-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HnxviHO7ldDVFWn7KT+c+yDV9C4S3/Ath7QW7mXViJ8lZEA53+hCL0aiqtt9QLq0 OWc4rBPR+E5aglGn6Bwgbw== 0000940180-97-000801.txt : 19970918 0000940180-97-000801.hdr.sgml : 19970918 ACCESSION NUMBER: 0000940180-97-000801 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970915 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERMEDIA COMMUNICATIONS OF FLORIDA INC CENTRAL INDEX KEY: 0000885067 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 592913586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-33415 FILM NUMBER: 97680768 BUSINESS ADDRESS: STREET 1: 3625 QUEEN PALM DR STREET 2: STE 720 CITY: TAMPA STATE: FL ZIP: 33619 BUSINESS PHONE: 8138290011 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3/A As filed with the Securities and Exchange Commission on September 15, 1997 Registration No. 333-33415 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _____________________ INTERMEDIA COMMUNICATIONS INC. (Exact name of registrant as specified in its charter) _____________________ Delaware 59-29-13586 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3625 Queen Palm Drive Tampa, Florida 33619 (813) 829-0011 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) _____________________ David C. Ruberg, Chairman of the Board, President and Chief Executive Officer Intermedia Communications, Inc. 3625 Queen Palm Drive Tampa, Florida 33619 (813) 829-0011 (Name, address, including zip code, and telephone number, including area code, of agent for service) _____________________ Copy to: Ralph J. Sutcliffe, Esq. Kronish, Lieb, Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036-7798 _____________________ Approximate date of commencement of proposed sale to public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend on interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] _____________________ CALCULATION OF REGISTRATION FEE
==================================================================================================== Title of Securities Amount to be Price Aggregate Amount of to be Registered Registered Per Share Price Registration Fee --------------------------------------------------------------------------------------------------- Depositary Shares 6,900,000 $28.25(1) $ 194,925,000 $59,068.18 each representing a one hundredth interest in a share of 7% Series D Junior Convertible Preferred Stock (liquidation preference $25.00 per share) - ---------------------------------------------------------------------------------------------------- 7% Series D 69,000 N.A. N.A. (2) Junior Convertible Preferred Stock, liquidation preference $2,500 per share, $1.00 par value per share ==================================================================================================== Common Stock, 4,434,448(3)(4) N.A. N.A. (2) $.01 par value per share issuable upon conversion of the Depositary Shares and 7% Series D Junior Convertible Preferred Stock - ---------------------------------------------------------------------------------------------------- Common Stock, (5) (5) $26,363,750.00(5) $ 7,989.01 $.01 par value per issuable as dividends on the 7% Series D Junior Convertible Preferred Stock ==================================================================================================== Common Stock, 31,380 $38.5625(1) $ 1,210,091.25 $ 366.70 $.01 par value per share ==================================================================================================== Total: $67,413.73(6)
(1) Average of the bid and asked prices on August 8, 1997, pursuant to Rule 457(c). (2) Pursuant to Rule 457(i), a registration fee is not required in connection with the registration of the Series D Preferred Stock or the Common Stock issuable upon conversion of the Depositary Shares or shares of the Series D Preferred Stock. (3) An indeterminate number of additional shares of Common Stock are registered hereunder which may be issued in the event that fractional shares of Depositary Shares or Series D Preferred Stock are rounded up to the nearest whole share in connection with the conversion of Depositary Shares or shares of Series D Preferred Stock. (4) Pursuant to Rule 416, an indeterminate number of additional shares of Common Stock are registered hereunder which may be issued in the event that applicable antidilution provisions with respect to conversion of the Depositary Shares and Series D Preferred Stock become operative. (5) Pursuant to Rule 457(o), an indeterminate number of shares of Common Stock are registered hereunder which may be issued by the Company from time to time in lieu of cash during the two year period commencing on the effective date of this Registration Statement as dividends on the 7% Series D Junior Convertible Preferred Stock. (6) $60,000.00 was previously paid on August 12, 1997. _____________________ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE OR DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 15, 1997 INTERMEDIA COMMUNICATIONS INC. 6,900,000 DEPOSITARY SHARES EACH REPRESENTING A ONE HUNDREDTH INTEREST IN A SHARE OF 7% SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK, 69,000 SHARES OF 7% SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK, 4,465,828 SHARES OF COMMON STOCK AND COMMON STOCK ISSUABLE AS DIVIDENDS ON THE 7% SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK. _______________ This Prospectus is being used in connection with the offering from time to time by certain holders (the "Selling Securityholders") of (1) depositary shares (the "Depositary Shares") each representing a one hundredth interest in a share of 7% Series D Junior Convertible Preferred Stock ("Series D Preferred Stock"), liquidation preference $2,500 per share (equivalent to $25.00 per Depositary Share; the "Liquidation Preference"), par value $1.00 per share of Intermedia Communications Inc. (the "Company" or "Intermedia"), (2) the shares of Series D Preferred Stock and the shares (the "Common Shares") of common stock, $.01 par value per share, of the Company (the "Common Stock") issuable upon conversion of the Series D Preferred Stock and/or the Depositary Shares and (3) the Universal Shares (as defined herein) (the Depositary Shares, Series D Preferred Stock, Common Shares and Universal Shares are collectively referred to herein as the "Securities"). This Prospectus is also being used in connection with the issuance by the Company from time to time during the two year period commencing on the date of this Prospectus and in accordance with the Certificate of Designation (as defined herein) of an indeterminate number of shares of Common Stock issuable by the Company in lieu of cash as dividends on the Series D Preferred Stock (the "Dividend Shares"). See "Description of Preferred Stock--Dividends." The Depositary Shares were originally issued by the Company in a private placement on July 9, 1997 (the "First Closing") and purchased by Bear Stearns & Co., Inc. and Salomon Brothers Inc (the "Initial Purchasers") pursuant to a purchase agreement (the "Purchase Agreement") dated as of July 2, 1997 between the Company and the Initial Purchasers. Subsequently, the Initial Purchasers exercised the over-allotment option in connection therewith. The First Closing and the over-allotment exercise are collectively referred to herein as the "July 9 Equity Offering". The Initial Purchasers, in turn, resold the Depositary Shares in private sales pursuant to exemptions from registration under the Securities Act of 1933, as amended. (continued on next page) PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER THE CAPTION "RISK FACTORS" ON PAGE 3. _____________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1997. This prospectus is also being used in connection with the offering from time to time by certain holders (the "W&B Holders") of 31,380 shares of Common Stock (the "Universal Shares") which were acquired by the W&B Holders from the Company on December 6, 1996 in connection with the acquisition by the Company of W&B (formerly known as Universal Telecom, Inc. d/b/a Universal Telecom Technologies ("Universal")) pursuant to an asset acquisition agreement, dated December 6, 1996 among the Company, Universal, William M. Wunderlich and Ray Bove (the "Asset Acquisition Agreement"). 27,554 of the Universal Shares are currently subject to an escrow arrangement. Holders of the Depositary Shares are entitled to all proportional rights and preferences of the Series D Preferred Stock (including dividend, voting, redemption and liquidation rights). Dividends on the Series D Preferred Stock accrue at a rate per annum equal to 7% of the Liquidation Preference per share of Series D Preferred Stock and are payable quarterly, in arrears, on July 15, October 15, January 15 and April 15 of each year, commencing on October 15, 1997. Dividends are payable in cash or at the option of the Company, in shares of Common Stock, or a combination thereof. The Depositary Shares are convertible, subject to prior redemption at any time after October 7, 1997, at the option of the holder thereof into Common Stock at a conversion price of $38.90 per share, subject to certain adjustments. The Series D Preferred Stock and the Depositary Shares are redeemable, in whole or in part, at the option of the Company at any time on or after July 19, 2000, at the redemption prices set forth herein, plus accumulated and unpaid dividends and Preferred Stock Liquidated Damages (as defined herein), if any, thereon to the redemption date. See "Description of Preferred Stock" and "Description of Depositary Shares." Upon the occurrence of a Preferred Stock Change of Control (as defined herein), the Company will be required to make an offer to repurchase all outstanding shares of Series D Preferred Stock at a price equal to 100% of the Liquidation Preference thereof, plus accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any, thereon to the repurchase date. The Series D Preferred Stock ranks (i) senior to all Junior Securities (as defined herein), including all Common Stock of the Company; (ii) on a parity with any Parity Securities (as defined herein); and (iii) junior to each class of Senior Securities (as defined herein), including the Company's outstanding 13 1/2% Series B Redeemable Exchangeable Preferred Stock due 2009 ("Series B Preferred Stock"), and junior to all indebtedness and other obligations of the Company and its subsidiaries. As of June 30, 1997, on a pro forma basis after giving effect to the July 9 Equity Offering and the concurrent private placement of $649 million principal amount at maturity of 11 1/4% Notes on July 9, 1997 (including the exercise of the over-allotment option in connection therewith) (the "July 9 Debt Offering", and collectively with the July 9 Equity Offering, the "July 9 Offerings") and the application of the proceeds therefrom, the Series D Preferred Stock would have been junior in right of payment to approximately $985.6 million of liquidation preference of Series B Preferred Stock and total indebtedness and other obligations of the Company and its subsidiaries. See "Description of Preferred Stock-Ranking." The Securities may be sold from time to time to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer the Securities through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Securities for whom they may act as agent. The Selling Securityholders and any such brokers, dealers or agents who participate in the distribution of the Securities may be deemed to be "underwriters", and any profits on the sale of the Securities by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Securityholders may be deemed to be underwriters, the Selling Securityholders may be subject to certain statutory liabilities of the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. See "Plan of Distribution." The Selling Securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders and any other such person. All of the foregoing may affect the marketability of the Securities and the ability of any person or entity to engage in market-making activities with respect to the Securities. ii The Company will not receive any proceeds from the sale of the Securities or the issuance of the Dividend Shares offered hereby. The Company has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Securities to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. On September 11, 1997, the closing price for the Common Stock as quoted on the National Association of Securities Dealers, Inc. Automated Quotation System National Market ("Nasdaq National Market"), under the symbol "ICIX", was $37.75 per share. The Company has not and does not intend to apply for the listing of the Depositary Shares or the Series D Preferred Stock on any securities exchange or for quotation through the Nasdaq National Market. The Series D Preferred Stock and the Depositary Shares are eligible for trading in the National Association of Securities Dealers' Private Offerings, Resales and Trading Through Automative Linkages ("PORTAL") Market. iii 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. Such material can also be inspected at the Web site of the Commission located at http://www.sec.gov. The Common Stock is listed on the Nasdaq National Market under the symbol "ICIX". Reports, proxy and information statements, and other information concerning the Company can also be inspected at the Nasdaq National Market at 1735 17 Street, N.W., Washington, D.C. 20006-1506. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement of which this Prospectus forms a part, each such statement being qualified in all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents or information have been filed by the Company with the Commission and are incorporated herein by reference: The Company's Annual Report on Form 10-K for the year ended December 31, 1996. The Company's Annual Report on Form 10-K/A for the year ended December 31, 1996 filed with the Commission on May 15, 1997. The portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company held on May 22, 1997 that have been incorporated by reference into the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The Company's Current Report on Form 8-K filed with the Commission on February 24, 1997. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. The Company's Current Report on Form 8-K filed with the Commission on March 14, 1997. The Company's Current Report on Form 8-K filed with the Commission on June 5, 1997. The Company's Current Report on Form 8-K filed with the Commission on July 9, 1997. The Company's Current Report on Form 8-K filed with the Commission on July 17, 1997. The Company's Current Report on Form 8-K/A filed with the Commission on August 4, 1997. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. The description of the capital stock contained in the Company's registration statements on Form 8-A under the Exchange Act, filed April 7, 1992, April 28, 1992 and April 30, 1992 (File No. 0-20135). 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, INC., 3625 QUEEN PALM DRIVE, TAMPA, FLORIDA 33619 (TELEPHONE 813-829-0011), ATTENTION: INVESTOR RELATIONS, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS. 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 the Securities offered hereby. Restrictions on the Company's Ability to Pay Dividends on the Series D Preferred Stock. To date, the Company has not paid dividends on its shares of capital stock. The ability of Intermedia to pay cash dividends on the Series D Preferred Stock is substantially restricted under various covenants and conditions contained in the Indenture (the "12 1/2% Notes Indenture") governing the Company's 12 1/2% Senior Notes due 2006 (the "12 1/2% Notes"), the Indenture (the "11 1/4% Notes Indenture", and together with the 12 1/2% Notes Indenture, the "Existing Senior Notes Indentures") governing the Company's 11 1/4% Senior Discount Notes due 2007 (the "11 1/4% Notes", and together with the 12 1/2% Notes, the "Existing Senior Notes") and the Certificate of Designation (the "Series B Certificate of Designation") setting forth the rights of the Series B Preferred Stock. In addition to the limitations imposed on the payment of dividends by the Existing Senior Notes Indentures and the Series B Certificate of Designation, under Delaware law the Company is permitted to pay dividends on its capital stock, including the Series D Preferred Stock, only out of its surplus, or in the event that it has no surplus, out of its net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. Surplus is defined as the excess of a company's total assets over the sum of (i) its total liabilities and (ii) the par value of its outstanding capital stock. At June 30, 1997, the Company had stockholders equity of $44.9 million and surplus of $44.7 million. The Company historically has had net losses in each of the last five years and expects to operate at a net loss for the next several years. These net losses will reduce stockholders' equity and the surplus of the Company. For the six months ended June 30, 1997, the Company had a net loss attributable to common stockholders of $70.2 million ($128.5 million on a pro forma basis after giving effect to the July 9 Offerings (and the application of proceeds therefrom) and the DIGEX Acquisition (as defined herein)). In order to pay dividends in cash, the Company must have surplus or net profits equal to the full amount of the cash dividend at the time such dividend is declared. The Company cannot predict what the value of its assets or the amount of its liabilities will be in the future and, accordingly, there can be no assurance that the Company will be able to pay cash dividends on the Series D Preferred Stock. In the event dividends are paid in shares of Common Stock, the number of shares of Common Stock to be issued on each dividend payment date will be determined by dividing the total dividend to be paid on each Depositary Share by 95% of the average of the high and low sales prices of the Common Stock as reported by the Nasdaq National Market or any national securities exchange upon which the Common Stock is then listed, for each of the ten consecutive trading days immediately preceding the fifth business day preceding the record date for such dividend. If such average is greater than 5.05% higher than the market value for the Common Stock on the dividend payment date and the holder sells at such lower price, the holder's actual dividend yield would be lower than the stated dividend yield on the Series D Preferred Stock. In addition, the holder is likely to incur commissions and other transaction costs in connection with the sale of such Common Stock. The Certificate of Designation provides that upon (a) the accumulation of accrued and unpaid dividends on the outstanding Series D Preferred Stock in an amount equal to six quarterly dividends (whether or not consecutive) and (b) the failure of the Company to make a Preferred Stock Change of Control Offer or to repurchase the Series D Preferred Stock tendered in a Preferred Stock Change of Control, the sole remedy to the holders of the Series D Preferred Stock is the voting rights arising from a Voting Rights Triggering Event (as defined herein). See "Description of Preferred Stock-Voting Rights." Limited Operations of Certain Services; History of Net Losses. The Company's business commenced in 1987. Substantially all of the Company's revenues are derived from local exchange services, enhanced data services, long distance services, integration services and certain local network services. Many of these services have only recently been initiated or their availability only recently expanded in new market areas. The Company is expecting to substantially increase the size of its operations in the near future. Prospective investors, therefore, have limited historical 3 financial information about the Company upon which to base an evaluation of the Company's performance. Given the Company's limited operating history, there is no assurance that it will be able to compete successfully in the telecommunications business. The development of the Company's business and the expansion of its networks require significant capital, operational and administrative expenditures, a substantial portion of which are incurred before the realization of revenues. These capital expenditures will result in negative cash flow until an adequate customer base is established. Although its revenues have increased in each of the last three years, Intermedia has incurred significant increases in expenses associated with the installation of local/long distance voice switches and expansion of its fiber optic networks, services and customer base. Intermedia reported net losses of approximately $3.1 million, $20.7 million, $57.2 million for the years ended December 31, 1994, 1995 and 1996 and net losses to holders of Common Stock of $70.3 million for the six months ended June 30, 1997, respectively. The Company anticipates recording a significant net loss in 1997 that is expected to be substantially greater than the loss in 1996 and expects net losses to continue for the next several years. In addition, the Company expects to have negative EBITDA in 1997. There can be no assurance that Intermedia will achieve or sustain profitability or positive EBITDA in the future. Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed Charges, Including Dividends on the Series D Preferred Stock. The Company is highly leveraged. At June 30, 1997, after giving pro forma effect to the July 9 Offerings and the application of the net proceeds of the July 9 Offerings (including the retirement of the Company's 13 1/2% Notes due 2005 ("13 1/2% Notes"), the "Retirement"), the Company would have had outstanding approximately $662.1 million in aggregate principal amount of indebtedness and other liabilities on a consolidated basis (including trade payables), approximately $323.5 million of obligations with respect to dividend payments and the mandatory redemption of the Series B Preferred Stock and $172.5 million of obligations with respect to the Series D Preferred Stock. The degree to which the Company is leveraged could have important consequences to holders of the Series D Preferred Stock, including the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to payment of the principal and interest on its indebtedness, to payment of dividends on and the redemption of the Series B Preferred Stock and the payment of dividends on the Series D Preferred Stock, thereby reducing funds available for other purposes; (ii) the Company's significant degree of leverage could increase its vulnerability to changes in general economic conditions or increases in prevailing interest rates; (iii) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes could be impaired; and (iv) the Company may be more leveraged than certain of its competitors, which may be a competitive disadvantage. For the six months ended June 30, 1997, and on a pro forma basis after giving effect to the July 9 Offerings, and the application of the proceeds therefrom (including the Retirement), the Company's pro forma earnings would have been inadequate to cover its pro forma combined fixed charges (including the Series D Preferred Stock dividend requirements) by $130.0 million. The Company anticipates that earnings will be insufficient to cover fixed charges for the next several years. In order for the Company to meet its debt service obligations, its dividend and redemption obligations with respect to the Series B Preferred Stock and its dividend obligations with respect to the Series D Preferred Stock if it elects to pay cash dividends, the Company will need to substantially improve its operating results. There can be no assurance that the Company's operating results will be of sufficient magnitude to enable the Company to meet its debt service obligations, its dividend and redemption obligations with respect to the Series B Preferred Stock and its dividend obligations with respect to the Series D Preferred Stock if it elects to pay cash dividends. In the absence of such operating results, the Company could face substantial liquidity problems and might be required to raise additional financing through the issuance of debt or equity securities; however, there can be no assurance that Intermedia would be successful in raising such financing, or the terms or timing thereof. Class Action by DIGEX Stockholders. On June 5, 1997, the Company announced that it had agreed to acquire 100% of the outstanding equity of DIGEX, Incorporated ("DIGEX"; the "DIGEX Acquisition"). The acquisition was consummated through a tender offer for all of the outstanding shares of DIGEX, which closed on July 9, 1997, followed by a cash merger effective on July 11, 1997 (the "Merger"). 4 On June 20, 1997, two purported class action complaints were filed in the Court of Chancery of the State of Delaware in and for New Castle County respectively by TAAM Associates, Inc. and David and Chaile Steinberg (the "Complaints"), purported stockholders of DIGEX, on behalf of all non-affiliated common stockholders of DIGEX, against Intermedia, DIGEX and the Directors of DIGEX (the "DIGEX Directors"). The Complaints allege that the DIGEX Directors violated their fiduciary duties to the public stockholders of DIGEX by agreeing to vote in favor of the Merger and that Intermedia knowingly aided and abetted such violation by offering to retain DIGEX management in their present positions and consenting to stock option grants to certain executive officers of DIGEX. The Complaints seek a preliminary and permanent injunction enjoining the Merger and cash damages from the DIGEX Directors. No application was made for a preliminary injunction prior to the consummation of the Merger. These cases are in their very early stages and no assurance can be given as to their ultimate outcome. Intermedia, after consultation with its counsel, believes that there are meritorious factual and legal defenses to the claims in the Complaints. Intermedia intends to defend vigorously the claims in the Complaints. Possible Default Under the 13 1/2% Notes Indenture. In connection with the July 9 Debt Offering, the Company defeased a portion of the Company's outstanding 13 1/2% Notes. Such defeasance will not become effective until the 91st day after the deposit with SunTrust Bank, Central Florida, National Association, as trustee ("SunTrust") of the funds necessary to defease the covenants in the indenture governing the 13 1/2% Notes (the "13 1/2% Notes Indenture"). Until such time as the defeasance becomes effective, the issuance by the Company of the 11 1/4 Notes constitutes an event which could be declared an Event of Default under the 13 1/2% Notes Indenture 30 days after the receipt of notice from SunTrust or the holders of 25% of the outstanding principal amount of the 13 1/2% Notes. If such an Event of Default were declared and the maturity of the 13 1/2% Notes were accelerated, this would constitute an Event of Default under the 12 1/2% Notes Indenture and under the Series B Certificate of Designation. If the 13 1/2% Notes were accelerated, a portion of the funds deposited with SunTrust could be used to repay the 13 1/2% Notes. If the 12 1/2% Notes were also accelerated the Company would have available funds to pay the 12 1/2% Notes, but such payment would significantly deplete the funds available for the Company's capital expansion plan. An Event of Default would not lead to acceleration of the Series B Preferred Stock. The Company's 13 1/2% Notes are and will remain classified as current liabilities on the Company's balance sheet until such time as the Retirement becomes effective. Regulatory Approval of the July 9 Offerings. Ten of the states in which the Company is certificated provide for prior approval of the issuance of debt and equity securities by the Company. One additional state in which the Company is certificated provides for prior approval of the issuance of preferred stock which is convertible into common stock. The requirement for such approvals may have been pre-empted by the National Securities Market Improvement Act of 1996, although there is no case law on this point. Because of time constraints, the Company was not able to obtain such approval from any of the eleven states prior to consummation of the July 9 Offerings. The Company has filed the required applications or notifications in each of the states and approval has been obtained in three of the states. In six of these states, the Company's intrastate revenues for the first quarter of 1997 were less than $1,000 per state and in only one state did such revenues exceed $4,000 for the first quarter. After consultation with counsel, the Company believes the remaining approvals will be granted and that obtaining such approvals subsequent to the July 9 Offerings should not result in any material adverse consequences to the Company, although there can be no assurance that such a consequence will not result. Significant Capital Requirements and Possible Need for Additional Financing. Expansion of the Company's existing networks and services and the development of new networks and services require significant capital expenditures. Intermedia expects to fund its capital requirements through existing resources including capital raised through the July 9 Offerings, credit availability and internally generated funds. However, there can be no assurance that the Company will not require additional financing. If the Company were to acquire additional financing, it would seek to obtain such financing through the sale of public or private debt and/or equity securities or through securing a bank credit facility. There can be no assurance, 5 as to the availability of the terms upon which such financing might be available. Moreover, the 12-1/2% Notes, the 11-1/4% Notes, the Series B Certificate of Designation and the Certificate of Designation impose certain restrictions upon the Company's ability to incur additional indebtedness or issue additional preferred stock. In addition, the Company's future capital requirements will depend upon a number of factors, including marketing expenses, staffing levels and customer growth, as well as other factors that are not within the Company's control, such as competitive conditions, government regulation and capital costs. Failure to generate sufficient funds may require Intermedia to delay or abandon some of its future expansion or expenditures, which would have a material adverse effect on its growth and its ability to compete in the telecommunications industry. Expansion Risk. 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. A portion of the Company's expansion may occur through acquisitions as an alternative to direct investments in the assets required to implement the expansion. No assurance can be given that suitable acquisitions can be identified, financed and completed on acceptable terms, or that the Company's future acquisitions, if any, will be successful or will not impair the Company's ability to service its outstanding obligations. Maintenance of Peering Relationships. The Internet is comprised of many Internet service providers ("ISPs") who operate their own networks and interconnect with other ISPs at various peering points. The establishment and maintenance of peering relationships with other ISPs is necessary in order to exchange traffic with other ISPs without having to pay settlement charges. Although the Company meets the industry's current standards for peering, there is no assurance that other national ISPs will maintain peering relationships with the Company. In addition, there may develop increasing requirements associated with maintaining peering with the major national ISPs with which the Company may have to comply. There can be no assurance that the Company will be able to expand or adapt their network infrastructure to meet the industry's evolving standards on a timely basis, at a commercially reasonable cost, or at all. Potential Liability of On-Line Service Providers. The law in the United States relating to the liability of on-line service providers and ISPs for information carried on, disseminated through or hosted on their systems is currently unsettled. Several private lawsuits seeking to impose such liability are currently pending. In one case brought against an ISP, Religious Technology Center v. Netcom On-Line Communication Services, Inc., the United States District Court for the Northern District of California ruled in a preliminary phase that under certain circumstances ISPs could be held liable for copyright infringement. The case has not reached final judgment. The Telecommunications Act of 1996 (the "1996 Act") prohibits and imposes criminal penalties and civil liability for using an interactive computer service to transmit certain types of information and content, such as indecent or obscene communications. On June 26, 1997, the Supreme Court affirmed the decision of a panel of three federal judges which granted a preliminary injunction barring enforcement of this portion of the 1996 Act to the extent that enforcement is based upon allegations other than obscenity or child pornography as an impermissible restriction on the First Amendment's right of free speech. In addition, numerous states have adopted or are currently considering similar types of legislation. The imposition upon ISPs or Web hosting sites of potential liability for materials carried on or disseminated through their systems could require the Company to implement measures to reduce their exposure to such liability, which may require the expenditure of substantial resources or the discontinuation of certain product or service offerings. The Company believes that it is currently unsettled whether the 1996 Act prohibits and imposes liability for any services provided by the Company should the content or information transmitted be subject to the statute. The increased attention focused upon liability issues as a result of these lawsuits, legislation and legislative proposals could affect the growth of Internet use. Any such liability or asserted liability could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence upon Network Infrastructure; Risk of System Failure, Security Risks. The Company's success in marketing its services to business and government users requires that the Company provide superior reliability, capacity and security via its network infrastructure. The Company's networks are subject to physical damage, power loss, 6 capacity limitations, software defects, breaches of security (by computer virus, break-ins or otherwise) and other factors, certain of which have caused, and will continue to cause, interruptions in service or reduced capacity for the Company's customers. Similarly, the Company's ISP business relies on the availability of its network infrastructure for the provision of Internet connectivity. Interruptions in service, capacity limitations or security breaches could have a material adverse effect on the Company's business, financial condition and results of operations. Subordination of the Series D Preferred Stock. The Company's obligations with respect to the Series D Preferred Stock are subordinate and junior in right of payment to all present and future indebtedness of the Company and its subsidiaries, including the Existing Senior Notes, to the Series B Preferred Stock and to all subsequent series of preferred stock of the Company which by its terms ranks senior to the Series D Preferred Stock. In addition to the substantial dividend restrictions set forth in the Existing Senior Notes Indentures, no cash dividend payments may be made with respect to the Series D Preferred Stock if (i) the obligations with respect to the Existing Senior Notes or Series B Preferred Stock are not paid when due or (ii) any other event of default has occurred under the Existing Senior Notes Indentures or Series B Certificate of Designation, and is continuing or would occur as a consequence of such payment. As of June 30, 1997, on a pro forma basis after giving effect to the July 9 Offerings and the application of the net proceeds therefrom, the Series D Preferred Stock would have been junior in right of payment to $985.6 million of indebtedness and other liabilities and commitments and liquidation preference of the Company and its subsidiaries. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Series D Preferred Stock only after all Senior Securities and all indebtedness of the Company have been paid, and there may not be sufficient assets remaining to pay amounts due on any or all of the Series D Preferred Stock then outstanding. See "Description of Preferred Stock- Ranking." Effect of Substantial Additional Indebtedness on the Company's Ability to Make Payments on the Series D Preferred Stock. The Existing Senior Notes Indentures and the Series B Certificate of Designation limit, but do not prohibit, the incurrence of additional indebtedness by the Company and its subsidiaries, and the Company may incur substantial additional indebtedness during the next few years to finance the construction of networks and purchase of network electronics, including local/long distance voice and data switches. All additional indebtedness of the Company will rank senior in right of payment to any payment obligations with respect to the Series D Preferred Stock. The debt service requirements of any additional indebtedness would make it more difficult for the Company to pay cash dividends with respect to the Series D Preferred Stock. Risks of Implementation; Need to Obtain Permits and Rights of Way. The Company is continuing to expand its existing networks. The Company has identified other expansion opportunities in the eastern half of the United States and is currently extending the reach of its networks to pursue such opportunities. There can be no assurance that 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. In addition, the Company may require pole attachment agreements with utilities and incumbent local exchange carriers ("ILECs") to operate existing and future networks, and there can be no assurance that such agreements will be obtained or obtainable on reasonable terms. These factors and others could adversely affect the expansion of the Company's customer base on its existing networks and commencement of operations on new networks. If the Company is not able to expand, acquire or construct its networks in accordance with its plans, the growth of its business would be materially adversely affected. Competition. In each of its markets, the Company faces significant competition for the local network services, including local exchange services, it offers from ILECs, which currently dominate their local telecommunications markets. ILECs have long-standing relationships with their customers which relationships may create competitive barriers. Furthermore, ILECs may have the potential to subsidize competitive service from monopoly service revenues. In addition, a continuing trend toward business combinations and alliances in the telecommunications industry may create significant new competitors to the Company. The Company also faces competition in most markets in which it 7 operates from one or more integrated communications services providers ("ICPs") and ILECs operating fiber optic networks. In addition, the Company faces competition in its integration services business from equipment manufacturers, the RBOCs and other ILECs, long distance carriers and systems integrators, and in its enhanced data services business (including Internet) from local telephone companies, long distance carriers, very small aperture terminal ("VSAT") providers, other ISPs and others. In particular, the market for Internet services is extremely competitive and there are limited barriers to entry. Many of the Company's existing and potential competitors have financial, personnel and other resources significantly greater than those of the Company. The Company believes that various legislative initiatives, including the recently enacted 1996 Act, have removed remaining legislative barriers to local exchange competition. Nevertheless, in light of the passage of the 1996 Act, regulators are also likely to provide ILECs with increased pricing flexibility as competition increases. If ILECs are permitted to lower their rates substantially or engage in excessive volume or term discount pricing practices for their customers, the net income or cash flow of ICPs and competitive local exchange carriers ("CLECs"), including the Company, could be materially adversely affected. In addition, while the Company currently competes with AT&T, MCI and others in the interexchange services market, the recent federal legislation permits the regional Bell operating companies ("RBOCs") to provide interexchange services once certain criteria are met. Once the RBOCs begin to provide such services, they will be in a position to offer single source service similar to that being offered by Intermedia. In addition, AT&T and MCI have entered and other interexchange carriers have announced their intent to enter into the local exchange services market, which is facilitated by the 1996 Act's resale and unbundled network element provisions. The Company cannot predict the number of competitors that will emerge as a result of existing or new federal and state regulatory or legislative actions. Competition from the RBOCs with respect to interexchange services or from AT&T, MCI or others with respect to local exchange services could have a material adverse effect on the Company's business. Regulation. The Company is subject to varying degrees of federal, state and local regulation. The Company is not currently subject to price cap or rate of return regulation, nor is it currently required to obtain FCC authorization for the installation, acquisition or operation of its network facilities. Further, the FCC issued an order holding that non-dominant carriers, such as the Company, are required to withdraw interstate tariffs for domestic long distance service. That order has been stayed by a federal appeals court and it is not clear at this time whether the detariffing order will be implemented. Until further action is taken by the court, the Company will continue to maintain tariffs for these services. In June 1997, the FCC issued another order stating that non-dominant carriers, such as the Company, 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 also requires the Company to file interstate tariffs on an ongoing basis for international traffic. The Company is generally subject to certification and tariff or price list filing requirements for intrastate services by state regulators. Although passage of the 1996 Act should result in increased opportunities for companies that are competing with the ILECs, no assurance can be given that changes in current or future regulations adopted by the FCC or state regulators or other legislative or judicial initiatives relating to the telecommunications industry would not have a material adverse effect on the Company. In addition, although the 1996 Act provides incentives to the ILECs that are subsidiaries of RBOCs to enter the long distance service market by requiring ILECs to negotiate interconnection agreements with local competitors, there can be no assurance that these ILECs will negotiate quickly with competitors such as the Company for the required interconnection of the competitor's networks with those of the ILECs. Potential Diminishing Rate of Growth. During the period from 1994 to 1996, the Company's revenues have grown at a compound annual growth rate of 169%. While the Company expects to continue to grow, as its size increases it is likely that its rate of growth will diminish. Risk of New Service Acceptance by Customers. The Company has recently introduced a number of services, primarily local exchange services, that the Company believes are important to its long-term growth. The success of these services will be dependent upon, among other things, the willingness of customers to accept the Company as the 8 provider of such services. No assurance can be given that such acceptance will occur; the lack of such acceptance could have a material adverse effect on the Company. Rapid Technological Changes. The telecommunications industry is subject to rapid and significant changes in technology. While Intermedia believes that, for the foreseeable future, these changes will neither materially affect the continued use of its fiber optic networks nor materially hinder its ability to acquire necessary technologies, the effect on the business of Intermedia of technological changes such as changes relating to emerging wireline and wireless transmission technologies, including software protocols, cannot be predicted. Dependence on Key Personnel. 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 key executives, other than David C. Ruberg, President, Chief Executive Officer and Chairman of the Board, is a party to a long-term employment agreement with the Company. Risk of Cancellation or Non-Renewal of Network Agreements, Licenses and Permits. The Company has lease and/or purchase agreements for rights-of-way, utility pole attachments, conduit and dark fiber for its fiber optic networks. Although the Company does not believe that any of these agreements will be 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. In addition, the Company has certain licenses and permits from local government authorities. The 1996 Act requires that local government authorities treat telecommunications carriers in a competitively neutral, non-discriminatory manner, and that most utilities, including most ILECs and electric companies, afford alternative carriers access to their poles, conduits and rights-of-way at reasonable rates on non-discriminatory terms and conditions. There can be no assurance that the Company will be able to maintain its existing franchises, permits and rights or to obtain and maintain the other franchises, permits and rights needed to implement its strategy on acceptable terms. Dependence on Business from Interexchange Carriers ("IXCs"). For the year ended December 31, 1996, approximately 10% of the Company's consolidated revenues were attributable to access services provided to IXCs. The loss of access revenues from IXCs in general could have a material adverse effect on the Company's business. In addition, the Company's growth strategy assumes increased revenues from IXCs from the deployment of local/long distance voice switches on its networks and the provision of switched access origination and termination services. There is no assurance that the IXCs will continue to increase their utilization of the Company's services, or will not reduce or cease their utilization of the Company's services, which could have a material adverse effect on the Company. Business Combinations; Change of Control. The Company has from time to time held, and continues to hold, preliminary discussions with (i) potential strategic investors who have expressed an interest in making an investment in or acquiring the Company and (ii) potential joint venture partners looking toward the formation of strategic alliances that would expand the reach of the Company's networks or services without necessarily requiring an additional investment in the Company. In addition to providing additional growth capital, management believes that an alliance with an appropriate strategic investor would provide operating synergy to, and enhance the competitive positions of, both Intermedia and the investor within the rapidly consolidating telecommunications industry. There can be no assurance that agreements for any of the foregoing will be reached. An investment, business combination or strategic alliance could constitute a change of control. The Existing Senior Notes Indentures and the Series B Certificate of Designation provide that a change of control would require the Company to repay the indebtedness and redeem the Series B Preferred Stock outstanding under such instruments. A change of control also requires the Company to offer to redeem the Series D Preferred Stock. The terms of the Existing Senior Notes and the Series B Certificate of Designation contain provisions that may prohibit the repurchase of the Series D Preferred Stock. If a change of control 9 does occur, there is no assurance that the Company would have sufficient funds to make such repayments and redemption or could obtain any additional debt or equity financing that could be necessary in order to repay the Existing Senior Notes and to redeem the Series B Preferred Stock in order to redeem the Series D Preferred Stock. Absence of a Public Market for the Depositary Shares. The Depositary Shares were issued by the Company in the July 9 Equity Offering. There is currently no market for the Series D Preferred Stock and the Depositary Shares. Although in connection with the private placement, the Initial Purchasers informed the Company that they intend to make a market for the Depositary Shares, they are not obligated to do so and any such market making activity may be discontinued at any time without notice. The Company does not intend to apply for listing of the Depositary Shares or the Series D Preferred Stock on any securities exchange or on the Nasdaq National Market. Accordingly, there can be no assurance as to the development or liquidity of any market for the Depositary Shares. If a market for the Depositary Shares were to develop, the Depositary Shares may trade at prices that may be higher or lower than their initial offering price depending upon many factors, including prevailing interest rates, the Company's operating results and the markets for similar securities. Historically, the market for securities such as the Depositary Shares has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Depositary Shares. There can be no assurance that, if a market for the Depositary Shares were to develop, such a market would not be subject to similar disruptions. The Company does not expect a market for the Series D Preferred Stock to develop. Certain Tax Considerations. For a discussion of certain material federal income tax considerations which are relevant to the purchase, ownership and disposition of the Depositary Shares and the Series D Preferred Stock, see "Certain Federal Income Tax Consequences." Anti-Takeover Provisions. The Company's Certificate of Incorporation and Bylaws, the provisions of the Delaware General Corporation Law (the "DCGL"), the Existing Senior Notes Indentures, the Series B Certificate of Designation and the Certificate of Designation (as defined herein) may make it difficult in some respects to effect a change in control of the Company and replace incumbent management. In addition, the Company's Board of Directors has adopted a Stockholder's Rights Plan , pursuant to which rights to acquire a series of preferred stock, exercisable upon the occurrence of certain events, were distributed to its stockholders. The existence of these provisions may have a negative impact on the price of the Common Stock, may discourage third party bidders from making a bid for the Company, or may reduce any premiums paid to stockholders for their Common Stock. In addition, the Board has the authority to fix the rights and preferences of, and to issue shares of, the Company's preferred stock, which may have the effect of delaying or preventing a change in control of the Company without action by its stockholders. Shares Eligible for Future Sale. Future sales of shares by existing stockholders under Rule 144 of the Securities Act, or through the exercise of outstanding registration rights or the issuance of shares of Common Stock upon the exercise of options or warrants or conversion of convertible securities could materially adversely affect the market price of shares of Common Stock and could materially impair the Company's future ability to raise capital through an offering of equity securities. Substantially all of the Company's outstanding shares, other than those held by affiliates, are transferable without restriction under the Securities Act. In addition to the shares registered hereunder, the Company has filed registration statements covering the offering of approximately 2,392,463 shares of Common Stock by selling security holders. In addition, the Company has registered 4,785,000 shares of Common Stock for issuance upon exercise of options granted to its employees under the Company's existing stock option plans. At June 30, 1997, options to acquire 769,589 shares of Common Stock were currently exercisable under the Company's existing stock option plans. No predictions can be made as to the effect, if any, that market sales of such shares or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. Forward Looking Statements. The statements contained in this Prospectus that are not historical facts are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking terminology such as "estimates," "projects," "anticipates," "expects," "intends," "believes," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader that these forward-looking 10 statements are only estimates or predictions. No assurance can be given that future results will be achieved; actual events or results may differ materially as a result of risks facing the Company or actual results differing from the assumptions underlying such statements. RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Pro Forma(1) Pro Forma(2) Year Ended Six Months Six Months Year Ended December 31, December 31, Ended June 30, Ended June 30, - --------------------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1996 1996 1997 1997 - --------------------------------------------------------------------------------------------------- Ratio of earnings to - - - - - - - - - combined fixed charges and preferred stock dividends(3) - -------------------------------------------------------------------------------------------------
(1) The pro forma operating information gives effect to the acquisitions by the Company of EMI Communications, Inc., Universal Telecom Inc., Net Solve Incorporated and DIGEX, which occurred effective June 30, 1996, December 1, 1996, December 1, 1996 and July 11, 1997, respectively, as if they occurred on January 1, 1996. The pro forma operating information also gives effect to the March 1997 sale of $300 million of preferred stock. (2) The pro forma operating information gives effect to the DIGEX Acquisition as if it occurred on January 1, 1997. The pro forma operating information also gives effect to the March 1997 sale of $300 million of preferred stock. (3) For purposes of calculating the ratio of earnings to combined fixed charges and preferred stock dividends: (i) earnings consist of loss before income taxes, plus fixed charges excluding capitalized interest and preferred stock dividends and (ii) fixed charges consist of interest expended and capitalized, plus amortization of deferred financing costs, preferred stock dividends, plus a portion of rent expense under operating leases deemed by the Company to represent an interest factor plus dividends on the Series B Preferred Stock. For the years ended December 31, 1992, 1993, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 the Company's earnings were insufficient to cover combined fixed charges and preferred stock dividends by $622, $2,288, $3,324, $19,931, $59,978, $21,929 and $71,832, respectively. For the year ended December 31, 1996 and the six months ended June 30, 1997, the Company's pro forma earnings, after giving effect to the acquisitions described in Notes (1) and (2) above and the July 9 Equity Offering, were insufficient by $161,194 and $119,596, respectively, to cover pro forma combined fixed charges and preferred stock dividends. For the year ended December 31, 1996 and the six months ended June 30, 1997 the Company's pro forma earnings, after giving effect to the acquisitions described in Notes (1) and (2) above and the July 9 Offerings, were insufficient by $184,437 and $130,084 to cover pro forma combined fixed charges and preferred stock dividends. See "Risk Factors Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed Charges Including Dividend, and the Series D Preferred Stock" for a father discussion of factors which may have an impact on the Company's ratio of earnings to combined fixed charges and preferred stock dividends. 11 THE COMPANY Intermedia is a rapidly growing ICP, offering a full suite of local, long distance and enhanced data telecommunications services to business and government end user customers, long distance carriers, ISPs, resellers and wireless communications companies. Founded in 1987, the Company is currently the third largest (based on annualized telecommunications services revenues) among providers generally referred to as CLECs after MFS Communications Company, Inc. and Teleport Communications Group Inc. As of June 30, 1997, the Company had sales offices in 32 cities throughout the eastern half of the United States and offered a full product package of telecommunications services in 16 metropolitan statistical areas. In April 1996, Intermedia became one of the first ICPs in the United States to provide integrated switched local and long distance service and as of June 30, 1997 had six local/long distance voice switches in service and six long distance voice switches in service, three of which the Company plans to upgrade to local/long distance voice switches by the end of 1997. The Company provides enhanced data services, including frame relay, asynchronous transfer mode ("ATM") and Internet access services, primarily to business and government customers (including over 100 ISPs), in approximately 2,700 cities nationwide, utilizing 111 Company-owned data switches. Intermedia also serves as a facilities-based interexchange carrier to approximately 14,700 customers nationwide. Intermedia continues to increase its customer base and network density in the eastern half of the United States and is pursuing attractive opportunities to add additional services and expand into complementary geographic markets. Intermedia was incorporated in the State of Delaware on November 9, 1987, as the successor to a Florida corporation that was founded in 1986. The Company's principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619, and its telephone number is (813) 829-0011. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Securities by the Selling Securityholders or the issuance of the Dividend Shares by the Company. 12 DESCRIPTION OF CAPITAL STOCK Intermedia's authorized capital stock consists of 50,000,000 shares of Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"). As of July 31, 1997, there were 16,669,492 shares of Common Stock, 312,937.5 shares of Series B Preferred Stock and 69,000 shares of Series D Preferred Stock issued and outstanding. On a fully-diluted basis, at that date, the Company had outstanding 25,985,122 shares of Common Stock after giving effect to (a) the exercise of the Public Warrants (defined below), (b) the exercise of all outstanding options issued pursuant to the Company's employee stock option plans and (c) conversions of the Depositary Shares and the Series D Preferred Stock. As of July 31, 1997, the Company has reserved (i) 4,785,600 shares of Common Stock for issuance pursuant to the Company's employee stock option plans, (ii) 350,400 shares of Common Stock for issuance upon exercise of the Public Warrants, (iii) 287,062.5 shares of Series B Preferred Stock for issuance as dividends on the outstanding shares of Series B Preferred Stock and (iv) 40,000 shares of Series C Preferred Stock for issuance in connection with the Stockholder's Rights Plan, (v) 4,434,448 shares of Common Stock for issuance on conversion of the Series D Preferred Stock and (vi) 1,200,000 shares of Common Stock for issuance as dividends on the outstanding shares of Series D Preferred Stock. All outstanding shares of Common Stock, Series B Preferred Stock and Series D Preferred Stock are fully paid and non-assessable. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of Common Stock do not have cumulative rights, so that holders of more than 50% of the shares of Common Stock are able to elect all of Intermedia's directors eligible for election in a given year. For a description of the classification of the Board, see "-Delaware Law and Certain Provisions of Intermedia's Certificate of Incorporation and Bylaws." Subject to the preferences that may be applicable to any then outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board out of funds legally available therefor. See "-Dividend Restrictions." Upon any liquidation, dissolution or winding up, whether voluntary or involuntary, of Intermedia, holders of Common Stock are entitled to receive pro rata all assets available for distribution to stockholders after payment or provision for payment of the debts and other liabilities of Intermedia and the liquidation preferences of any then outstanding Preferred Stock. There are no preemptive or other subscription rights, conversion rights, or redemption or sinking fund provisions with respect to shares of Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon exercise of the Public Warrants and conversion of the Depositary Shares or shares of Series D Preferred Stock will be, fully paid and non-assessable. PREFERRED STOCK The Preferred Stock may be issued at any time or from time to time in one or more classes or series with such designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights) as may be fixed by the Board, without any further vote or action by the stockholders. July 31, 1997, the Company had outstanding 312,937.5 shares of Series B Preferred Stock (aggregate liquidation preference of approximately $312.9 million). Dividends on the Series B Preferred Stock accumulate at a rate of 13 1/2% of the aggregate liquidation preference thereof and are payable quarterly, in arrears. Dividends are payable in cash or, at the Company's option, by the issuance of additional Series B Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. The Series B Preferred Stock is subject to mandatory redemption at a liquidation preference of $1,000 per share, plus accumulated and unpaid dividends on March 31, 2009. The Series B Preferred Stock will be redeemable at the option of the Company at any time after March 31, 2002 at rates commencing with 106.75%, declining to 100% on March 31, 2007. The Series B Certificate of Designation contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to make certain restricted payments, incur additional indebtedness and issue additional preferred stock, pay dividends or make other distributions, repurchase equity interests, conduct certain lines of business or enter into certain mergers and consolidations. In the event of a change of control of the Company, holders of the Series B Preferred Stock have the right to require the Company to purchase their shares of Series B Preferred Stock at a price equal to 101% of the aggregate liquidation preference with 13 respect thereto, plus accumulated and unpaid dividends, if any, to the date of purchase. This description is intended as a summary and is qualified in its entirety by reference to the Series B Certificate of Designation. The Company may, at its option, exchange some or all of the Series B Preferred Stock for the Company's 13 1/2% Senior Subordinated Debentures, due 2009 (the "Exchange Debentures"). The Exchange Debentures would mature on March 31, 2009. Interest on the Exchange Debentures would be payable semi-annually, and could be paid in the form of additional Exchange Debentures at the Company's option. Exchange Debentures would be redeemable by the Company at any time after March 31, 2002 at rates commencing with 106.75%, declining to 100% on March 31, 2007. The Exchange Debentures contain covenants similar to those contained in the Indenture. See "Description of Preferred Stock" for a description of the terms of Series D Preferred Stock. DELAWARE LAW AND CERTAIN PROVISIONS OF INTERMEDIA'S CERTIFICATE OF INCORPORATION AND BYLAWS General. The Certificate of Incorporation and the Bylaws of Intermedia contain certain provisions that could make more difficult the acquisition of Intermedia by means of a tender offer, a proxy contest or otherwise. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of Intermedia first to negotiate with Intermedia. Although such provisions may have the effect of delaying, deferring or preventing a change in control of Intermedia, the Company believes that the benefits of increased protection of Intermedia's potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. The description set forth below is intended as a summary only and is qualified in its entirety by reference to the Certificate of Incorporation and Bylaws of Intermedia. Board of Directors. Intermedia's Certificate of Incorporation provides that (i) the Board be divided into three classes of directors, with each class having a number as nearly equal as possible and with the term of each class expiring in a different year and (ii) the Board shall consist of not less than three nor more than seven members, the exact number to be determined from time to time by the Board. The Board has set the number of directors at four. Subject to any rights of holders of Preferred Stock, a majority of the Board then in office will have the sole authority to fill any vacancies on the Board. Stockholders can remove members of the Board only for cause. Stockholder Action and Special Meetings. Intermedia's Certificate of Incorporation provides that (i) any action required or permitted to be taken by Intermedia's stockholders must be effected at a duly called annual or special meeting of Stockholders and may not be effected by any consent in writing and (ii) the authorized number of directors may be changed only by resolution of the Board. The Company's Bylaws provide that, subject to any rights of holders of any series of Preferred Stock, special meetings of stockholders may be called only by the Chairman of the Board or the President of Intermedia, by a majority of the Board or by stockholders owning shares representing at least a majority of the capital stock of Intermedia issued and outstanding and entitled to vote. Stockholder's Rights Plan. Intermedia's Board of Directors has adopted a Stockholder's Rights Plan, pursuant to which rights to acquire a newly created series of Preferred Stock, exercisable upon the occurrence of certain events, including the acquisition by a person or group of a specified percentage of the Common Stock, were distributed to its stockholders. Anti-Takeover Statute. Subject to certain exceptions, Section 203 of the DGCL prohibits a publicly held Delaware corporation, such as Intermedia, from engaging in any "business combination" with an "interested stockholder" for a three-year period following the date on which such person became an interested stockholder, unless (i) prior to such date, the board of directors of the corporation approved either such business combination or the transaction that resulted in such person becoming an interested stockholder, (ii) upon consummation of the transaction 14 that resulted in such person becoming an interested stockholder, such person owned at least 85% of the voting stock of the corporation outstanding immediately prior to such transaction (excluding certain shares) or (iii) on or subsequent to such date, such business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 66-2/3% of the outstanding voting stock that is not owned by the interested stockholder. A "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is essentially a person who, together with affiliates and associates, owns (or within the past three years has owned) 15% or more of the corporation's voting stock. It is anticipated that the provisions of Section 203 of the DGCL may encourage any person interested in acquiring Intermedia to negotiate in advance with the Board since the stockholder approval requirement would be avoided if a majority of Intermedia's directors then in office approved either the business combination or the transaction that resulted in such person becoming an interested stockholder. DIVIDEND RESTRICTIONS The terms of the Existing Senior Note Indentures restrict the Company's ability to pay cash dividends on the Series B Preferred Stock. The existing Senior Note Indentures and the Series B Certificate of Designation restrict Intermedia's ability to pay cash dividends on the Common Stock and the Series D Preferred Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock, Series B Preferred Stock and Series D Preferred Stock is Continental Stock Transfer & Trust Company. OUTSTANDING WARRANTS 160,000 warrants (the "Public Warrants"), each to purchase 2.19 shares of Common Stock, at an exercise price of $10.86 per share (subject to anti- dilution adjustments) were issued as part of a June 1995 private placement. The Public Warrants are currently exercisable. Unless exercised, the Public Warrants will expire on June 1, 2000. RESERVATION OF SHARES The Company has authorized and reserved for issuance such number of Common Shares as will be issuable upon the conversion of all Depositary Shares (or all shares of the Series D Preferred Stock). Such Common Shares, when issued, will be duly and validly issued, fully paid and non-assessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. REGISTRATION RIGHTS. In addition to the rights granted under the Preferred Stock Registration Rights Agreement, dated July 9, 1997, among the Company and the Initial Purchasers (the "Preferred Stock Registration Rights Agreement"), the Company is a party to several agreements pursuant to which certain stockholders have the right, among other matters, to require the Company to register their shares of Common Stock under the Securities Act under certain circumstances. These rights cover approximately 3,106,749 shares of Common Stock. Approximately 2,361,083 of such shares of Common Stock are covered by effective registration statements and 31,380 of such shares are being registered as part of the Registration Statement of which this prospectus forms a part. See "Description of Preferred Stock - Registration Rights; Liquidated Damages" for a discussion of registration rights pertaining to the Common Shares, Depositary Shares and Series D Preferred Stock. 15 DESCRIPTION OF PREFERRED STOCK GENERAL The terms of the Series D Preferred Stock are set forth in the Certificate of Designation of Voting Power, Designation Preferences and Relative, Participating, Optional or Other Special Rights and Qualifications, Limitations and Restrictions (the "Certificate of Designation"). The following summary of the Series D Preferred Stock, the Certificate of Designation and the Preferred Stock Registration Rights Agreement is not intended to be complete and is subject to, and qualified in its entirety by reference to, the Company's Certificate of Incorporation, the Certificate of Designation and the Preferred Stock Registration Rights Agreement, including the definitions therein of certain terms used below. Copies of the form of Certificate of Designation and Preferred Stock Registration Rights Agreement are available from the Company, upon request. As used in this Description of Preferred Stock, the term "Company" refers to Intermedia Communications Inc., excluding its Subsidiaries. Certain of the Company's operations are conducted through its Subsidiaries and, therefore, the Company is dependent upon the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Series D Preferred Stock. Any right of the Company to receive assets of any of its Subsidiaries is effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's Subsidiaries. As of June 30, 1997 on a pro forma basis after giving effect to the July 9 Offerings and the application of the proceeds therefrom, the aggregate amount of liquidation preference of Senior Securities and indebtedness and other obligations of the Company and its Subsidiaries that would effectively rank senior in right of payment to the obligations of the Company under the Series D Preferred Stock would have been approximately $985.6 million. See "Risk Factors." Pursuant to the Certificate of Designation, 69,000 shares (including 9,000 shares which the Initial Purchasers purchased to cover over-allotments) of Series D Preferred Stock with the Liquidation Preference were authorized. All of such shares are issued and outstanding and are fully paid and non-assessable. The holders of the Series D Preferred Stock have no preemptive rights. The transfer agent for the Series D Preferred Stock is Continental Stock Transfer & Trust Co. unless and until a successor is selected by the Company (the "Transfer Agent"). RANKING The Series D Preferred Stock, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, ranks (i) senior to all classes of common stock of the Company and to each other class of capital stock or series of preferred stock established after July 2, 1997 by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series D Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the common stock of the Company as "Junior Securities"); (ii) on a parity with any additional shares of Series D Preferred Stock issued by the Company in the future and any other class of capital stock or series of preferred stock issued by the Company established after July 2, 1997 by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series D Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"); and (iii) junior to the Series B Preferred Stock ($312.9 million aggregate liquidation preference outstanding at June 30, 1997) and to each class of capital stock or series of preferred stock issued by the Company established after July 2, 1997 by the Board of Directors the terms of which expressly provide that such class or series will rank senior to the Series D Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series D Preferred Stock with respect to any dividend period unless all dividends for 16 all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividend, upon all outstanding shares of Senior Securities. DIVIDENDS The holders of shares of the Series D Preferred Stock are entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Company legally available therefor, cumulative dividends from July 9, 1997 accruing at the rate per annum of 7% of the Liquidation Preference per share, payable quarterly in arrears on each July 15, October 15, January 15 and April 15, commencing on October 15, 1997 (each, a "Dividend Payment Date"). If any such date is not a Business Day, such payment shall be made on the next succeeding Business Day, to the holders of record as of the next preceding July 1, October 1, January 1 and April 1 (each, a "Record Date"). Dividends will be payable (i) in cash, (ii) by delivery of shares of Common Stock to holders (based upon 95% of the Average Stock Price (as defined below)) or (iii) through any combination of the foregoing. The Company intends to pay dividends in shares of Common Stock on each Dividend Payment Date to the extent that it is unable to pay dividends in cash. If the dividends are paid in shares of Common Stock, the number of shares of Common Stock to be issued on each Dividend Payment Date will be determined by dividing the total dividend to be paid on each share of Series D Preferred Stock by 95% of the average of the high and low sales prices of the Common Stock as reported by the Nasdaq National Market or any national securities exchange upon which the Common Stock is then listed, for each of the ten consecutive trading days immediately preceding the fifth business day preceding the Record Date (the "Average Stock Price"). The Transfer Agent is authorized and directed in the Certificate of Designation to aggregate any fractional shares of Common Stock that are issued as dividends, sell them at the best available price and distribute the proceeds to the holders in proportion to their respective interests therein. The Company will pay the expenses of the Transfer Agent with respect to such sale, including brokerage commissions. Dividends payable on the Series D Preferred Stock will be computed on the basis of a 360-day year consisting of twelve 30-day months and will be deemed to accrue on a daily basis. Dividends on the Series D Preferred Stock will accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Dividends will accumulate to the extent they are not paid on the Dividend Payment Date for the period to which they relate. The Certificate of Designation provides that the Company will take all actions required or permitted under the DGCL to permit the payment of dividends on the Series D Preferred Stock, including, without limitation, through the revaluation of its assets in accordance with the DGCL, to make or keep funds legally available for the payment of dividends. No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series D Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividend, upon all outstanding shares of Series D Preferred Stock. Unless full cumulative dividends on all outstanding shares of Series D Preferred Stock for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart: (i) no dividend (other than a dividend payable solely in shares of any Junior Securities) shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Junior Securities; (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities, other than a distribution consisting solely of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange for shares of other Junior Securities) by the Company or any of its Subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities by the Company or any of its Subsidiaries. Holders of the Series D Preferred Stock will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the full cumulative dividends as herein described. 17 The Existing Notes Indentures contain, and any future credit agreements or other agreements relating to Indebtedness to which the Company becomes a party may contain, restrictions on the ability of the Company to pay dividends on the Series D Preferred Stock. OPTIONAL REDEMPTION The Series D Preferred Stock may not be redeemed at the option of the Company prior to July 19, 2000. The Series D Preferred Stock may be redeemed for cash, in whole or in part, at the option of the Company on or after July 19, 2000, at the redemption prices specified below (expressed as percentages of the Liquidation Preference thereof), in each case, together with accumulated and unpaid dividends (including an amount in cash equal to a prorated dividend for any partial dividend period) and Preferred Stock Liquidated Damages, if any, to the date of redemption, upon not less than 30 nor more than 60 days' prior written notice, if redeemed during the 12-month period commencing on July 19 of each of the years set forth below:
Year Percentage ---- ---------- 2000..................................... 104.00% 2001..................................... 103.00% 2002..................................... 102.00% 2003..................................... 101.00% 2004 and thereafter...................... 100.00%
No optional redemption may be authorized or made unless, prior to giving the applicable redemption notice, all accumulated and unpaid dividends for periods ended prior to the date of such redemption notice shall have been paid in cash or Common Stock. In the event of partial redemptions of Series D Preferred Stock, the shares to be redeemed will be determined pro rata or by lot, as determined by the Company. CONVERSION RIGHTS Each share of Series D Preferred Stock will be convertible at any time after October 7, 1997, unless previously redeemed, at the option of the holder thereof into Common Stock of the Company, at a conversion rate equal to the Liquidation Preference divided by the conversion price then applicable, except that the right to convert shares of Series D Preferred Stock called for redemption will terminate at the close of business on the business day preceding the redemption date and will be lost if not exercised prior to that time, unless the Company defaults in making the payment due upon redemption. The initial conversion price is $38.90 per share. The conversion price will be subject to adjustment in certain events, including: (i) the payment of dividends (and other distributions) in Common Stock on any class of capital stock of the Company other than the payment of dividends in Common Stock on the Series D Preferred Stock or any other regularly scheduled dividend on any other preferred stock which does not trigger any anti-dilution provisions in any other security; (ii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock at less than the current market price (as calculated pursuant to the Certificate of Designation); (iii) subdivisions, combinations and reclassifications of Common Stock; (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, shares of any class of capital stock, cash or other assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to in clauses (i) through (iii) above and dividends and distributions paid in cash out of the retained earnings of the Company, unless the sum of all such cash dividends and distributions made and the amount of cash and the fair market value of other consideration paid in respect of any repurchases of Common Stock by the Company or any of its Subsidiaries, in each case within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the product of the then current market price of the Common Stock times the aggregate number of shares of Common Stock outstanding on the record date for such dividend or distribution). 18 No adjustment of the conversion price will be required to be made until cumulative adjustments amount to 1% or more of the conversion price as last adjusted. Notwithstanding the foregoing, no adjustment to the conversion price shall reduce the conversion price below the then applicable par value per share of the Common Stock. In addition to the foregoing adjustments, the Company will be permitted to make such reductions in the conversion price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the Common Stock. In the case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, each share of Series D Preferred Stock then outstanding would become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such share of Series D Preferred Stock might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount receivable per share by a plurality of non-electing shares). The holder of record of a share of Series D Preferred Stock at the close of business on a record date with respect to the payment of dividends on the Series D Preferred Stock will be entitled to receive such dividends with respect to such share of Series D Preferred Stock on the corresponding Dividend Payment Date, notwithstanding the conversion of such share after such Record Date and prior to such Dividend Payment Date. A share of Series D Preferred Stock surrendered for conversion during the period from the close of business on any Record Date for the payment of dividends to the opening of business of the corresponding Dividend Payment Date must be accompanied by a payment in cash, Common Stock or a combination thereof, depending on the method of payment that the Company has chosen to pay the dividend, in an amount equal to the dividend payable on such Dividend Payment Date, unless such share of Series D Preferred Stock has been called for redemption on a redemption date occurring during the period from the close of business on any Record Date for the payment of dividends to the close of business on the business day immediately following the corresponding Dividend Payment Date. The dividend payment with respect to a share of Series D Preferred Stock called for redemption on a date during the period from the close of business on any Record Date for the payment of dividends to the close of business on the business day immediately following the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the record holder of such share on such Record Date, notwithstanding the conversion of such share after such Record Date and prior to such Dividend Payment Date. No payment or adjustment will be made upon conversion of shares of Series D Preferred Stock for accumulated and unpaid dividends or for dividends with respect to the Common Stock issued upon such conversion. CHANGE OF CONTROL Upon the occurrence of a Preferred Stock Change of Control and subject to restrictions on repurchase contained in the instruments governing Company's outstanding indebtedness and the Series B Preferred Stock Certificate of Designation, the Company will be required to make an offer (a "Preferred Stock Change of Control Offer") to repurchase all or any part of each holder's Series D Preferred Stock at an offer price in cash equal to 100% of the aggregate Liquidation Preference thereof, plus accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any, thereon to the date of repurchase. Within 30 days following a Preferred Stock Change of Control, the Company will mail a notice to each holder of Series D Preferred Stock describing the transaction that constitutes the Preferred Stock Change of Control and offering to repurchase the Series D Preferred Stock pursuant to the procedures required by the Certificate of Designation and described in such notice; provided that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Preferred Stock Change of Control, the Company will either repay all outstanding indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding indebtedness to permit the repurchase of the Series D Preferred Stock required by this covenant. The Company will comply with the requirements of the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Series D Preferred Stock as a result of a Preferred Stock Change of Control. 19 A "Preferred Stock Change of Control" will be deemed to have occurred upon the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, (b) the adoption of a plan relating to the liquidation or dissolution of the Company, (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, unless (i) the closing price per share of Common Stock for any five trading days within the period of ten consecutive trading days ending immediately after the announcement of such Preferred Stock Change of Control equals or exceeds 105% of the conversion price of the Series D Preferred Stock in effect on each such trading day or (ii) at least 90% of the consideration in the transaction or transactions constituting a Preferred Stock Change of Control pursuant to clause (c) consists of shares of Common Stock traded or to be traded immediately following such Preferred Stock Change of Control on a national securities exchange or the Nasdaq National Market and, as a result of such transaction or transactions, the Series D Preferred Stock become convertible solely into such Common Stock (and any rights attached thereto), or (d) the first day on which more than a majority of the members of the Board of Directors of the Company are not Preferred Stock Continuing Directors; provided, however, that a transaction in which the Company becomes a subsidiary of another entity shall not constitute a Preferred Stock Change of Control if (i) the stockholders of the Company immediately prior to such transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, at least a majority of the voting power of the outstanding voting stock of the Company immediately following the consummation of such transaction and (ii) immediately following the consummation of such transaction, no "person" or "group" (as such terms are defined above), other than such other entity (but including holders of equity interests of such other entity), "beneficially owns" (as such term is defined above), directly or indirectly through one or more intermediaries, more than 50% of the voting power of the outstanding voting stock of the Company. "Preferred Stock Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (a) was a member of the Board of Directors on the date of original issuance of the Series D Preferred Stock or (b) was nominated for election to the Board of Directors with the approval of, or whose election was ratified by, at least two-thirds of the Preferred Stock Continuing Directors who were members of the Board of Directors at the time of such nomination or election. Except as described above with respect to a Preferred Stock Change of Control, the Certificate of Designation does not contain provisions that permit the holders of the Series D Preferred Stock to require that the Company repurchase or redeem the Series D Preferred Stock in the event of a takeover, recapitalization or similar transaction. In addition, the Company could enter into certain transactions, including acquisitions, refinancings or other recapitalization, that could affect the Company's capital structure or the value of the Series D Preferred Stock or the Common Stock, but that would not constitute a Preferred Stock Change of Control. The Existing Senior Notes or other indebtedness and the Series B Preferred Stock could restrict the Company's ability to repurchase the Series D Preferred Stock upon a Preferred Stock Change of Control. In the event a Preferred Stock Change of Control occurs at a time when the Company is prohibited from repurchasing the Series D Preferred Stock, the Company could either (i) repay in full or refinance all such outstanding indebtedness or Preferred Stock or (ii) obtain the requisite consents, if any, under all agreements governing outstanding indebtedness or Preferred Stock to permit the repurchase of Series D Preferred Stock required by this covenant. The Company must first comply with the covenants in its outstanding indebtedness or take the actions described in the preceding sentence before it will be required to repurchase shares of Series D Preferred Stock in the event of a Preferred Stock Change of Control; provided, that if the Company fails to repurchase shares of Series D Preferred Stock, the sole remedy to holders of Series D Preferred Stock will be the voting rights arising from a Voting Rights Triggering Event. Moreover, the Company will not repurchase or redeem any Series D Preferred Stock pursuant to this Preferred Stock Change of Control provision prior to the Company's repurchase of the Series B Preferred Stock pursuant to the change of control covenants in the Series B Preferred Stock. As a result of the foregoing, a holder of the Series D Preferred Stock may 20 not be able to compel the Company to purchase the Series D Preferred Stock unless the Company is able at the time to refinance all such indebtedness and the Series B Preferred Stock. See "Risk Factors-Business Combinations; Change of Control." The Company will not be required to make a Preferred Stock Change of Control Offer to the holders of Series D Preferred Stock upon a Preferred Stock Change of Control if a third party makes the Preferred Stock Change of Control Offer described above in the manner, at the times and otherwise in compliance with the requirements set forth in the Certificate of Designation applicable to a Preferred Stock Change of Control Offer made by the Company and purchases all shares of Series D Preferred Stock validly tendered and not withdrawn under such Preferred Stock Change of Control Offer. VOTING RIGHTS Holders of record of shares of the Series D Preferred Stock have no voting rights, except as required by law and as provided in the Certificate of Designation. The Certificate of Designation provides that upon (a) the accumulation of accrued and unpaid dividends on the outstanding Series D Preferred Stock in an amount equal to six quarterly dividends (whether or not consecutive) or (b) the failure of the Company to make a Preferred Stock Change of Control Offer or to repurchase all of the Series D Preferred Stock tendered in a Preferred Stock Change of Control Offer (each of the events described in clauses (a) and (b) being referred to herein as a "Voting Rights Triggering Event"), then the holders of a majority of the outstanding shares of Series D Preferred Stock will be entitled to elect such number of members to the Board of Directors of the Company constituting at least 20% of the then existing Board of Directors before such election (rounded to the nearest whole number), provided, however, that such number shall be no less than one nor greater than two, and the number of members of the Company's Board of Directors will be immediately and automatically increased by one or two, as the case may be. Voting rights arising as a result of a Voting Rights Triggering Event will continue until such time as all dividends in arrears on the Series D Preferred Stock are paid in full and all other Voting Rights Triggering Events have been cured or waived, at which time the term of office of any such members of the Board of Directors so elected shall terminate and such directors shall be deemed to have resigned. In addition, the Certificate of Designation provides that the Company will not authorize any class of Senior Securities or any obligation or security convertible or exchangeable into or evidencing a right to purchase shares of any class or series of Senior Securities, without the approval of holders of at least a majority of the shares of Series D Preferred Stock then outstanding, voting or consenting, as the case may be, as one class. The Certificate of Designation also provides that the Company may not amend the Certificate of Designation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the Series D Preferred Stock or authorize the issuance of any additional shares of Series D Preferred Stock, without the approval of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock voting or consenting, as the case may be, as one class; provided, however, that the Company may not amend the Preferred Stock Change of Control provisions of the Certificate of Designation (including the related definitions) without the approval of the holders of at least 66 2/3% of the then outstanding shares of Series D Preferred Stock voting or consenting, as the case may be, as one class. The Certificate of Designation also provides that, except as set forth above with respect to Senior Securities, (a) the creation, authorization or issuance of any shares of Junior Securities, Parity Securities or Senior Securities or (b) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall not require the consent of the holders of Series D Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges, special rights or voting rights of holders of shares of Series D Preferred Stock. The consent of the holders of Series D Preferred Stock will not be required for the Company to authorize, create (by way of reclassification or otherwise) or issue any Parity Securities or any obligation or security convertible or exchangeable into or evidencing a right to purchase, shares of any class or series of Parity Securities. 21 MERGER, CONSOLIDATION AND SALE OF ASSETS Without the vote or consent of the holders of a majority of the then outstanding shares of Series D Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (in any such case, the "resulting entity") is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (b) if the Company is not the resulting entity, the Series D Preferred Stock is converted into or exchanged for and becomes shares of such resulting entity, having in respect of such resulting entity the same (or more favorable) powers, preferences and relative, participating, optional or other special rights thereof that the Series D Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event has occurred and is continuing. The resulting entity of such transaction shall thereafter be deemed to be the "Company" for all purposes of the Certificate of Designation. LIQUIDATION RIGHTS Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in its capital stock resulting in a distribution of assets to the holders of any class or series of the Company's capital stock, each holder of shares of the Series D Preferred Stock will be entitled to payment out of the assets of the Company available for distribution of an amount equal to the Liquidation Preference per share of Series D Preferred Stock held by such holder, plus accrued and unpaid dividends and Preferred Stock Liquidated Damages, if any, to the date fixed for liquidation, dissolution, winding-up or reduction or decrease in capital stock, before any distribution is made on any Junior Securities, including, without limitation, Common Stock. After payment in full of the Liquidation Preference and all accrued dividends and Preferred Stock Liquidated Damages, if any, to which holders of Series D Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Series D Preferred Stock and all other Parity Securities are not paid in full, the holders of the Series D Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference and accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any, to which each is entitled. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more persons will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in capital stock, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Company or reduction or decrease in capital stock. REPORTS The Certificate of Designation provides that the Company will file all annual and quarterly reports and the information, documents, and other reports that the Company is required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports") with the Transfer Agent within 15 days after it files them with the Commission. In the event the Company is not required or shall cease to be required to file SEC Reports, pursuant to the Exchange Act, the Company will nevertheless continue to file such reports with the Commission (unless the Commission will not accept such a filing). Whether or not required by the Exchange Act to file SEC Reports with the Commission, so long as any Series D Preferred Stock are outstanding, the Company will furnish copies of the SEC Reports to the holders of Series D Preferred Stock at the time the Company is required to make such information available to the Transfer Agent and to investors who request it in writing. In addition, the Company has agreed that, for so long as any shares of Series D Preferred Stock remain outstanding, it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 22 REGISTRATION RIGHTS; LIQUIDATED DAMAGES Pursuant to the Preferred Stock Registration Rights Agreement, the Company agreed to file a shelf registration statement (the "Shelf Registration Statement") covering resales of Preferred Stock Transfer Restricted Securities (as defined below) by holders thereof (who satisfied certain conditions relating to the provision of information to the registrant) on or prior to September 7, 1997, and to use its reasonable best efforts to cause such shelf registration statement to become effective on or prior to 120 days after such date. "Preferred Stock Transfer Restricted Securities" for this purpose, means each Depositary Share, each share of Series D Preferred Stock and each Common Share until (a) the date on which such security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (b) the date on which such security is distributed to the public pursuant to Rule 144 under the Securities Act or may be distributed to the public pursuant to Rule 144(k) under the Securities Act. The Registration Statement of which this Prospectus forms a part constitutes the Shelf Registration statement. The Company is obligated to use its best efforts to maintain the effectiveness of the Shelf Registration Statement for a period ending on the earlier of July 9, 1999 and the date when all Preferred Stock Transfer Restricted Securities covered by the Shelf Registration Statement are sold. If the Shelf Registration Statement ceases to be effective or usable for any period of ten consecutive days or for any 20 days in any 180-day period in connection with resales of Preferred Stock Transfer Restricted Securities (provided, that the Company will have the option of suspending the effectiveness of the Shelf Registration Statement, without becoming obligated to pay Preferred Stock Liquidated Damages for periods of up to a total of 60 days in any calendar year if the Board of Directors of the Company determines that compliance with the disclosure obligations necessary to maintain the effectiveness of the Shelf Registration Statement at such time could reasonably be expected to have an adverse effect on the Company or a pending corporate transaction) (a "Registration Default"), then the Company will pay to each holder of Preferred Stock Transfer Restricted Securities liquidated damages ("Preferred Stock Liquidated Damages") at a rate of 0.25% per year of the Liquidation Preference of the Series D Preferred Stock constituting Preferred Stock Transfer Restricted Securities, which shall accrue from the date of the Registration Default until such Registration Default is cured. All accrued Preferred Stock Liquidated Damages will be paid in shares of Common Stock valued at the Average Stock Price by the Company on each Dividend Payment Date specified in the Certificate of Designation. Following the cure of all Registration Defaults, the accrual of Preferred Stock Liquidated Damages will cease. 23 DESCRIPTION OF DEPOSITARY SHARES Each Depositary Share represents a one-hundredth interest in a share of Series D Preferred Stock deposited under the Deposit Agreement ("Deposit Agreement"), entered into among Intermedia, Continental Stock Transfer & Trust Company, as depositary agent ("Continental"), and the holders from time to time of Depositary Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each owner of a Depositary Share is entitled proportionately to all of the rights and preferences of the shares of Series D Preferred Stock represented thereby (including dividend, voting, redemption and liquidation rights) contained in the Company's Certificate of Incorporation and the Certificate of Designation and summarized above under "Description of Series D Preferred Stock." The Company does not expect that there will be any public trading market for the Series D Preferred Stock except as represented by the Depositary Shares. The Depositary Shares are evidenced by depositary receipts issued pursuant to the Deposit Agreement ("Depositary Receipts"). The following description of Depositary Shares does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Deposit Agreement (which contains the form of Depositary Receipt), a copy of which is available from the Company, upon request. ISSUANCE OF DEPOSITARY RECEIPTS The Series D Preferred Stock was deposited with Continental immediately preceding the July 9 Offerings, and Continental in turn executed and delivered the Depositary Receipts to the Company. The Company delivered the Depositary Receipts to the Initial Purchasers. WITHDRAWAL OF SERIES D PREFERRED STOCK Upon surrender of the Depositary Receipts at the corporate trust office of Continental, the owner of the Depositary Shares evidenced thereby is entitled to delivery at such office of the number of whole shares of Series D Preferred Stock represented by such Depositary Shares. Owners of Depositary Shares are entitled to receive only whole shares of Series D Preferred Stock on the basis of one share of Series D Preferred Stock for each one hundred Depositary Shares. In no event will fractional shares of Series D Preferred Stock (or cash in lieu thereof) be distributed by Continental. If the Depositary Receipts delivered by the holder evidence a number of Depositary Shares in excess of the number of Depositary Shares representing the number of whole shares of Series D Preferred Stock to be withdrawn, Continental will deliver to such holder at the same time a new Depositary Receipt evidencing such excess number of Depositary Shares. The Company has not applied and does not intend to apply for the listing of the Depositary Shares or the Series D Preferred Stock on any securities exchange or for quotation through the Nasdaq National Market. CONVERSION AND CALL PROVISION Conversion at the Option of Holder. As described under "Description of Preferred Stock- Conversion Rights," the Series D Preferred Stock may be converted, in whole or in part, into shares of Common Stock at the option of the holders of Series D Preferred Stock at any time after October 7, 1997, unless previously redeemed. The Depositary Shares held by any holder may, at the option of such holders, be converted in whole or from time to time in part (but only in lots of 100 Depositary Shares or integral multiples thereof), into shares of Common Stock upon the same terms and conditions as the Series D Preferred Stock, except that the number of shares of Common Stock received upon conversion of each Depositary Share will be equal to the number of shares of Common Stock received upon conversion of one share of Series D Preferred Stock divided by one hundred. To effect such an optional conversion, a holder of Depositary Shares must deliver Depositary Receipts evidencing the Depositary Shares to be converted, together with a written notice of conversion and a proper assignment of the Depositary Receipts to the Company or in blank, to Continental or its agent. A Depositary Share surrendered for conversion during the period from the close of business on any Record Date for the payment of dividends to the opening of business of the corresponding Dividend Payment Date must be accompanied by a payment in cash, Common Stock or a combination thereof, depending on the method of 24 payment that the Company has chosen to pay the dividend, in an amount equal to the dividend payable on such Dividend Payment Date, unless such Depositary Share has been called for redemption on a redemption date occurring during the period from the close of business on any Record Date for the payment of dividends to the close of business on the Business Day immediately following the corresponding Dividend Payment Date. The dividend payment with respect to a Depositary Share called for redemption on a date during the period from the close of business on any Record Date for the payment of dividends to the close of business on the Business Day immediately following the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the record holder of such share on such Record Date, notwithstanding the conversion of such share after such Record Date and prior to such Dividend Payment Date. Each optional conversion of Depositary Shares shall be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements shall have been satisfied. If only a portion of the Depositary Shares evidenced by a Depositary Receipt is to be converted, a new Depositary Receipt or Receipts will be issued for any Depositary Shares not converted. No fractional shares of Common Stock will be issued upon conversion of Depositary Shares, and, if such conversion would otherwise result in a fractional share of Common Stock being issued, the number of shares of Common Stock to be issued upon such conversion shall be rounded up to the nearest whole share. After the date fixed for conversion or redemption, the Depositary Shares so converted or called for redemption will no longer be deemed to be outstanding and all rights of the holders of such Depositary Shares will cease, except the holder of such Depositary Shares shall be entitled to receive any money or other property to which the holders of such Depositary Shares were entitled upon such conversion or redemption, upon surrender to Continental of the Depositary Receipt or Receipts evidencing such Depositary Shares. DIVIDENDS AND OTHER DISTRIBUTIONS Continental will distribute all dividends or other distributions in respect of the Series D Preferred Stock to the record holders of Depositary Receipts in proportion to the number of Depositary Shares owned by such holders. See "Description of Preferred Stock - Dividends." The amount distributed in any of the foregoing cases will be reduced by any amount required to be withheld by the Company or Continental on account of taxes. RECORD DATE Whenever (i) any dividend or other distribution shall become payable, any distribution shall be made, or any rights, preferences or privileges shall be offered with respect to the Series D Preferred Stock, or (ii) Continental shall receive notice of any meeting at which holders of Series D Preferred Stock are entitled to vote or of which holders of Series D Preferred Stock are entitled to notice, or of any election on the part of the Company to call for redemption any Series D Preferred Stock, Continental shall in each such instance fix a record date (which shall be the same date as the record date for the Series D Preferred Stock) for the determination of the holders of Depositary Receipts (x) who shall be entitled to receive such dividend, distribution, rights, preference or privileges or the net proceeds of the sale thereof, (y) who shall be entitled to give instructions for the exercise of voting rights at any such meeting or to receive notice of such meeting, or (z) who shall be subject to such redemption, subject to the provisions of the Deposit Agreement. VOTING OF DEPOSITARY SHARES Holders of record of Depositary Shares have no voting rights, except as required by law and as provided in the Certificate of Designation in respect of the Series D Preferred Stock, as described under "Description of Preferred Stock - Voting Rights." 25 AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The form of Depositary Receipts and any provision of the Deposit Agreement may at any time be amended by agreement between the Company and Continental. However, any amendment that imposes any fees, taxes or other charges payable by holders of Depositary Receipts (other than taxes and other governmental charges, fees and other expenses payable by such holders as stated under "Charges of Continental"), or that otherwise prejudices any substantial existing right of holders of Depositary Receipts, will not take effect as to outstanding Depositary Receipts until the expiration of 90 days after notice of such amendment has been mailed to the record holders of outstanding Depositary Receipts. Every holder of Depositary Receipts at the time any such amendment becomes effective shall be deemed to consent and agree to such amendment and to be bound by the Deposit Agreement, as so amended. In no event may any amendment impair the right of any owner of Depositary Shares, subject to the conditions specified in the Deposit Amendment, upon surrender of the Depositary Receipts evidencing such Depositary Shares, to receive Series D Preferred Stock or, upon conversion of the Series D Preferred Stock represented by the Depositary Receipts, to receive shares of Common Stock, and in each case any money or other property represented thereby, except in order to comply with mandatory provisions of applicable law. Whenever so directed by the Company, Continental will terminate the Deposit Agreement after mailing notice of such termination to the record holders of all Depositary Receipts then outstanding at least 30 days before the date fixed in such notice for such termination. Continental may likewise terminate the Deposit Agreement if at any time 45 days shall have expired after Continental shall have delivered to the Company a written notice of its election to resign and a successor depositary shall not have been appointed and accepted its appointment. If any Depositary Receipts remain outstanding after the date of termination, Continental thereafter will discontinue the transfer of Depositary Receipts, will suspend the distribution of dividends to the holders thereof, and will not give any further notices (other than notice of such termination) or perform any further acts under the Deposit Agreement except as provided below and except that Continental will continue (i) to collect dividends on the Series D Preferred Stock and any other distributions with respect thereto and (ii) to deliver the Series D Preferred Stock together with such dividends and distributions and the net proceeds of any sales or rights, preferences, privileges or other property, without liability for interest thereon, in exchange for Depositary Receipts surrendered. At any time after the expiration of two years from the date of termination, Continental may sell the Series D Preferred Stock then held by it at public or private sale, at such place or places and upon such terms as it deems proper and may thereafter hold the net proceeds of any such sale, together with any money and other property then held by it, without liability for interest thereon, for the pro rata benefit of the holders of Depositary Receipts which have not been surrendered. The Company does not intend to terminate the Deposit Agreement or to permit the resignation of Continental without appointing a successor depositary. CHARGES OF CONTINENTAL The Company will pay all charges of Continental including the distribution of information to the holders of Depositary Receipts with respect to matters on which Series D Preferred Stock are entitled to vote, withdrawals of the Series D Preferred Stock by the holders of Depositary Receipts or redemption or conversion of the Depositary Receipts, except for taxes (including transfer taxes, if any) and other governmental charges and such other charges as are provided in the Deposit Agreement to be at the expense of the holders of Depositary Receipts or persons depositing Series D Preferred Stock. GENERAL Continental will make available for inspection by holders of Depositary Receipts at its corporate trust office all reports and communications from the Company that are delivered to Continental and made generally available to the holders of the Series D Preferred Stock. Neither Continental nor the Company will be liable if it is prevented or delayed by law or any circumstance beyond its control from or in performing its obligations under the Deposit Agreement. 26 FORM AND DENOMINATION Global Shares; Book-Entry Form. The Depositary Shares have been issued in the form of one or more global certificates (the "Depositary Share Global Certificate") which have been deposited with, or on behalf of, the Depositary and registered in the name of Cede & Co., as nominee of the Depositary (the "Global Certificate Holder"). Except as set forth below, record ownership of the Depositary Share Global Certificate may be transferred, in whole or in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. Owners of a beneficial interest in the Depositary Share Global Certificate may hold their interest in the Depositary Share Global Certificate directly through the Depositary if such holder is a Participant in the Depositary or indirectly through organizations that are Participants in the Depositary. Persons who are not Participants may beneficially own interests in the Depositary Share Global Certificate held by the Depositary only through Participants or certain banks, brokers, dealers, trust companies and other parties that clear though or maintain a custodial relationship with a Participant, either directly or indirectly. So long as Cede & Co., as the nominee of the Depositary, is the registered owner of the Depositary Share Global Certificate, Cede & Co. for all purposes will be considered the sole holder of the Depositary Share Global Certificate. Owners of beneficial interest in the Depositary Share Global Certificate will be entitled to have certificates registered in their names and to receive physical delivery of certificates in definitive form (the "Definitive Securities"). Payment of dividends on and any redemption price with respect to the Depositary Share Global Certificate will be made to the Global Certificate Holder, as registered owner of the Depositary Share Global Certificate, by wire transfer of immediately available funds on each Dividend Payment Date or redemption date, as applicable. Neither the Company nor the Transfer Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Depositary Share Global Certificate or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company has been informed by the Depositary that, with respect to any payment of dividends on, or the redemption price with respect to, the Depositary Share Global Certificate, the Depositary's practice is to credit Participants' accounts on the payment date therefor, with payments in amounts proportionate to their respective beneficial interests in the Depositary Shares represented by the Depositary Share Global Certificate as shown on the records of the Depositary, unless the Depositary has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in the Depositary Shares represented by the Depositary Share Global Certificate held through such Participants will be the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in "street name." Transfers between Participants will be effected in the ordinary way in accordance with the Depositary's rules and will be settled in immediately available funds. The laws of some states require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in the Depositary Share Global Certificate to such persons may be limited. Because the Depositary can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in the Depositary Shares represented by the Depositary Share Global Certificate to pledge such interest to persons or entities that do not participate in the Depositary system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Neither the Company nor the Transfer Agent will have responsibility for the performance of the Depositary or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. The Depositary has advised the Company that it will take any action permitted to be taken by a holder of Depositary Shares (including, without limitation, the presentation of Depositary Shares for exchange) only at the direction of one or more Participants to whose account with the Depositary interests in the Depositary Share Global Certificate are credited, and only in respect of the Depositary Shares represented by the Depositary Share Global Certificate as to which such Participant or Participants has or have given such direction. 27 The Depositary has also advised the Company that the Depositary is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes to accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations such as the Initial Purchasers. Certain of such Participants (or their representatives), together with other entities, own the Depositary. Indirect access to the Depositary system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a Participant, either directly or indirectly. Although the Depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the Depositary Share Global Certificate among Participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. If the Depositary is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will cause the Depositary Shares to be issued in definitive form in exchange for the Depositary Share Global Certificate. Certificated Depositary Shares. Investors in the Depositary Shares may request that Definitive Securities be issued in exchange for Depositary Shares represented by the Depositary Share Global Certificate. Furthermore, Definitive Securities may be issued in exchange for Depositary Shares represented by the Depositary Share Global Certificate if no successor depositary is appointed by the Company as set forth above. Unless determined otherwise by the Company in accordance with applicable law, Definitive Securities issued upon transfer or exchange of beneficial interests in Depositary Shares represented by the Depositary Share Global Certificate will bear a legend setting forth transfer restrictions under the Securities Act. Any request for the transfer of Definitive Securities bearing the legend, or for removal of the legend from Definitive Securities, must be accompanied by satisfactory evidence, in the form of an opinion of counsel, that such transfer complies with the Securities Act or that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act, as the case may be. 28 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion summarizes the material United States federal income tax considerations generally applicable to persons acquiring the Depositary Shares, but does not purport to be a complete analysis of all potential consequences. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Depositary Shares and Common Stock. The discussion assumes that the holders of the Depositary Shares and Common Stock will hold them as "capital assets" within the meaning of Section 1221 of the Code. The discussion is not binding on the IRS or the courts. The Company has not sought and will not seek any rulings from the IRS with respect to the positions of the Company discussed herein, and there can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Depositary Shares or Common Stock or that any such position would not be sustained. The tax treatment of a holder of the Depositary Shares and Common Stock may vary depending on such holder's particular situation or status. Certain holders (including S corporations, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, taxpayers subject to alternative minimum tax and persons holding Depositary Shares or Common Stock as part of a straddle, hedging or conversion transaction) may be subject to special rules not discussed below. The following discussion is limited to the United States federal income tax consequences relevant to a holder of the Depositary Shares and Common Stock that is a citizen or resident of the United States, or any state thereof, or a corporation or other entity created or organized under the laws of the United States, or any political subdivision thereof, or an estate or trust the income of which is subject to United States federal income tax regardless of source or that is otherwise subject to United States federal income tax on a net income basis in respect of the Depositary Shares and Common Stock. The following discussion does not consider all aspects of United States federal income tax that may be relevant to the purchase, ownership and disposition of the Depositary Shares and Common Stock by a holder in light of such holder's personal circumstances. In addition, the discussion does not consider the effect of any applicable foreign, state, local or other tax laws, or estate or gift tax considerations. PERSONS CONSIDERING THE PURCHASE OF THE DEPOSITARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION. INTRODUCTION Holders of Depositary Shares will be treated for United States federal income tax purposes as if they were owners of the Series D Preferred Stock represented by such Depositary Shares. Accordingly, holders of Depositary Shares will recognize the items of income, gain, loss and deduction that they would recognize if they directly held the Series D Preferred Stock. References in this "Certain Federal Income Tax Consequences" section to holders of Series D Preferred Stock include holders of Depositary Shares, and references to Depositary Shares include Series D Preferred Stock. DISTRIBUTIONS ON DEPOSITARY SHARES AND COMMON STOCK A distribution on the Depositary Shares, whether paid in cash or in shares of Common Stock, or a cash distribution on Common Stock will be taxable to the holder as ordinary dividend income to the extent that the amount of the distribution (i.e., the amount of cash and/or the fair market value of the Common Stock on the date of distribution) does not exceed the Company's current or accumulated earnings and profits allocable to such distribution (as determined for federal income tax purposes). To the extent that the amount of the distribution exceeds the Company's current or accumulated earnings and profits allocable to such distribution, the distribution will be treated as a return of capital, thus reducing the holder's adjusted tax basis in the Depositary Shares or Common Stock with respect 29 to which such distribution is made. The amount of any such excess distribution that exceeds the holder's adjusted tax basis in the Depositary Shares or Common Stock will be taxed as capital gain and will be long-term capital gain if the holder's holding period for the Depositary Shares or Common Stock exceeds one year. (A lower capital gains tax rate will apply if a non-corporate holder's holding period exceeds 18 months.) A holder's initial tax basis in Common Stock received as a distribution on the Depositary Shares will equal the fair market value of the Common Stock on the date of the distribution. The holding period for the Common Stock will commence on the day following the distribution. There can be no assurance that the Company will have sufficient earnings and profits to cause distributions on the Series D Preferred Stock or Common Stock to be treated as dividends for federal income tax purposes. For purposes of the remainder of this discussion, the term "dividend" refers to a distribution paid out of current or accumulated earnings and profits, unless the context indicates otherwise. Preferred Stock Liquidated Damages should be taxed in the same manner as dividend distributions, except that it is possible that Preferred Stock Liquidated Damages might be treated as payment of a fee and hence as ordinary income with respect to which no dividends-received deduction is available. Pursuant to certain amendments to Section 305(c) of the Code, the IRS has the authority to promulgate regulations that may treat unpaid cumulative dividends on preferred stock as being constructively paid to the holder in certain circumstances, such as when there is no intention for dividends to be paid currently at the time of issuance of the preferred stock. The IRS has not yet proposed any such regulations. Dividends received by corporate holders will generally be eligible for the 70% dividends-received deduction under Section 243 of the Code. There are, however, many exceptions and restrictions relating to the availability of the dividends-received deduction, such as restrictions relating to (i) the holding period of the stock on which the dividends are received, (ii) debt- financed portfolio stock, (iii) dividends treated as "extraordinary dividends" for purposes of Section 1059 of the Code, and (iv) taxpayers that pay alternative minimum tax. Corporate holders should consult their own tax advisors regarding the extent, if any, to which such exceptions and restrictions may apply to their particular factual situations. In addition, new legislation requires corporate holders to satisfy a separate forty-six day holding period requirement with respect to each dividend in order to be eligible for the dividends-received deduction with respect to such dividend. (A two-year transitional rule applies to stock held on June 8, 1997.) REDEMPTION PREMIUM Under certain circumstances, Section 305(c) of the Code requires that any excess of the redemption price of preferred stock over its issue price be treated as constructively distributed on a periodic basis prior to actual receipt. However, the Company believes that a holder of the Depositary Shares should not be required to include any redemption premium in income under Section 305(c). ADJUSTMENT OF CONVERSION PRICE Treasury regulations issued under Section 305 of the Code treat certain adjustments to conversion provisions of stock such as the Series D Preferred Stock as constructive distributions of stock with respect to preferred stock. Such constructive distributions of stock would be taxable to holders of Depositary Shares as described above under the caption "Distributions on Depositary Shares and Common Stock." In general, any adjustment increasing the number of shares of Common Stock into which the Depositary Shares can be converted could constitute a constructive distribution of stock to holders of Depositary Shares unless made pursuant to a bona fide, reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of Depositary Shares. Any adjustment in the conversion price to compensate the holders of Depositary Shares for taxable distributions of cash or property on any of the outstanding Common Stock of the Company may be treated as a constructive distribution of stock to holders of Depositary Shares. The Company is unable to predict whether any such adjustment will be made. 30 CONVERSION OF SERIES D PREFERRED STOCK No gain or loss will generally be recognized for United States federal income tax purposes on conversion of the Series D Preferred Stock solely into Common Stock. However, if the conversion takes place when there is a dividend arrearage on the Series D Preferred Stock, a portion of the Common Stock received may be treated as a taxable dividend to the extent of such dividend arrearage. Except for any Common Stock treated as payment of a dividend, the tax basis for the Common Stock received upon conversion (including any fractional share deemed received) will be the tax basis of the Series D Preferred Stock converted, and the holding period of the Common Stock received upon conversion (including any fractional share deemed received) will include the holding period of the Series D Preferred Stock converted into such Common Stock. The receipt of cash in lieu of a fractional share upon conversion of Series D Preferred Stock to Common Stock will generally be treated as a sale of such fractional share of Common Stock in which the holder will recognize taxable gain or loss equal to the difference between the amount of cash received and the holder's tax basis in the fractional share redeemed. Such gain or loss will be capital gain or loss and will be long-term if the holder's holding period for the fractional share exceeds one year. (A lower capital gains tax rate will apply if a non- corporate holder's holding period exceeds 18 months.) CONVERSION OF SERIES D PREFERRED STOCK AFTER DIVIDEND RECORD DATE If a holder whose Series D Preferred Stock has not been called for redemption surrenders such Series D Preferred Stock for conversion into shares of Common Stock after a dividend record date for the Series D Preferred Stock but before payment of the dividend, such holder will be required to pay the Company an amount equal to such dividend upon conversion. The holder will likely recognize the dividend payment as ordinary dividend income when it is received and increase the basis of the Common Stock received by the amount paid to the Company. REDEMPTION, SALE OR EXCHANGE OF SERIES D PREFERRED STOCK AND SALE OR EXCHANGE OF COMMON STOCK A redemption of shares of Series D Preferred Stock for cash will be a taxable event. A redemption of shares of Series D Preferred Stock for cash will generally be treated as a sale or exchange if the holder does not own, actually or constructively within the meaning of Section 318 of the Code, any stock of the Company other than the Series D Preferred Stock redeemed. If a holder does own, actually or constructively, other stock of the Company, a redemption of Series D Preferred Stock may be treated as a dividend to the extent of the Company's allocable current or accumulated earnings and profits (as determined for United States federal income tax purposes). Such dividend treatment will not be applied if the redemption is "not essentially equivalent to a dividend" with respect to the holder under Section 302(b)(1) of the Code. A distribution to a holder will be "not essentially equivalent to a dividend" if it results in a "meaningful reduction" in the holder's stock interest in the Company. For this purpose, a redemption of Series D Preferred Stock that results in a reduction in the proportionate interest in the Company (taking into account any actual ownership of Common Stock and any stock constructively owned) of a holder whose relative stock interest in the Company is minimal and who exercises no control over corporate affairs should be regarded as a meaningful reduction in the holder's stock interest in the Company. If a redemption of the Series D Preferred Stock for cash is treated as a sale or exchange, the redemption will result in capital gain or loss equal to the difference between the amount of cash received and the holder's adjusted tax basis in the Series D Preferred Stock redeemed, except to the extent that the redemption price includes dividends that have been declared by the Board of Directors of the Company prior to the redemption. Similarly, upon the sale or exchange of the Series D Preferred Stock or Common Stock (other than in a redemption, on conversion or pursuant to a tax-free exchange), the difference between the sum of the amount of cash and the fair market value of other property received and the holder's adjusted basis in the Series D Preferred Stock or Common Stock will be capital gain or loss. This gain or loss will be long-term capital gain or loss if the holder's holding period for the Series D Preferred Stock or Common Stock exceeds one year. (A lower capital gains tax rate will apply if a non-corporate holder's holding period exceeds 18 months.) 31 If a redemption of Series D Preferred Stock is treated as a distribution that is taxable as a dividend, the amount of the distribution will be the amount of cash received by the holder. The holder's adjusted tax basis in the redeemed Series D Preferred Stock will be transferred to any remaining stock holdings in the Company, subject to reduction or possible gain recognition under Section 1059 of the Code with respect to the non-taxed portion of such dividend. If the holder does not retain any actual stock ownership in the Company (having a stock interest only constructively by attribution), the holder may lose the benefit of the basis in the Series D Preferred Stock. BACKUP WITHHOLDING A holder of Depositary Shares or Common Stock may be subject to backup withholding at the rate of 31% with respect to dividends paid on, or the proceeds of a redemption, sale or exchange of, the Depositary Shares or Common Stock, unless such holder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates its exemption or (b) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A holder of Depositary Shares or Common Stock who does not provide the Company with the holder's correct taxpayer identification number may be subject to penalties imposed by the IRS. Any amount paid as backup withholding would be creditable against the holder's federal income tax liability. 32 THE SELLING SECURITYHOLDERS The following table sets forth, as of September 15, 1997 certain information regarding the Selling Securityholders' ownership of the Company's Depositary Shares, Series D Preferred Stock and Common Stock. Unless otherwise disclosed in the footnotes to the table, no Selling Securityholder has held any position, office or had any other material relationship with the Company, its predecessors or affiliates during the past three years. All of the Depositary Shares and shares of Series D Preferred Stock are registered in the name of "Cede & Co." on the books of the Company's Transfer Agent. To the knowledge of the Company, except as disclosed in the table below, the Selling Securityholders did not own, nor have any rights to acquire, any other Depositary Shares, shares of Series D Preferred Stock or Common Stock as of the date of this Prospectus.
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Kenny ...... 1,980 * 1,980 0 Securities Corp. (5) J. Michael.. 1,244 * 1,244 0 Short (5) Brett B..... 344 * 344 0 Branden- berg (5) Scott M..... 258 * 258 0 Rich (5) Ray Bove.... 13,501 * 13,501 0 (6) William M.... 14,053 * 14,053 0 Wunderlich (6) W&B.......... 27,554 * 27,554 0 Liquidation Corp. (6)
33
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Donaldson,.. 39,848 * 39,848 0 62,000 * 62,000 0 620 * 620 0 Lufkin & Jenrette Securities Corp Hudson ..... 14,783 * 14,783 0 23,000 * 23,000 0 230 * 230 0 River Trust Growth Investors Hudson ..... 18,896 * 18,896 0 29,400 * 29,400 0 294 * 294 0 River Trust Growth & Income Account Equitable.... 44,090 * 44,090 0 68,600 * 68,600 0 686 * 686 0 Life Assurance Separate Account Convertible Memphis, .... 18,382 * 18,382 0 28,600 * 28,600 0 286 * 286 0 Light, Gas & Water Retirement Fund Hotel ....... 6,042 * 6,042 0 9,400 * 9,400 0 94 * 94 0 Union and Industry of Hawaii David ....... 1,286 * 1,286 0 2,000 * 2,000 0 20 * 20 0 Lipscomb University General Endowment The Frist..... 4,756 * 4,756 0 7,400 * 7,400 0 74 * 74 0 Foundation Equitable..... 3,150 * 3,150 0 4,900 * 4,900 0 49 * 49 0 Life Assurance Separate Account Balance
34
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Hudson ....... 18,575 * 18,575 0 28,900 * 28,900 0 289 * 289 0 River Trust Balanced Account Bankers ...... 48,203 * 48,203 0 75,000 .0109 75,000 0 750 .0109 750 0 Trust For Chrysler Corp Emp #1 Pension Plan DTD 4/1/89 (7) State ........ 26,544 * 26,544 0 41,300 * 41,300 0 413 * 413 0 Street Bank Custodian For GE Pension Trust Global Inv Manager SVC Convert (7) Franklin & ... 3,985 * 3,985 0 6,200 * 6,200 0 62 * 62 0 Marshall College (7) Chase ........ 81,945 * 81,945 0 127,500 .0185 127,500 0 1, 275 .0185 1,275 0 Manhattan NA Trustee For IBM Corp Retirement Plan Trust DTD 12/18/45 (7) Millennium ... 38,562 * 38,562 0 60,000 * 60,000 0 600 * 600 0 Trading Co., L.P. KA ........... 15,425 * 15,425 0 24,000 * 24,000 0 240 * 240 0 Management Limited
35
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Oppen- ....... 25,708 * 25,708 0 40,000 * 40,000 0 400 * 400 0 heimer Variable Account Funds for the account of Oppen- heimer Growth & Income Fund United ....... 1,729 * 1,729 0 2,690 * 2,690 0 26.9 * 26.9 0 National Life Insurance(8) Lincoln ...... 63,583 * 63,583 0 98,930 .0143 98,930 0 989.3 .0143 989.3 0 National Life Insurance(8) Weirton ...... 10,865 * 10,865 0 16,905 * 16,905 0 169.05 * 169.05 0 Trust (8) Walker Art ... 4,162 * 4,162 0 6,475 * 6,475 0 64.75 * 64.75 0 Center (8) High ......... 77,124 * 77,124 0 120,000 .0174 120,000 0 1,200 .0174 1,200 0 bridge Capital Corpora- tion KA Trading ... 23,138 * 23,138 0 36,000 * 36,000 0 360 * 360 0 L.P. Design ....... 19,281 * 19,281 0 30,000 * 30,000 0 300 * 300 0 Professionals Insurance Company
36
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to this Offering for Offering holder(1) this Offering(2)(3) Sale (2)(3) to this Offering(2) Sale (2) (2)(4) Sale (2) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Guaranty ..... 19,281 * 19,281 0 30,000 * 30,000 0 300 * 300 0 National Insurance Company JMG .......... 154,570 * 154,570 0 240,500 .0349 240,500 0 2,405 .0349 2,405 0 Convertible Investments L.P. Triton ....... 148,143 * 148,143 0 230,500 .0334 230,500 0 2,305 .0334 2,305 0 Capital Holding LTD Deutsche ..... 80,338 * 80,338 0 125,000 .0181 125,000 0 1,250 .0181 1,250 0 Morgan Grenfell Inc. Merrill ...... 44,989 * 44,989 0 70,000 .0101 70,000 0 700 .0101 700 0 Lynch Pierce Fenner & Smith Inc. Susque- ...... 60,414 * 60,414 0 94,000 .0136 94,000 0 940 .0136 940 0 hanna Capital Group Goods & ...... 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0 Co. The .......... 57,843 * 57,843 0 90,000 .0130 90,000 0 900 .0130 900 0 Prudential Series Fund, Inc. High Yield Bond Portfolio(9) Colonial ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0 Penn Insurance Co.(10)
37
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Bank of ...... 16,711 * 16,711 0 26,000 * 26,000 0 260 * 260 0 Tokyo- Mitsubishi Trust Convertible Bond Fund Forest ....... 46,918 * 46,918 0 73,000 .0106 73,000 0 730 .0106 730 0 Fulcrum Fd Ltd. Forest ....... 62,664 * 62,664 0 97,500 .0141 97,500 0 975 .0141 975 0 Fulcrum Fund LP Highmark ..... 19,924 * 19,924 0 31,000 * 31,000 0 310 * 310 0 Convertible Sec. Fund J.P .......... 128,540 * 128,540 0 200,000 .0290 200,000 0 2,000 .0290 2,000 0 Morgan & Co. Incorpo- rated (11) High Yield ... 77,124 * 77,124 0 120,000 .0172 120,000 0 1,200 .0172 1,200 0 Portfolio (12) IDS Bond ..... 102,832 * 102,832 0 160,000 .0232 160,000 0 1,600 .0232 1,600 0 Fund, Inc. (12) Colonial ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0 Penn Life Insurance Co. (10) MFS Series ... 65 * 65 0 100 * 100 0 1 * 1 0 Trust I- MFS Convertible Securities Fund MFS Series ... 25,644 * 25,644 0 39,900 * 39,900 0 399 * 399 0 Trust V - MFS Total Return Fund
38
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Key SBSF ..... 9,641 * 9,641 0 15,000 * 15,000 0 150 * 150 0 Convertible Securities Fund (13) Allstate ..... 86,765 * 86,765 0 135,000 .0196 135,000 0 1,350 .0196 1,350 0 Insurance Company LLT .......... 5,142 * 5,142 0 8,000 * 8,000 0 80 * 80 0 Limited (14) McMahan ...... 12,854 * 12,854 0 20,000 * 20,000 0 200 * 200 0 Securities Co. L.P. BT ........... 67,484 * 67,484 0 105,000 .0152 105,000 0 1,050 .0152 1,050 0 Holdings (New York) Inc. Strong ....... 128,540 * 128,540 0 200,000 .0290 200,000 0 2,000 .0290 2,000 0 Total Return Fund, Inc. General ...... 38,562 * 38,562 0 60,000 * 60,000 0 600 * 600 0 Motors Retirement Program for Salaried Employees High Yield Account (15) UBS .......... 120,185 * 120,185 0 187,000 .0271 187,000 0 1,870 .0271 1,870 0 Securities LLC (16) Eaton ........ 192,810 .0116 192,810 0 300,000 .0435 300,000 0 3,000 .0435 3,000 0 Vance Total Return Portfolio Bear ......... 64,270 * 64,270 0 100,000 .0145 100,000 0 1,000 .0145 1,000 0 Stearns Securities Corp. (17)
39
Common Stock Depositary Shares Series D Preferred Stock ------------------------------------- ----------------------------------------- ---------------------------------- Bene- Bene- Bene- ficially ficially ficially Owned Owned Owned Name of After After Beneficially After Selling Beneficially Offered This Beneficially Offered This Owned Prior Offered This Security- Owned Prior to for Offering Owned Prior for Offering to This Offering for Offering holder(1) This Offering(2)(3) Sale (2)(3) to This Offering(2) Sale (2) (2)(4) Sale (2)(4) - --------- ------------------- ------- -------- ------------------- ------- -------- ---------------- ------- -------- Number of Percent shares of of Number Percent Number of Percent of Series D Series D of of Depositary Depositary Preferred Preferred Shares Shares Shares Shares Stock Stock ------ ------- ---------- ---------- --------- --------- Paces ........ 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0 Partners Syndicate Account Robertson .... 32,135 * 32,135 0 50,000 * 50,000 0 500 * 500 0 Stephens Growth & Income Fund Fidelity ..... 353,485 .0212 353,485 0 550,000 .0797 550,000 0 5,500 .0797 5,500 0 Financial Trust: Fidelity Convertible Securities Fund (18) Fidelity ..... 10,605 * 10,605 0 16,500 * 16,500 0 165 * 165 0 Contrafund (11)(18) Variable ..... 1,286 * 1,286 0 2,000 * 2,000 0 200 * 200 0 Insurance Products Fund II: Contrafund Portfolio (18) DTI Fund, .... 12,854 * 12,854 0 20,000 * 20,000 0 200 * 200 0 Ltd. Cole Roesler.. 6,427 * 6,427 0 10,000 * 10,000 0 100 * 100 0 Trading Group, L.P.
* Less than one percent. Based on 16,669,492 shares of common stock outstanding on July 31, 1997, 6,900,000 Depositary Shares outstanding on September 15, 1997 and 69,000 shares of Series D Preferred Stock. (1) The names of additional Selling Securityholders may be provided subsequent hereto pursuant to Section 424(c) of the Securities Act of 1933, as amended. (2) Under the rules of the Commission, a person is deemed to be the beneficial owner of a security if such person has or shares the power to vote or direct the voting of such security or the power to dispose or direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities if that person has the right to acquire beneficial ownership within 60 days. Accordingly, more than one person may be deemed to be a beneficial owner of the same securities. Unless otherwise indicated by footnote, the named individuals have sole voting and investment power with respect to the securities beneficially owned. (3) Assuming the conversion of all Depositary Shares and/or shares of Series D Preferred Stock. The Depositary Shares and the Series D Preferred Stock may not be converted into Common Stock until after October 7, 1997. (4) Assuming the conversion of all Depositary Shares into shares of Series D Preferred Stock on the basis of one share of Series D Preferred Stock for each one hundred Depositary Shares. (5) Selling Securityholder is a W&B Holder. These shares are not subject to an escrow arrangement. J. Michael Short, Brett B. Brandenberg and Scott M. Rich are all employees of Kenny Securities Corp. (6) These shares are subject to an escrow arrangement and will not be available for sale until such arrangement terminates. Ray Bove and William M. Wunderlich are the sole shareholders of W&B Liquidation Corp. Since Ray Bove and William M. Wunderlich control W&B Liquidation Corp. all three have been listed as Selling Securityholders. However, only 27,554 shares are actually being registered. (7) Palisade Capital Management, L.L.C. is the registered investment adviser to the Selling Securityholder and as such has shared voting and investment power with respect to the Securities owned by the Selling Securityholder. 40 (8) Lynch & Mayer, Inc. is the investment adviser to the Selling Security- holder and as such has shared investment power with respect to the Securities owned by the Selling Securityholder. (9) The Prudential Insurance Company of America provides investment advisory services to the Selling Securityholder and may be deemed to have shared voting and investment power with respect to the Securities owned by the Selling Securityholder. (10) The Palladin Group L.P. by Palladin Capital Management LLC is the investment adviser to the Selling Securityholder and as such has shared voting and investment power with respect to the Securities owned by the Selling Securityholder. (11) The Selling Securityholder currently holds more than one percent of the shares of Common Stock of the Company. These shares are not subject to this registration statement. (12) American Express Financial Corporation, a wholly-owned subsidiary of American Express Company, provides investment advisory services to the Selling Securityholder. (13) Key Asset Management, Inc. is the agent of the Selling Securityholder as as such has shared voting and investment power with respect to the Securities owned by the Selling Securityholder. (14) Forest Investment Management, L.P. is an investment adviser to the Selling Securityholder and as such has shared investment power with respect to the Securities owned by the Selling Securityholder. (15) The Prudential Insurance Company of America provides investment management services to the Selling Securityholder and may be deemed to have shared voting and investment power with respect to the Securities owned by the Selling Securityholder. (16) The Selling Securityholder is a market maker with respect to the Common Stock of the Company and at any time may hold a short or long position in such Common Stock. (17) Bear Stearns & Co., Inc. provides investment banking services to the Company and was one of two initial purchasers in a private placement by the Company of the Securities. The Securities held by Bear, Stearns & Co. Inc. were acquired from time to time after the initial placement of the Securities in its capacity as a broker dealer or market maker. Bear, Stearns & Co. Inc. is a registered broker dealer and may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended, with respect to any Securities sold by it hereunder. Additionally, Bear Stearns & Co., Inc. has acted as lead manager in connection with the initial offering of other securities of the Company. (18) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp., provides investment advisory services to the Selling Shareholder. 41 The Common Stock and Depositary Shares owned by the Selling Securityholders and the Dividend Shares issuable by the Company represent all of the securities covered by the Registration Statement. The Depositary Shares were originally issued by the Company and purchased by the Initial Purchasers in the July 9 Equity Offering. The Initial Purchasers, in turn, resold the Depositary Shares in private sales pursuant to exemption from registration under the Securities Act of 1933, as amended. W&B Holders acquired the 31,380 shares of Common Stock constituting the Universal Shares from the Company in connection with the acquisition by the Company of Universal. PLAN OF DISTRIBUTION The Company will not receive any proceeds from the sale of the Securities or the issuance of the Dividend Shares offered hereby. The Dividend Shares may be issued by the Company in lieu of cash from time to time to holders of record of the Series D Preferred Stock, all in accordance with the Certificate of Designation, during the two year period commencing on the date of this Prospectus. See "Description of Preferred Stock--Dividends." The Securities may be sold from time to time to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer the Securities through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Securities for whom they may act as agent. The Selling Securityholders and any such brokers, dealers or agents who participate in the distribution of the Securities may be deemed to be "underwriters", and any profits on the sale of the Securities by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Securityholders may be deemed to be underwriters, the Selling Securityholders may be subject to certain statutory liabilities of the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. The Securities offered hereby may be sold by the Selling Securityholders from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The Securities may be sold by one or more of the following methods, without limitation: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Securities as agent but may position and resell a portion of the block as principal to facilitate the transaction: (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (d) an exchange distribution in accordance with the rules of such exchange; (e) face-to-face transactions between sellers and purchasers without a broker-dealer; (f) through the writing of options; and (g) other. At any time a particular offer of the Securities is made, a revised Prospectus or Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of Securities being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a post-effective amendment to the Registration Statement of which this Prospectus is a part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of the Securities. In addition, the Securities covered by this Prospectus may be sold in private transactions or under Rule 144 rather than pursuant to this Prospectus. To the best knowledge of the Company, there are currently no plans, arrangements or understandings between any Selling Securityholders and any broker, dealer, agent or underwriter regarding the sale of the Securities by the Selling Securityholders. There is no assurance that any Selling Securityholder will sell any or all of the Securities offered by it hereunder or that any such Selling Securityholder will not transfer, devise or gift such Securities by other means not described herein. The Selling Securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders and any other such person. All of the foregoing may 42 affect the marketability of the Securities and the ability of any person or entity to engage in market-making activities with respect to the Securities. Pursuant to (1) the Preferred Stock Registration Rights Agreement entered into in connection with the offer and sale of the Depositary Shares by the Company and (2) section 7.6(c) of the Asset Acquisition Agreement in connection with the acquisition of the Universal Shares, each of the Company and the applicable Selling Securityholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. The Company has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Securities to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. LEGAL MATTERS The legality of the securities offered hereby has been passed upon for the Company by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of Kronish, Lieb, Weiner & Hellman LLP, beneficially owns 6,745 shares of the Common Stock. EXPERTS The consolidated financial statements and schedule of Intermedia Communications Inc. appearing in Intermedia Communication Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1996, have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given the authority of such firm as experts in accounting and auditing. The consolidated financial statements of DIGEX, Incorporated, appearing in DIGEX, Incorporated's Annual Report (Form 10-KSB) for the year ended December 31, 1996, have been audited by Ernst & Young, LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given the authority of such firm as experts in accounting and auditing. 43 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. Other Expenses of Issuance and Distribution. The following statement sets forth the expenses payable in connection with this Registration Statement (estimated except for the registration fee), all of which will be borne by the Company: Securities and Exchange Commission filing fee.... $ 67,413.73 Legal fees and expenses.......................... $ 12,000.00 Accountant's fees and expenses................... $ 10,000.00 Miscellaneous.................................... $ 10,586.27 ----------- Total............................................ $100,000.00 ===========
ITEM 15. Indemnification of Directors and Officers. The Company's Certificate of Incorporation provides that the Company will to the fullest extent permitted by the DGCL indemnify all persons whom it may indemnify pursuant thereto. The Company's By-laws contain a similar provision requiring indemnification of the Company's directors and officers to the fullest extent authorized by the DGCL. The DGCL permits a corporation to indemnify its directors and officers (among others) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought (or threatened to be brought) by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action, i.e., ---- one by or in the right of the corporation, indemnification may be made for expenses (including attorneys' fees) actually and reasonably incurred by directors and officers in connection with the defense or settlement of such action if they had acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses. The DGCL further provides that, to the extent any director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. In addition, the Company's Certificate of Incorporation contains a provision limiting the personal liability of the Company's directors for monetary damages for certain breaches of their fiduciary duty. The Company has indemnification insurance under which directors and officers are insured against certain liability that may occur in their capacity as such. II-1 ITEM 16. Exhibits and Financial Data Schedules. (a) Exhibits 1.1* --Purchase Agreement, dated as of July 2, 1997, among the Company and the Initial Purchasers. 2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among the Company, Daylight Acquisition Corp. and DIGEX, Incorporated. Exhibit 99(c)(1) to the Company's Schedule 14D-1 filed with the Commission on June 11, 1997 is incorporated herein by reference. 2.2** --Asset Acquisition Agreement, dated as of December 6, 1996, among Universal Telecom, Inc. d/b/a Universal Telecom Technologies, the Company, William M. Wunderlich and Ray Bove. 4.1 --Indenture, dated as of June 2, 1995, between the Company and SunBank National Association, as trustee. Exhibit 4.1 to the Company'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, governing the Company's 13 1/2% Series B Senior Notes due 2005, between the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to the Company'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 the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Commission File No. 33-34738) filed with the Commission on April 18, 1996 is incorporated herein by reference. 4.3 --Indenture, dated as of July 9, 1997, between the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 4.4* --Preferred Stock Registration Rights Agreement, dated as of July 9, 1997, among the Company and the Initial Purchasers. 4.5 --Certificate of Designation of Voting Power, Designation Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of 7% Series D Junior Convertible Preferred Stock of the Company, filed with the Secretary of State of the State of Delaware on July 8, 1997. Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 4.6 --Deposit Agreement, dated as of July 9, 1997, between the Company and Continental Stock Transfer & Trust Company. Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 5.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP. 8.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters is contained in their opinion filed as Exhibit 5.1 to this Registration Statement. 12.1* --Statement Re: Computation of Ratios. 12.2* --Statement Re: Computation of Ratios.
II-2 23.1** --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in their opinion filed as Exhibit 5.1 to this Registration Statement. 23.2* --Consent of Ernst & Young LLP. 23.3* --Consent of Ernst & Young LLP. 23.4** --Consent of Ernst & Young LLP. 23.5** --Consent of Ernst & Young LLP. 24.1* --Power of Attorney is set forth on the signature page of this Registration Statement.
----------- *Filed with the Registration Statement on August 12, 1997. **Filed herewith. (b) Financial Data Schedules Financial Data Schedules are not required to be filed since all financial statements have been previously included in filings with the Commission. II-3 ITEM 17. Undertakings. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the Prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; provided, however, that paragraphs (i) and (ii) above do not apply if the -------- ------- information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Company pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on this 15th day of September, 1997. INTERMEDIA COMMUNICATIONS, INC. By:__________________________________ Robert M. Manning, Chief Financial Officer and Senior Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Principal Executive Officers: * Chairman of the Board, September 15, 1997 _____________________________________ President and Chief David C. Ruberg Executive Officer Principal Financial and Accounting Officers: Chief Financial Officer September 15, 1997 _____________________________________________ and Senior Vice President Robert M. Manning * Controller and Chief September 15, 1997 _____________________________________________ Accounting Officer Jeanne M. Walters Other Directors: * Director September 15, 1997 _____________________________________________ John C. Baker * Director September 15, 1997 _____________________________________________ George F. Knapp * Director September 15, 1997 _____________________________________________ Philip A. Campbell * By: _____________________________________________ Robert M. Manning, as attorney-in-fact
II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on this 15th day of September, 1997. INTERMEDIA COMMUNICATIONS OF FLORIDA, INC. By: /s/ Robert M. Manning --------------------------------------- Robert M. Manning Chief Financial Officer and Senior Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to its Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Principal Executive Officers: /s/ * Chairman of the Board, September 15, 1997 _____________________________________ President and Chief David C. Ruberg Executive Officer Principal Financial and Accounting Officers: /s/ Robert M. Manning Chief Financial Officer September 15, 1997 _____________________________________________ and Senior Vice President Robert M. Manning /s/ * Controller and Chief September 15, 1997 _____________________________________________ Accounting Officer Jeanne M. Walters Other Directors: /s/ * Director September 15, 1997 - --------------------------------------------- John C. Baker /s/ * Director September 15, 1997 _____________________________________________ George F. Knapp /s/ * Director September 15, 1997 _____________________________________________ Philip A. Campbell * By: _______________________________________ Robert M. Manning, as attorney-in-fact
II-6 EXHIBIT INDEX
Number Exhibit Page ------ ------- ---- 1.1* --Purchase Agreement, dated as of July 2, 1997, among the Company and the Initial Purchasers. 2.1 --Agreement and Plan of Merger, dated as of June 4, 1997, among the Company, Daylight Acquisition Corp. and DIGEX, Incorporated. Exhibit 99(c)(1) to the Company's Schedule 14D-1 filed with the Commission on June 11, 1997 is incorporated herein by reference. 2.2** --Asset Acquisition Agreement, dated as of December 6, 1996, among Universal Telecom, Inc. d/b/a Universal Telecom Technologies, the Company, William M. Wunderlich and Ray Bove. 4.1 --Indenture, dated as of June 2, 1995, between the Company and SunBank National Association, as trustee. Exhibit 4.1 to the Company'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, governing the Company's 13 1/2% Series B Senior Notes due 2005, between the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to the Company'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 the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to Amendment No. 1 to the Company's Registration Statement on Form S-3 (Commission File No. 33-34738) filed with the Commission on April 18, 1996 is incorporated herein by reference. 4.3 --Indenture, dated as of July 9, 1997, between the Company and SunTrust Bank, Central Florida, National Association, as trustee. Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 4.4* --Preferred Stock Registration Rights Agreement, dated as of July 9, 1997, among the Company and the Initial Purchasers. 4.5 --Certificate of Designation of Voting Power, Designation Preferences and Relative, Participating, Optional and Other Special Rights and Qualifications, Limitations and Restrictions of 7% Series D Junior Convertible Preferred Stock of the Company, filed with the Secretary of State of the State of Delaware on July 8, 1997. Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 4.6 --Deposit Agreement, dated as of July 9, 1997, between the Company and Continental Stock Transfer & Trust Company. Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Commission on July 17, 1997 is incorporated herein by reference. 5.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP. 8.1** --Opinion of Kronish, Lieb, Weiner & Hellman LLP re: Tax matters is contained in their opinion filed as Exhibit 5.1 to this Registration Statement. 12.1* --Statement Re: Computation of Ratios. 12.2* --Statement Re: Computation of Ratios. 23.1** --Consent of Kronish, Lieb, Weiner & Hellman LLP is contained in their opinion filed as Exhibit 5.1 to this Registration Statement.
Number Exhibit Page ------ ------- ---- 23.2* --Consent of Ernst & Young LLP. 23.3* --Consent of Ernst & Young LLP. 23.4** --Consent of Ernst & Young LLP. 23.5** --Consent of Ernst & Young LLP. 24.1* --Power of Attorney is set forth on the signature page of this Registration Statement.
----------- *Filed with the Registration Statement on August 12, 1997. **Filed herewith. EX-2.2 2 ASSET ACQUISITION AGREEMENT DATED AS OF 12/06/1996 EXHIBIT 2.2 [EXECUTION COPY] ASSET ACQUISITION AGREEMENT --------------------------- ASSET ACQUISITION AGREEMENT (this "Agreement") dated as of December 6, --------- 1996, among UNIVERSAL TELECOM, INC. d/b/a UNIVERSAL TELECOM TECHNOLOGIES, a Missouri corporation having an office at 3660 South Geyer Road, Suite 100, St. Louis, MO 63127 ("Seller"), INTERMEDIA COMMUNICATIONS INC., a Delaware ------ corporation having an office at 3625 Queen Palm Drive, Tampa, Florida 33619 ("Buyer"), and William M. Wunderlich, an individual residing at 4462 Country - ------- Sunrise, High Ridge, MO 63049, and Ray Bove, an individual residing at 2433 Suelynn Drive, High Ridge, MO 63049 (Mr. Wunderlich and Mr. Bove are collectively referred to as the "Shareholders"). ------------ RECITALS: -------- Seller is engaged in the business of providing switchless long distance and related telecommunications services (the "Business"). -------- Seller desires to sell to Buyer and Buyer desires to acquire from Seller, all right, title and interest of Seller in and to all of the assets and properties owned by Seller or used by Seller to conduct the Business, and in connection therewith Buyer is willing to assume certain liabilities of Seller relating thereto, all upon the terms and subject to conditions contained herein. The Shareholders are entering into this Agreement to induce Buyer to enter into this Agreement and to acquire the Business. Seller, the Shareholders and Buyer intend that the transactions contemplated hereby qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(c) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the parties hereto hereby agree as follows: 1. ACQUISITION ----------- 1.1. ACQUIRED ASSETS. --------------- (a) In consideration of the payment by Buyer of the relevant portion of the Acquisition Price (as defined in Section 3.1 below), Seller hereby sells, assigns, transfers, conveys and delivers to Buyer, and Buyer hereby purchases, acquires and takes assignment and delivery of, all the right, title and interest in and to all of the assets, properties, goodwill and business of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, directly or indirectly owned by Seller or to which it is directly or indirectly entitled and, in any case, belonging to or used or intended to be used in the Business, other than the Excluded Assets (as defined below), including, without limitation, the assets and properties of Seller listed on Schedule 1.1(a) (such assets and properties being referred to herein as the "Acquired Assets"). --------------- (b) Except as set forth on Schedule 1.1(b), all of the Acquired Assets are being sold, assigned, transferred, conveyed and delivered to Buyer free and clear of all encumbrances, security interests, mortgages, pledges, restrictions, charges, or liens of any kind, including, without limitation, tax liens ("Liens"). ----- 1.2. EXCLUDED ASSETS. Notwithstanding the foregoing, Seller is not --------------- selling, assigning, transferring, conveying or delivering, and Buyer is not acquiring pursuant to this Agreement, and the term "Acquired Assets" does not include, any of the following (the "Excluded Assets"): --------------- (a) an amount of cash on hand equal to $60,000 (the "Closing Cash"), which ------------ is in account number 3152701302 at Magna Bank; (b) any interest in and to the capital stock of Seller and all minute books, stock records, income tax records and similar corporate documents of Seller; (c) the claim of Seller against IXC Long Distance Inc. ("IXC") relating to the alleged failure by IXC to provide long distance services to Seller on a timely basis as required by Seller's agreement with IXC; provided, that Seller -------- covenants and agrees to immediately notify IXC of its intention to pursue such claim; (d) all certificates or other authorizations issued by the Federal Communication Commission or other state public utilities commissions to Seller in connection with the Business, including tariffs relating thereto; provided, -------- that if a state public utilities commission shall advise Buyer that transfer of Seller's certificate or other authorization shall be required in connection with the transactions contemplated hereby, then such certificate or other authorization shall automatically be deemed an Acquired Asset and not an Excluded Asset and Seller shall promptly take all steps necessary to effect such a transfer including, without limitation, filing and prosecuting applications for assignment or transfer of such certificates or 2 other authorizations as may be required by the Federal Communications Commission and any state public utilities commission; and (e) all rights of Seller under this Agreement and the Escrow Agreement (as defined below). 2. LIMITED ASSUMPTION OF LIABILITIES --------------------------------- 2.1. ASSUMPTION OF LIABILITIES. Except as expressly provided herein, ------------------------- Buyer does not assume or agree to pay, perform or discharge, any debts, liabilities, obligations, claims, expenses, taxes, contracts, accounts payable, or commitments of any kind, character or description, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or undetermined (collectively, "Liabilities") of Seller. Subject to the terms, conditions, ----------- representations and warranties contained herein, Buyer hereby assumes and agrees to pay, perform and discharge when due the Liabilities of Seller set forth on Schedule 2.1 hereto (the "Assumed Liabilities") and no other Liabilities of ------------------- Seller. 2.2. EXCLUDED LIABILITIES. Except as set forth on Schedule 2.1, and -------------------- regardless of whether any of the following may be disclosed to Buyer pursuant to Section 4 hereof or otherwise, or whether Buyer has knowledge of same, Buyer does not assume, and shall have no liability for any Liabilities arising out of any act or omission occurring, or any state of facts existing, prior to the date hereof (the "Excluded Liabilities") including, without limitation, any Liability -------------------- of Seller relating to or arising from: (i) the breach of Seller's obligations under the leases, contracts and agreements assigned to Buyer; (ii) any infringement by Seller on the rights of others in connection with the Business; (iii) taxes, including, without limitation, any social security taxes or any other taxes relating to Seller's current or former employees, any employment or withholding taxes upon employees collected by Seller, any income, capital gains, sales, use or transfer tax arising from the operations of Seller through the date hereof, including any thereof that may be due in connection with the transactions contemplated hereby; (iv) any accrued but unpaid payroll, severance, bonus, holiday and/or vacation obligations to employees of Seller; or (v) any damages, fines, interest or penalties assessed by any federal, state, county, city or municipal government or governmental agency or authority. Seller retains, and shall pay, perform and discharge when due all Excluded Liabilities. 3. ACQUISITION PRICE ----------------- 3.1. ACQUISITION PRICE; ALLOCATION OF ACQUISITION PRICE. (a) Subject to -------------------------------------------------- the adjustments set forth in Section 3.2, 3 the acquisition price for the Acquired Assets shall be $702,184 and the acquisition price for the covenants contained in Section 7.2 shall be $200,000 (together, the "Acquisition Price"). The Acquisition Price is hereby being paid ----------------- by delivery of 3,826 shares of common stock, par value $.01 per share ("Common ------ Stock"), of Buyer to Seller and 27,554 shares of Common Stock to Kronish, Lieb, - ------ Weiner & Hellman LLP (the "Escrow Agent") to be held in escrow by the Escrow ------------ Agent in accordance with the terms and provisions of the Escrow Agreement (the "Escrow Agreement") being executed on the date hereof among Buyer, Seller, the ---------------- Shareholders and the Escrow Agent. The shares of Common Stock being held in such escrow are hereafter collectively referred to as the "Escrow Funds", of which ------------ 19,130 shares of Common Stock are hereafter referred to as "Escrow Fund A" and ------------- 8,424 shares of Common Stock are hereafter referred to as "Escrow Fund B". ------------- (b) The sum of the Acquisition Price and the Assumed Liabilities shall be allocated among the Acquired Assets as of the date hereof in accordance with Exhibit A. Any subsequent adjustments to the sum of the Acquisition Price and Assumed Liabilities shall be reflected in the allocation hereunder in a manner consistent with Treasury Regulation (S) 1.1060-1T(f). For all tax purposes, Buyer and Seller agree to report the transactions contemplated in this Agreement in a manner consistent with the terms of this Agreement, including the allocation under Exhibit A, and that none of them will take any position inconsistent therewith in any tax return, in any refund claim, in any litigation, or otherwise. 3.2. ADJUSTMENTS TO THE ACQUISITION PRICE. The Acquisition Price shall be ------------------------------------ subject to the following adjustments: (a) Adjustments relating to Accounts Payable. As promptly as practicable ---------------------------------------- after the date hereof, Buyer shall cause an audit of the accounts payable listed as item 1. on Schedule 2.1 as being assumed by Buyer. Upon completion of such audit, Buyer shall deliver to Seller a written statement (the "Payables -------- Statement") setting forth the results of such audit. In the event the amount of - --------- the accounts payable as reflected in the Payables Statement shall exceed the amount for the accounts payable specified as item 1. on Schedule 2.1, then (i) such excess shall be deemed to be Assumed Liabilities for all purposes of this Agreement, (ii) the Acquisition Price shall be adjusted downward in an amount equal to such excess and (iii) Buyer shall deliver written notice to Seller and the Escrow Agent specifying the amount of such downward adjustment of the Acquisition Price and the Escrow Agent shall promptly and in accordance with the terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount of shares of Common Stock sufficient to cover such downward adjustment. In the event the amount of the accounts payable as specified as item 1. on Schedule 2.1 shall exceed the amount of the accounts payable as reflected in the 4 Payables Statement, then (i) the Acquisition Price shall be adjusted upward in an amount equal to such excess and (ii) Buyer shall promptly deliver to the Escrow Agent for deposit into the Escrow Funds an amount of shares of Common Stock sufficient to cover such upward adjustment. (b) Adjustments for Uncollected Accounts Receivable. As promptly as ----------------------------------------------- practicable after the 90th day following the date hereof, Buyer shall deliver to Seller a written statement setting forth the amounts of all or any portion of the accounts receivable included in the Acquired Assets which shall not have been collected by Buyer within 90 days after the date hereof. In the event the amount of such uncollected accounts receivable shall exceed $119,687, then Buyer shall deliver written notice to Seller and the Escrow Agent specifying the amount of such excess and the Escrow Agent shall promptly and in accordance with the terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount of shares of Common Stock sufficient to cover such excess. With respect to collection of accounts receivable, remittances to Buyer made by any account debtor shall, unless otherwise specified by the account debtor on account of a dispute with Seller with respect to a specific invoice, be credited to the invoices bearing the earliest dates. If shares of Common Stock are delivered to Buyer from the Escrow Funds pursuant to this Section 3.2(b), Buyer shall re- assign to Seller all accounts receivable not collected by Buyer within 90 days after the date hereof. Thereafter, Seller shall promptly remit to Buyer funds in the amount, if any, by which Seller's collection s of such re-assigned accounts receivable exceeds the value of the shares of Common Stock delivered to Buyer from the Escrow Funds pursuant to this Section 3.2(b). (c) Adjustments for Loss of Customers. The parties agree that the --------------------------------- customers listed on Exhibit B were billed an aggregate of $524,209 for the month of October 1996 (the "October Billings"). As promptly as practicable after ---------------- January 31, 1997, Buyer shall deliver to Seller a written statement setting forth the aggregate amount billed to the customers listed on Exhibit B for the month of January 1997 (the "January Billings"). In the event the January ---------------- Billings shall be less than 90% of October Billings, then Buyer shall deliver written notice to Seller and the Escrow Agent specifying the amount of such deficiency and the Escrow Agent shall promptly and in accordance with the terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount of shares of Common Stock equal to the product of the amount of such deficiency multiplied by 4.3. Notwithstanding the above, no payment of such deficiency shall be made by the Escrow Agent if (i) Buyer shall have increased in the aggregate the rates charged to the customers listed on Exhibit B by more than 10% from the aggregate of the rates charged to such customers as of the date hereof or (ii) more than half of the customers listed 5 on Exhibit B shall have experienced extraordinary service outages during the months of December 1996 or January 1997. (d) Adjustments for November Cost of Sales. As promptly as practicable -------------------------------------- after the date hereof, Buyer shall cause an audit of the November Cost of Sales which are specified as in item 10. on Schedule 2.1. Upon completion of such audit, Buyer shall deliver to Seller a written statement (the "Cost of Sales ------------- Statement") setting forth the results of such audit. In the event that 50% of - --------- the amount of the November Cost of Sales which shall not have been paid prior to November 29, 1996 as reflected in the Cost of Sales Statement shall exceed $200,000, then (i) the Acquisition Price shall be adjusted downward in an amount equal to such excess and (ii) Buyer shall deliver written notice to Seller and the Escrow Agent specifying the amount of such downward adjustment of the Acquisition Price and the Escrow Agent shall promptly and in accordance with the terms of the Escrow Agreement deliver to Buyer from the Escrow Funds an amount of shares of Common Stock sufficient to cover such downward adjustment. In the event that $200,000 shall exceed 50% of the amount of the November Cost of Sales which shall not have been paid prior to November 29, 1996 as reflected in the Cost of Sales Statement, then (i) the Acquisition Price shall be adjusted upward in an amount equal to such excess and (ii) Buyer shall promptly deliver to the Escrow Agent for deposit into the Escrow Funds an amount of shares of Common Stock sufficient to cover such upward adjustment. (e) Payments from Seller and the Shareholders. In the event that shares ----------------------------------------- of Common Stock held in the Escrow Funds shall be insufficient to cover any amounts required to be delivered to Buyer pursuant to this Section 3.2, the Escrow Agent shall deliver to Buyer all shares of Common Stock then remaining in the Escrow Funds and Seller and the Shareholders shall pay (on the date of the delivery of the shares of Common Stock by the Escrow Agent), either in cash by wire transfer of immediately available funds or by delivery of shares of Common Stock or both, an amount equal to such deficiency. 3.3. VALUE OF SHARES COMMON STOCK. For all purposes of this Agreement and ---------------------------- the Escrow Agreement, whenever shares of Common Stock shall be required to be delivered to satisfy a payment or indemnity obligation of any party hereto, the shares of Common Stock shall be deemed to be valued at $28.75 per share, notwithstanding the actual market or other value of the shares of Common Stock at the time of the delivery of such shares. In the event of any stock split, reverse stock split, stock combination or reclassification of the shares of Common Stock or any merger, consolidation or combination of Buyer with any other entity or entities, the deemed value specified above for the shares of Common Stock shall be proportionally adjusted so that the deemed value of the shares of Common Stock after such event shall be the 6 same as the deemed value of the shares of Common Stock prior to such event. All such adjustments shall be made successively. 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS. ------------------------------------------------------------- Seller and the Shareholders, jointly and severally, hereby represent and warrant to Buyer as follows: 4.1. ORGANIZATION OF SELLER. Seller is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of the State of Missouri. Seller has all requisite power and authority to own and hold the Acquired Assets, to conduct the Business as currently conducted by Seller and is duly licensed, permitted or qualified to do business in each jurisdiction in which the operation of the Business makes such licensing or qualification necessary, except as would not have a material adverse effect on the Business, the Acquired Assets or Seller. The jurisdictions in which Seller is so licensed or qualified are set forth on Schedule 4.1. 4.2. AUTHORITY. Seller has all requisite power and authority to execute --------- and deliver this Agreement and the Escrow Agreement, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Seller has obtained all necessary approvals for the execution and delivery of this Agreement and the Escrow Agreement, the performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby. Each of this Agreement and the Escrow Agreement has been duly executed and delivered by Seller and (assuming due authorization, execution and delivery by the other parties hereto and thereto) constitutes Seller's legal, valid and binding obligation, enforceable against Seller in accordance with its terms. Each Shareholder has full legal capacity to execute, deliver and perform his obligations under this Agreement and the Escrow Agreement. Each of this Agreement and the Escrow Agreement has been duly executed and delivered by each Shareholder and (assuming due authorization, execution and delivery by the other parties hereto and thereto) constitutes each Shareholder's legal, valid and binding obligation, enforceable against him in accordance with its terms. 4.3. NON-CONTRAVENTION. Except as set forth on Schedule 4.2, none of the ----------------- execution and delivery of this Agreement and the Escrow Agreement by Seller and Shareholders, the performance of their obligations hereunder and thereunder or the consummation of the transactions contemplated hereby and thereby will conflict with Seller's Certificate of Incorporation or By-laws or will, with or without notice, the passage of time or both, constitute a breach or violation of, be in conflict 7 with, constitute or create a default under, or result in the creation or imposition of any Liens under (a) any contract, indenture, agreement, instrument, mortgage, lease or commitment to which Seller or any Shareholder is a party or by which any of them is or any of their properties are bound, or to which any of them is subject or (b) any law or statute or any judgment, decree, order, regulation or rule of any court or governmental or regulatory authority relating to Seller, any Shareholder or the Business. 4.4. SOLVENCY. The consummation by Seller of the transactions -------- contemplated hereby will render Seller solvent and fully able to pay its debts as they become due. 4.5. FINANCIAL STATEMENTS. -------------------- (a) Seller has delivered to Buyer (i) balance sheets for Seller as of December 31 in each of the years 1993 through 1995, and statements of income and cash flow for each of the fiscal years then ended and (ii) a balance sheet for Seller as of October 31, 1996 (the "October Balance Sheet") and statements of --------------------- income and cash flow for the period ended October 31, 1996 (collectively, the "Financial Statements"). The Financial Statements are true, complete and - --------------------- accurate and fairly present the assets, liabilities, financial condition and results of operations of the Business as of the respective dates thereof and for the periods therein referred to. (b) There are no Liabilities of Seller other than Liabilities (i) reflected or reserved against on the October Balance Sheet or (ii) disclosed in Schedule 4.5. 4.6. GOVERNMENTAL CONSENTS. Except for qualifications and filings --------------------- required by Buyer to provided services to customers of Seller, there are no consents, approvals or authorizations of, or registrations, qualifications or filings with, governmental or regulatory agencies or authorities necessary in connection with the execution and delivery of this Agreement by Seller and the Shareholders, the performance of their obligations hereunder or the consummation of the transactions contemplated hereby. 4.7. COMPLIANCE WITH LAWS. Seller and the Shareholders have conducted -------------------- and continue to conduct the Business in accordance with all laws and statutes and rules, regulations, judgments, orders or decrees of any court or governmental or regulatory authority applicable to Seller or the Shareholders or any of Seller's properties or assets, including, without limitation, the Acquired Assets, and none of Seller or the Shareholders is in violation of any such laws, statutes, rules, regulations, judgments, orders or decrees. 8 4.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Seller and the Shareholders have ---------------------------------- conducted and continue to conduct the Business in accordance with all federal, state, county, city, municipal or other laws, statutes, rules, regulations, orders, consent decrees, permits or licenses, relating to the prevention, remediation, reduction or control of pollution or to the protection of the environment, natural resources and/or human health and safety. 4.9. PERMITS. Schedule 4.9 sets forth a true, complete and correct list ------- of all permits, licenses, franchises, orders, certificates and approvals (collectively, the "Permits") of any federal, state or local regulatory or ------- administrative agency or court relating to Seller, the Acquired Assets or the Business. The Permits constitute all permits, licenses, franchises, orders, certificates and approvals required for the lawful operation of the Business and the Acquired Assets. Seller is in full compliance with the terms of all the Permits. 4.10. LITIGATION, ETC. Except as set forth on Schedule 4.10, there are no ---------------- judicial or administrative actions, suits, proceedings or investigations pending or threatened, relating to or affecting Seller, the Acquired Assets, or the Business, or which question the validity of this Agreement or challenge any of the transactions contemplated hereby or the use of the Acquired Assets or the conduct of the Business after the date hereof by Buyer. Except as set forth on Schedule 4.10, to the best knowledge of Seller and the Shareholders, there are no facts or circumstances that may give rise to any of the foregoing. 4.11. EMPLOYEES. (a) Set forth on Schedule 4.11 is a true and complete --------- list of all of the employees of Seller engaged in the Business and their respective current compensation rates and accrued vacation as of the date hereof. None of the employees of Seller is covered by any collective bargaining agreement, no collective bargaining agreement is currently being negotiated and no attempt is currently being made or has been made during the past three (3) years to organize any employees of Seller to form or enter into a labor union or similar organization. Seller's relationship with its employees is good and there is, and during the past five (5) years there has been, no labor strike, dispute, slowdown, work stoppage or other labor difficulty pending, threatened against or involving Seller. (b) Schedule 4.11 sets forth a true and complete list of all employee benefit plans and all material bonus, stock option, stock purchase, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other employee benefit plans, programs or arrangements, and all material employment or compensation agreements, in each case for the benefit of, or relating to, current employees and former 9 employees of Seller (collectively, the "Plans"). Seller has made available to ----- Buyer, with respect to each Plan, a copy of the plan document, summary plan description and the most recent annual report and Internal Revenue Service determination letter. To the best knowledge of Seller and the Shareholders, except as disclosed in Schedule 4.11, there are no other employee benefit plans, programs, arrangements or agreements, whether formal or informal, whether in writing or not, to which Seller has or may have any obligation or which are maintained or sponsored for the benefit of any current or former employee of Seller. 4.12. OWNERSHIP AND TRANSFER OF ACQUIRED ASSETS. Seller has good and ----------------------------------------- marketable title to, or in the case of leased or subleased Acquired Assets, valid and subsisting leasehold interests in, all of the Acquired Assets, free and clear of all Liens (other than permitted Liens set forth on Schedule 1.1(b)). Seller has the unrestricted right to sell, transfer, assign, convey and deliver to Buyer all right, title and interest in and to the Acquired Assets without penalty or other adverse consequences. 4.13. ASSETS USED IN THE BUSINESS. The Acquired Assets are the only --------------------------- assets used by Seller to conduct the Business. Seller has caused the Acquired Assets to be maintained in accordance with good business practice and all the Acquired Assets are in good operating condition and repair (ordinary wear and tear excepted) and are suitable for the purposes for which they are used and intended. 4.14. STATUS OF AGREEMENTS. All material contracts, leases, subleases, -------------------- licenses, sublicenses, agreements and commitments for the performance by Seller of the Business are disclosed on Schedule 4.14 (the "Material Contracts"). The ----------------- Material Contracts are valid, legally binding and enforceable in accordance with their terms and are in full force and effect, and, except as disclosed on Schedule 4.14, there are no existing defaults (or events that, with notice or lapse of time or both, would constitute a default) with respect to any such Material Contract. Seller has delivered to Buyer true and complete copies of all Material Contracts. 4.15. EQUIPMENT. Set forth on Schedule 4.15 is a true and complete list --------- of all field and office equipment utilized by Seller to conduct the Business and the net book value (calculated in accordance with generally accepted accounting principles) and the balance owed with respect to such equipment as of the date hereof. Schedule 4.15 also sets forth all leases of equipment binding upon Seller or any of the equipment and all the equipment covered thereby. 4.16. VEHICLES. Set forth on Schedule 4.16 is a true and complete list -------- of all vehicles utilized by Seller to conduct 10 the Business and the net book value (calculated in accordance with generally accepted accounting principles) and the balance owed with respect to each such vehicle as of the date hereof. Schedule 4.16 also sets forth all leases of vehicles binding upon Seller and all the vehicles covered thereby. 4.17. OFFICES. Set forth on Schedule 4.17 is a true and complete list of ------- all offices utilized by Seller, as of the date hereof, to conduct the Business and the monthly lease payment and remaining lease term with respect to each such office. 4.18. INTELLECTUAL PROPERTY. Seller owns or possesses adequate licenses --------------------- or other valid rights to use all Intellectual Property (as defined in Schedule 1.1(a)) used or held for use in connection with Business and included in the Acquired Assets. Seller is unaware of any assertion or claim challenging the validity of any Intellectual Property. The rights of Seller in or to such Intellectual Property do not conflict with or infringe on the rights of any other person or entity, and Seller has not received any claim or written notice from any person or entity to such effect. The consummation of the transactions contemplated by this Agreement will not result in the termination or impairment of any of the Intellectual Property. After the consummation of the transactions contemplated hereby, Buyer shall own or possess adequate licenses or other valid rights to use all Intellectual Property to the same extent, and in the same manner, as Seller. 4.19. ACCOUNTS; LOCKBOXES, ETC. Schedule 4.19 sets forth a true and ------------------------- complete list of (i) the names of each bank, savings and loan association, securities or commodities broker or other financial institution in which Seller has an account and the names of all persons authorized to draw thereon or have access thereto, (ii) the location of all lockboxes and safe deposit boxes of Seller and the names of all persons authorized to draw thereon or have access thereto and (iii) the names of all persons, if any, holding powers of attorney from Seller relating to the Business or Seller. 4.20. BROKERS, FINDERS, ETC. Other than for Kenny Securities Corp. --------------------- ("Kenny"), all negotiations relating to this Agreement and the transactions ----- contemplated hereby have been carried on without the participation of any person or entity acting on behalf of Seller in such manner as to give rise to any valid claim against Buyer for any brokerage or finder's fee, commission or similar compensation. Seller and the Shareholders are solely responsible for the fees and expenses of Kenny. 4.21. NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made ----------------------------- in this Agreement by Seller and/or the Shareholders is false or misleading as to any material 11 fact, or omits to state a material fact required to make any of the statements made herein not misleading in any material respect. 4.22. INVESTMENT PURPOSES, ETC. (a) Seller and each of the Shareholders ------------------------- (i) understand that the shares of Common Stock to be issued to Seller pursuant to this Agreement have not been registered for sale under any federal or state securities laws and that such shares of Common Stock are being offered and sold to Seller pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), (ii) agree -------------- that Seller is acquiring such shares of Common Stock for its own account for investment purposes and without a view to any distribution thereof (except to the Shareholders in the event of a dissolution of Seller and except to Kenny to satisfy the obligations of Seller and the Shareholders to pay the fees and expenses of Kenny in connection with the transactions contemplated hereby), (iii) acknowledge that the representations and warranties set forth in this Section 4.22 are given with the intention that Buyer rely on them for purposes of claiming such exemption, and (iv) understand that they must bear the economic risk of the investment in such shares of Common Stock for an indefinite period of time as such shares of Common Stock cannot be sold unless subsequently registered under such laws or unless an exemption from registration is available. (b) Seller and each of the Shareholders agree that the shares of Common Stock issued to Seller pursuant to this Agreement will not be sold or otherwise transferred for value unless (i) a registration statement with respect thereto has become effective under the Securities Act or (ii) there is presented to Buyer an opinion of counsel reasonably satisfactory to Buyer that such registration is not required, and consent that any transfer agent of Buyer may be instructed not to transfer any such shares of Common Stock unless it receives satisfactory evidence of compliance with the foregoing provisions, and that there may be endorsed upon any certificate evidencing such shares of Common Stock an appropriate legend calling attention to the foregoing restrictions on transferability of such shares of Common Stock. (c) Seller and each of the Shareholders (i) are aware of Buyer's business and affairs and financial condition and have acquired sufficient information about Buyer to reach an informed and knowledgeable decision to acquire the shares of Common Stock issued to Seller pursuant to this Agreement, (ii) have reviewed Buyer's latest annual report on form 10-K and all filings subsequent thereto made by Buyer with the Securities and Exchange Commission pursuant to the federal securities laws, (iii) have discussed Buyer and its plans, operations and financial condition with Buyer's officers, (iv) have received all such information as 12 they have deemed necessary and appropriate to enable them to evaluate the financial risk inherent in making an investment in the shares of Common Stock, (v) have received satisfactory and complete information concerning the business and financial condition of Buyer in response to all inquiries in respect thereof, (vi) have sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of their investment in the shares of Common Stock, and (vii) are capable of bearing the economic risks of such investment, including a complete loss of their investment in the shares of Common Stock. 4.23. UNIFIED NOTE. Seller is the obligor under a promissory note dated ------------ February 12, 1996 (the "Unified Note") in the principal amount of $75,000 ------------ payable to Unified Telecommunications LLC ("Unified"). Seller has deposited ------- with Southwestern Bell funds in the amount of $62,030 (the "Unified Deposit"). --------------- If the Unified Deposit is not refunded to Buyer on or before January 1, 1997, Buyer's obligations under the Unified Note (specified as item 9. on Schedule 2.1) shall not exceed $12,970. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. --------------------------------------- Buyer represents and warrants to Seller as follows: 5.1. ORGANIZATION OF BUYER. Buyer is a corporation duly organized, --------------------- validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite power and authority under its charter and governance documents and under applicable laws to execute and deliver this Agreement and the Escrow Agreement, to carry out its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. 5.2. AUTHORITY. Buyer has obtained all necessary approvals for the --------- execution and delivery of this Agreement and the Escrow Agreement, the performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby. Each of this Agreement and the Escrow Agreement has been duly executed and delivered by Buyer and (assuming due authorization, execution and delivery by the other parties hereto and thereto) constitutes Buyer's legal, valid and binding obligation, enforceable against Buyer in accordance with its terms. 5.3. NON-CONTRAVENTION. None of the execution and delivery of this ----------------- Agreement and the Escrow Agreement by Buyer, the performance of its obligations hereunder and thereunder, or the consummation by Buyer of the transactions contemplated hereby and thereby will constitute a violation of, or be in conflict with, Buyer's Certificate of Incorporation and By-laws or will, with or 13 without notice, the passage of time or both, constitute a breach or violation of, be in conflict with, create a default under or result in the creation or imposition of any Liens upon any property of Buyer pursuant to (a) any contract, indenture, agreement, instrument, mortgage, lease or commitment to which Buyer is a party or by which any of its properties are bound, or to which Buyer is subject or (b) any law or statute or any judgment, decree, order, regulation or rule of any court or governmental or regulatory authority relating to Buyer. 5.4. GOVERNMENTAL CONSENTS. There are no consents, approvals or --------------------- authorizations of, or registrations, qualifications or filings with, governmental or regulatory agencies or authorities necessary in connection with the execution and delivery of this Agreement by Buyer, the performance of its obligations hereunder or the consummation by Buyer of the transactions contemplated hereby. 5.5. LITIGATION, ETC. There are no actions, suits, proceedings or ---------------- investigations pending or threatened against Buyer which question the validity of this Agreement or challenge any of the transactions contemplated hereby. 5.6. SHARES OF COMMON STOCK. The shares of Common Stock issued to Seller ----------------------- hereby are duly authorized, validly issued, fully paid and non-assessable. 5.7. BROKERS, FINDERS, ETC. All negotiations relating to this Agreement ---------------------- and the transactions contemplated hereby have been carried on without the participation of any person or entity acting on behalf of Buyer in such manner as to give rise to any valid claim against Seller for any brokerage or finder's fee, commission or similar compensation. 6. INDEMNIFICATION --------------- 6.1. INDEMNIFICATION. (a) Seller and the Shareholders, jointly and --------------- severally, agree to defend, indemnify and hold harmless Buyer, any subsidiary or affiliate thereof and its officers, directors, shareholders and controlling persons, employees, agents, successors and assigns (the "Indemnified Buyer ----------------- Group") from and against any and all Liabilities, losses, damages, claims, costs, expenses, judgments, interest and penalties (including, without limitation, attorneys', accountants' and outside advisors' fees and disbursements incurred by the Indemnified Buyer Group in any action or proceeding between Seller and/or the Shareholders and the Indemnified Buyer Group or between the Indemnified Buyer Group and any third party or otherwise) (collectively, "Losses") incurred as a result of, arising out of or resulting ------ from: 14 (i) the breach of any representation, warranty, covenant or agreement made by Seller and/or the Shareholders contained in this Agreement or any related document; or (ii) except for the Assumed Liabilities, any claim or cause of action of any third party (including, without limitation, any federal of state government entity), whether commenced before or after the date of this Agreement, to the extent arising out of any action, inaction, event, condition, Liability or obligation of Seller or the Shareholders occurring or existing prior to the date hereof (regardless of whether or not referred to on a Schedule to this Agreement or otherwise disclosed or known to Buyer as of the date hereof); or (iii) except for the Assumed Liabilities, any fines or penalties assessed by any federal, state, county, city or municipal government or any governmental agency or authority to the extent arising out of any action, inaction, event, condition, Liability or obligation of Seller or the Shareholders occurring or existing prior to the date hereof (regardless of whether or not referred to on a Schedule to this Agreement or otherwise disclosed or known to Buyer as of the date hereof); or (iv) failure to pay, perform or discharge any obligation, Liability, agreement or commitment not assumed by Buyer pursuant to this Agreement, including, without limitation, the Excluded Liabilities; or (v) the amount by which the federal, state and local telecommunications taxes and penalties listed in Schedule 2.1 exceed the amounts specified in Schedule 2.1; or (vi) the failure of Buyer to collect all or any portion of the Unified Deposit. Notwithstanding the above, the maximum amount of indemnifiable Losses which may be recovered from Seller and the Shareholders arising out of or resulting from the causes enumerated in this Section 6.1(a) shall be an amount equal to $3,500,000. In addition, Seller and the Shareholders shall not have any Liability to pay Losses pursuant to this Section 6.1(a) to the extent the aggregate of the Losses sustained by the Indemnified Buyer Group does not exceed $5,000; provided, however, that the indemnity obligation shall include the -------- ------- amount of all Losses and not merely the excess over $5,000. (b) Buyer agrees to defend, indemnify and hold harmless Seller and the Shareholders, any subsidiary or affiliate thereof and any of their officers, directors, controlling persons, employees, agents, successors and assigns (the "Indemnified Seller Group") from and against any and all Liabilities, losses, ------------------------ damages, claims, costs, expenses, judgments, interest and 15 penalties (including, without limitation, attorneys', accountants' and outside advisors' fees and disbursements incurred by the Indemnified Seller Group in any action or proceeding between Buyer and the Indemnified Seller Group or between the Indemnified Seller Group and any third party or otherwise) incurred as a result of, arising out of or resulting from: (i) the breach of any representation, warranty, covenant or agreement made by Buyer contained in this Agreement or any related document; or (ii) the failure on the part of Buyer to pay, perform and discharge when due the Assumed Liabilities. 6.2. RELEASE FROM ESCROW. (a) In the event that (i) Seller shall not ------------------- have objected to the amount claimed by the Indemnified Buyer Group for indemnification with respect to any Loss in accordance with the procedures set forth in the Escrow Agreement or (ii) Seller shall have delivered notice of its disagreement as to the amount of any indemnification requested by the Indemnified Buyer Group and either (A) Seller and Buyer shall have, subsequent to the giving of such notice, mutually agreed that Seller is obligated to indemnify the Indemnified Buyer Group for a specified amount and shall have so jointly notified the Escrow Agent or (B) a final nonappealable judgment shall have been rendered by the court having jurisdiction over the matters relating to such claim by the Indemnified Buyer Group for indemnification from Seller and the Escrow Agent shall have received, in the case of clause (A) above, written instructions from Seller and Buyer or, in the case of clause (B) above, a copy of the final nonappealable judgment of the court, the Escrow Agent shall deliver to the Indemnified Buyer Group from the Escrow Funds any amount determined to be owed to the Indemnified Buyer Group under Section 6.1 in accordance with the Escrow Agreement. (b) Upon delivery of evidence satisfactory to Buyer in Buyer's sole discretion that all Assumed Liabilities relating to federal and State of Missouri telecommunications taxes and penalties shall have been satisfied in full, Seller shall be entitled to have released from Escrow Fund A 50% of such number of shares of Common Stock held in Escrow Fund A that, when considered with the shares of Common Stock held in Escrow Fund B, shall not be required to be set aside or reserved to pay unsatisfied Indemnification Items (as such term is defined in the Escrow Agreement). 6.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------------------ warranties made by Buyer, Seller and the Shareholders shall survive the signing and consummation of the transaction contemplated by this Agreement for a period of three 16 years, except for any such representations and warranties relating to tax matters, which shall survive to the applicable statute of limitations. All representations and warranties made by or on behalf of Seller and each of the Shareholders in this Agreement shall be deemed to have been relied upon by Buyer (notwithstanding any investigation by Buyer). 6.4. NOTICE OF CLAIMS. Buyer shall give prompt written notice to Seller ---------------- and the Shareholders of any claim against Buyer which might give rise to a claim by Buyer against Seller or the Shareholders under the indemnification provisions contained herein, stating the nature and basis of the claim and the actual or estimated amount thereof, provided, however, that failure to give such -------- ------- notice will not effect the obligation of Seller and the Shareholders to provide indemnification in accordance with the terms of Section 6.1 unless, and only to the extent that, Seller and the Shareholders are actually prejudiced thereby. In the event that any action, suit or proceeding is brought against any member of the Indemnified Buyer Group with respect to which Seller or the Shareholders may have liability under the indemnification provisions contained herein, Seller and the Shareholders shall, upon written acknowledgement by Seller or the Shareholders that such action, suit or proceeding is an indemnifiable Loss pursuant to Section 6.1, have the right, at the cost and expense of Seller and the Shareholders, to defend such action in the name and on behalf of the indemnified party (using counsel satisfactory to Buyer), and, in connection with any such action, Buyer, Seller and the Shareholders agree to render to each other such assistance as may reasonably be required in order to ensure proper and adequate defense of such action, provided, however, that an indemnified -------- ------- party shall have the right to retain its own counsel, with fees and expenses paid by Seller and the Shareholders, if representation of such indemnified party by counsel retained by Seller and the Shareholders would be inappropriate because of actual or potential differing interests between such indemnified party, Seller and the Shareholders. If Seller and the Shareholders shall fail to defend such action, suit or proceeding, then Buyer shall have the right to defend such action without prejudice to its rights to indemnification under Section 6.1 and, in connection therewith, Buyer, Seller and the Shareholders agree to render to each other such assistance as may reasonably be required in order to ensure proper and adequate defense of such action. Neither Buyer nor Seller and/or the Shareholders shall make any settlement of any claim which might give rise to liability of Seller or the Shareholders under the indemnification provisions contained herein without the written consent of each party, which consent shall not be unreasonably withheld, delayed or conditioned. 6.5. TELECOMMUNICATIONS TAXES AND PENALTIES. Buyer shall permit Seller -------------------------------------- and the Shareholders to participate, at their 17 own cost and expense, in any audit or administrative or judicial proceeding (including settlement negotiations) involving the settlement or determination and payment of the federal, state and local telecommunications taxes and penalties included in the Assumed Liabilities; provided, however, that any final -------- ------- decision as to payment or settlement of such taxes and penalties shall be made by Buyer without prejudice to Buyer's rights to indemnification under Section 6.1(a). 7. ADDITIONAL AGREEMENTS --------------------- 7.1. CONFIDENTIALITY. Seller and the Shareholders, jointly and severally, --------------- agree to, and Seller shall cause its agents, representatives, affiliates, officers and directors to: (a) treat and hold as confidential all confidential information relating to the Business, including, without limitation, any information relating to trade secrets, customer and supplier lists, pricing and marketing plans and details of customer contracts; and (b) promptly furnish to Buyer any and all copies (in whatever form or medium) of such confidential information in its possession. 7.2. NON-COMPETE. (a) Seller and William M. Wunderlich, jointly and ----------- severally, agree that for a period of two years from the date hereof, Mr. Wunderlich and Seller and its officers, directors and agents shall not, directly or indirectly, (A) be or become interested in or associated with or represent or otherwise render assistance or services to or manage, operate, control or engage in (as an officer, director, stockholder, partner, consultant, owner, employee, agent, creditor or otherwise) any business, person or entity that is then, or which then proposes to become, a competitor of Buyer in the Business anywhere in the State of Missouri and the State of Illinois and which shall derive gross revenues from its business activities either in the State of Missouri or in the State of Illinois equal to 12% or more or such competitor's total gross revenues; provided, that the foregoing shall not restrict the ownership, solely -------- as an investment, of securities of any business, person or entity if such ownership is (i) not as a controlling person of such business, person or entity, (ii) not as a member of a group that controls such business, person or entity and (iii) not as a direct or indirect beneficial owner of 1% or more of any class of securities of such business, person or entity, (B) induce or seek to influence any employee of (or consultant to) Buyer to leave its employ (or terminate such consultancy) or to become financially interested in a similar business, (C) aid a competitor or supplier of Buyer in any attempt to hire a person who shall have been employed by, or who was a consultant to, Buyer within the one-year period preceding the date of any such 18 aid, or (D) induce or attempt to influence any person who was a customer of or supplier to Buyer during such period to transact business with a competitor of Buyer or not to do business with Buyer. Nothing contained herein shall preclude the Shareholders from entering into employment arrangements with Buyer. (b) Buyer and Ray Bove agree that they shall negotiate promptly and in good faith an appropriate non-compete agreement as part of an employment package to be negotiated with Mr. Bove after the date hereof. If Buyer and Mr. Bove shall fail to reach such a non-compete agreement within 60 days after the date hereof, then Mr. Bove agrees that the provisions of Section 7.1(a) shall apply to Mr. Bove mutatis mutandis, and shall be effective as of the date hereof. ------- -------- 7.3. EMPLOYEES. Buyer shall offer employment to all of Seller's --------- employees. 7.4. SUBCONTRACTS. Seller hereby agrees to use its best efforts to obtain ------------ any consents necessary to assign or otherwise transfer the Material Contracts to Buyer. In the event that any consent required with respect to any such Material Contract cannot be obtained, upon the request of Buyer, Seller hereby agrees to subcontract all of its obligations to perform under such contract to Buyer. The cost of performing each such subcontract shall be borne by Buyer and Seller will deliver to Buyer all revenues earned under each such Material Contract. 7.5. RECORDS. (a) For income tax purposes, Seller shall allow Buyer ------- access for six years from the date hereof to existing records of the Business that are in Seller's possession and Seller shall use its best efforts to maintain such records for six years unless specifically authorized by Buyer to the contrary. (b) For income tax purposes, Buyer shall allow Seller access for six years from the date hereof to the records of the Business existing as of the date hereof that are in Buyer's possession and Buyer shall use its best efforts to maintain such records in the St. Louis metropolitan area for such six year period. 7.6. REGISTRATION RIGHTS. (a) If at any time following the date hereof ------------------- Buyer proposes to register any of shares of Common Stock under the Securities Act (other than in connection with a merger or acquisition registered on Form S- 4 (or a similar special-purpose form) or with an employee benefit plan or similar plan registered on Form S-8 (or a similar special purpose form) or any dividend reinvestment plan), it will give written notice by registered mail, at least 30 days prior to the filing of each such registration statement, to Seller and to the Shareholders of its intention to do so. If Seller, the 19 Shareholders and/or Kenny shall provide written notice (each a "Registration ------------ Notice") within 10 days after receipt of any such notice of its or their desire - ------ to include any shares of Common Stock which were issued by ICI hereby and are then held by any of them (the shares of Common Stock specified in such Registration Notice or Notices being referred to as "Registrable Securities") in ---------------------- such proposed registration statement, Buyer shall afford each of Seller, the Shareholders and/or Kenny the opportunity to have the number of Registrable Securities specified in each such Registration Notice registered under such registration statement. Buyer shall not be obligated to include the Registrable Securities specified in a Registration Notice delivered to Buyer in more than one registration statement (it being agreed that (i) Seller and Kenny may deliver only one Registration Notice each to Buyer and (ii) the Shareholders may not deliver any Registration Notices to Buyer unless Seller shall have been dissolved and the shares of Common Stock owned by Seller distributed to the Shareholders, in which case the Shareholders may deliver only one Registration Notice each), provided, that the obligation of Buyer to register the Registrable -------- Securities specified in the Registration Notices shall be satisfied only at such time as a registration statement or registration statements, as the case may be, covering the number of Registrable Securities specified in the Registration Notices shall be declared effective by the Securities and Exchange Commission. (b) Buyer shall pay all Registration Expenses (as defined below) incurred in connection with the registration statement(s) filed pursuant to this Section 7.6. "Registration Expenses" shall mean all expenses incurred by Buyer in --------------------- complying with its registration obligations including, without limitation, all registration, qualifications and filing fees, "blue sky" fees and expenses, printing expenses, fees and disbursements of counsel and independent public accountants for Buyer, fees of the National Association of Securities Dealers, Inc., transfer taxes, escrow fees, fees of transfer agents and registrars and costs of insurance. (c) Buyer shall indemnify and hold harmless Seller, the Shareholders and Kenny and their respective officers, directors, employees and agents against any losses, claims, damages or liabilities or actions in respect thereof, joint or several, to any of them may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or actions (i) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which the Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make 20 the statements therein not misleading or (iii) arise out of or are based upon any violation by Buyer of any rule or regulation promulgated under the Securities Act or the Securities Exchange Act of 1934, as amended and applicable to Buyer, and will reimburse them for any legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Buyer will not be liable in any -------- ------- such case if and to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to Buyer by or on behalf of Seller, the Shareholders or Kenny in writing expressly for use in such registration statement or prospectus ("Shareholder Information") and Seller, the Shareholders ----------------------- and Kenny shall indemnify and hold Buyer, its officers, directors, stockholders, employees, agents, attorneys and representatives harmless from and against any and all losses, claims, damages, liabilities or actions which any of them may incur that are based upon the inclusion of such Shareholder Information in such registration statement or prospectus. (d) Notwithstanding the above, if the managing underwriter or underwriters of an offering described in Section 7.6(a) shall advise Buyer that the inclusion of the Registrable Securities would adversely effect the proposed offering, the amount of Registrable Securities to be included in such offering shall be reduced by the amount recommended by such managing underwriter or underwriters; provided, that such reduction in amount shall be pro rata with the -------- reduction in amount of shares of Common Stock of any other stockholder of Buyer to be included in such offering. 7.7. CHANGE OF NAME. Seller shall, and the Shareholders shall cause -------------- Seller to, immediately amend Seller's Certificate of Incorporation to change Seller's corporate name to "W&B Liquidation Corp." In addition, Seller shall immediately either terminate or where appropriate cause a change in the name to "W&B Liquidation Corp." with respect to all certificates or other filings with governmental or regulatory authorities (including related tariffs) relating to Seller doing business under the names or engaging in business as "UTT" and/or "Universal Telecom Technologies". 7.8. UNIFIED DEPOSIT. Buyer understands that it shall be able to cause --------------- the Unified Deposit to be paid to it and acknowledges that if the Unified Deposit is paid to Buyer on or before January 1, 1997, the full $75,000 principal amount of the Unified Note will become due and payable, but if the Unified Deposit is paid to Buyer after January 1, 1997, only $12,970 will become due and payable under the Unified Note. Buyer agrees, 21 therefore, that Buyer will not seek to collect the Unified Deposit prior to January 1, 1997. 7.9. LETTER OF CREDIT. As promptly as practicable after the date hereof, ---------------- Buyer shall replace the current letter of credit in favor of Sunmark, Inc. under the office lease with Sunmark, Inc. with a new letter of credit of Buyer in favor of Sunmark, Inc. 8. GENERAL ------- 8.1. EXPENSES. All expenses of the preparation, execution and -------- consummation of this Agreement and of the transactions contemplated hereby including, without limitation, attorneys', accountants' and outside advisors' fees and disbursements, shall be borne by the party incurring such expenses, except Seller shall not use any of the Closing Cash to pay the fees and expenses of Kenny. The Closing Cash shall be used to pay the fees and expenses as listed on Exhibit C. 8.2. ENTIRE AGREEMENT. This Agreement contains the entire understanding ---------------- of the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, including, without limitation, the letter of intent dated November 18, 1996 among the parties hereto, and shall not be amended or terminated except by a written instrument hereafter signed by all of the parties hereto. The Schedules and Exhibits to this Agreement are to be considered a part of this Agreement for all purposes. 8.3. ASSIGNMENT. None of the parties hereto may assign its rights or ---------- delegate its obligations under this Agreement without the written consent of the other parties hereto, except that Seller may assign its rights hereunder to the Shareholders upon dissolution of Seller and Buyer may assign this Agreement in the event of a sale of all or substantially all of the assets of Buyer. This Agreement and all of the provisions hereof shall be binding upon and inure only to the benefit of the parties hereto and their respective heirs, executors, personal representatives and successors. 8.4. FURTHER ACTION. Each of the parties hereto shall use all reasonable -------------- efforts to do, or cause to be done, all things necessary, proper or advisable under applicable law to carry out the provisions of this Agreement and shall execute and deliver such documents and other papers as may be required to carry out the provisions of this Agreement and, if a state public utilities commission shall advise Buyer that transfer of Seller's certificate or other authorization shall be required in connection with the transactions contemplated hereby, then Seller and Buyer shall promptly take all steps necessary to effect such a transfer (including, without limitation, filing and prosecuting 22 applications for assignment or transfer of such certificates or other authorizations as may be required by the Federal Communications Commission and any state public utilities commission) or seek such other approval as may be necessary to carry out these transactions; provided, that Buyer shall use -------- reasonable efforts to permit Seller to retain its certificates and tariffs if it is feasible to do so at no cost or expense to Buyer; provided, further, that -------- ------- Seller shall not directly or indirectly sell or otherwise transfer any of such certificates, tariffs or other authorizations for a period of 90 days after the date hereof including, without limitation, by way of a sale or other transfer of the shares of capital stock of Seller. In addition, Seller shall be entitled to review all documents to be filed with federal and state authorities in connection with any transfer to Buyer or to any third party prior to filing thereof. 8.5. NOTICES. All notices, demands, requests and other communications ------- hereunder shall be in writing and shall be deemed to have been duly given and shall be effective upon receipt, if delivered by hand, or sent by certified or registered United States mail, postage prepaid and return receipt requested or by prepaid overnight express service. Notices shall be sent to the parties at their respective addresses as set forth on the first page of this Agreement or to such other address as shall be specified by like notice. 8.6. SPECIFIC PERFORMANCE. The parties agree that due to the unique -------------------- subject matter of this transaction, monetary damages will be insufficient to compensate the non-breaching party in the event of a breach of any part of this Agreement. Accordingly, the parties agree that the non-breaching party shall be entitled (without prejudice to any other right or remedy to which it may be entitled) to an appropriate decree of specific performance, or an injunction restraining any violation of this Agreement or other equitable remedies to enforce this Agreement (without establishing the likelihood of irreparable injury or posting bond or other security), and the breaching party waives in any action or proceeding brought to enforce this Agreement the defense that there exists an adequate remedy at law. 8.7. GOVERNING LAW. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL ------------- BE GOVERNED BY THE INTERNAL LAWS (AND NOT THE PRINCIPLES OF CONFLICT OF LAWS) OF THE STATE OF NEW YORK. 8.8. SEVERABILITY. If any one or more of the provisions contained in this ------------ Agreement or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein shall not (to the full extent permitted by law) in any way be affected or impaired. 23 8.9. ATTORNEY'S FEES. In any action, proceeding or counterclaim arising --------------- out of or in any way connected with this Agreement, the prevailing parties shall be entitled to recover reasonable attorneys' fees and disbursements incurred in connection therewith. 8.10. HEADINGS. All headings in this Agreement are intended solely for -------- convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 8.11. COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. 8.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES -------------------- TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT. IN WITNESS WHEREOF, and intending to be legally bound thereby, Buyer and Seller have caused this Agreement to be duly executed and delivered by their respective duly authorized officers and each of the Shareholders has executed and delivered this Agreement as of the date first set forth above. UNIVERSAL TELECOM, INC. By: /s/ William M. Wunderlich ----------------------------- Name: William M. Wunderlich Title: Chairman & CEO INTERMEDIA COMMUNICATIONS INC. By: /s/ Robert M. Manning ----------------------------- Name: Robert M. Manning Title: SVP & CFO /s/ William M. Wunderlich -------------------------------- William M. Wunderlich /s/ Ray Bove -------------------------------- Ray Bove 24 Exhibit A Allocation of Acquisition Price ------------------------------- The sum of the Acquisition Price and the Assumed Liabilities shall be allocated to the Acquired Assets based upon fair market value. The excess of the sum of the Acquisition Price and the Assumed Liabilities over the fair market value of the Acquired Assets shall be allocated to intangible assets. Exhibit B List of Customers ----------------- Exhibit C Use of Closing Cash ------------------- EX-5.1 3 OPINION OF KRONISH, LIEB, WEINER & HELLMAN LLP EXHIBIT 5.1 September , 1997 Intermedia Communications Inc. 3625 Queen Palm Drive Tampa, Florida 33619 Ladies and Gentlemen: We have acted as counsel to Intermedia Communications Inc., a Delaware corporation (the "Company"), in connection with its registration Statement on Form S-3 (Registration No. 333-33415) (the "Registration Statement"), filed pursuant to the Securities Act of 1933, as amended (the "Securities Act"), relating to (i) the offering from time to time by certain holders (the "Selling Securityholders") of (1) 6,900,000 depositary shares (the "Depositary Shares") each representing a one hundredth interest in a share of 7% Series D Junior Convertible Preferred Stock ("Series D Preferred Stock"), liquidation preference $2,500 per share, par value $1.00 per share of the Company, (2) 69,000 shares of Series D Preferred Stock, (3) 4,434,448 shares (the "Common Shares") of common stock, $.01 par value per share, of the Company (the "Common Stock") issuable upon conversion of the Series D Preferred Stock and/or the Depositary Shares and (4) 31,380 shares of Common Stock to be offered by certain Selling Stockholders (the "Universal Shares"), and (ii) the issuance from time to time by the Company of shares of Common Stock in lieu of cash as dividends on the Series D Preferred Stock (the "Dividend Shares"). The Depositary Shares were originally issued by the Company in a private placement on July 9, 1997, and were subsequently resold by the initial purchasers thereof in private sales pursuant to exemptions from registration under the Securities Act of 1933, as amended. We have reviewed the Registration Statement, all amendments thereto, and such other documents and instruments as we have deemed appropriate. In such review, we have assumed the genuineness of all signatures, the authenticity of all documents submitted as originals and the conformity to the original documents of all documents submitted to us as copies. On the basis of such review, and having regard to such legal consideration as we have deemed relevant, it is our opinion that: Intermedia Communications Inc. September , 1997 Page 2 1. The Depositary Shares and Universal Shares to be offered by the Selling Securityholders, and duly authorized and duly and validly issued, fully paid and nonassessable. 2. Upon conversion of (a) the Depositary Shares into shares of Series D Preferred Stock and/or Common Shares and (b) shares of Series D Preferred Stock into Common Shares, the shares of Series D Preferred Stock and the Common Shares to be offered by the Selling Securityholders, shall be duly authorized and duly and validly issued, fully paid and nonassessable. 3. Upon the issuance of the Dividend Shares in accordance with the Certificate of Designation governing the Series D Preferred Stock, the Dividend Shares will be duly authorized and duly and validly issued, fully paid and nonassessable. 4. The statements under the caption "Certain Federal Income Tax Considerations" in the preliminary prospectus relating to the Depositary Shares included in the Registration Statement, insofar as such statements constitute summaries of federal income tax law, fairly summarize the matters referred to therein. We are members of the Bar of the State of New York and do not purport to be experts or give any opinion except as to matters involving the laws of such State, the general corporation laws of the State of Delaware and the federal laws of the United States. We hereby consent to the use of our name under the caption "Legal Matters" in the prospectus included in the Registration Statement and to the use of this opinion as an exhibit to the Registration Statement. Very truly yours, Kronish, Lieb, Weiner & Hellman LLP EX-23.4 4 CONSENT OF ERNST & YOUNG LLP Exhibit 23.4 Consent of Independent Certified Public Accountants We consent to the reference to our firm under the caption "Experts" in the Amendment No. 1 to Registration Statement (Form S-3, No. 33-33415) and related prospectus of Intermedia Communications Inc. for the registration of 6,900,000 Depositary Shares (each representing a one-hundredth interest in a share of 7% Series D Junior Convertible Preferred Stock), 69,000 shares of 7% Series D Junior Convertible Preferred Stock, 4,465,828 shares of Common Stock, and Common Stock issuable as dividends on the 7% Series D Junior Convertible Preferred Stock, and to the incorporation by reference therein of our report dated February 10, 1997, except for Note 13, as to which the date is March 7, 1997, with respect to the consolidated financial statements and schedule of Intermedia Communications Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Tampa, Florida September 10, 1997 EX-23.5 5 CONSENT OF ERNST & YOUNG LLP Exhibit 23.5 Consent of Independent Certified Public Accountants We consent to the reference to our firm under the caption "Experts" in the Amendment No. 1 to Registration Statement (Form S-3, No. 33-33415) and related prospectus of Intermedia Communications Inc. for the registration of 6,900,000 Depositary Shares (each representing a one-hundredth interest in a share of 7% Series D Junior Convertible Preferred Stock), 69,000 shares of 7% Series D Junior Convertible Preferred Stock, 4,465,828 shares of Common Stock, and Common Stock issuable as dividends on the 7% Series D Junior Convertible Preferred Stock, and to the incorporation by reference therein of our report dated February 24, 1997, with respect to the financial statements of DIGEX, Incorporated included in its Annual Report (Form 10-KSB) for the year ended December 31, 1996, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Baltimore, Maryland September 10, 1997 -----END PRIVACY-ENHANCED MESSAGE-----