCHEDULE 8.2 hereto, necessary or required in the
conduct of its respective business(es), and the same are valid, binding,
enforceable, and subsisting without any defaults thereunder or enforceable
adverse limitations thereon and are not subject to any proceedings or claims
opposing the issuance, development, or use thereof or contesting the validity
thereof. No authorization, consent, approval, waiver, license, or formal
exemptions from, nor any filing, declaration, or registration with, any
Governmental Authority (federal, state, or local), or non-governmental entity,
under the terms of contracts or otherwise, is required by reason of or in
connection with the execution and performance of the Loan Documents by the
Borrower or any Guarantor.
1.2
1.3 SUBSIDIARIES; CAPITAL STOCK. Borrower and each Guarantor have no
Subsidiaries except as disclosed on SCHEDULE 8.3 (as supplemented and modified
in writing from time to time to reflect any changes to such Schedule as a
result of transactions permitted by the Loan Documents). All of the outstanding
shares of capital stock (or similar voting interests) of Borrower, each
Guarantor, and their respective Subsidiaries are duly authorized, validly
issued, fully paid, and nonassessable and are owned of record and beneficially
as set forth on SCHEDULE 8.3 (as supplemented and modified in writing from time
to time to reflect any changes to such Schedule as a result of transactions
permitted by the Loan Documents), free and clear of any Liens, restrictions,
claims, or rights of another Person, other than Permitted Liens, and none of
such shares owned by Borrower or any Guarantor is subject to any restriction on
transfer thereof except for restrictions imposed by securities Laws and general
corporate Laws. Neither Borrower nor any Guarantor has outstanding any warrant,
option, or other right of any Person to acquire any of its capital stock or
similar equity interests, except as disclosed on SCHEDULE 8.3.
1.4
1.5 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by Borrower
and each Guarantor of each Loan Document to which it is a party and the
performance by Borrower and each Guarantor of its obligations thereunder (a)
are within the corporate power of such Company, (b) will have been duly
authorized by all necessary corporate or partnership action on the part of such
Company when such Loan Document is executed and delivered, (c) require no
consent of, action by or in respect of, or filing with, any Governmental
Authority, which action or filing has not been taken or made on or prior to the
Closing Date (or if later, the date of execution and delivery of such Loan
Document) other than, on or prior to the satisfaction of the covenants set
forth in SECTION 9.33, the Special Regulatory Approvals and the Transfer
Approvals, (d) will not violate any provision of the charter, bylaws, or
partnership agreement of such Company, (e) will not violate any provision of
Law applicable to it, other than such violations which individually or
collectively could not be a Material Adverse Event, (f) will not violate any
material written or oral agreements, contracts, commitments, or understandings
to which it is a party, other than such violations which could not be a
Material Adverse Event, or (g) will not result in the creation or imposition of
any Lien on any asset of any Company other than pursuant to this Agreement. The
Companies have (or will have upon consummation thereof) all necessary consents
and approvals of any Person or Governmental Authority other than, on or prior
to the satisfaction of the covenants set forth in SECTION 9.33, the Special
Regulatory Approvals, or Transfer Approvals, required to be obtained in order
to effect any asset transfer, change of control, merger, or consolidations
permitted by the Loan Documents.
1.6
1.7 BINDING EFFECT. Upon execution and delivery by all parties thereto,
each Loan Document will constitute a legal, valid, and binding obligation of
Borrower and each Guarantor party thereto,
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enforceable against Borrower and Guarantor in accordance with its terms, except
as enforceability may be limited by applicable Debtor Relief Laws and general
principles of equity.
1.8
1.9 FINANCIAL STATEMENTS. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the
consolidated financial condition, results of operations, and cash flows of the
Companies as of and for the portion of the fiscal year ending on the date or
dates thereof (subject only to normal year-end audit adjustments). There were
no material liabilities, direct or indirect, fixed or contingent, of the
Companies as of the date or dates of the Current Financials which are required
under GAAP to be reflected therein or in the notes thereto, and are not so
reflected. Except for transactions directly related to, or specifically
contemplated by, the Loan Documents, there have been no changes in the
consolidated financial condition of the Companies from that shown in the
Current Financials after such date which could be a Material Adverse Event, nor
has any Company incurred any liability (including, without limitation, any
liability under any Environmental Law), direct or indirect, fixed or
contingent, after such date which could be a Material Adverse Event.
1.10
1.11 LITIGATION, CLAIMS, INVESTIGATIONS. No Company is subject to, or
aware of the threat of, any Litigation which is reasonably likely to be
determined adversely to any Company, and, if so adversely determined, could
(individually or collectively with other Litigation) be a Material Adverse
Event. There are no outstanding orders or judgments for the payment of money in
excess of $5,000,000 (individually or collectively) or any warrant of
attachment, sequestration, or similar proceeding against the assets of any
Company having a value (individually or collectively) of $5,000,000 or more
which is not either (a) stayed on appeal or (b) being diligently contested in
good faith by appropriate proceedings and adequate reserves have been set aside
on the books of such Company in accordance with GAAP. There are no formal
complaints, suits, claims, investigations, or proceedings initiated at or by
any Governmental Authority pending or threatened by or against any Company
which could be a Material Adverse Event, nor any judgments, decrees, or orders
of any Governmental Authority outstanding against any Company that could be a
Material Adverse Event.
1.12
1.13 TAXES. All Tax returns of each Company required to be filed have been
filed (or extensions have been granted) prior to delinquency, except for any
such returns for which the failure to so file could not be a Material Adverse
Event, and all Taxes imposed upon each Company which are due and payable have
been paid prior to delinquency, other than Taxes for which the criteria for
Permitted Liens (as specified in SECTION 9.13(b)(VI)) have been satisfied or
for which nonpayment thereof could not constitute a Material Adverse Event.
1.14
1.15 ENVIRONMENTAL MATTERS. No Company (a) knows of any environmental
condition or circumstance, such as the presence or Release of any Hazardous
Substance, on any property presently or previously owned by any Company that
could be a Material Adverse Event, (b) knows of any violation by any Company of
any Environmental Law, except for such violations that could not be a Material
Adverse Event, or (c) knows that any Company is under any obligation to remedy
any violation of any Environmental Law, except for such obligations that could
not be a Material Adverse Event; provided, however, that each Company (x) to
the best of its knowledge, has in full force and effect all environmental
permits, licenses, and approvals required to conduct its operations and is
operating in substantial compliance thereunder, and (y) has taken prudent steps
to determine that its properties and operations are not in violation of any
Environmental Law.
1.16
1.17 EMPLOYEE BENEFIT PLANS. (a) No Employee Plan has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), (b) no Company or any ERISA Affiliate has incurred
material liability to the PBGC or with respect to an Employee Plan, which
liability is currently due and remains unpaid under Title IV of ERISA, (c) each
Employee Plan subject to
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ERISA and the Code complies in all material respects, both in form and
operation, with ERISA and the Code, (d) no ERISA Event has occurred or is
reasonably expected to occur with respect to any Employee Plan or Multiemployer
Plan which, individually or collectively with all other ERISA Events then
existing, could reasonably be expected to be a Material Adverse Event, (e) the
present value of all accrued benefits under each Employee Plan (based on
actuarial assumptions used for funding purposes in the most recent actuarial
valuation prepared by the Employee Plan's actuary with respect to such Employee
Plan) did not, as of the last annual actuarial valuation date for such Employee
Plan, exceed the then-current value of the assets of such Employee Plan, and
(f) the present value of accrued benefits under each Employee Plan (based on
PBGC actuarial assumptions used for plan termination), on any date of
determination, does not exceed the value of the assets of such Employee Plan.
1.18 PROPERTIES; LIENS. Each Company has good and marketable title to all
its property reflected on the Current Financials, except (a) for (i) property
that is obsolete, (ii) property that has been disposed of in the ordinary
course of business, or (iii) property with title defects or failures in title
which would not be a Material Adverse Event, or (b) as otherwise permitted by
the Loan Documents. Except for Permitted Liens, there is no Lien on any
property of any Company, and the execution, delivery, performance, or
observance of the Loan Documents will not require or result in the creation of
any Lien on such property.
1.19
1.20 GOVERNMENT REGULATIONS. No Company is subject to regulation under the
Investment Company Act of 1940, as amended, the Public Utility Holding Company
Act of 1935, as amended, or any other Law (other than Regulations T, U, and X
of the Board of Governors of the Federal Reserve System and the requirements of
any PUC or public service commission) which regulates the incurrence of Debt.
1.21
1.22 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material
transaction with any of its Affiliates (excluding transactions between or among
Borrower and the Guarantors), other than transactions in the ordinary course of
business and upon fair and reasonable terms not materially less favorable than
such Company could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate.
1.23
1.24 DEBT. Neither Borrower nor any Guarantor is an obligor on any Debt,
other than Permitted Debt.
1.25
1.26 MATERIAL AGREEMENTS. SCHEDULE 8.15 hereto sets forth a list of all
Material Agreement, and there exists no material default under any of such
contracts. There are no failures of any material written or oral agreements,
contracts, commitments, or understandings to which any Company is a party to be
in full force and effect which could be a Material Adverse Event, and no
default or potential default exists on the part of any Company thereunder which
could be a Material Adverse Event. Unless consented to by Administrative Agent
prior to the execution thereof, or as set forth on SCHEDULE 8.15 on the Closing
Date, no Material Agreement prohibits assignment to Lenders of the Company's
rights, titles, or interests under such Material Agreement as Collateral;
provided, that, for any Material Agreement set forth on SCHEDULE 8.15 and
designated as prohibiting assignment, Lenders reserve the right to request that
Borrower use its best efforts to obtain consent to such assignment on or prior
to the First Qualifying Date.
1.27
1.28 INSURANCE. Each Company maintains, with financially sound,
responsible, and reputable insurance companies or associations, insurance
concerning its properties and businesses against such casualties and
contingencies and of such types and in such amounts (and with co-insurance and
deductibles) as is customary in the case of same or similar businesses.
1.29
1.30 LABOR MATTERS. There are no actual or threatened strikes, labor
disputes, slow downs, walkouts, or other concerted interruptions of operations
by the employees of any Company that could be a Material Adverse Event. Hours
worked by and payment made to employees of the Companies have not been in
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violation of the Fair Labor Standards Act or any other applicable Law dealing
with such matters, other than any such violations, individually or
collectively, which could not constitute a Material Adverse Event. All payments
due from any Company on account of employee health and welfare insurance have
been paid or accrued as a liability on its books, other than any such
nonpayments which could not, individually or collectively, constitute a
Material Adverse Event.
1.31
1.32 SOLVENCY. At the time of each Borrowing hereunder and on the date of
each Permitted Acquisition, Borrower and each Guarantor is (and after giving
effect to the transactions contemplated by the Loan Documents, any Permitted
Acquisition, and any incurrence of additional Debt, will be) Solvent.
1.33
1.34 INTELLECTUAL PROPERTY. Each Company owns or has sufficient and
legally enforceable rights to use all material licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications,
and trade names necessary to continue to conduct its businesses as heretofore
conducted by it, now conducted by it, and now proposed to be conducted by it.
Each Company is conducting its business without infringement or claim of
infringement of any license, patent, copyright, service mark, trademark, trade
name, trade secret, or other intellectual property right of others, other than
any such infringements or claims which, if successfully asserted against or
determined adversely to any Company, could not, individually or collectively,
constitute a Material Adverse Event.
1.35
1.36 COMPLIANCE WITH LAWS. No Company is in violation of any Laws
(including, without limitation, the Communications Act, Environmental Laws, and
those Laws administered by the FCC and any PUC, other than with respect to the
Special Regulatory Approvals), other than such violations which could not,
individually or collectively, be a Material Adverse Event. No Company has
received notice alleging any noncompliance with any Laws, except for such
noncompliance which no longer exists, or which could not constitute a Material
Adverse Event.
1.1 PERMITTED ACQUISITIONS .
1.2
(a) With respect to any Permitted Acquisitions, each Company
party thereto has the power and authority under the Laws of its state
of incorporation and under its articles of incorporation and bylaws or
Partnership Agreement, as applicable, to enter into and perform the
related Acquisition agreement to which it is a party and all other
agreements, documents, and actions required thereunder; and all
actions (corporate or otherwise) necessary or appropriate by such
Companies for the execution and performance of said Acquisition
agreements, and all other documents, agreements, and actions required
thereunder, have been taken, and, upon their execution, such
Acquisition agreements will constitute the valid and binding
obligation of the Companies party thereto, enforceable in accordance
with their respective terms.
(a) With respect to any Permitted Acquisition, the making and
performance of the related Acquisition agreements, and all other
agreements, documents, and actions required thereunder, will not
violate any provision of any Law which could, individually or
collectively, be a Material Adverse Event, including, without
limitation, all state corporate Laws and judicial precedents of the
states of incorporation or formation of the Companies, and will not
violate any provisions of the articles of incorporation and bylaws or
partnership agreements of the Companies, or constitute a default under
any agreement by which any Company or its respective property may be
bound.
1.1 REGULATION U. "Margin Stock" (as defined in Regulation U) constitutes
less than 25% of those assets of any Company which is subject to any limitation
on sale, pledge, or other restrictions hereunder.
1.2
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1.3 TRADE NAMES. To the best of Borrower's knowledge, no Company has used
or transacted business exclusively under any other corporate or trade name in
any jurisdiction in the five-year period preceding the date hereof, other than
those listed on SCHEDULE 8.23.
1.4
1.5 YEAR 2000 COMPLIANCE. Borrower has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer
applications used by Borrower or any of its Subsidiaries (or its suppliers and
vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable (except to the extent that a failure to do so could not
reasonably be expected to constitute a Material Adverse Event). Borrower
reasonably believes that all computer applications (including those of its
suppliers and vendors) that are material to its or any of its Subsidiaries'
business and operations will on a timely basis be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "YEAR 2000 COMPLIANT"), except to the extent that a failure to do so
could not reasonably be expected to have Material Adverse Effect.
1.6
1.7 NO DEFAULT. No Default or Potential Default exists or will arise as a
result of any Borrowing hereunder.
1.8
1.9 FULL DISCLOSURE. There is no material fact or condition relating to
the Loan Documents or the financial condition, business, or property of any
Company or any Guarantor which could be a Material Adverse Event and which has
not been related, in writing, to Administrative Agent. All information
heretofore furnished by any Company or any Guarantor to any Lender or
Administrative Agent in connection with the Loan Documents was, and all such
information hereafter furnished by any Company or any Guarantor to any Lender
or Administrative Agent will be, true and accurate in all material respects or
based on reasonable estimates on the date as of which such information is
stated or certified.
1.10
2 SECTION COVENANTS. Borrower and each Guarantor covenant and agree to perform,
observe, and comply with each of the following covenants, from the Closing Date
and so long thereafter as Lenders are committed to fund Borrowings and
thereafter until the payment in full of the Principal Debt and payment in full
of all other interest, fees, and other amounts of the Obligation then due and
owing, unless Borrower receives a prior written consent to the contrary by
Administrative Agent as authorized by Required Lenders:
3
3.1 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings only
for the purposes represented herein.
3.2
3.3 BOOKS AND RECORDS. The Companies shall maintain books, records, and
accounts necessary to prepare financial statements in accordance with GAAP.
3.4
3.5 ITEMS TO BE FURNISHED. Borrower shall cause the following to be
furnished to Administrative Agent for delivery to Lenders:
3.6
(a) Promptly after preparation, and no later than 90 days after
the last day of each fiscal year of Borrower, Financial Statements
showing the consolidated and consolidating financial condition and
results of operations calculated for the Borrower on a consolidated
basis, as of, and for the year ended on, such day, each accompanied
by:
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(i) the unqualified opinion of a firm of
nationally-recognized independent certified public accountants, based
on an audit using generally accepted auditing standards, that such
Financial Statements were prepared in accordance with GAAP and present
fairly the consolidated financial condition and results of operations
of the Companies;
(i) with respect to the Financial Statements of the
Borrower on a consolidated basis, a certificate from such accounting
firm to Administrative Agent indicating that during its audit it
obtained no knowledge of any Default or Potential Default or, if it
obtained such knowledge, the nature and period of existence thereof;
and
(i) with respect to the Financial Statements of the
Companies, a Compliance Certificate.
(a) Promptly after preparation, and no later than 45 days after
the last day of each fiscal quarter of Borrower, Financial Statements
showing the consolidated financial condition and results of operations
calculated for the Borrower on a consolidated basis for such fiscal
quarter and for the period from the beginning of the then-current
fiscal year to, such last day, accompanied by a Compliance Certificate
with respect to such Financial Statements.
(a) Within 45 days after the end of each fiscal quarter of
Borrower, a management report, reflecting results of operations,
discussing the financial results and comparing actual performance
results to the Budget for such period, and outlining principal factors
affecting performances of the Borrower on a consolidated basis, all in
form and substance satisfactory to Administrative Agent.
(a) On or prior to March 31 of each fiscal year of Borrower, the
financial Budget for such fiscal year, accompanied by a certificate
executed by a Responsible Officer, certifying that (i) such Budget was
prepared by Borrower based on assumptions which, in light of the
historical performance of the Companies and their prospects for the
future, are realistic and achievable, and (ii) such Budget
demonstrates adequate liquidity to finance the Company's business plan
for the succeeding twelve-month period.
(a) Promptly upon receipt thereof, copies of all auditor's annual
management letters delivered to Borrower.
(a) Notice, promptly after Borrower knows or has reason to know
of (i) the existence and status of any Litigation which could be a
Material Adverse Event, or of any order or judgment for the payment of
money which (individually or collectively) is in excess of $5,000,000,
or any warrant of attachment, sequestration, or similar proceeding
against the assets of any Company having a value (individually or
collectively) of $5,000,000, (ii) any material change in any material
fact or circumstance represented or warranted in any Loan Document,
(iii) a Default or Potential Default specifying the nature thereof and
what action Borrower or any other Company has taken, is taking, or
proposes to take with respect thereto, (iv) the receipt by any Company
of any notice from any Governmental Authority of the expiration
without renewal, termination, material modification or suspension of,
or institution of any proceedings to terminate, materially modify, or
suspend, any Authorization granted by the FCC or any applicable PUC,
or any other Authorization which any Company is required to hold in
order to operate its business in compliance with all applicable Laws,
other than such expirations, terminations, suspensions, or
modifications which individually or in the aggregate would not
constitute a Material Adverse
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Event, (v) any federal, state, or local statute, regulation, or
ordinance or judicial or administrative order limiting or controlling
the operations of any Company which has been issued or adopted
hereafter and which is of material adverse importance or effect in
relation to the operation of any Company, (vi) the receipt by any
Company of notice of any violation or alleged violation of any
Environmental Law, which violation or alleged violation could
individually or collectively with other such violations or
allegations, constitute a Material Adverse Event, or (vii) (A) any
expressed statement in writing on the part of the PBGC of any
"prohibited transaction", or (B) the occurrence of an ERISA Event or
the incurrence of any liability by any Company or ERISA Affiliate with
respect to any ERISA Event, which ERISA Event or liabilities
(individually or in the aggregate with all other then existing ERISA
Events and related liabilities of the Companies and ERISA Affiliates)
could reasonably be expected to be a Material Adverse Event,
specifying the nature thereof and what action any Company or ERISA
Affiliate has taken, is taking, or proposes to take with respect
thereto and providing copies of (1) all notices from the PBGC
terminating or appointing a trustee for any Employee Plan, (2) all
notices of termination or reorganization from any sponsor of a
Multiemployer Plan, (3) all notices from any sponsor of a
Multiemployer Plan imposing withdrawal liability on any Company or
ERISA Affiliate, and (4) all notices from the PBGC regarding a
potential Reportable Event or a request for information to assess the
impact of any proposed transaction of Borrower or any of its ERISA
Affiliates.
(a) Promptly after any of the information or disclosures provided
on any of the Schedules delivered pursuant to this Agreement or any
Annexes to any of the Collateral Documents becomes outdated or
incorrect in any material respect, such revised or updated Schedule(s)
or Annexes as may be necessary or appropriate to update or correct
such information or disclosures; provided that, no deletions may be
made to any Annexes describing Collateral in any of the Collateral
Documents unless approved by Required Lenders; and further provided
that, in the case of updates to SCHEDULE 9.12 or SCHEDULE 8.15 (to the
extent a prohibition of assignment to Lenders requires consent), the
information thereon shall not be deemed accepted for purposes of this
Agreement or become part of the Loan Documents unless, approved by
Required Lenders
(a) Promptly after preparation, true, correct, and complete
copies of all material reports or filings filed by or on behalf of any
Company with any Governmental Authority (including the FCC and the
Securities and Exchange Commission).
(a) Promptly after the filing thereof, a true, correct, and
complete copy of each Form 10-K, Form 10-Q, and Form 8-K filed by or
on behalf of any Company with the Securities and Exchange Commission.
(a) Within 45 days after the end of each fiscal quarter of
Borrower, a listing for each Company of all tax audits or
investigations currently underway scheduled for the future, or
occurring during the immediately preceding quarter.
(a) Promptly upon request therefor by Administrative Agent or
Lenders, such information (not otherwise required to be furnished
under the Loan Documents) respecting the business affairs, assets, and
liabilities of the Companies, and such opinions, certifications, and
documents, in addition to those mentioned in this Agreement, as
reasonably requested.
1.1 INSPECTIONS. Upon reasonable notice, the Companies shall allow
Administrative Agent or any Lender (or their respective
Representatives) to inspect any of their properties, to review
reports, files, and other records and to make and take away copies
thereof, to conduct tests or investigations, and to discuss any of
their affairs, conditions, and finances with other creditors,
directors, officers, employees, other
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representatives, and independent accountants of the Companies, from
time to time, during reasonable business hours.
1.2
1.3 TAXES. Each Company (a) shall promptly pay when due any and all Taxes
other than Taxes the applicability, amount, or validity of which is being
contested in good faith by lawful proceedings diligently conducted, and against
which reserve or other provision required by GAAP has been made, and in respect
of which levy and execution of any Lien securing same have been, and continue
to be, stayed, (b) shall not, directly or indirectly, use any portion of the
proceeds of any Borrowing to pay the wages of employees unless a timely payment
to or deposit with the appropriate Governmental Authorities of all amounts of
Tax required to be deducted and withheld with respect to such wages is also
made, and (c) shall notify Lenders immediately if the Internal Revenue Service
or any other taxing authority assesses, through audit or investigation, any
Taxes of any kind due from any Company if such Taxes, when aggregated with all
other tax assessments as a result of any audit or investigation, are in excess
of $3,000,000.
1.4
1.5 PAYMENT OF OBLIGATIONS. PAYMENTS AND PREPAYMENTS ON OTHER DEBT.
Borrower shall pay the Obligation in accordance with the terms and provisions
of the Loan Documents. Each Company (a) shall promptly pay (or renew and
extend) all of its material obligations, other than obligations between the
Companies, as the same become due (unless such obligations [other than the
Obligation] are being contested in good faith by appropriate proceedings), and
(b) shall not (i) make any voluntary prepayment of principal of, or interest
on, any other Debt (other than the Obligation), whether subordinate to the
Obligation or not, or (ii) use proceeds from the Facilities to make any
voluntary prepayment of principal of, or interest on, or sinking fund payment
in respect of any Debt of any Company. Other than Permitted Refinancings
pursuant to SECTION 9.12(i), Borrower shall not make any voluntary prepayment
of any Subordinated Debt and shall not make any payment on any Subordinated
Debt in violation of the subordination provisions thereof or otherwise results
in a Default or Potential Default hereunder.
1.6
1.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Except as otherwise
permitted by SECTION 9.18, each Company shall at all times: (a) maintain its
existence and good standing in the jurisdiction of its organization and its
authority to transact business in all other jurisdictions where the failure to
so maintain its authority to transact business could be a Material Adverse
Event; (b) maintain all licenses, permits, and franchises necessary for its
business where the failure to so maintain could be a Material Adverse Event;
(c) keep all of its assets which are useful in and necessary to its business in
good working order and condition (ordinary wear and tear excepted) and make all
necessary repairs thereto and replacements thereof; and (d) do all things
necessary to obtain, renew, extend, and continue in effect all Authorizations
issued by the FCC or any applicable PUC which may at any time and from time to
time be necessary for the Companies and Guarantors to operate their businesses
in compliance with applicable Law, where the failure to so renew, extend, or
continue in effect could be a Material Adverse Event. Notwithstanding the
foregoing, Intermedia Licensing Company ("LICENSING") shall be permitted to
change its organization from a corporation to a limited liability corporation,
so long as Licensing reconfirms its representations, warranties, and
Obligations under the Loan Documents at the time of such reorganization,
executes all Collateral Documents requested by Lenders, and provides Lenders
with all corporate authorizations, formation agreements, and certificates as
Lenders deem necessary.
1.8
1.9 INSURANCE. The Companies shall, at their sole cost and expense, keep
and maintain the Collateral owned by such Company insured for its actual cash
value against loss or damage by fire, theft, explosion, flood, and all other
hazards and risks ordinarily insured against by other owners or users of such
properties in similar businesses of comparable size and notify Administrative
Agent promptly of any occurrence causing a material loss or decline in value of
the Collateral and the estimated (or actual, if available) amount of such loss
or decline. All policies of insurance on the Collateral shall be in a form,
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with such deductibles, and with insurers recognized as adequate by prudent
business Persons in the same businesses as the Companies and acceptable to
Administrative Agent, and all such policies shall be in such amount as may be
satisfactory to Administrative Agent. On the Closing Date and thereafter as
each policy is renewed and extended, the Companies shall deliver to
Administrative Agent a certificate of insurance for each such policy of
insurance and evidence of payment of all premiums therefor. On and after
February 15, 2000, or such earlier date as Lender's obtain Liens on assets of
the Companies (in addition to the Pledged Securities), such policies of
insurance and the certificates evidencing the same shall contain an
endorsement, in form and substance acceptable to Administrative Agent, showing
Administrative Agent (for the ratable benefit of Lenders) as a loss payee as
its interests may appear (subject to the rights of the holder of a Permitted
Lien) under a standard mortgagee clause. Such endorsement, or an independent
instrument furnished to Administrative Agent, shall provide that the insurance
companies will give Administrative Agent at least thirty (30) days prior
written notice before any such policy or policies of insurance shall be altered
(in any way which could adversely affect Lenders or the Collateral) or canceled
and that no act or default of any Company, or any other Person shall affect the
Right of Administrative Agent to recover under such policy or policies of
insurance in case of loss or damage. Upon the payment by the insurer of the
proceeds of any such policy of insurance and if no Default has occurred and is
continuing, the Company so insured may retain such insurance proceeds if such
proceeds are used to repair or replace the property the damage or destruction
of which gave rise to the payment of such insurance proceeds or reinvest the
proceeds in a Telecommunications Asset within 180 days; provided, however, that
any insurance proceeds not used for repair or replacement in accordance
herewith, unless paid as reimbursement of expenses incurred and business losses
suffered in connection with the loss or damage to the Collateral, shall be paid
to or retained by Administrative Agent for application as a mandatory
prepayment on the Obligation.
1.10
1.11 PRESERVATION AND PROTECTION OF RIGHTS. Each Company shall perform
such acts and duly authorize, execute, acknowledge, deliver, file, and record
any additional agreements, documents, instruments, and certificates as
Administrative Agent or Required Lenders may reasonably deem necessary or
appropriate in order to preserve and protect the Rights of Administrative Agent
and Lenders under any Loan Document.
1.12
1.13 EMPLOYEE BENEFIT PLANS. The Companies shall not, directly or
indirectly, engage in any "prohibited transaction" with respect to any Employee
Plan or Multiemployer Plan (as defined in Section 406 of ERISA or Section 4975
of the Code), and neither the Companies nor their respective ERISA Affiliates
shall permit any of the events or circumstances described in SECTION 8.10 to
exist or occur.
1.14
1.15 ENVIRONMENTAL LAWS. Each Company shall (a) conduct its business so as
to comply with all applicable Environmental Laws and shall promptly take
corrective action to remedy any non-compliance with any Environmental Law, and
(b) promptly investigate and remediate any known Release or threatened Release
of any Hazardous Substance on any property owned by any Company or at any
facility operated by any Company to the extent and degree necessary to comply
with Law and to assure that any Release or threatened Release does not result
in a substantial endangerment to human health or the environment.
1.1 DEBT AND GUARANTIES. No Company shall, directly or indirectly,
create, incur, or suffer to exist any direct, indirect, fixed, or contingent
liability for any Debt, other than:
1.2
(a) The Obligation and Guaranties thereof;
(a) Debt existing on the Closing Date as set forth on SCHEDULE
9.12 hereto;
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(a) Debt incurred by Borrower under any Financial Hedge required
by the Loan Documents or otherwise permitted by the Existing Senior
Notes and issued and maintained in accordance with the requirements of
the Loan Documents;
(a) Debt between Borrower and any Guarantor or between
Guarantors;
(a) Trade accounts payable which are for goods furnished or
services rendered in the ordinary course of business for value
received and are payable in accordance with customary trade terms;
(a) Endorsements of checks or drafts in the ordinary course of
business;
(a) Unsecured Subordinated Debt of Borrower (or Digex, which
shall be subordinated to the Guaranty on terms and conditions
acceptable to Lenders, including without limitation, the terms,
conditions, and limitations set forth below and in no event to exceed
$200,000,000) incurred on and after the Closing Date and not otherwise
permitted under this SECTION 9.12; provided that, (i) so long as the
Total Leverage Ratio of the Companies is greater than 5.00 to 1.00,
the aggregate principal amount of all such Subordinated Debt (of
Borrower or Digex as the case may be) incurred on and after the
Closing Date may not exceed the difference between $750,000,000 and
the aggregate principal amount of all New Senior Notes, if any, issued
pursuant to SECTION 9.12(h); (ii) at the time of any such Subordinated
Debt incurrence or borrowing thereunder, no Default or Potential
Default then exists or arises; (iii) the provisions of the documents
evidencing such Subordinated Debt are not more restrictive (as
reasonably determined by Administrative Agent) than the provisions of
the Loan Documents, any Existing Senior Notes, or any Existing
Subordinated Notes, including, without limitation, any requirements
for mandatory prepayments or redemptions at any time where similar
payments are not required under the Loan Documents; (iv) the terms of
subordination thereunder are at least as favorable to Lenders as the
provisions in the Existing Subordinated Notes (as reasonably
determined by Administrative Agent); and (v) such Subordinated Debt
shall mature not less than two years after the final maturity of the
Facilities. At any time after the First Qualifying Date, so long as
the Total Leverage Ratio of the Companies is less than or equal to
5.00 to 1.00, and so long as the other conditions set forth in CLAUSES
(ii) through (v) above are met, Borrower (but not Digex) may incur an
unlimited amount of unsecured Subordinated Debt, subject to compliance
with SECTION 9.32.
(a) On and after the Second Qualifying Date, additional unsecured
Debt of Borrower arising under publicly or privately placed notes,
debentures, or debt securities and not otherwise permitted under this
SECTION 9.12 (collectively, the "NEW SENIOR NOTES"), so long as (i)
the aggregate principal amount of all such New Senior Notes may not
exceed the difference between $750,000,000 and the aggregate principal
amount of all Subordinated Debt issued pursuant to SECTION 9.12(g);
(ii) at the time of any Debt incurrence under the New Senior Notes or
any borrowing thereunder, no Default or Potential Default then exists
or arises; (iii) the provisions of the documents evidencing the New
Senior Notes are not more restrictive (as reasonably determined by
Administrative Agent) than the provisions of the Loan Documents, the
Existing Senior Notes, or the Existing Subordinated Notes, including,
without limitation, any requirements for mandatory prepayments or
redemptions at any time where similar payments are not required under
the Loan Documents; and (iv) such Debt under the New Senior Notes
shall mature not less than two years after the final maturity of the
Facilities.
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(a) Any (i) refinancings of the Existing Senior Notes, (ii)
refinancings of any Subordinated Debt incurred in accordance with
SECTION 9.12(g) on and after the First Qualifying Date, or (iii)
refinancings on and after the Second Qualifying Date, of any Debt
under New Senior Notes incurred in accordance with SECTION 9.12(h), so
long as any such refinanced Debt (A) in the case of the Subordinated
Debt incurred in accordance with SECTION 9.12(G), provides for
subordination terms at least as favorable to Lenders as the
Subordinated Debt being refinanced (as reasonably determined by
Administrative Agent), (B) does not provide for more restrictive
covenants or events of default than the Debt being refinanced (as
reasonably determined by Administrative Agent), (C) does not require
more frequent payments of interest than the Debt being refinanced, (D)
does not mature earlier than the final maturity of the Debt being
refinanced, and (E) has a weighted average life to maturity equal to,
or greater than, the weighted average life to maturity of the Debt
being so refinanced (collectively, the "PERMITTED REFINANCINGS"); and
(a) Debt arising under Capital Leases not to exceed $25,000,000
in the aggregate on any date of determination at all times prior to
the First Qualifying Date, and $50,000,000 in the aggregate on any
date of determination at all times thereafter.
(a) Debt arising under Capital Leases of Digex related to data
center facility space not to exceed $150,000,000 in the aggregate on
any date of determination.
(a) Debt arising under Capacity Purchase Agreements not to exceed
$300,000,000 in the aggregate on any date of determination.
(a) Performance bonds or guaranties posted in the ordinary course
of business whereby Borrower or any Guarantor posts a bond or guaranty
supporting the performance of any other Guarantor or Borrower.
(a) Debt incurred or assumed by any Company for the purpose of
financing all or any part of the cost of any asset (including
renewals, extensions, amendments, and modifications of such Debt), so
long as (i) the aggregate amount of such Debt (together with any and
all amendments, modifications, or refinancings thereof) not to exceed
$10,000,000 in the aggregate on any date of determination, and (ii) no
Default or Potential Default then exists or arises as a result of such
Debt incurrence.
(a) Other unsecured Debt or letters of credit constituting Debt
of Borrower or any Guarantor not to exceed $10,000,000 in the
aggregate on any date of determination.
1.1 LIENS. No Company will, directly or indirectly, (a) enter into or
permit to exist any arrangement or agreement which directly or indirectly
prohibits any Company from creating or incurring any Lien on any of its assets,
other than the Loan Documents, or (b) create, incur, or suffer or permit to be
created or incurred or to exist any Lien upon any of its assets, except:
1.2
(i) Liens securing the Obligation and, to the extent permitted by
this Agreement, the Existing Senior Notes, Existing Subordinated
Notes, and any permitted issuances of Debt pursuant to SECTION 9.12,
Liens securing Debt incurred by any Company or Guarantor under any
Financial Hedge with any Lender or an Affiliate of any Lender to the
extent permitted under SECTION 9.12(c), so long as the Obligation is
ratably secured therewith;
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(i) Pledges or deposits made to secure payment of worker's
compensation, or to participate in any fund in connection with
worker's compensation, unemployment insurance, pensions, or other
social security programs;
(i) Good-faith pledges or deposits made to secure performance of
bids, tenders, insurance or other contracts (other than for the
repayment of borrowed money), or leases, or to secure statutory
obligations, surety or appeal bonds, or indemnity, performance, or
other similar bonds as all such Liens arise in the ordinary course of
business of the Companies and Guarantors;
(i) Encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, none of which impair
in any material respect the use of such property by the Person in
question in the operation of its business, and none of which is
violated by existing or proposed structures or land use;
(i) Liens of landlords or of mortgagees of landlords, arising
solely by operation of law, on fixtures and movable property located
on premises leased in the ordinary course of business; and
(i) The following, so long as the validity or amount thereof is
being contested in good faith and by appropriate and lawful
proceedings diligently conducted, reserve or other appropriate
provisions (if any) required by GAAP shall have been made, levy and
execution thereon have been stayed and continue to be stayed, and they
do not in the aggregate materially detract from the value of the
property of the Person in question, or materially impair the use
thereof in the operation of its business: (A) claims and Liens for
Taxes (other than Liens relating to Environmental Laws or ERISA); (B)
claims and Liens upon, and defects of title to, real or personal
property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute of the merits;
and (C) claims and Liens of mechanics, materialmen, warehousemen,
carriers, landlords, or other like Liens.
(i) Liens existing on the Closing Date, so long as such Liens are
described on SCHEDULE 9.13.
(i) Liens arising under Capital Leases which are permitted under
SECTION 9.12(J) or SECTION 9.12(k).
(i) Liens arising under Capacity Purchase Agreements which are
permitted under SECTION 9.12(l).
(i) Liens securing Permitted Debt incurred pursuant to SECTION
9.12(n), so long as (x) any such Lien does not extend to any asset
other than the asset purchased or financed by such Debt, and (y) any
such Lien attaches to such asset concurrently with or within 180 days
of the related asset acquisition.
1.1 LOANS, ADVANCES, AND INVESTMENTS. No Company shall make any loan,
advance, extension of credit, or capital contribution to, make any investment
in, or purchase or commit to purchase any stock or other securities or
evidences of Debt of, or interests in, any other Person, other than the
following so long as no Default or Potential Default exists or arises as a
result of any such loan, advance, or investment:
1.2
(a) Investments in Cash Equivalents;
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(a) Loans, advances, extensions of credit, capital contributions,
and other investments between Borrower and any Guarantor or between
Guarantors;
(a) Permitted Acquisitions;
(a) Trade accounts receivable which are for goods furnished or
services rendered in the ordinary course of business and are payable
in accordance with customary trade terms;
(a) Any loan, advance, extension of credit, capital contribution,
commitment to invest, or investment existing on the Closing Date as
set forth on SCHEDULE 9.14 hereto;
(a) Other investments or commitments to make investments in
Telecommunications Assets or Telecommunications Businesses ("SPECIAL
INVESTMENTS"), so long as each such Special Investment does not exceed
the following limitations, determined as of the date such Special
Investment is to be made (each, an "INVESTMENT DATE") and after giving
effect to such Special Investment, and so long as on or prior to the
Investment Date for any such Special Investment, Borrower provides
Administrative Agent a certificate and related pro forma calculations
demonstrating and confirming that the aggregate amount of Special
Investments made during the term of this Agreement shall not exceed
$50,000,000 (and, to the extent requested by Administrative Agent,
evidence that no approval of any Governmental Authority is required
which has not been obtained; provided that, solely for the purposes of
this CLAUSE (F), expenditures classified by any Company as a "Capital
Expenditure" in accordance with GAAP would not be included as a
"Special Investment" hereunder;
(a) Financial Hedges required by the Loan Documents or otherwise
permitted by the Existing Senior Notes, and issued and maintained in
accordance with the requirements of the Loan Documents; and
(a) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation,
performance and other similar deposits.
(a) Permitted Distributions under SECTION 9.15.
(a) Loans or advances to any Companies' directors, officers, and
employees not to exceed $1,000,000 in the aggregate for all Companies
at any time outstanding.
1.1 DISTRIBUTIONS. No Company may directly or indirectly declare, make,
or pay any Distribution, other than, so long as no Default or Potential Default
then exists or arises:
1.2
(a) Distributions declared, made, or paid by Borrower wholly in
the form of its preferred or common capital stock;
(a) Distributions by any Company to Borrower or any other
Domestic Subsidiary of Borrower;
(a) Distributions made by any Company in the form of
regularly-scheduled cash dividends on any Preferred Stock of the
Borrower, so long as the Total Leverage Ratio is less than or equal to
5.00 to 1.00.
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(a) Redemption or conversion of any Preferred Stock declared,
made, or paid wholly in the form of non-voting or voting common stock
of Borrower; and
(a) Conversions of any Preferred Stock into Debt to the extent
such Debt incurrence is permitted pursuant to SECTION 9.12.
Notwithstanding the foregoing, Distributions are permitted hereunder only to
the extent such or Distribution is made in accordance with applicable Law and
constitutes a valid, non-voidable transaction.
1.1 SALE OF ASSETS. No Company shall sell, assign, transfer, or otherwise
dispose of any of its assets, other than:
1.2
(a) Sales of inventory in the ordinary course of business;
(a) The sale, discount, or transfer of delinquent accounts
receivable in the ordinary course of business for purposes of
collection;
(a) Occasional sales of immaterial assets for consideration not
less than the fair market value thereof;
(a) So long as no Default or Potential Default then exists or
arises, dispositions in the ordinary course of business of obsolete
assets and worn-out or surplus equipment;
(a) Sales, leases, or other dispositions between Borrower and any
Guarantor or among Guarantors;
(a) If no Default or Potential Default then exists or arises as a
result thereof, sales of other assets in the ordinary course of
business; and
(a) If no Default or Potential Default then exists or arises,
sales or grants of the capital stock or stock options of Digex,
Incorporated ("DIGEX") to third party investors or employees, as
applicable, so long as, in either case, after giving effect to any
such stock sales or transfers, Digex continues (i) to be a
consolidated Subsidiary of Borrower in accordance with GAAP and a
Guarantor hereunder and (ii) for Borrower to have controlling voting
interests necessary to approve Debt incurrence issues and other
fundamental changes to this Agreement and the Guaranty; and
(a) If no Default or Potential Default then exists or arises as a
result thereof, sales (including, without limitation, the sale of the
stock of any Subsidiary of any Company or the sale of substantially
all of the assets of any division or line of business of any Company)
other than in the ordinary course of business, so long as (i) the
aggregate Net Cash Proceeds from all such asset sales consummated
during any fiscal year shall not exceed (A) prior to the First
Qualifying Date, $25,000,000 if the Total Leverage Ratio is greater
than 5.00 to 1.00 or $100,000,000 if the Total Leverage Ratio is less
than or equal 5.00 to 1.00, or (B) on and after the First Qualifying
Date, $50,000,000 if the Total Leverage Ratio is greater than 5.00 to
1.00 or $250,000,000 if the Total Leverage Ratio is less than or equal
to 5.00 to 1.00; (ii) the consideration received from any such sale
shall be in an amount at least equal to the fair market value of the
assets so sold; (iii) at least 85% of the consideration received for
the assets so sold shall be paid in cash (provided that, for purposes
of this CLAUSE (iii), "cash consideration" may include liabilities,
notes, obligations, or other securities received by any Company in
connection with such asset sale, so long as such
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liabilities, notes, obligations, or other securities are converted
into cash on the same Business Day as such asset sale is consummated
and shall include any Telecommunications Assets received as
consideration for any asset sales to the extent permitted under the
Existing Senior Notes and Existing Subordinated Notes); and (iv) to
the extent required by SECTION 2.4(b) or SECTION 3.2, the Net Cash
Proceeds from such asset sale shall be applied as a mandatory
commitment reduction and prepayment in accordance with the Loan
Documents.
1.1 SALE-LEASEBACK FINANCINGS. No Company will enter into any
sale-leaseback arrangement with any Person, other than another Company,
pursuant to which such Company shall lease any asset (whether now owned or
hereafter acquired) if such asset has been or is to be sold or transferred by
any Company to any other Person.
1.2
1.3 MERGERS AND DISSOLUTIONS; SALE OF CAPITAL STOCK. No Company will,
directly or indirectly, merge or consolidate with any other Person, other than
(a) as a result of a Permitted Acquisition, (b) mergers or consolidations
involving Borrower if Borrower is the surviving entity, (c) mergers among
Wholly-owned Companies; provided that, in any merger involving Borrower
(including a Permitted Acquisition effected as a merger), Borrower must be the
surviving entity, and, in any merger involving any other Company (including a
Permitted Acquisition effected as a merger), a Company must be the surviving
entity. No Company shall liquidate, wind up, or dissolve (or suffer any
liquidation or dissolution), other than liquidations, wind ups, or dissolutions
incident to mergers permitted under this SECTION 9.18. No Company may sell,
assign, lease, transfer, or otherwise dispose of the capital stock (or other
ownership interests) of any other Company, except for sales, leases, transfers,
or other such distributions to another Company or as permitted pursuant to and
in accordance with SECTIONS 9.15 and 9.16(g).
1.4
1.5 RESTRICTIONS ON SUBSIDIARIES. No Subsidiary of Borrower nor any
Guarantor shall enter into or permit to exist any material arrangement or
agreement (other than the Loan Documents) which directly or indirectly
prohibits any such Subsidiary from (a) declaring, making, or paying, directly
or indirectly, any Distribution to Borrower or any other Company, (b) paying
any Debt owed to Borrower or any other Company, (c) making loans, advances, or
investments to Borrower or any other Company, or (d) transferring any of its
property or assets to Borrower or any other Company.
1.6
1.7 COMPLIANCE WITH LAWS AND DOCUMENTS. No Company shall violate the
provisions of any Laws applicable to it, including, without limitation, all
rules and regulations promulgated by the FCC or any applicable PUC, or any
material written or oral agreement, contract, commitment, or understanding to
which it is a party, if such violation alone, or when aggregated with all other
such violations, could be a Material Adverse Event.
1.8
1.9 GOVERNMENT REGULATIONS. No Company will conduct its business in such
a way that it will become subject to regulation under the Investment Company
Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as
amended, or any other Law (other than Regulations T, U, and X of the Board of
Governors of the Federal Reserve System and the requirements of any PUC or
public service commission) which regulates the incurrence of Debt.
1.10
1.11 TRANSACTIONS WITH AFFILIATES. No Company shall enter into any
material transaction with any of its Affiliates (excluding transactions among
or between Borrower and any Guarantor or among Guarantors), other than (i)
transactions in the ordinary course of business and upon fair and reasonable
terms not materially less favorable than such Company could obtain or could
become entitled to in an arm's-length transaction with a Person that was not
its Affiliate, (ii) as permitted under SECTION 9.14(j), (iii) as permitted
under SECTION 9.16(g)(i), and (iv) employee stock options permitted as Equity
Issuances.
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1.12
1.13 NEW BUSINESS. No Company will, directly or indirectly, permit or
suffer to exist any material change in the type of businesses in which it is
engaged from the businesses of the Companies as conducted on the Closing Date.
1.14
1.15 PERMITTED ACQUISITIONS, SUBSIDIARY GUARANTIES, AND COLLATERAL
DOCUMENTS. In connection with each Permitted Acquisition, Borrower shall
deliver, or cause to be delivered to, Administrative Agent each of the items
described on SCHEDULE 7.2, on or before the date specified on such Schedule for
each such item. Borrower shall cause each Domestic Subsidiary that becomes a
Domestic Subsidiary of Borrower or any Guarantor after the Closing Date
(whether as a result of Acquisition, merger, creation, or otherwise), (a) to
execute a Guaranty on the date such entity becomes a Domestic Subsidiary of
Borrower or any Guarantor and promptly deliver (but in no event later than 10
days following consummation of such creation, Acquisition, or merger) such
Guaranty to Administrative Agent and (b) to execute and deliver to
Administrative Agent (as soon as possible, but in no event later than 45 days
following consummation of such creation, Acquisition, or merger) all required
Collateral Documents creating Liens in favor of Administrative Agent on all the
assets of such Domestic Subsidiary. To the extent any Authorization issued by
any FCC or PUC is acquired by Borrower or any Domestic Subsidiary (whether
pursuant to a Permitted Acquisition or otherwise), Borrower shall transfer or
shall cause any other Company to transfer any such Authorization to the License
Company.
1.16
1.17 FISCAL YEAR AND ACCOUNTING METHODS. No Company will change its fiscal
year for book accounting purposes or its method of accounting, other than (a)
immaterial changes in methods or as required by GAAP, or (b) in connection with
a Permitted Acquisition, such changes to the newly-acquired entity so as to
conform its fiscal year and its method of accounting to those of the Companies.
1.18
1.19 FINANCIAL HEDGES.
1.20
(a) The Companies shall, within 60 days from the date hereof,
enter into Financial Hedges in a form and upon terms acceptable to
Administrative Agent, issued by one or more Lenders or an institution
reasonably acceptable to Administrative Agent with a duration of a
period of at least two years, which, together with the aggregate
principal amounts outstanding under the Existing Senior Notes, ensure
that the net interest cost to Borrower is fixed, capped, or hedged
with respect to at least fifty percent (50%) of the Total Debt of the
Companies outstanding on the Closing Date; provided, however, that the
protected rate shall be no greater than 2.5% above the all-in rate on
the Closing Date hereof.
(a) To the extent permitted by this Agreement, the Existing
Senior Notes, Existing Subordinated Notes, and any permitted issuances
of Debt pursuant to SECTION 9.12, to the extent any Lender or its
Affiliate issues a Financial Hedge to any Company, including, without
limitation, any Financial Hedges with Lenders or their Affiliates
obtained in satisfaction of the requirements of SECTION 9.26(a), such
Lender or its Affiliate are afforded the benefits of (and Borrower [or
any Company by execution of Collateral Documents] hereby confirms a
grant of) Liens in and to the Collateral as evidenced by the
Collateral Documents to the extent of such Lender's (or Affiliate
thereof's) credit exposure under such Financial Hedge; such Lien is
pari passu with that of Administrative Agent on behalf of the Lenders.
(a) Financial Hedges held by any Company whether in satisfaction
of the requirements of this SECTION 9.26 or as otherwise permitted by
the Loan Documents, shall be subject to the following: (i) each such
Lender or other institution issuing a Financial Hedge shall calculate
its credit exposure in a reasonable and customary manner; (ii) all
documentation for such Financial
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Hedge shall conform to ISDA standards and must be acceptable to
Administrative Agent with respect to intercreditor issues; (iii) to
the extent permitted by this Agreement, the Existing Senior Notes,
Existing Subordinated Notes, and any permitted issuances of Debt
pursuant to SECTION 9.12, if issued by any Lender or any Affiliate of
a Lender to Borrower, the credit exposure under such Financial Hedge
shall be secured by Liens in and to the Collateral as evidenced by the
Collateral Documents on a pari passu basis with the Liens of
Administrative Agent (held for the benefit of Lenders), and such
Lender or Affiliate issuing a Financial Hedge shall, by acceptance of
the benefits of such Liens in the Collateral agree to the provisions
of SECTION 12.11; and (iv) such Financial Hedge shall be incurred in
the ordinary course of business and consistent with prior business
practices of the Companies and not for speculative purposes.
1.1 ASSIGNMENT. No Company shall assign or transfer any of its Rights,
duties, or obligations under any of the Loan Documents.
1.2
1.3 AFFILIATE SUBORDINATION AGREEMENTS. Borrower and each Guarantor
shall, simultaneously with the creation of any and all future Debt of Borrower
or any Guarantor to any one or more Affiliates, other than any Company, cause
the appropriate Affiliate or Affiliates to execute and deliver to
Administrative Agent an agreement, substantially in the form of EXHIBIT H,
subordinating the payment of such Debt to the payment of the Obligation.
1.4
1.5 YEAR 2000. Borrower will promptly notify Administrative Agent in the
event Borrower discovers or determines that any computer application (including
those of its suppliers and vendors) that is material to its or any of its
Subsidiaries' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
1.6
1.7 AMENDMENTS TO DOCUMENTS. Without first obtaining Required Lenders'
prior written consent, no Company shall (a) amend or permit any amendments to
any Company's Articles of Incorporation or Bylaws as in effect on the date of
this Agreement, if such action could adversely affect the Rights of Lenders or
have a Material Adverse Effect; (b) amend or modify (or permit any amendments
or modifications) any Material Contract, if such action could adversely affect
the Rights of Lenders or otherwise have a Material Adverse Effect; or (c) amend
any provisions of any Subordinated Debt, Senior Debt, or other Debt arrangement
(i) if such amended provisions are materially more restrictive (as reasonably
determined by Administrative Agent) than the Loan Documents or the provisions
of the Debt instruments being revised, or (ii) if after giving effect thereto a
Default or Potential Default exists or arises under the Loan Documents.
1.8
1.9 MANAGEMENT FEES. No Company may pay (or permit to be paid) any
management fees (other than management fees payable to Borrower or other
Guarantors).
1.1 FINANCIAL COVENANTS. As calculated on a consolidated basis for the
Companies:
1.2
(a) Senior Secured Debt to Total Capitalization. At any date of
determination during the period from the Closing Date through June 30,
2001, Borrower shall never permit the ratio (expressed as a
percentage) of (i) Senior Secured Debt to (ii) Total Capitalization to
exceed 20%.
(a) Total Debt to Total Capitalization. At any date of
determination during the period from March 31, 2000 through June 30,
2001, Borrower shall never permit the ratio (expressed as a
percentage) of (i) Total Debt to (ii) Total Capitalization to exceed
64.0%.
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(a) Minimum Revenues. At any date of determination during the
period from the Closing Date through June 30, 2001, Borrower shall
never permit the Revenues to be less than the following amounts shown
in the table below which correspond to the applicable period in which
such determination is made:
===============================================================================
PERIOD MINIMUM REVENUE
===============================================================================
Closing Date to March 31, 2000 $ 825,000,000
April 1, 2000 to June 30, 2000 $ 875,000,000
July 1, 2000 to September 30, 2000 $ 925,000,000
October 1, 2000 to December 31, 2000 $1,000,000,000
January 1, 2001 to March 31, 2001 $1,075,000,000
April 1, 2001 to June 30, 2001 $1,150,000,000
===============================================================================
(a) Minimum Operating Cash Flow. During the period from the
Closing Date to June 30, 2001, Borrower shall never permit the
Operating Cash Flow of the Companies (determined on a consolidated
basis) to be less than the amounts show below which corresponds to the
applicable period in which such determinations are made:
===============================================================================
PERIOD MINIMUM OPERATING CASH FLOW
===============================================================================
Closing Date to March 31, 2000 $ 40,000,000
April 1, 2000 to June 30, 2000 $ 45,000,000
July 1, 2000 to September 30, 2000 $ 60,000,000
October 1, 2000 to December 31, 2000 $ 70,000,000
January 1, 2001 to March 31, 2001 $ 95,000,000
April 1, 2001 to June 30, 2001 $125,000,000
===============================================================================
(a) Senior Secured Debt to Annualized Operating Cash Flow. At any
date of determination, Borrower shall never permit the ratio of (i)
Senior Secured Debt to (ii) Annualized Operating Cash Flow, determined
on a quarterly basis on the last day of each fiscal quarter, to be
greater than (A) 5.00 to 1.0 for each fiscal quarter during the period
ending on September 30, 2001; and (B) 4.50 to 1.0 for each fiscal
quarter from October 1, 2001, to December 31, 2001; and (C) 3.50 to
1.00 for each fiscal quarter during the period from January 1, 2002 to
December 31, 2002; and (D) 2.50 to 1 for each fiscal quarter ending
after January 1, 2003.
(a) Total Debt to Annualized Operating Cash Flow. Borrower shall
never permit the ratio of (i) Total Debt to (ii) Annualized Operating
Cash Flow, determined on a quarterly basis on the last day of each
fiscal quarter, to be greater than the ratio shown in the table below
which corresponds to the applicable period in which such quarter
occurs:
===============================================================================
PERIOD RATIO
===============================================================================
July 1, 2001 to September 30, 2001 15.00 to 1
- -------------------------------------------------------------------------------
October 1, 2001 to December 31, 2001 14.50 to 1
- -------------------------------------------------------------------------------
January 1, 2002 to June 30, 2002 13.50 to 1
- -------------------------------------------------------------------------------
July 1, 2002 to December 31, 2002 11.50 to 1
- -------------------------------------------------------------------------------
January 1, 2003 to June 30, 2003 9.50 to 1
- -------------------------------------------------------------------------------
July 1, 2003 to December 31, 2003 8.00 to 1
- -------------------------------------------------------------------------------
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January 1, 2004 to June 30, 2004 7.00 to 1
- -------------------------------------------------------------------------------
July 1, 2004 to December 31, 2004 6.00 to 1
- -------------------------------------------------------------------------------
January 1, 2005 to June 30, 2005 5.50 to 1
- -------------------------------------------------------------------------------
Thereafter 5.00 to 1
===============================================================================
(a) Interest Coverage. Borrower shall never permit the Interest
Coverage Ratio of the Companies to be less than or equal to the ratio
shown in the table below which corresponds to the applicable period in
which such determination is made:
===============================================================================
PERIOD INTEREST COVERAGE RATIO
===============================================================================
October 1, 2001 to December 31, 2001 1.00 to 1
- -------------------------------------------------------------------------------
January 1, 2002 to December 31, 2002 1.15 to 1
- -------------------------------------------------------------------------------
January 1, 2003 to December 31, 2003 1.50 to 1
- -------------------------------------------------------------------------------
Thereafter 2.00 to 1
===============================================================================
(a) Capital Expenditures. Borrower shall not make, nor permit any
Company to make, any Capital Expenditures that would cause the
aggregate Capital Expenditures made by the Companies in any fiscal
year to exceed the amount set forth below which corresponds to the
applicable fiscal year; provided, however, if at the end of any fiscal
year the amount specified below for Capital Expenditures in such
fiscal year exceeds the actual amount of Capital Expenditures made by
the Companies in such fiscal year (the amount of such excess being
herein referred to as the "EXCESS AMOUNT"), then the Companies shall
be entitled to increase the amount of permitted Capital Expenditures
for the succeeding fiscal year by an amount equal to 100% of such
Excess Amount, provided, that, in no event shall the total permitted
Capital Expenditure in any fiscal year exceed the amount set forth in
the table below by more than 50%:
===============================================================================
FISCAL YEAR PERMITTED CAPITAL EXPENDITURES
===============================================================================
2000 $575,000,000
- -------------------------------------------------------------------------------
2001 $375,000,000
- -------------------------------------------------------------------------------
2002 $300,000,000
- -------------------------------------------------------------------------------
2003 $275,000,000
- -------------------------------------------------------------------------------
2004 and thereafter $250,000,000
===============================================================================
1.1 REGULATORY MATTERS; LICENSE COMPANY. On or prior to January 31, 2000,
Borrower shall deliver to Administrative Agent evidence, in form and substance
reasonably satisfactory to Administrative Agent and its counsel, demonstrating
that (a) the Companies have filed all necessary applications and, where
necessary, requests for approval, with the PUCs listed on SCHEDULE 1 to obtain
all necessary Special Regulatory Approvals with respect to the Companies'
incurrence of Debt under the Loan Documents and the related pledge of
Collateral, including, without limitation, the stock of all Domestic
Subsidiaries of Borrower; (b) the Companies have filed all necessary
applications, and where necessary, requests for approval, with the FCC and the
PUCs listed on SCHEDULE 9.33, regarding the transfer of all FCC and PUC
Authorizations owned by Borrower or any Company to a Wholly-owned
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Subsidiary of Borrower (collectively, the "TRANSFER APPROVALS"), which
Subsidiary has and will have no other assets, other than the Authorizations
transferred to such entity by the Companies and certain contracts, agreements,
or other assets that are required by the FCC or a PUC to be held in the same
entity as the entity holding the Authorizations (the "LICENSE COMPANY") and
which License Company shall execute a Guaranty and all necessary Collateral
Documents as required by, and in accordance with, SECTION 6 of this Agreement;
and (c) the License Company has been duly formed and incorporated and is
qualified to do business in each jurisdiction where the nature and extent of
its business so requires. Borrower shall (and shall cause each Company to) use
diligent efforts to obtain the Special Regulatory Approvals and the Transfer
Approvals and to transfer each Company's FCC and PUC Authorizations to the
License Company. Until such time as all such approvals have been obtained and
all such Authorizations have been transferred to License Company, Borrower
shall deliver to Administrative Agent a monthly report detailing the status of
each application for Special Regulatory Approvals and Transfer Approvals and
the status of the transfers of Authorizations to License Company.
Notwithstanding any contrary provisions of the Loan Documents, License Company
may not incur any Debt or create or permit to be created any Lien on its
assets, other than the Obligation and the Liens created by the Collateral
Documents.
1SECTION DEFAULT. The term "DEFAULT" means the occurrence of any one or more of
the following events:
2
2.1 PAYMENT OF OBLIGATION. The failure or refusal of any Company to pay
(a) all or any part of the Principal Debt when the same becomes due (whether by
its terms, by acceleration, or as otherwise provided in the Loan Documents);
(b) any other part of the Obligation on or before five calendar days after the
due date; and (c) the indemnifications and reimbursement obligations provided
for in the Loan Documents after demand therefor.
1.1 COVENANTS. The failure or refusal of Borrower (and, if applicable,
any other Company) to punctually and properly perform, observe, and comply
with:
1.2
(a) Any covenant, agreement, or condition contained in SECTIONS
9.1, 9.3(a),(b), AND (f), 9.4, 9.6, 9.10, 9.12, 9.14 through 9.19,
9.22, 9.24, 9.27, 9.32, and 9.33; and
(a) Any other covenant, agreement, or condition contained in any
Loan Document (other than the covenants to pay the Obligation set
forth in SECTION 10.1 and the covenants in SECTION 10.2(a)), and such
failure or refusal continues for 30 days.
1.1 DEBTOR RELIEF. Borrower or any other Company (a) shall not be
Solvent, (b) fails to pay its Debts generally as they become due, (c)
voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor
Relief Law, other than as a creditor or claimant, or (d) becomes a party to or
is made the subject of any proceeding provided for by any Debtor Relief Law,
other than as a creditor or claimant, that could suspend or otherwise adversely
affect the Rights of Administrative Agent or any Lender granted in the Loan
Documents (unless, in the event such proceeding is involuntary, the petition
instituting same is dismissed within 30 days after its filing).
1.2
1.3 JUDGMENTS AND ATTACHMENTS. Any Company fails, within 30 days after
entry, to pay, bond, or otherwise discharge any judgment or order for the
payment of money in excess of $5,000,000 (individually or collectively) or any
warrant of attachment, sequestration, or similar proceeding against any
Company's assets having a value (individually or collectively) of $5,000,000
which is not stayed on appeal.
1.4
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1.5 GOVERNMENT ACTION. (a) A final non-appealable order is issued by any
Governmental Authority, including, but not limited to, the FCC or the United
States Justice Department, seeking to cause any Company to divest a significant
portion of its assets pursuant to any antitrust, restraint of trade, unfair
competition, industry regulation, or similar Laws, or (b) any Governmental
Authority shall condemn, seize, or otherwise appropriate, or take custody or
control of all or any substantial portion of the assets of any Company.
1.6
1.7 MISREPRESENTATION. Any representation or warranty made by any Company
contained in any Loan Document shall at any time prove to have been incorrect
in any material respect when made.
1.8
1.9 CHANGE OF CONTROL. The occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the
Companies, taken as a whole, to any Person or group (as such term is used in
Section 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the adoption of a plan
relating to the liquidation or dissolution of Borrower, (iii) any Person or
group (as defined above) is or becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the total Voting Stock or Total Common Equity
of Borrower, including by way of merger, consolidation or otherwise, (iv) the
first day on which a majority of the members of the board of directors of
Borrower are not Continuing Directors, and (v) Borrower ceases to own directly
or indirectly 100% of the voting control of the other Companies, except as
permitted by SECTION 9.16 and SECTION 9.18, or, in the case of Digex, reduce
its current ownership except as permitted in SECTION 9.16.
1.10
1.11 AUTHORIZATIONS. (a) Any Authorization necessary for the ownership or
operations of any Company shall expire (the effect of which would be or could
reasonably be expected to affect materially and adversely the operations of
Borrower or any other Company), and on or prior to such expiration, the same
shall not have been renewed or replaced by another Authorization authorizing
substantially the same operations by such Company or another Company; or (b)
any Authorization necessary for the ownership or operations of any Company
shall be canceled, revoked, terminated, rescinded, annulled, suspended, or
modified in a materially adverse respect, or shall no longer be in full force
and effect, or the grant or the effectiveness thereof shall have been stayed,
vacated, reversed, or set aside (the effect of which would be or could
reasonably be expected to affect materially and adversely the operations of
Borrower or any other Company); (c) Borrower or any other Company is required
by any Governmental Authority to halt construction or operations under any
Authorization (the effect of which would be or could reasonably be expected to
affect materially and adversely the operations of Borrower or any other
Company), and such action shall continue uncorrected for thirty (30) days after
the applicable entity has received notice thereof; or (d) if any Governmental
Authority shall make any other final non-appealable determination the effect of
which would be or could reasonably be expected to affect materially and
adversely the operations of Borrower or any other Company (taken as a whole) as
now conducted.
1.12
1.13 DEFAULT UNDER OTHER DEBT AND AGREEMENTS. (a) Any Company fails to pay
when due (after lapse of any applicable grace periods) any Debt of such Company
(other than the Obligation or Debt between or among Companies) in excess
(individually or collectively) of $5,000,000; (b) any default exists under any
agreement to which a Company is a party, the effect of which is to cause, or to
permit any Person (other than a Company) to cause, an amount of Debt of such
Company in excess (individually or collectively) of $5,000,000 to become due
and payable by any Company prior to the stated maturity thereof; (c) any Debt
in excess (individually or collectively) of $5,000,000 shall be declared to be
due and payable or required to be prepaid by any Company prior to the stated
maturity thereof; or (d) any default exists under any Material Agreement (other
than Material Agreements among or between Companies) to which a Company is a
party.
1.14
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1.15 VALIDITY AND ENFORCEABILITY OF LOAN DOCUMENTS. Any Loan Document
shall, at any time after its execution and delivery and for any reason, cease
to be in full force and effect in any material respect or be declared to be
null and void (other than in accordance with the terms hereof or thereof) or
the validity or enforceability thereof be contested by any Company thereto or
any Company shall deny in writing that it has any or any further liability or
obligations under any Loan Document to which it is a party.
1.16
1.17 MATERIAL ADVERSE EFFECT. If any event or condition shall exist which
constitutes a Material Adverse Event (other than a Potential Default) with
respect to the business, operations, properties, prospects, or financial
positions of the Borrower or any other Company.
1.18
1.19 ENVIRONMENTAL LIABILITY. If any event or condition shall occur or
exist with respect to any activity or substance regulated under the
Environmental Law and as a result of such event or condition, any Company, when
aggregated with any environmental liability for each other Company, shall have
incurred or in the opinion of the banks be reasonably likely to incur a
liability in excess of $5,000,000 liability during any consecutive twelve (12)
month period.
1.20
1.21 EMPLOYEE BENEFIT PLANS. (a) Any Company or ERISA Affiliate shall fail
to pay when due an amount or amounts for which it is liable under Title IV of
ERISA, which unpaid amounts exceed $5,000,000 in the aggregate; or (b) an ERISA
Event shall occur or exist with respect to any Employee Plan or Multiemployer
Plan, and as a result of such ERISA Event and all other ERISA Events
then-existing, the aggregate liabilities incurred (or in the reasonable
judgment of Required Lenders, likely to be incurred) of the Companies and the
ERISA Affiliates to any Employee Plan, Multiemployer Plan, or the PBGC (or any
combination thereof) shall exceed $5,000,000.
1.22
1.23 PLEDGED STOCK. If (a) Administrative Agent ceases to hold as
Collateral (for the benefit of Lenders) a perfected first priority Lien on (i)
all of the issued and outstanding shares of common stock of the Domestic
Subsidiaries issued to Borrower and any Domestic Subsidiary, and (ii) 65% of
the issued and outstanding shares of common stock of the Foreign Subsidiaries
issued to Borrower and any Domestic Subsidiary, and such failure is not cured
within five Business Days; or (b) any Collateral Document after delivery
thereof pursuant to SECTION 6 shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first priority Lien on and
security interest in the Collateral purported to be covered thereby, except as
permitted under the Loan Documents.
1.24
1.25 DISSOLUTION. Borrower or any other Company shall dissolve, liquidate,
or otherwise terminate their existence, except as permitted in SECTION 9.18.
1.26
1.27 PAYMENT OF CERTAIN OTHER AGREEMENTS. The payment directly or
indirectly (including, without limitation, any payment in respect of any
sinking fund, defeasance, redemption, or payment of any dividend or
distribution) by any Company of any amount of any Subordinated Debt, any Senior
Debt, or the Preferred Stock in a manner or at a time during which such payment
is not permitted under the terms of the Loan Documents, or under any instrument
or document evidencing or creating the Preferred Stock, any Senior Debt, or any
Subordinated Debt, including, without limitation, any subordination provisions
set forth therein.
1.28
1.29 DEFAULT OR ACCELERATION UNDER CERTAIN OTHER AGREEMENTS. (i) The
occurrence of any "default," "event of default," or other breach which remains
uncured on any date of determination under or with respect to any agreement
creating or evidencing any Senior Debt, Subordinated Debt, or Preferred Stock
(other than any [default] or breach of the Preferred Stock so long as the sole
remedy is the election of members of the board of directors constituting not
more than 20% of the then-existing
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board of directors); (ii) the trustee with respect to, or any holder of, the
Preferred Stock, the Senior Debt, or any Subordinated Debt shall effectively
declare all or any portion of such Debt or obligation thereunder due and
payable prior to the stated maturity thereof; or (iii) Debt under the Senior
Notes or any Subordinated Debt, or any obligations under the Preferred Stock,
becomes due before its stated maturity by acceleration of the maturity thereof.
1.30
1.31 REDEMPTION OF CERTAIN OTHER DEBT OR OBLIGATION. If an event shall
occur, including, without limitation, a "Change in Control" as defined in any
documents evidencing or creating the Existing Senior Notes, any New Senior
Notes, the Preferred Stock, or any agreement evidencing or creating the
Subordinated Debt, and (i) the trustee or the holders of any such Debt or
obligation shall initiate notice to request or require (or any Company shall
automatically be so required) to redeem or repurchase such Debt or obligation,
or (ii) any Company shall initiate notice to holders of the Subordinated Debt,
the holders of any Preferred Stock, or the holders of the Existing Senior Notes
or any New Senior Notes, in connection with a redemption of any Debt or
obligation arising under such agreements or instruments.
1 SECTION RIGHTS AND REMEDIES.
2
2.1 REMEDIES UPON DEFAULT .
2.2
(a) If a Default exists under SECTION 10.3(c) or 10.3(d), the
commitment to extend credit hereunder shall automatically
terminate and the entire unpaid balance of the Obligation
shall automatically become due and payable without any action
or notice of any kind whatsoever.
(a) If any Default exists, Administrative Agent may (and, subject
to the terms of SECTION 12, shall upon the request of
Required Lenders) or Required Lenders may, do any one or more
of the following: (i) if the maturity of the Obligation has
not already been accelerated under SECTION 11.1(a), declare
the entire unpaid balance of the Obligation, or any part
thereof, immediately due and payable, whereupon it shall be
due and payable; (ii) terminate the commitments of Lenders to
extend credit hereunder; (iii) reduce any claim to judgment;
(iv) to the extent permitted by Law, exercise (or request
each Lender to, and each Lender shall be entitled to,
exercise) the Rights of offset or banker's Lien against the
interest of Borrower and each other Guarantor in and to every
account and other property of such Companies which are in the
possession of Administrative Agent or any Lender to the
extent of the full amount of the Obligation (to the extent
permitted by Law, Borrower being deemed directly obligated to
each Lender in the full amount of the Obligation for such
purposes); and (v) exercise any and all other legal or
equitable Rights afforded by the Loan Documents, the Laws of
the State of New York, or any other applicable jurisdiction
as Administrative Agent shall deem appropriate, or otherwise,
including, but not limited to, the Right to bring suit or
other proceedings before any Governmental Authority either
for specific performance of any covenant or condition
contained in any of the Loan Documents or in aid of the
exercise of any Right granted to Administrative Agent or any
Lender in any of the Loan Documents.
1.1 COMPANY WAIVERS. To the extent permitted by Law, the Companies hereby
waive presentment and demand for payment, protest, notice of intention to
accelerate, notice of acceleration, and notice of protest and nonpayment, and
agree that their respective liability with respect to the Obligation (or any
part thereof) shall not be affected by any renewal or extension in the time of
payment of the Obligation (or any part thereof), by any indulgence, or by any
release or change in any security for the payment of the Obligation (or any
part thereof).
1.2 PERFORMANCE BY ADMINISTRATIVE AGENT. If any covenant, duty, or
agreement of any Company is not performed in accordance with the terms of the
Loan Documents, after the occurrence and during
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the continuance of a Default, Administrative Agent may, at their option (but
subject to the approval of Required Lenders), perform or attempt to perform
such covenant, duty, or agreement on behalf of such Company. In such event, any
amount expended by Administrative Agent in such performance or attempted
performance shall be payable by the Companies, jointly and severally, to
Administrative Agent on demand, shall become part of the Obligation, and shall
bear interest at the Default Rate from the date of such expenditure by
Administrative Agent until paid. Notwithstanding the foregoing, it is expressly
understood that Administrative Agent do not assume, and shall never have,
except by their express written consent, any liability or responsibility for
the performance of any covenant, duty, or agreement of any Company.
1.3
1.4 DELEGATION OF DUTIES AND RIGHTS. Lenders may perform any of their
duties or exercise any of their Rights under the Loan Documents by or through
their respective Representatives.
1.5
1.6 NOT IN CONTROL. Nothing in any Loan Document shall, or shall be
deemed to (a) give any Agent or any Lender the Right to exercise control over
the assets (including real property), affairs, or management of any Company,
(b) preclude or interfere with compliance by any Company with any Law, or (c)
require any act or omission by any Company that may be harmful to Persons or
property. Any "Material Adverse Event" or other materiality qualifier in any
representation, warranty, covenant, or other provision of any Loan Document is
included for credit documentation purposes only and shall not, and shall not be
deemed to, mean that any Agent or any Lender acquiesces in any non-compliance
by any Company with any Law or document, or that any Agent or any Lender does
not expect the Companies to promptly, diligently, and continuously carry out
all appropriate removal, remediation, and termination activities required or
appropriate in accordance with all Environmental Laws. The Agents and the
Lenders have no fiduciary relationship with or fiduciary duty to Borrower or
any Company arising out of or in connection with the Loan Documents, and the
relationship between the Agents and the Lenders, on the one hand, and Borrower
and the Companies, on the other hand, in connection with the Loan Documents is
solely that of debtor and creditor. The power of the Agents and Lenders under
the Loan Documents is limited to the Rights provided in the Loan Documents,
which Rights exist solely to assure payment and performance of the Obligation
and may be exercised in a manner calculated by the Agents and Lenders in their
respective good faith business judgment.
1.7
1.8 COURSE OF DEALING. The acceptance by Administrative Agent or Lenders
at any time and from time to time of partial payment on the Obligation shall
not be deemed to be a waiver of any Default then existing. No waiver by
Administrative Agent, Required Lenders, or Lenders of any Default shall be
deemed to be a waiver of any other then-existing or subsequent Default. No
delay or omission by Administrative Agent, Required Lenders, or Lenders in
exercising any Right under the Loan Documents shall impair such Right or be
construed as a waiver thereof or any acquiescence therein, nor shall any single
or partial exercise of any such Right preclude other or further exercise
thereof, or the exercise of any other Right under the Loan Documents or
otherwise.
1.9
1.10 CUMULATIVE RIGHTS. All Rights available to Administrative Agent and
Lenders under the Loan Documents are cumulative of and in addition to all other
Rights granted to Administrative Agent and Lenders at law or in equity, whether
or not the Obligation is due and payable and whether or not Administrative
Agent or Lenders have instituted any suit for collection, foreclosure, or other
action in connection with the Loan Documents.
1.11
1.12 APPLICATION OF PROCEEDS. Any and all proceeds ever received by
Administrative Agent or Lenders from the exercise of any Rights pertaining to
the Obligation shall be applied to the Obligation in the order and manner set
forth in SECTION 3.11.
1.13
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1.14 CERTAIN PROCEEDINGS. Borrower will promptly execute and deliver, or
cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers
Administrative Agent or Lenders may reasonably request in connection with the
obtaining of any consent, approval, registration, qualification, permit,
license, or Authorization of any Governmental Authority or other Person
necessary or appropriate for the effective exercise of any Rights under the
Loan Documents. Because Borrower agrees that Administrative Agent's and
Lenders' remedies at Law for failure of Borrower to comply with the provisions
of this Section would be inadequate and that such failure would not be
adequately compensable in damages, Borrower agrees that the covenants of this
Section may be specifically enforced.
1.15
1.16 LIMITATION OF RIGHTS. Notwithstanding any other provision of this
Agreement or any other Loan Document, any action taken or proposed to be taken
by Administrative Agent, any Agent, or any Lender under any Loan Document which
would affect the operational, voting, or other control of any Company or
Guarantor, shall be pursuant to Section 310(d) of the Communications Act of
1934 (as amended), any applicable state Law, and the applicable rules and
regulations thereunder and, if and to the extent required thereby, subject to
the prior consent of the FCC or any applicable PUC.
1.17
1.18 EXPENDITURES BY LENDERS. Borrower shall promptly pay within fifteen
(15) Business Days after request therefor (a) all reasonable costs, fees, and
expenses paid or incurred by Administrative Agent, Arranging Agents, and Lead
Arranger, incident to any Loan Document (including, but not limited to, the
reasonable fees and expenses of counsel to Administrative Agent, Arranging
Agents, and Lead Arranger and the allocated cost of internal counsel in
connection with the negotiation, preparation, delivery, execution, coordination
and administration of the Loan Documents and any related amendment, waiver, or
consent) and (b) all reasonable costs and expenses of Lenders and
Administrative Agent incurred by Administrative Agent or any Lender in
connection with the enforcement of the obligations of any Company or Guarantor
arising under the Loan Documents (including, without limitation, costs and
expenses incurred in connection with any workout or bankruptcy) or the exercise
of any Rights arising under the Loan Documents (including, but not limited to,
reasonable attorneys' fees including allocated cost of internal counsel, court
costs and other costs of collection), all of which shall be a part of the
Obligation and shall bear interest at the Default Rate from the date due until
the date repaid.
1.19
1.20 INDEMNIFICATION. BORROWER AND EACH GUARANTOR (BY EXECUTION OF A
GUARANTY) AGREE TO INDEMNIFY AND HOLD HARMLESS EACH AGENT, ARRANGING AGENT,
LEAD ARRANGER, AND EACH LENDER AND EACH OF THEIR RESPECTIVE AFFILIATES AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, AND
ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS,
DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR
AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN
CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION
WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION OF DEFENSE IN
CONNECTION THEREWITH) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE BORROWINGS
(INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED
PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR
EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT
JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER
PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 11.12 APPLIES, SUCH INDEMNITY
SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING
IS BROUGHT BY THE BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN
INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY
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INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER AND EACH GUARANTOR
(BY EXECUTION OF A GUARANTY) AGREE NOT TO ASSERT ANY CLAIM AGAINST ANY
INDEMNIFIED PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT,
CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE
LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR
PROPOSED USE OF THE PROCEEDS OF THE BORROWINGS. WITHOUT PREJUDICE TO THE
SURVIVAL OF ANY OTHER AGREEMENT OF BORROWER OR GUARANTORS HEREUNDER, THE
AGREEMENTS AND OBLIGATIONS OF BORROWER AND EACH GUARANTOR CONTAINED IN THIS
SECTION 11.12 SHALL SURVIVE THE PAYMENT IN FULL OF THE BORROWINGS AND ALL OTHER
AMOUNTS PAYABLE UNDER THE LOAN DOCUMENTS.
1 SECTION AGREEMENT AMONG LENDERS.
2
2.1 ADMINISTRATIVE AGENT .
2.2
(a) Appointment of Administrative Agent. Each Lender hereby
appoints Bank of America, N.A. (and Bank of America, N.A. hereby
accepts such appointment) as its nominee and agent, in its name and on
its behalf: (i) to act as nominee for and on behalf of such Lender in
and under all Loan Documents; (ii) to arrange the means whereby the
funds of Lenders are to be made available to Borrower under the Loan
Documents; (iii) to take such action as may be requested by any Lender
under the Loan Documents (when such Lender is entitled to make such
request under the Loan Documents and after such requesting Lender has
obtained the concurrence of such other Lenders as may be required
under the Loan Documents); (iv) to receive all documents and items to
be furnished to Lenders under the Loan Documents; (v) to timely
distribute, and Administrative Agent agrees to so distribute, to each
Lender all material information, requests, documents, and items
received from Borrower under the Loan Documents; (vi) to promptly
distribute to each Lender its ratable part of each payment or
prepayment (whether voluntary, as proceeds of collateral upon or after
foreclosure, as proceeds of insurance thereon, or otherwise) in
accordance with the terms of the Loan Documents; (vii) to deliver to
the appropriate Persons requests, demands, approvals, and consents
received from Lenders; and (viii) to execute, on behalf of Lenders,
such releases or other documents or instruments as are permitted by
the Loan Documents or as directed by Lenders from time to time;
provided, however, Administrative Agent shall not be required to take
any action which exposes Administrative Agent to personal liability or
which is contrary to the Loan Documents or applicable Law.
(a) Resignation of Administrative Agent. Successor Administrative
Agent. Administrative Agent may resign at any time as Administrative
Agent under the Loan Documents by giving written notice thereof to
Lenders and may be removed as Administrative Agent under the Loan
Documents at any time with cause by Required Lenders. Should the
initial or any successor Administrative Agent ever cease to be a party
hereto or should the initial or any successor Administrative Agent
ever resign or be removed as Administrative Agent, then Required
Lenders shall elect the successor Administrative Agent, upon
consultation with Borrower (so long as no Default or Potential Default
exists), from among the Lenders (other than the resigning
Administrative Agent). If no successor Administrative Agent shall have
been so appointed by Required Lenders, within 30 days after the
retiring Administrative Agent's giving of notice of resignation or
Required Lenders' removal of the retiring Administrative Agent, then
the retiring Administrative Agent may, upon consultation with Borrower
(so long as no Default or Potential Default exists), on behalf of
Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank having a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as
Administrative Agent under the Loan Documents by a
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successor Administrative Agent, such successor Administrative Agent
shall thereupon succeed to and become vested with all the Rights of
the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations of
Administrative Agent under the Loan Documents and each Lender shall
execute such documents as any Lender may reasonably request to reflect
such change in and under the Loan Documents. After any retiring
Administrative Agent's resignation or removal as Administrative Agent
under the Loan Documents, the provisions of this SECTION 12 shall
inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent under the Loan Documents.
(a) Administrative Agent as a Lender. Non-Fiduciary.
Administrative Agent, in its capacity as a Lender, shall have the same
Rights under the Loan Documents as any other Lender and may exercise
the same as though it were not acting as Administrative Agent; the
term "Lender" shall, unless the context otherwise indicates, include
Administrative Agent; and any resignation, or removal of
Administrative Agent hereunder shall not impair or otherwise affect
any Rights which it has or may have in its capacity as an individual
Lender. Each Lender and Borrower agree that Administrative Agent is
not a fiduciary for Lenders or for Borrower but simply is acting in
the capacity described herein to alleviate administrative burdens for
both Borrower and Lenders, that Administrative Agent has no duties or
responsibilities to Lenders or Borrower except those expressly set
forth herein, and that Administrative Agent in its capacity as a
Lender has all Rights of any other Lender.
(a) Other Activities of Administrative Agent. Administrative
Agent and its Affiliates may now or hereafter be engaged in one or
more loan, letter of credit, leasing, or other financing transactions
with Borrower, act as trustee or depositary for Borrower, or otherwise
be engaged in other transactions with Borrower (collectively, the
"OTHER ACTIVITIES") not the subject of the Loan Documents. Without
limiting the Rights of Lenders specifically set forth in the Loan
Documents, Administrative Agent and its Affiliates shall not be
responsible to account to Lenders for such other activities, and no
Lender shall have any interest in any other activities, any present or
future guaranties by or for the account of Borrower which are not
contemplated or included in the Loan Documents, any present or future
offset exercised by Administrative Agent and its Affiliates in respect
of such other activities, any present or future property taken as
security for any such other activities, or any property now or
hereafter in the possession or control of Administrative Agent or its
Affiliates which may be or become security for the obligations of
Borrower arising under the Loan Documents by reason of the general
description of indebtedness secured or of property contained in any
other agreements, documents or instruments related to any such other
activities; provided that, if any payments in respect of such
guaranties or such property or the proceeds thereof shall be applied
to reduction of the Obligation arising under the Loan Documents, then
each Lender shall be entitled to share in such application ratably.
1.1 EXPENSES. Upon demand by Administrative Agent, each Lender shall pay
its Pro Rata Part of any reasonable expenses (including, without limitation,
court costs, reasonable attorneys' fees, and other costs of collection)
incurred by Administrative Agent in connection with any of the Loan Documents
if and to the extent Administrative Agent does not receive reimbursement
therefor from other sources within 60 days after incurred; provided that, each
Lender shall be entitled to receive its Pro Rata Part of any reimbursement for
such expenses, or part thereof, which Administrative Agent subsequently
receives from such other sources.
1.2
1.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided in
the Loan Documents, nothing in the Loan Documents shall be deemed to give any
Lender any advantage over any other Lender insofar as the Obligation arising
under the Loan Documents is concerned, or to relieve any Lender from
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absorbing its Pro Rata Part of any losses sustained with respect to the
Obligation (except to the extent such losses result from unilateral actions or
inactions of any Lender that are not made in accordance with the terms and
provisions of the Loan Documents).
1.4
1.5 DELEGATION OF DUTIES; RELIANCE. Administrative Agent may perform any
of its duties or exercise any of its Rights under the Loan Documents by or
through its Representatives. Administrative Agent and its Representatives shall
(a) be entitled to rely upon (and shall be protected in relying upon) any
writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telecopy, telegram, telex or teletype message, statement, order, or
other documents or conversation believed by it or them to be genuine and
correct and to have been signed or made by the proper Person and, with respect
to legal matters, upon opinion of counsel selected by Administrative Agent, (b)
be entitled to deem and treat each Lender as the owner and holder of the
Principal Debt owed to such Lender for all purposes until, subject to SECTION
13.13, written notice of the assignment or transfer thereof shall have been
given to and received by Administrative Agent (and any request, authorization,
consent, or approval of any Lender shall be conclusive and binding on each
subsequent holder, assignee, or transferee of the Principal Debt owed to such
Lender or portion thereof until such notice is given and received), (c) not be
deemed to have notice of the occurrence of a Default or Potential Default
unless a responsible officer of Administrative Agent, who handles matters
associated with the Loan Documents and transactions thereunder, has received
written notice from a Lender or Borrower and stating that such notice is a
"Notice of Default," and (d) be entitled to consult with legal counsel
(including counsel for Borrower), independent accountants, and other experts
selected by Administrative Agent and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts.
1.1 LIMITATION OF LIABILITY .
(a) General. None of the Agents or any of their respective
Representatives shall be liable for any action taken or omitted to be
taken by it or them under the Loan Documents in good faith and
reasonably believed by it or them to be within the discretion or power
conferred upon it or them by the Loan Documents or be responsible for
the consequences of any error of judgment, except for fraud, gross
negligence, or willful misconduct; and none of the Agents or any of
their respective Representatives has a fiduciary relationship with any
Lender by virtue of the Loan Documents (provided that, nothing herein
shall negate the obligation of Administrative Agent or to account for
funds received by it for the account of any Lender).
(a) Non-Discretionary Actions. Indemnifications. Unless
indemnified to its satisfaction against loss, cost, liability, and
expense, neither Administrative Agent nor any other Agent shall be
compelled to do any act under the Loan Documents or to take any action
toward the execution or enforcement of the powers thereby created or
to prosecute or defend any suit in respect of the Loan Documents. If
Administrative Agent requests instructions from Lenders or Required
Lenders, as the case may be, with respect to any act or action
(including, but not limited to, any failure to act) in connection with
any Loan Document, Administrative Agent shall be entitled (but shall
not be required) to refrain (without incurring any liability to any
Person by so refraining) from such act or action unless and until it
has received such instructions. Except where action of Required
Lenders or all Lenders is required in the Loan Documents,
Administrative Agent may act hereunder in its own discretion without
requesting instructions. In no event, however, shall Administrative
Agent or any of its respective Representatives be required to take any
action which it or they determine could incur for it or them criminal
or onerous civil liability. Without limiting the generality of the
foregoing, no Lender shall have any right of action against
Administrative Agent as a result of Administrative Agent's acting or
refraining from acting
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hereunder in accordance with the instructions of Required Lenders (or
all Lenders if required in the Loan Documents).
(a) Independent Credit Decision. Administrative Agent nor any
other Agent shall be responsible in any manner to any Lender or any
Participant for, and each Lender represents and warrants that it has
not relied upon Administrative Agent or any other Agent in respect of,
(i) the creditworthiness of any Company or any Guarantor and the risks
involved to such Lender, (ii) the effectiveness, enforceability,
genuineness, validity, or the due execution of any Loan Document,
(iii) any representation, warranty, document, certificate, report, or
statement made therein or furnished thereunder or in connection
therewith, (iv) the existence, priority, or perfection of any Lien
hereafter granted or purported to be granted under any Loan Document,
or (v) observation of or compliance with any of the terms, covenants,
or conditions of any Loan Document on the part of any Company or
Guarantor. Each Lender agrees to indemnify Administrative Agent and
its respective Representatives and hold them harmless from and against
(but limited to such Lender's Pro Rata Part of) any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, reasonable expenses, and reasonable
disbursements of any kind or nature whatsoever which may be imposed
on, asserted against, or incurred by them in any way relating to or
arising out of the Loan Documents or any action taken or omitted by
them under the Loan Documents (INCLUDING ANY OF THE FOREGOING ARISING
FROM THE NEGLIGENCE OF ADMINISTRATIVE AGENT OR ITS REPRESENTATIVES),
to the extent Administrative Agent and its respective Representatives
are not reimbursed for such amounts by any Company (provided that,
Administrative Agent, and its respective Representatives shall not
have the Right to be indemnified hereunder for its or their own fraud,
gross negligence, or willful misconduct).
1.1 DEFAULT; COLLATERAL .
1.2
(a) Upon the occurrence and continuance of a Default, Lenders
agree to promptly confer in order that Required Lenders or Lenders, as
the case may be, may agree upon a course of action for the enforcement
of the Rights of Lenders; and Administrative Agent shall be entitled
to refrain from taking any action (without incurring any liability to
any Person for so refraining) unless and until Administrative Agent
shall have received instructions from Required Lenders. All Rights of
action under the Loan Documents and all Rights to the Collateral, if
any, hereunder may be enforced by Administrative Agent or and any suit
or proceeding instituted by Administrative Agent or in furtherance of
such enforcement shall be brought in their respective names as
Administrative Agent without the necessity of joining as plaintiffs or
defendants any other Lender, and the recovery of any judgment shall be
for the benefit of Lenders subject to the expenses of Administrative.
In actions with respect to any property of Borrower, Administrative
Agent is acting for the ratable benefit of each Lender. Any and all
agreements to subordinate (whether made heretofore or hereafter) other
indebtedness or obligations of Borrower to the Obligation shall be
construed as being for the ratable benefit of each Lender.
(a) Each Lender authorizes and directs Administrative Agent to
enter into the Collateral Documents for the benefit of the Lenders.
Except to the extent unanimity is required hereunder, each Lender
agrees that any action taken by the Required Lenders in accordance
with the provisions of the Loan Documents, and the exercise by the
Required Lenders of the powers set forth herein or therein, together
with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Lenders.
(a) Administrative Agent is hereby authorized on behalf of all of
the Lenders, without the necessity of any notice to or further consent
from any Lender, from time to time to take any
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action with respect to any Collateral or Collateral Documents which
may be necessary to perfect and maintain perfected the Liens upon the
Collateral granted pursuant to the Collateral Documents.
(a) Administrative Agent shall have no obligation whatsoever to
any Lender or to any other Person to assure that the Collateral exists
or is owned by any Company or is cared for, protected, or insured or
has been encumbered or that the Liens granted to Administrative Agent
herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected, or enforced, or are entitled
to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure, or fidelity, or to
continue exercising, any of the Rights granted or available to
Administrative Agent in this SECTION 12.6 or in any of the Collateral
Documents; it being understood and agreed that in respect of the
Collateral, or any act, omission, or event related thereto,
Administrative Agent may act in any manner it may deem appropriate, in
its sole discretion, given Administrative Agent's own interest in the
Collateral as one of the Lenders and that Administrative Agent shall
have no duty or liability whatsoever to any Lender, other than to act
without gross negligence or wilful misconduct.
(a) Lenders hereby irrevocably authorize Administrative Agent, at
its option and in its discretion, to release any Lien granted to or
held by Administrative Agent upon any Collateral: (i) upon termination
of the Total Commitment and payment and satisfaction of the
Obligation; (ii) constituting property in which no Company owned an
interest at the time the Lien was granted or at any time thereafter;
(iii) constituting property leased to a Company under a lease which
has expired or been terminated in a transaction permitted under the
Loan Document or is about to expire and which has not been, and is not
intended by such Company to be, renewed; (iv) consisting of an
instrument evidencing Debt pledged to Administrative Agent (for the
benefit of Lenders), if the Debt evidenced thereby has been paid in
full; (v) upon the sale, transfer, or disposition of Collateral which
is expressly permitted pursuant to the Loan Documents, including,
without limitation, under SECTION 9.16; (vi) as contemplated in
SECTION 6.5, or (vii) if approved, authorized, or ratified in writing
by all necessary Lenders. Upon request by Administrative Agent at any
time, Lenders will confirm in writing Administrative Agent's authority
to release particular types or items of Collateral pursuant to this
SECTION 12.6.
(a) In furtherance of the authorizations set forth in this
SECTION 12.6, each Lender hereby irrevocably appoints Administrative
Agent its attorney-in-fact, with full power of substitution, for and
on behalf of and in the name of each such Lender, (i) to enter into
Collateral Documents (including, without limitation, any appointments
of substitute trustees under any Collateral Document), (ii) to take
action with respect to the Collateral and Collateral Documents to
perfect, maintain, and preserve Lender's Liens, and (iii) to execute
instruments of release or to take other action necessary to release
Liens upon any Collateral to the extent authorized in PARAGRAPH (e)
hereof. This power of attorney shall be liberally, not restrictively,
construed so as to give the greatest latitude to Administrative
Agent's power, as attorney, relative to the Collateral matters
described in this SECTION 12.6. The powers and authorities herein
conferred on Administrative Agent may be exercised by Administrative
Agent through any Person who, at the time of the execution of a
particular instrument, is an officer of Administrative Agent. The
power of attorney conferred by this SECTION 12.6(f) is granted for
valuable consideration and is coupled with an interest and is
irrevocable so long as the Obligation, or any part thereof, shall
remain unpaid or Lenders are obligated to make any Borrowings under
the Loan Documents.
1.1 LIMITATION OF LIABILITY. To the extent permitted by Law, (a) neither
Administrative Agent nor any other Agent (acting in their respective agent
capacities) shall incur any liability to any other Lender,
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Agent, or Participant except for acts or omissions resulting from its own
fraud, gross negligence or wilful misconduct, and (b) neither Administrative
Agent nor any other Agent, Lender, or Participant shall incur any liability to
any other Person for any act or omission of any other Lender, Agent, or
Participant.
1.2
1.3 RELATIONSHIP OF LENDERS. Nothing herein shall be construed as
creating a partnership or joint venture among Agents and Lenders.
1.4
1.5 BENEFITS OF AGREEMENT. None of the provisions of this SECTION 12
shall inure to the benefit of any Company, Guarantor, or any other Person other
than Lenders; consequently, no Company, Guarantor, or any other Person shall be
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of any Agent or any Lender to comply with such provisions.
1.6
1.7 AGENTS. None of the Lenders identified in this Agreement as
"Syndication Agent," "Documentation Agent," or "Arranging Agent," shall have
any rights, powers, obligations, liabilities, responsibilities, or duties under
the Loan Documents other than those applicable to all Lenders as such. Without
limiting the foregoing, none of the Lenders so identified as a "Syndication
Agent," "Documentation Agent," or "Arranging Agent," shall have or be deemed to
have any fiduciary relationship with any Lender.
1.8
1.9 OBLIGATIONS SEVERAL. The obligations of Lenders hereunder are
several, and each Lender hereunder shall not be responsible for the obligations
of the other Lenders hereunder, nor will the failure of one Lender to perform
any of its obligations hereunder relieve the other Lenders from the performance
of their respective obligations hereunder
1.10
1.11 FINANCIAL HEDGES. To the extent any Lender or any Affiliate of a
Lender issues a Financial Hedge in accordance with the requirements of the Loan
Documents and accepts the benefits of the Liens in the Collateral arising
pursuant to the Collateral Documents (to the extent permitted by the Existing
Senior Notes, Existing Subordinated Notes, and any permitted issuances of Debt
pursuant to SECTION 9.12), such Lender (for itself and on behalf of any such
Affiliates) agrees (i) to appoint Bank of America, N.A., as its nominee and
agent, to act for and on behalf of such Lender or Affiliate thereof in
connection with the Collateral Documents and (ii) to be bound by the terms of
this SECTION 12; whereupon all references to "Lender" in this SECTION 12 and in
the Collateral Documents shall include, on any date of determination, any
Lender or Affiliate of a Lender that is party to a then-effective Financial
Hedge which complies with the requirements of the Loan Document. Additionally,
if the Obligation owed to any Lender or Affiliate of a Lender consists solely
of Debt arising under a Financial Hedge (such Lender or Affiliate being
referred to in this SECTION 12.12 as an "ISSUING LENDER"), then such Issuing
Lender (by accepting the benefits of any Collateral Documents) acknowledges and
agrees that pursuant to the Loan Documents and without notice to or consent of
such Issuing Lender: (i) Liens in the Collateral may be released in whole or in
part; (ii) all Guaranties may be released; (iii) any Collateral Document may be
amended, modified, supplemented, or restated; and (iv) all or any part of the
Collateral may be permitted to secure other Debt.
1 SECTION MISCELLANEOUS.
2
2.1 HEADINGS. The headings, captions, and arrangements used in any of the
Loan Documents are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify, or modify the terms of the Loan Documents, nor
affect the meaning thereof.
1.1 NONBUSINESS DAYS. In any case where any payment or action is due
under any Loan Document on a day which is not a Business Day, such payment or
action may be delayed until the next-succeeding
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Business Day, but interest and fees shall continue to accrue in respect of any
payment to which it is applicable until such payment is in fact made; provided
that, if, in the case of any such payment in respect of a Eurodollar Rate
Borrowing, the next-succeeding Business Day is in the next calendar month, then
such payment shall be made on the next-preceding Business Day.
1.2
1.3 COMMUNICATIONS. Unless specifically otherwise provided, whenever any
Loan Document requires or permits any consent, approval, notice, request, or
demand from one party to another, such communication must be in writing (which
may be by telex or telecopy) to be effective and shall be deemed to have been
given (a) if by telex, when transmitted to the telex number, if any, for such
party, and the appropriate answer back is received, (b) if by telecopy, when
transmitted to the telecopy number for such party (and all such communications
sent by telecopy shall be confirmed promptly thereafter by personal delivery or
mailing in accordance with the provisions of this Section; provided, that any
requirement in this parenthetical shall not affect the date on which such
telecopy shall be deemed to have been delivered), (c) if by mail, on the third
Business Day after it is enclosed in an envelope, properly addressed to such
party, properly stamped, sealed, and deposited in the appropriate official
postal service, or (d) if by any other means, when actually delivered to such
party. Until changed by notice pursuant hereto, the address (and telex and
telecopy numbers, if any) for Administrative Agent and each Lender,
Administrative Agent, and other Agents is set forth on SCHEDULE 2.1, and for
Borrower and each Company is the address set forth by Borrower's signature on
the signature page of this Agreement and for each Guarantor is the address set
forth by such Guarantor's signature on the signature page of its Guaranty. A
copy of each communication to Administrative Agent shall also be sent to Haynes
and Boone, LLP, 901 Main Street, Dallas, Texas 75202, Fax: 214/651-5940, Attn:
Karen S. Nelson.
1.4
1.5 FORM AND NUMBER OF DOCUMENTS. Each agreement, document, instrument,
or other writing to be furnished under any provision of the Loan Documents must
be in form and substance and in such number of counterparts as may be
reasonably satisfactory to Administrative Agent and its counsel.
1.6
1.7 EXCEPTIONS TO COVENANTS. No Company or Guarantor shall take any
action or fail to take any action which is permitted as an exception to any of
the covenants contained in any Loan Document if such action or omission would
result in the breach of any other covenant contained in any of the Loan
Documents.
1.8
1.9 SURVIVAL. All covenants, agreements, undertakings, representations,
and warranties made in any of the Loan Documents shall survive all closings
under the Loan Documents and, except as otherwise indicated, shall not be
affected by any investigation made by any party. All Rights of, and provisions
relating to, reimbursement and indemnification of Administrative Agent, any
Agent, or any Lender (and any other provision of the Loan Documents that
expressly provide for such survival) shall survive termination of this
Agreement and payment in full of the Obligation.
1.10
1.11 GOVERNING LAW. THE LOAN DOCUMENTS HAVE BEEN ENTERED INTO PURSUANT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND THE SUBSTANTIVE LAWS
OF THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THE LAWS OF ANOTHER JURISDICTION
GOVERN THE CREATION, PERFECTION, VALIDITY, OR ENFORCEMENT OF LIENS UNDER THE
COLLATERAL DOCUMENTS), AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT AND ALL OF THE OTHER LOAN DOCUMENTS.
1.12
1.13 INVALID PROVISIONS. If any provision in any Loan Document is held to
be illegal, invalid, or unenforceable, such provision shall be fully severable;
the appropriate Loan Document shall be construed and enforced as if such
provision had never comprised a part thereof; and the remaining provisions
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thereof shall remain in full force and effect and shall not be affected by such
provision or by its severance therefrom. Administrative Agent, Lenders, and
each Company and Guarantor party to such Loan Document agree to negotiate, in
good faith, the terms of a replacement provision as similar to the severed
provision as may be possible and be legal, valid, and enforceable.
1.14
1.15 ENTIRETY. THE RIGHTS AND OBLIGATIONS OF THE COMPANIES, GUARANTORS,
LENDERS, AND AGENTS SHALL BE DETERMINED SOLELY FROM WRITTEN AGREEMENTS,
DOCUMENTS, AND INSTRUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN SUCH PARTIES
ARE SUPERSEDED BY AND MERGED INTO SUCH WRITINGS. THIS AGREEMENT (AS AMENDED IN
WRITING FROM TIME TO TIME) AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY ANY
COMPANY, ANY GUARANTOR, ANY LENDER, AND/OR ANY AGENT (TOGETHER WITH ALL
COMMITMENT LETTERS AND FEE LETTERS AS THEY RELATE TO THE PAYMENT OF FEES AFTER
THE CLOSING DATE) REPRESENT THE FINAL AGREEMENT BETWEEN THE COMPANIES, THE
GUARANTORS, LENDERS, AND AGENTS, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY SUCH PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PARTIES.
1.16
1.17 JURISDICTION; VENUE; SERVICE OF PROCESS; JURY TRIAL. EACH PARTY
HERETO, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY (A)
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE (PURSUANT TO
SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND FEDERAL COURTS
LOCATED IN THE BOROUGH OF MANHATTAN IN THE STATE OF NEW YORK, AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BY
SERVICE OF PROCESS AS PROVIDED BY NEW YORK LAW, (B) IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION
WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT, (C)
IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN AN
AGENT FOR SERVICE OF PROCESS IN NEW YORK IN CONNECTION WITH ANY SUCH LITIGATION
AND TO DELIVER TO ADMINISTRATIVE AGENT EVIDENCE THEREOF, IF REQUESTED, (E)
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH
HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY
HERETO ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE
OBLIGATION SHALL BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G)
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of
each of the foregoing waivers is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter
of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
The Companies and each other party to this Agreement acknowledge that this
waiver is a material inducement to the agreement of each party hereto to enter
into a business relationship, that each has already relied on this waiver in
entering into this Agreement, and each will continue to rely on each of such
waivers in related future dealings. The Companies and each other party to this
Agreement warrant and represent that they have reviewed these waivers with
their legal counsel, and that they knowingly and voluntarily agree to each such
waiver following consultation with legal counsel. THE WAIVERS IN THIS SECTION
13.10 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
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<PAGE> 80
SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN DOCUMENT. In the
event of Litigation, this Agreement may be filed as a written consent to a
trial by the court.
1.1 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS .
1.2
(a) Except as otherwise specifically provided, (i) this Agreement
may only be amended, modified or waived by an instrument in writing
executed jointly by Borrower and Required Lenders, and, in the case of
any matter affecting Administrative Agent (except removal of
Administrative Agent as provided in SECTION 12) by Administrative
Agent, and may only be supplemented by documents delivered or to be
delivered in accordance with the express terms hereof, and (ii) the
other Loan Documents may only be the subject of an amendment,
modification, or waiver if Borrower and Required Lenders, and, in the
case of any matter affecting Administrative Agent (except as set forth
above), Administrative Agent, have approved same.
(a) Any amendment to or consent or waiver under or any Loan
Document which purports to accomplish any of the following must be by
an instrument in writing executed by Borrower and executed (or
approved, as the case may be) by each Lender affected thereby, and, in
the case of any matter affecting Administrative Agent, by
Administrative Agent: (i) postpones or delays any date fixed by the
Loan Documents for any payment or mandatory prepayment of all or any
part of the Obligation payable to such Lender or Administrative Agent
or any scheduled reduction of the Revolver Commitment, the
Telecommunications Commitment, or the Maximum Receivables Commitment;
(ii) reduces the interest rate or decreases the amount of any payment
of principal, interest, fees, or other sums payable to Administrative
Agent or any such Lender hereunder (except such reductions as are
contemplated by this Agreement); (iii) changes the definition of
"REQUIRED LENDERS"; (iv) except as set forth in CLAUSE (c) below,
changes the order of application of any payment or prepayment set
forth in SECTIONS 3.2 and 3.11 in any manner that materially affects
such Lender or Administrative Agent; (v) except as otherwise permitted
by any Loan Document, waives compliance with, amends, or releases all
or any substantial portion of Guaranties except as contemplated in
SECTION 6.4; (vi) releases all or any substantial portion of
Collateral for the Obligation or permits the creation, incurrence,
assumption, or existence of any Lien on all or substantially all of
the Collateral to secure any obligations, other than Liens securing
the Obligation except as contemplated in SECTION 6.4; (vii) changes
this CLAUSE (b) or any other matter specifically requiring the consent
of all Lenders hereunder. Without the consent of such Lender, no
Lender's "COMMITTED SUM" under any Facility or "COMMITMENT PERCENTAGE"
may be increased.
(a) Any conflict or ambiguity between the terms and provisions
herein and terms and provisions in any other Loan Document shall be
controlled by the terms and provisions herein.
(a) No course of dealing nor any failure or delay by Administrative Agent,
any Lender, or any of their respective Representatives with respect to
exercising any Right of Administrative Agent or any Lender hereunder
shall operate as a waiver thereof. A waiver must be in writing and
signed by Administrative Agent and Required Lenders (or by all
Lenders, if required hereunder) to be effective, and such waiver will
be effective only in the specific instance and for the specific
purpose for which it is given.
1.1 MULTIPLE COUNTERPARTS. The Loan Documents may be executed in a number
of identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one agreement; but, in
making proof of any Loan Document, it shall not be necessary to
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<PAGE> 81
produce or account for more than one such counterpart. It is not necessary that
each Lender execute the same counterpart so long as identical counterparts are
executed by Borrower, each Lender, and Administrative Agent. This Agreement
shall become effective when counterparts hereof shall have been executed and
delivered to Administrative Agent by each Lender, Administrative Agent, and
Borrower, or, when Administrative Agent shall have received telecopied,
telexed, or other evidence satisfactory to it that such party has executed and
is delivering to Administrative Agent a counterpart hereof.
1.1 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS .
1.2
(a) This Agreement shall be binding upon, and inure to the
benefit of the parties hereto and their respective successors and
assigns, except that (i) Borrower may not, directly or indirectly,
assign or transfer, or attempt to assign or transfer, any of its
Rights, duties or obligations under any Loan Documents without the
express written consent of all Lenders, and (ii) except as permitted
under this Section, no Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the Obligation.
(a) Each Lender may assign to one or more Eligible Assignees all
or a portion of its Rights and obligations under the Loan Documents
(including, without limitation, all or a portion of its Borrowings and
its Notes); provided, however, that:
(i) each such assignment shall be to an Eligible
Assignee;
(i) except in the case of an assignment to another
Lender or an assignment of all of a Lender's Rights and
obligations under the Loan Documents, any partial assignment
in any Facility shall be in an amount at least equal to
$5,000,000;
(i) each such assignment in any Facility by a Lender
shall be of a constant, and not varying, percentage of all of
its Rights and obligations under this Agreement and the
Notes; except that this CLAUSE (iii) shall not be construed
to prohibit the assignment of a proportionate part of all of
the assigning Lender's Rights and obligations in respect of
one Facility; and
(i) the parties to such assignment shall execute and
deliver to the Administrative Agent for its acceptance an
Assignment and Acceptance Agreement in the form of EXHIBIT F
hereto, together with any Notes subject to such assignment
and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance Agreement, the assignee thereunder shall be a party hereto
and, to the extent of such assignment, have the obligations, Rights,
and benefits of a Lender under the Loan Documents and the assigning
Lender shall, to the extent of such assignment, relinquish its rights
and be released from its obligations under the Loan Documents. Upon
the consummation of any assignment pursuant to this Section, but only
upon the request of the assignor or assignee made through
Administrative Agent, Borrower shall issue appropriate Notes to the
assignor and the assignee, reflecting such Assignment and Acceptance.
If the assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall deliver to Borrower and
Administrative Agent certification as to exemption from deduction or
withholding of Taxes in accordance with SECTION 4.6.
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(a) Administrative Agent shall maintain at its address referred
to in SECTION 13.3 a copy of each Assignment and Acceptance Agreement
delivered to and accepted by it and a register for the recordation of
the names and addresses of the Lenders and the Commitment, and
principal amount of the Borrowings owing to, each Lender from time to
time (the "REGISTER"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and Borrower,
Administrative Agent and the Lenders may treat each Person whose name
is recorded in the Register as a Lender hereunder for all purposes of
the Loan Documents. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time
upon reasonable prior notice. Upon the consummation of any assignment
in accordance with this SECTION 13.13, SCHEDULE 2.1 shall
automatically be deemed amended (to the extent required) by
Administrative Agent to reflect the name, address, and respective
Committed Sums under the Revolver Facility of the assignor and
assignee.
(a) Upon its receipt of an Assignment and Acceptance Agreement
executed by the parties thereto, together with any Notes subject to
such assignment and payment of the processing fee, the Administrative
Agent shall, if such Assignment and Acceptance has been completed and
is in substantially the form of EXHIBIT F hereto, (i) accept such
Assignment and Acceptance Agreement, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof
to the parties thereto.
(a) Subject to the provisions of this Section and in accordance
with applicable Law, any Lender may, in the ordinary course of its
commercial banking business and in accordance with applicable Law, at
any time sell to one or more Persons (each a "PARTICIPANT")
participating interests in its portion of the Obligation. In the event
of any such sale to a Participant, (i) such Lender shall remain a
"Lender" under the Loan Documents and the Participant shall not
constitute a "Lender" hereunder, (ii) such Lender's obligations under
the Loan Documents shall remain unchanged, (iii) such Lender shall
remain solely responsible for the performance thereof, (iv) such
Lender shall remain the holder of its share of the Principal Debt for
all purposes under the Loan Documents, (v) Borrower and Administrative
Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's Rights and obligations under the Loan
Documents, and (vi) such Lender shall be solely responsible for any
withholding taxes or any filing or reporting requirements relating to
such participation and shall hold Borrower and Administrative Agent
and their respective successors, permitted assigns, officers,
directors, employees, agents, and representatives harmless against the
same. Participants shall have no Rights under the Loan Documents,
other than certain voting Rights as provided below. Subject to the
following, each Lender shall be entitled to obtain (on behalf of its
Participants) the benefits of SECTION 4 with respect to all
participations in its part of the Obligation outstanding from time to
time so long as Borrower shall not be obligated to pay any amount in
excess of the amount that would be due to such Lender under SECTION 4
calculated as though no participations have been made. No Lender shall
sell any participating interest under which the Participant shall have
any Rights to approve any amendment, modification, or waiver of any
Loan Document, except to the extent such amendment, modification, or
waiver extends the due date for payment of any amount in respect of
principal (other than mandatory prepayments), interest, or fees due
under the Loan Documents, reduces the interest rate or the amount of
principal or fees applicable to the Obligation (except such reductions
as are contemplated by this Agreement), or releases all or any
substantial portion of the Guaranties or all or any substantial
portion of the Collateral for the Obligation under the Loan Documents
(except such releases as are contemplated by SECTION 6.5); provided
that, in those cases where a Participant is entitled to the benefits
of SECTION 4 or a Lender grants Rights to its Participants to approve
amendments to or waivers of the Loan Documents respecting the matters
previously described in this sentence, such Lender must
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<PAGE> 83
include a voting mechanism in the relevant participation agreement or
agreements, as the case may be, whereby a majority of such Lender's
portion of the Obligation (whether held by such Lender or Participant)
shall control the vote for all of such Lender's portion of the
Obligation. Except in the case of the sale of a participating interest
to another Lender, the relevant participation agreement shall not
permit the Participant to transfer, pledge, assign, sell
participations in, or otherwise encumber its portion of the
Obligation, unless the consent of the transferring Lender (which
consent will not be unreasonably withheld) has been obtained.
(a) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time assign and pledge all or any
portion of its Borrowings and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank. No such assignment shall
release the assigning Lender from its obligations hereunder.
(a) Any Lender may furnish any information concerning the
Companies or the Guarantors in the possession of such Lender from time
to time to Eligible Assignees and Participants (including prospective
Eligible Assignees and Participants).
1.1 DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. The obligations of each Company under the Loan Documents shall
remain in full force and effect until termination of the Total Commitment and
payment in full of the Principal Debt and of all interest, fees, and other
amounts of the Obligation then due and owing, except that SECTIONS 4, 11, and
13, and any other provisions under the Loan Documents expressly intended to
survive by the terms hereof or by the terms of the applicable Loan Documents,
shall survive such termination. If at any time any payment of the principal of
or interest on any Note or any other amount payable by Borrower under any Loan
Document is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy, or reorganization of such Company or otherwise, the
obligations of each Company under the Loan Documents with respect to such
payment shall be reinstated as though such payment had been due but not made at
such time.
1.2
1.3 CONFIDENTIALITY. The Agent and each Lender (each, a "LENDING PARTY")
agrees to keep confidential any information furnished or made available to it
by the Borrower pursuant to this Agreement that is marked confidential;
provided that nothing herein shall prevent any Lending Party from disclosing
such information (a) to any other Lending Party or any Affiliate of any Lending
Party, or any officer, director, employee, agent, or advisor of any Lending
Party or Affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any Law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending Party other than as a result of a disclosure
by any Lending Party prohibited by this Agreement, (g) in connection with any
litigation to which such Lending Party or any of its affiliates may be a party,
(h) to the extent necessary in connection with the exercise of any remedy under
this Agreement or any other Loan Document, and (i) subject to provisions
substantially similar to those contained in this Section, to any actual or
proposed participant or assignee.
1.4
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.]
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REVOLVING CREDIT AGREEMENT
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
EXECUTED as of the 22nd day of December, 1999, but effective as of the
Closing Date.
INTERMEDIA COMMUNICATIONS INC.
By: /s/ David C. Ruberg
--------------------------------------
David C. Ruberg, Chairman, President,
and Chief Executive Officer
Executed at: District of Columbia, Maryland
78
<PAGE> 85
SIGNATURE PAGE TO REVOLVING CREDIT AGREEMENT
79
<PAGE> 86
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
EXECUTED as of the 22nd day of December, 1999, but effective as of the
Closing Date.
BANK OF AMERICA, N.A., as Administrative Agent,
Arranging Agent, and as a Lender
By: /s/ Jennifer F. Zydney
--------------------------------------------
Jennifer F. Zydney, Managing Director
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<PAGE> 87
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
EXECUTED as of the 22nd day of December, 1999, but effective as of the
Closing Date.
BNY CAPITAL MARKETS, INC.,
as Syndication Agent
By: /s/ Jeffrey D. Landau
-----------------------------------------------
Jeffrey D. Landau, Managing Director
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<PAGE> 88
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
EXECUTED as of the 22nd day of December, 1999, but effective as of the
Closing Date.
THE BANK OF NEW YORK,
as Arranging Agent and a Lender
By: /s/ Andrew R. Moore
-----------------------------------------------
Andrew R. Moore, Vice President
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<PAGE> 89
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
EXECUTED as of the 22nd day of December, 1999, but effective as of the
Closing Date.
TORONTO DOMINION (TEXAS), INC.,
as Documentation Agent, Arranging Agent,
and a Lender
By: /s/ Debbie A. Greene
-----------------------------------------------
Debbie A. Greene, Vice President
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<PAGE> 90
Signature Page to that certain Revolving Credit Agreement dated as of
December 22, 1999, among Intermedia Communications Inc. as Borrower, Bank of
America, N.A., as Administrative Agent, and certain other Agents and Lenders
named therein.
Each of the undersigned Guarantors hereby acknowledges that it has
reviewed this Agreement and agrees that certain of the representations and
covenants contained in SECTION 6 and SECTION 8 apply to Guarantors:
<TABLE>
<S> <C>
INTERMEDIA COMMUNICATIONS OF INTERMEDIA CAPITAL INC.
VIRGINIA INC.
By: /s/ David C. Ruberg By: /s/ Lawrence Sledge
------------------------------------------------ ------------------------------------------------
David C. Ruberg, President and Lawrence Sledge, Vice President and
Chief Executive Officer Assistant Secretary
INTERMEDIA LICENSING COMPANY BUSINESS INTERNET, INC.
By: /s/ David C. Ruberg By: /s/ David C. Ruberg
------------------------------------------------ ------------------------------------------------
David C. Ruberg, President David C. Ruberg, President and
Chief Executive Officer
EXPRESS COMMUNICATIONS, INC. NETWAVE SYSTEMS, INC.
By: /s/ David C. Ruberg By: /s/ David C. Ruberg
------------------------------------------------ ------------------------------------------------
David C. Ruberg, Chief Executive Officer David C. Ruberg, Chief Executive Officer
SHARED TECHNOLOGIES FAIRCHILD, INC. NATIONAL TELECOMMUNICATIONS OF FLORIDA, INC.
By: /s/ David C. Ruberg By: /s/ Lawrence Sledge
------------------------------------------------ ------------------------------------------------
David C. Ruberg, Chief Executive Officer Lawrence Sledge, Vice President
NTC, INC. SHARED TECHNOLOGIES FAIRCHILD
COMMUNICATIONS CORP.
By: /s/ Lawrence Sledge By: /s/ David C. Ruberg
------------------------------------------------ ------------------------------------------------
Lawrence Sledge, Vice President David C. Ruberg, Chief Executive Officer
</TABLE>
84
<PAGE> 91
<TABLE>
<S> <C>
STF CANADA INC. SHARED TECHNOLOGIES FAIRCHILD
TELECOM, INC.
By: /s/ David C. Ruberg By: /s/ David C. Ruberg
------------------------------------------------ ------------------------------------------------
David C. Ruberg, Chief Executive Officer David C. Ruberg, Chief Executive Officer
DIGEX, INCORPORATED ACCESS NETWORK SERVICES, INC.
By: /s/ Robert B. Patrick By: /s/ David C. Ruberg
------------------------------------------------ ------------------------------------------------
Robert B. Patrick, Vice President and David C. Ruberg, Chief Executive Officer
Secretary
ACCESS VIRGINIA, INC.
By: /s/ David C. Ruberg
------------------------------------------------
David C. Ruberg, Chief Executive Officer
</TABLE>
*CONFORMED TO REFLECT SIGNATURES.
85
<PAGE> 1
Exhibit 10.13
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
Richard W. Marchant
3625 Queen Palm Drive
Tampa, FL 33619
Dear Dick:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any employee of the Company who was employed by the
Company or its subsidiaries on the date of your termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of
at least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to
the terms of this letter or otherwise) (a "Payment") would constitute an
"excess parachute payment" within the meaning of Section 49999 of the internal
revenue code, then the Payments, in the aggregate, shall be reduced (in a
manner elected by you, or the Company if you fail to make such an election) to
the greatest amount that could be paid to you so that no portion thereof shall
be subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original offer letter continue in
full force and effect. If the foregoing is acceptable to you, please sign in the
space provided below and return to me one fully executed copy of this letter.
Nothing in this letter will be deemed to affect the at-will status of your
continued employment by Intermedia.
Intermedia Communications Inc.
/s/ David C. Ruberg
------------------------------
David C. Ruberg
President and CEO
Agreement with terms
of letter confirmed:
/s/ Richard W. Marchant
- -----------------------
Richard W. Marchant
<PAGE> 1
Exhibit 10.14
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
Alfred G. Binford
3625 Queen Palm Drive
Tampa, FL 33619
Dear Al:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any Director-level or above employee of the Company
who was employed by the Company or its subsidiaries on the date of your
termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of
at least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to
the terms of this letter or otherwise) (a "Payment") would constitute an
"excess parachute payment" within the meaning of Section 49999 of the internal
revenue code, then the Payments, in the aggregate, shall be reduced (in a
manner elected by you, or the Company if you fail to make such an election) to
the greatest amount that could be paid to you so that no portion thereof shall
be subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original offer letter continue in
full force and effect. If the foregoing is acceptable to you, please sign in the
space provided below and return to me one fully executed copy of this letter.
Nothing in this letter will be deemed to affect the at-will status of your
continued employment by Intermedia.
Intermedia Communications Inc.
/s/ David C. Ruberg
------------------------------
David C. Ruberg
President and CEO
Agreement with terms
of letter confirmed:
/s/ Alfred G. Binford
- -----------------------
Alfred G. Binford
<PAGE> 1
Exhibit 10.15
[INTERMEDIA COMMUNICATIONS LOGO]
December 1, 1999
Patricia A. Kurlin
3625 Queen Palm Drive
Tampa, FL 33619
Dear Pat:
This letter will amend the compensation terms of your employment by the Company
as follows:
If your employment with the Company is terminated by the Company for any reason
other than for cause (described below), the Company will continue to pay your
base salary as in effect at the time of termination through the later of March
31, 2001 or one year following the date of termination, payable (i) for the
first six months following such termination on the same dates it would have
been paid had your employment continued through such later date, with the
remainder paid in a lump sum at the conclusion of the initial six months, or
(ii) if your termination occurred following the occurrence of a Change of
Control (defined below), in a lump sum promptly following such termination.
Your entitlement to receive payments pursuant to clause (i) of the preceding
sentence shall terminate and cease to be of any force or effect in the event
you, directly or indirectly (whether by an entity of which you own greater than
10% of the outstanding equity interest or by which you are employed in a senior
executive capacity) or otherwise knowingly hire within six months following
your date of termination any employee of the Company who was employed by the
Company or its subsidiaries on the date of your termination.
Cause means (i) any conduct or behavior by you that would reasonably be
expected to have a material adverse affect on the Company's business or
reputation, (ii) commission by you of an act involving moral turpitude or
dishonesty, including fraud, (iii) your material failure to reasonably perform
your duties for the Company, or (iv) your willful failure to perform or abide
by any lawful directions or instructions of the Company consistent with your
capacity as a senior executive of the Company.
In addition, and without limitation of any payments to be made to you pursuant
to the preceding paragraph, upon occurrence of a Change of Control of the
Company, the Company shall pay to you, in a lump sum promptly following the
occurrence of such a Change of Control, an amount equal to two multiplied by
the sum of your base salary in effect immediately prior to the occurrence of
such Change of Control, plus two multiplied by the amount of the target bonus
applicable to the position held by you immediately prior to the occurrence of
such Change of Control for the fiscal year of the Company in which the Change
of Control occurs.
<PAGE> 2
For purposes of the preceding sentence, "Change of Control" means the sale,
exchange or transfer of common stock of the Company, whether in one transaction
or a series of related transactions occurring in one year, which results in an
accumulation of 50% or more of the outstanding shares of common stock (on a
fully diluted basis) in one holder or several affiliated holders (or any such
transaction(s) occurring within six months that results in an accumulation of at
least 35% of such shares of common stock (on a fully diluted basis).
Notwithstanding anything in this letter to the contrary, if it shall be
determined that any payment or distribution by the Company to you or for your
benefit (whether paid or payable or distributed or distributable pursuant to the
terms of this letter or otherwise) (a "Payment") would constitute an "excess
parachute payment" within the meaning of Section 49999 of the internal revenue
code, then the Payments, in the aggregate, shall be reduced (in a manner
elected by you, or the Company if you fail to make such an election) to the
greatest amount that could be paid to you so that no portion thereof shall be
subject to the excise taxes imposed by Section 4999 of the internal revenue
code.
Expected as amended hereby, the terms of your original offer letter continue in
full force and effect. If the foregoing is acceptable to you, please sign in the
space provided below and return to me one fully executed copy of this letter.
Nothing in this letter will be deemed to affect the at-will status of your
continued employment by Intermedia.
Intermedia Communications Inc.
/s/ David C. Ruberg
------------------------------
David C. Ruberg
President and CEO
Agreement with terms
of letter confirmed:
/s/ Patricia A. Kurlin
- -----------------------
Patricia A. Kurlin
<PAGE> 1
Exhibit 12.1
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
INTERMEDIA COMMUNICATIONS INC. - 10K
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loss before extraordinary items (19,157) (57,198) (197,289) (487,229)
Loss before minority interest (565,219)
Income tax benefit (provision) (97) - - - -
--------------------------------------------------------------------------
Loss before income taxes (19,254) (57,198) (197,289) (487,229) (565,219)
==========================================================================
Fixed charges:
Interest expensed 13,355 35,213 58,744 201,039 289,963
Capitalized interest 677 2,780 4,654 7,189 10,364
Amortization of deferred financing
costs 412 1,252 1,918 4,721 5,937
Estimated interest factor on
operating leases 428 1,598 3,286 12,091 11,435
Dividends and accretions on
redeemable preferred stock 0 0 43,742 90,344 92,455
--------------------------------------------------------------------------
Total fixed charges 14,872 40,843 112,344 315,384 410,154
==========================================================================
Earnings:
Loss before income tax (or minority
interest) (19,254) (57,198) (197,289) (487,229) (565,219)
--------------------------------------------------------------------------
Fixed charges excluding capitalized
interest and preferred stock
dividends 14,195 38,063 63,948 217,851 307,335
--------------------------------------------------------------------------
Total earnings (numerator) (5,059) (19,135) (133,341) (269,378) (257,884)
==========================================================================
Ratio of earnings to fixed charges (0.34) (0.47) (1.19) (0.85) (0.63)
==========================================================================
Insufficiency of earnings to cover
fixed charge $ 19,931 $ 59,978 $ 245,685 $ 584,762 $ 668,038
==========================================================================
</TABLE>
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF INTERMEDIA COMMUNICATIONS INC.
Intermedia Communications Inc., a Virginia corporation
Intermedia Licensing Company, a Delaware corporation
Intermedia Capital Inc., a Delaware corporation
DIGEX, Incorporated, a Delaware corporation
Shared Technologies Fairchild, Inc., a Delaware corporation
Shared Technologies Fairchild Telecom, Inc., a Delaware
corporation
Access Network Services, Inc., a Texas corporation
Shared Technologies Fairchild Communications Corp., a Delaware
corporation
STC Canada Inc., a Delaware corporation
Access Virginia, Inc., a Virginia corporation
Netwave Systems, Inc., a Louisiana corporation
Express Communications, Inc., a Nevada corporation
National Telecommunications of Florida, Inc., a Delaware
corporation
NTC, Inc., a Delaware corporation
Intermedia Financial Company, a Florida corporation
Business Internet, Inc., a Delaware corporation
Intermedia Communications of Virginia, Inc., a Virginia
corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
listed below, of our report dated February 15, 2000,with respect to the
consolidated financial statements and schedule of Intermedia Communications
Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year
ended December 31, 1999.
o (Form S-8 no. 33-64752 and Form S-8 no. 33-97720) pertaining to the
Intermedia Communications of Florida, Inc. 1992 Stock Option Plan
o (Form S-8 no. 333-03955) pertaining to the Intermedia Communications of
Florida, Inc. Long Term Incentive Plan
o (Form S-8 no. 333-32155) pertaining to the Intermedia Communications Inc.
1997 Equity Participation Plan and Stock Option Plan for the Benefit of
Employees of DIGEX, Inc.
o (Form S-3 no. 33-99940) pertaining to the registration of warrants issued
in connection with the 13.5% Senior Notes Due 2005 and common stock
issuable upon exercise of such warrants
o (Form S-3 no. 333-33415) pertaining to the registration of Depositary
Shares each representing a one-hundredth interest in a share of 7% Series D
Junior Convertible Preferred Stock, 7% Series D Junior Convertible
Preferred Stock and Common Stock issuable as dividends on the 7% Series D
Junior Convertible Preferred Stock and Common Stock issuable upon
conversion of the Depositary Shares and 7% Series D Junior Convertible
Preferred Stock
o (Form S-3 no. 333-42999) pertaining to the issuance of Depositary Shares
each representing a one-hundredth interest in a share of 7% Series E Junior
Convertible Preferred Stock, 7% Series E Junior Convertible Preferred Stock
and Common Stock issuable as dividends on the 7% Series E Junior
Convertible Preferred Stock and Common Stock issuable upon conversion of
the Depositary Shares and 7% Series E Junior Convertible Preferred Stock
o (Form S-3 no. 333-45019) pertaining to registration of $500,000,000 of Debt
Securities, Preferred Stock, Depositary Shares and Common Stock
o (Form S-3 no. 333-46369) pertaining to the issuance of common stock in
connection with the acquisition of the Long Distance Savers Group of
companies
o (Form S-3 no. 333-49575) pertaining to the issuance of common stock in
connection with the acquisition of National Telecommunications of Florida,
Inc. and NTC, Inc.
o (Form S-4 no. 333-76363) pertaining to the registration of the Company's
9.5% Series B Senior Notes due 2009 and 12.25% Series B Senior Subordinated
Notes due 2009
o (Form S-3 no. 333-62931) pertaining to the issuance of Depositary Shares
each representing a one-hundredth interest in a share of 7% Series F Junior
Convertible Preferred Stock, 7% Series F Junior Convertible Preferred
Stock, Common Stock issuable as dividends or liquidated damages on the 7%
Series F Junior Convertible Preferred Stock, Common Stock, and Common Stock
issuable upon conversion of the Depositary Shares and 7% Series F Junior
Convertible Preferred Stock.
/s/ Ernst & Young LLP
Tampa, Florida
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF INTERMEDIA COMMUNICATIONS FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 251,079
<SECURITIES> 0
<RECEIVABLES> 316,827
<ALLOWANCES> 29,056
<INVENTORY> 0
<CURRENT-ASSETS> 577,139
<PP&E> 2,202,630
<DEPRECIATION> 489,410
<TOTAL-ASSETS> 3,296,422
<CURRENT-LIABILITIES> 243,158
<BONDS> 2,967,287
916,795
0
<COMMON> 518
<OTHER-SE> (853,223)
<TOTAL-LIABILITY-AND-EQUITY> 3,296,422
<SALES> 130,336
<TOTAL-REVENUES> 906,035
<CGS> 83,362
<TOTAL-COSTS> 557,959
<OTHER-EXPENSES> 294,382
<LOSS-PROVISION> 20,499
<INTEREST-EXPENSE> 295,900
<INCOME-PRETAX> (565,219)
<INCOME-TAX> 0
<INCOME-CONTINUING> (565,219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650,881)
<EPS-BASIC> (12.91)
<EPS-DILUTED> (12.91)
</TABLE>
