424B3 1 RULE 424 (B)(3) File Pursuant To Rule 424(b)(3) Registration No. 33-94702 PROSPECTUS 683,583 SHARES INTERMEDIA COMMUNICATIONS OF FLORIDA, INC. Common Stock ($.01 par value per share) _______________ This Prospectus is being used in connection with the offering from time to time by James F. Geiger, Mark A. Masi, Joseph A. Tortoretti and Petrocelli Industries, Inc. (collectively, the "Selling Stockholders") of shares (the "Shares") of common stock, $.01 par value per share (the "Common Stock"), of Intermedia Communications of Florida, Inc., a Delaware corporation (the "Company" or "ICI"). The Selling Stockholders acquired 683,583 Shares from the Company on July 17, 1995 as a portion of the consideration for the acquisition by ICI of FiberNet USA, Inc. ("FiberNet USA") and FiberNet Telecommunications Cincinnati, Inc. ("FiberNet Cincinnati") (collectively, the "Acquisition"). The Shares may be offered by the Selling Stockholders in transactions in the over-the-counter-market at prices obtainable at the time of sale or in privately negotiated transactions at prices determined by negotiation. The Selling Stockholders may effect such transactions by selling the Shares to or through securities broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). Additionally, agents, brokers or dealers, including, without limitation, Bear Stearns Securities Corp., may acquire Shares or interests therein as a pledgee and may, from time to time, effect distributions of the Shares or interests in such capacity. See "The Selling Stockholders" and "Plan of Distribution." The Selling Stockholders and the brokers and dealers through whom sales of the Shares are made may be deemed "underwriters" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and any profits realized by them on the sale of the Shares may be considered to be underwriting compensation. The Company is not selling any of the Shares and will not receive any of the proceeds from the sale of the Shares being sold by the Selling Stockholders. The cost of registering the Shares is being borne by the Company. On August 16, 1995, the closing price for the Common Stock as quoted on the National Association of Securities Dealers, Inc. Automated Quotations System National Market ("Nasdaq National Market") was $15.625 per share. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER THE CAPTION "RISK FACTORS." _____________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. _____________________ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE DATE OF THIS PROSPECTUS IS AUGUST 21, 1995. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, its Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at its Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is listed on the Nasdaq National Market under the symbol "ICIX". Reports, proxy and information statements, and other information concerning the Company can also be inspected at the Nasdaq National Market at 1735 17 Street, N.W., Washington, D.C. 20006-1506. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents or information have been filed by the Company with the Commission and are incorporated herein by reference: The Company's Annual Report on Form 10-K for the year ended December 31, 1994. The portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company held on May 26, 1995 that have been incorporated by reference into the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The Company's Current Report on Form 8-K/A filed with the Commission on January 27, 1995. The Company's Current Report on Form 8-K filed with the Commission on February 3, 1995. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. The Company's Current Report on Form 8-K filed with the Commission on June 20, 1995. The Company's Current Report on Form 8-K filed with the Commission on July 19, 1995. The Company's Current Report on Form 8-K/A filed with the Commission on August 2, 1995. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. The description of capital stock contained in the Company's registration statements on Form 8-A under the Exchange Act, filed April 7, 1992, April 28, 1992 and April 30, 1992 (File No. 0-20135). All documents subsequently filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering covered by this Prospectus will be deemed incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON TO INTERMEDIA COMMUNICATIONS OF FLORIDA, INC., 9280 BAY PLAZA BOULEVARD, SUITE 720, TAMPA, FLORIDA 33619 (TELEPHONE 813- 621-0011), ATTENTION: RONALD L. TOLLIVER, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS. 2 RISK FACTORS Prospective investors should consider carefully the following factors relating to the business of the Company and this offering, in addition to other information set forth elsewhere in this Prospectus, before purchasing Shares in this offering. Limited Operations; History of Net Losses. The Company's business commenced in 1987 and substantially all of the Company's revenues are derived from traditional competitive access provider ("CAP") services, enhanced data services, integration services and long distance services (through its recent acquisition of Phone One, Inc. ("Phone One")). The Company is expecting to substantially grow the size of its operations and number of service offerings in the near future. Prospective investors, therefore, have limited historical financial information about the Company upon which to base an evaluation of the Company's performance and an investment in the Common Stock. Given the Company's limited operating history, there is no assurance that it will be able to compete successfully in the telecommunications business. The development of the Company's business and the installation and expansion of its networks require significant expenditures, a substantial portion of which are incurred before the realization of revenues. Together with the associated early operating expenses, these capital expenditures result in negative cash flow until an adequate customer base is established. ICI reported net losses of approximately $0.2 million, $2.1 million and $3.1 million for the years ended December 31, 1992, 1993 and 1994, respectively. Although its revenues have increased in each of the last three years, ICI has incurred significant increases in expenses associated with the development and expansion of its fiber optic networks, services and customer base. There can be no assurance that ICI will achieve or sustain profitability in the future. Uncertainty of Future Regulation. The Company is subject to federal regulation by the Federal Communications Commission ("FCC") and local regulation by the Florida Public Service Commission, the Public Utilities Commission of Ohio and the Missouri Public Service Commission, and legislation was recently passed in North Carolina which will subject the Company to state regulation by the North Carolina Utilities Commission in 1996. The Company may also be subject to regulation by the public service commissions of other southeastern states into which the Company is expanding. In addition, many of these regulations may be subject to judicial review, the result of which ICI is unable to predict. The FCC has determined that non-dominant carriers, such as the Company, are required to file interstate tariffs on an ongoing basis. Challenges to these tariffs by third parties may cause the Company to incur significant legal and administrative expenses. In addition, to the extent the Company provides intrastate services, it is generally subject to certification and/or tariff filing requirements by state regulators, which vary on a state-by-state basis. Although the trend in federal and state regulations appears to favor increased competition, no assurance can be given that changes in current or future regulations adopted by the FCC or state regulatory bodies or legislative initiatives would not have a material adverse effect on the Company. Furthermore, the Company is currently prohibited from providing switched local services in its markets and there can be no assurance if, or when, any future regulatory changes would permit the Company to provide such services. Risks of Implementation. The Company is continuing to expand its CAP networks in each of the Orlando, Tampa, St. Petersburg, Miami, West Palm Beach and Jacksonville, Florida metropolitan areas and the FiberNet networks in Cincinnati, Ohio and Raleigh-Durham, North Carolina. In addition, FiberNet has networks under development in St. Louis, Missouri and Huntsville, Alabama. The Company has identified other expansion opportunities in Florida and other parts of the Southeast and is currently extending the reach of its networks to pursue such opportunities. There can be no assurance that the Company will be able to expand its existing networks or construct or acquire new networks as currently planned on a timely basis. The expansion of the Company's existing networks and its construction or acquisition of new networks will be dependent, among other things, on its ability to acquire rights-of-way and any required permits on satisfactory terms and conditions and on its ability to finance such expansion, acquisition and construction. These factors 3 and others could adversely affect the expansion of the Company's customer base on its existing networks and commencement of operations on new networks. If the Company is not able to expand, acquire or construct its networks in accordance with its plans, the growth of its business would be materially adversely affected. Competition. In each of its markets, the Company faces significant competition for the telecommunications services it offers from local exchange carriers ("LECs"), which currently dominate their local telecommunications markets. A continuing trend toward business combinations and alliances in the telecommunications industry may create significant new competitors to the Company. The Company also faces competition in most markets in which it operates from one or more CAPs operating fiber optic networks. In addition, the Company faces competition in its network systems integration business from equipment manufacturers, the regional Bell operating companies ("RBOCs") and other LECs, long distance carriers and systems integrators, and in its enhanced data services business from local telephone companies, long distance carriers and others. Many of the Company's existing and potential competitors have financial, personnel and other resources significantly greater than those of the Company. The Company believes that various legislative initiatives as well as a recent series of transactions and proposed transactions between telephone companies and cable companies increase the likelihood that the remaining barriers to total local exchange competition will be removed. The introduction of such competition, however, also increases the possibility that the RBOCs will be authorized to provide interexchange services. If 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 ICI. This result may also occur from the passage of federal legislation which would permit the RBOCs to provide interexchange services under certain circumstances. The Company cannot predict the number of competitors that will emerge as a result of any new federal and state regulations. Dependence on Key Customers. During 1993, two long distance carriers each accounted for more than 10% of the Company's revenues, and together accounted for approximately 30% of the Company's revenues. During 1994, one long distance carrier, MCI Communications Corporation ("MCI"), accounted for approximately 11% of the Company's revenues (including both the revenues for providing service used by the long distance carrier itself and revenues obtained from the long distance carrier for connections to its business customers), and was the only customer accounting for more than 10% of the Company's revenue during such period. The loss of MCI as a customer could have a material adverse effect on the Company's business. Significant Capital Requirements. Expansion of the Company's existing networks and services and the development of new networks and services require significant capital expenditures. ICI expects to fund additional capital requirements through existing resources, internally generated funds, joint ventures and debt or equity financing as appropriate. There can be no assurance, however, that ICI will be successful in producing sufficient cash flow or raising sufficient debt or equity capital on terms that it will consider acceptable. In addition, the Company's future capital requirements will depend upon a number of factors, including marketing expenses, staffing levels and customer growth, as well as other factors that are not within the Company's control, such as competitive conditions, governmental regulation and capital costs. Failure to generate sufficient funds may require ICI to delay or abandon some of its future expansion or expenditures, which would have a material adverse effect on its growth and its ability to compete in the telecommunications industry. Expansion Risk. The Company is experiencing a period of rapid expansion which management expects will increase in the near future. This growth has increased the operating complexity of the Company, as well as the level of responsibility for both existing and new management personnel. The Company's ability to manage its expansion effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The Company's inability to effectively manage its expansion could have a material adverse effect on its business. 4 Risk of New Service Acceptance. The Company offers a number of services that the Company believes are important to its long-term growth. The success of these services will be dependent upon, among other things, the willingness of business customers to accept new telecommunications technology. No assurance can be given that such acceptance will occur; the lack of such acceptance could have a material adverse effect on the Company. Rapid Technological Changes. The telecommunications industry is subject to rapid and significant changes in technology. While ICI believes that, for the foreseeable future, these changes will neither materially affect the continued use of its fiber optic networks nor materially hinder its ability to acquire necessary technologies, the effect on the business of ICI, of technological changes such as changes relating to emerging wireline and wireless transmission technologies, including software protocols, cannot be predicted. Dependence on Key Personnel. The Company's business is managed by a small number of key management and operating personnel, the loss of certain of whom could have a material adverse impact on the Company's business. The Company believes that its future success will depend in large part on its continued ability to attract and retain highly skilled and qualified personnel. None of the Company's executives, other than David C. Ruberg, President, Chief Executive Officer and Chairman of the Board, and Timothy Tuck and certain other executives of Phone One, is a party to an employment agreement with the Company. Risk of Cancellation or Non-Renewal of Network Agreements. The Company has lease and/or purchase agreements for rights-of-way, utility pole attachments, conduit and dark fiber for its fiber optic networks in the Orlando, Tampa, St. Petersburg, Miami, West Palm Beach and Jacksonville, Florida metropolitan areas and FiberNet has similar agreements for its fiber optic networks in the Cincinnati, Ohio and Raleigh-Durham, North Carolina metropolitan areas as well as the FiberNet networks under development in St. Louis, Missouri and Huntsville, Alabama. Although the Company does not believe that any of these agreements will be cancelled in the near future, cancellation or non-renewal of certain of such agreements could materially adversely affect the Company's business in the affected metropolitan area. Anti-Takeover Provisions. The Company's Certificate of Incorporation and Bylaws, the provisions of the Delaware General Corporation Law and a certain debt instrument that the Company has entered into may make it difficult in some respects to effect a change in control of the Company and replace incumbent management. The existence of these provisions may have a negative impact on the price of the Common Stock, may discourage third party bidders from making a bid for the Company, or may reduce any premiums paid to stockholders for their Common Stock. In addition, the Board has the authority to fix the rights and preferences of and issue shares of the Company's Preferred Stock, which may have the effect of delaying or preventing a change in control of the Company without action by its stockholders. Lack of Dividend History. The Company has never declared or paid any cash dividends on its Common Stock and does not expect to declare any such dividends in the foreseeable future. Payment of any future dividends will depend upon earnings and capital requirements of the Company, the Company's debt facilities and other factors the Board of Directors considers appropriate. ICI intends to retain its earnings, if any, to finance the development and expansion of its business, and therefore does not anticipate paying any dividends in the foreseeable future. In addition, the terms of an existing indenture prohibits the payment of dividends. Shares Eligible for Future Sale. Future sales of shares by existing stockholders under Rule 144 of the Securities Act, or through the exercise of outstanding registration rights or the issuance of shares of Common Stock upon the exercise of options or warrants could materially adversely affect the market price of shares of Common Stock and could materially impair the Company's future ability to raise capital through an offering of equity securities. Substantially all of the Company's outstanding shares, other than those held by affiliates, are transferable without restriction under the Securities Act. The Company has registered 1,046,000 shares of 5 Common Stock for issuance upon exercise of options granted to its employees under the Company's 1992 Stock Plan. Options to acquire 272,452 shares of Common Stock were currently exercisable under the 1992 Stock Plan at July 14, 1995. No predictions can be made as to the effect, if any, that market sales of such shares or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. 6 THE COMPANY The Company is a leading provider of competitive access telecommunications services to business and governmental customers that have a presence in the southeastern United States. Founded in 1987, the Company was among the first CAPs in the United States. CAPs are telecommunications companies that offer customers an alternative to the local telephone company for certain services. Initially, the Company's services were generally limited to such traditional CAP services as high capacity interconnection between (i) points of presence ("POPs") of a long distance carrier ("IXC"), (ii) the POPs of different IXCs, (iii) large customers and their selected IXCs and (iv) different locations of particular customers. Building upon the Company's reputation for delivering reliable, high quality telecommunications services, it has expanded beyond traditional CAP services to provide enhanced data, long distance and other value added services. Since its inception, the Company has constructed and operated fully digital, fiber optic networks in Florida's leading business and metropolitan areas and through its acquisition of FiberNet USA and FiberNet Cincinnati is constructing and operating such networks in other southeastern states. The Company has expanded the reach of its networks for provision of enhanced date services to 402 cities nationwide as of March 31, 1995. As a result of the Company's deployment of advanced broadband fiber networks, it offers traditional and enhanced voice, data and video services, many of which cannot be carried over traditional analog, copper networks without significant degradation. Thus, the Company's networks offer a high quality alternative to local telephone companies where such companies are dependent upon copper based facilities. In December 1994, the Company acquired Phone One, an interexchange carrier that provides (i) domestic and international telecommunications services to commercial and residential customers, (ii) termination services for other long distance carriers and (iii) long distance and other telecommunications services for resellers of Phone One's services to commercial or other customers. Phone One transmits long distance telephone calls through its network over digital transmission lines that are leased from facilities-based carriers. FiberNet USA and FiberNet Cincinnati, recently acquired subsidiaries of the Company, are fiber-based CAPs. FiberNet USA, through its operating subsidiaries, has a fiber optic network in Raleigh-Durham, North Carolina and fiber optic networks under development in St. Louis, Missouri and Huntsville, Alabama. Due to state regulations, FiberNet USA's subsidiaries will be limited to operating as interstate carriers in North Carolina and Alabama providing access to and between IXCs and between customers and their IXCs. A legislative initiative was recently passed in North Carolina which will permit FiberNet USA to provide intrastate services under the jurisdiction of the North Carolina Utilities Commission beginning in July 1996. FiberNet Cincinnati currently has a fiber optic network in Cincinnati, Ohio constructed within the conduit system of MCI Metro Access Transmission Services, Inc. The Company's principal executive offices are located at 9280 Bay Plaza Boulevard, Suite 720, Tampa, Florida 33619, and its telephone number at that address is (813) 621-0011. 7 THE SELLING STOCKHOLDERS Pursuant to an Agreement and Plan of Merger, dated as of February 15, 1995 (the "Merger Agreement"), among the Company, the Selling Stockholders, FAC Acquisition, Inc., CAC Acquisition, Inc. and Santo Petrocelli, on July 17, 1995, the Company issued an aggregate of 683,583 Shares to the Selling Stockholders as part of the consideration paid for the Acquisition. The following table sets forth, as of the date of the Acquisition, certain information regarding the Selling Stockholders' ownership of the Shares.
================================================================================================================= BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING/1/ AFTER OFFERING/1/ ----------------------------------------------------------------------------------------------------------------- NUMBER OF NUMBER OF NUMBER OF NAME OF SELLING STOCKHOLDER SHARES PERCENT SHARES OFFERED SHARES PERCENT ------------------------------------------------------------------------------------------------------------------ Petrocelli Industries, Inc. 483,269 4.67% 483,269 0 0.00% ------------------------------------------------------------------------------------------------------------------ Joseph A. Tortoretti 84,753 0.82% 84,753 0 0.00% ------------------------------------------------------------------------------------------------------------------ James F. Geiger/2/ 63,530/3/ 0.61% 61,030 2,500 0.02% ------------------------------------------------------------------------------------------------------------------ Mark A. Masi/4/ 56,781/5/ 0.55% 54,531 2,250 0.02% ==================================================================================================================
The 683,583 Shares owned by the Selling Stockholders represent all of the Shares covered by the Registration Statement of which this Prospectus is a part (the "Registration Statement"). Except as disclosed in the footnotes to the above table, to the knowledge of the Company the Selling Stockholders did not own, nor have any rights to acquire, any other shares of Common Stock as of the date of this Prospectus. The 683,583 Shares had an aggregate market value of $8,630,235 on July 14, 1995 (based on the $12.625 per share closing price of the Common Stock on that date). Except as disclosed in the footnotes to the above table, no Selling ___________________________________ /1/ Under the rules of the Commission, a person is deemed to be the beneficial owner of a security if such person has or shares the power to vote or direct the voting of such security or the power to dispose or direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities if that person has the right to acquire beneficial ownership within 60 days. Accordingly, more than one person may be deemed to be a beneficial owner of the same securities. Unless otherwise indicated by footnote, the named individuals have sole voting and investment power with respect to the shares of Common Stock beneficially owned. /2/ James F. Geiger is the Vice President of Alternate Channel Sales of the Company and the President of FiberNet USA and FiberNet Cincinnati, both wholly owned subsidiaries of the Company. /3/ Includes options to purchase 2,500 shares of Common Stock exercisable within 60 days of the date hereof. Excludes options to purchase 47,500 shares of Common Stock that are not exercisable within 60 days of the date hereof. /4/ Mark A. Masi is the Vice President, Operations and Customer Service of the Company and the Executive Vice President and Chief Financial Officer of FiberNet USA and FiberNet Cincinnati, both wholly owned subsidiaries of the Company. /5/ Includes options to purchase 2,250 shares of Common Stock that are exercisable within 60 days of the date hereof. Excludes options to purchase 42,750 shares of Common Stock that are not exercisable within 60 days of the date hereof. 8 Stockholder has held any position, office or had any other material relationship with the Company, its predecessors or affiliates during the past three years. A total of 83,333 of the Shares (the "Holdback Shares") are being held by an escrow agent (the "Escrow Agent") as security for certain indemnification obligations of the Selling Stockholders pursuant to the Merger Agreement. Unless on or before March 31, 1996, the Company gives notice to the Selling Stockholders asserting a claim for indemnification pursuant to the Merger Agreement, then on April 1, 1996, the Company is required to instruct the Escrow Agent to deliver the Holdback Shares to the representative of the Selling Stockholders for distribution to the Selling Stockholders. If on or before such date, the Company asserts such a claim and, within ten days thereafter, the Selling Stockholders do not object to such claim, then the Company is entitled to effect indemnification for any damages it sustained pursuant to such claim (to the extent the Holdback Shares are sufficient therefor) by cancelling that number of Holdback Shares having a value equal to the amount of such damages (determined by dividing the amount of damages by $12.00). If the Selling Stockholders object to the Company's claim for indemnification and the parties do not agree as to the amount of the damages for which the Company is entitled to indemnification pursuant to the Merger Agreement, then the dispute is to be determined by binding arbitration. Promptly following the resolution of any such dispute (whether by arbitration or agreement between the parties), the Company is entitled to effect indemnification for such damages (to the extent the Holdback Shares are sufficient therefor) by cancelling that number of Holdback Shares determined in accordance with the formula described above. The Selling Stockholders may substitute cash (or cash equivalents reasonably acceptable to the Company) for the Holdback Shares at any time by delivering to the Escrow Agent an amount of money equal to the product of the number of Holdback Shares held by the Escrow Agent at such time by $12.00. Pursuant to the Merger Agreement, the Company is required to file a registration statement covering the Shares and to use its reasonable efforts to keep such registration statement continuously effective for a period of three years following the date on which it is declared effective (or, except as otherwise provided in the Merger Agreement, to immediately file a new registration statement in the event such effectiveness lapses at any time during such three-year period). The Company has filed the Registration Statement in accordance with the Merger Agreement, and if necessary, the Company is required to file and to use its reasonable efforts to have declared effective as soon as practicable following filing additional registration statements or amendments as necessary to maintain such effectiveness for the three-year period. The Shares were acquired by the Selling Stockholders pursuant to an exemption from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Pursuant to the Merger Agreement, the Selling Stockholders have agreed that they will not sell or transfer more than 1/24th of the Shares during each of the 24 months following the date of the Merger Agreement (calculated on a cumulative basis). However, this restriction will not prohibit (i) a person or entity to which the Shares are pledged from selling such Shares after a default in the obligations secured by such pledge or (ii) a Selling Stockholder from selling such Shares upon the announcement by the Company of a change in Control of the Company (as defined in the Merger Agreement), whereupon the foregoing restriction on the sale or transfer of the Shares will immediately lapse. 9 PLAN OF DISTRIBUTION The Shares may be offered by the Selling Stockholders in transactions in the over-the-counter market at prices obtainable at the time of sale or in privately negotiated transactions at prices determined by negotiation. The Selling Stockholders may effect such transactions by selling the Shares to or through securities broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). Additionally, agents, brokers or dealers, including, without limitation, Bear Stearns Securities Corp., may acquire Shares or interests therein as a pledgee and may, from time to time, effect distributions of the Shares or interests in such capacity. The Selling Stockholders and any broker-dealers who act in connection with the sale of the Shares hereunder may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and profit on any resale of the Shares as principal might be deemed to be underwriting discounts and commissions under the Securities Act. LEGAL MATTERS The legality of the Shares of Common Stock offered hereby will be passed upon for the Company by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of Kronish, Lieb, Weiner & Hellman LLP, beneficially owns 10,745 shares of the Common Stock. 10