-----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, UEgZ2ZcZsZhXt0kIsBjJsFrHd/36BCNuDJv8tOhJZ3cJ4KI8+gqaRLN6Qxe8Pxbu CAWEBmoVrd8qXLrn6Y8bBQ== 0000950116-98-001408.txt : 19980701 0000950116-98-001408.hdr.sgml : 19980701 ACCESSION NUMBER: 0000950116-98-001408 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980630 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERMEDIA COMMUNICATIONS 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: 424B3 SEC ACT: SEC FILE NUMBER: 333-49575 FILM NUMBER: 98657891 BUSINESS ADDRESS: STREET 1: 3625 QUEEN PALM DR STREET 2: STE 720 CITY: TAMPA STATE: FL ZIP: 33619 BUSINESS PHONE: 8138290011 FORMER COMPANY: FORMER CONFORMED NAME: INTERMEDIA COMMUNICATIONS OF FLORIDA INC DATE OF NAME CHANGE: 19930328 424B3 1 FORM 424B3 Rule No. 424(b)(3) Registration No. 333-49575 FINAL PROSPECTUS INTERMEDIA COMMUNICATIONS INC. 1,454,898 Shares of Common Stock This Prospectus is being used in connection with the offering from time to time by certain holders (the "Selling Securityholders") of shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of Intermedia Communications Inc., a Delaware corporation ("Intermedia"). The Selling Securityholders have acquired 1,454,898 shares of Common Stock from Intermedia as a portion of the consideration for the acquisition by Intermedia of National Telecommunications of Florida, Inc. ("NTF") and NTC, Inc. ("NTC"; NTF and NTC collectively, "National"). The Shares may be sold from time to time in accordance with the transfer restrictions set forth in the National Merger Agreement (as defined herein) and the Registration Rights Agreement (as defined herein) to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time in accordance with the transfer restrictions set forth in the National Merger Agreement and the Registration Rights Agreement offer the Shares through brokers, dealers or agents who may receive compensation in amounts to be negotiated immediately prior to the sale in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Shares for whom they may act as agent. The Selling Securityholders and any such brokers, dealers or agents who participate in the distribution of the Shares may be deemed to be "underwriters", and any profits on the sale of the Shares 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 of 1933, as amended (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 Securities Exchange Act of 1934, as amended (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 Shares by the Selling Securityholders and any other such person. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares. Intermedia will not receive any proceeds from the sale of the Shares. Intermedia has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Shares to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. On April 30, 1998, the closing price for the Common Stock as quoted on the National Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") National Market (the "Nasdaq National Market"), under the symbol "ICIX", was $72 63/64 per share. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER THE CAPTION "RISK FACTORS" ON PAGE 1. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES 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 Intermedia. 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 Intermedia since the date hereof. 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 this Registration Statement becomes effective. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The date of this Prospectus is May 1, 1998. i AVAILABLE INFORMATION Intermedia is subject to the informational requirements of 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 Intermedia 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 this 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 Intermedia with the Commission and are incorporated herein by reference: Intermedia's Annual Report on Form 10-K for the year ended December 31, 1997. The portions of the Proxy Statement for the Annual Meeting of Stockholders of Intermedia to be held on May 20, 1998 that have been incorporated by reference into Intermedia's Annual Report on Form 10-K for the year ended December 31, 1997. Intermedia's Current Report on Form 8-K filed with the Commission on January 21, 1998. Intermedia's Current Report on Form 8-K filed with the Commission on February 12, 1998. Intermedia's Current Report on Form 8-K filed with the Commission on March 18, 1998. Intermedia's Current Report on Form 8-K/A filed with the Commission on March 30, 1998. Intermedia's Current Report on Form 8-K filed with the Commission on April 6, 1998. Intermedia's Current Report on Form 8-K filed with the Commission on April 30, 1998. Intermedia's Current Report on Form 8-K filed with the Commission on May 1, 1998. The description of the capital stock contained in Intermedia's registration statements on Form 8-A under the Exchange Act, filed April 7, 1992, April 28, 1992 and April 30, 1992 (File No. 0-20135). In addition, the following information that has been filed with the Commission is incorporated herein by reference: The consolidated financial statements of DIGEX, Incorporated ("DIGEX") appearing in DIGEX's Annual Report on Form 10-KSB for the year ended December 31, 1996. All documents subsequently filed by Intermedia 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. Intermedia 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 ii 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. iii RISK FACTORS Prospective investors should consider carefully the following factors relating to the business of Intermedia and this offering, in addition to other information set forth elsewhere in this Prospectus and in Intermedia's Annual Report on Form 10-K, before purchasing the Shares offered hereby. Limited Operations of Certain Services; History of Net Losses. Intermedia's business commenced in 1987. Substantially all of Intermedia'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. Intermedia is expecting to substantially increase the size of its operations in the near future. Prospective investors, therefore, have limited historical financial information about Intermedia upon which to base an evaluation of Intermedia's performance. Given Intermedia's limited operating history, there is no assurance that it will be able to compete successfully in the telecommunications business. The development of Intermedia's business and the expansion of its network require significant capital, operational and administrative expenditures, a substantial portion of which may be incurred before the realization of revenues. These capital expenditures will result in negative cash flow until an adequate customer base is established. Although its revenues have increased in each of the last three years, Intermedia has incurred significant increases in expenses associated with the installation of local/long distance voice switches and expansion of its fiber optic networks, services and customer base. Intermedia reported net losses attributable to common stockholders of approximately $20.7 million, $57.2 million and $284.9 million for the years ended December 31, 1995, 1996 and 1997, respectively. Intermedia expects net losses to continue for the next several years. In addition, Intermedia had negative EBITDA in 1996 and 1997. There can be no assurance that Intermedia will achieve or sustain profitability and/or positive EBITDA in the future. Substantial Indebtedness; Insufficiency of Earnings to Cover Fixed Charges. Intermedia is highly leveraged. At December 31, 1997, after giving pro forma effect to the acquisitions of Shared Technologies Fairchild Inc. ("Shared Technologies"), the Long Distance Savers group of companies ("LDS") and National, Intermedia would have had outstanding approximately $1.5 billion in aggregate principal amount of indebtedness and other liabilities on a consolidated basis (including trade payables) and approximately $700 million of obligations with respect to three outstanding series of preferred stock. The degree to which Intermedia is leveraged could have important consequences to holders of the Common Stock, including the following: (i) a substantial portion of Intermedia's cash flow from operations will be dedicated to payment of the principal and interest on its indebtedness and dividends on and the redemption of outstanding preferred stock thereby reducing funds available for other purposes; (ii) Intermedia's significant degree of leverage could increase its vulnerability to changes in general economic conditions or increases in prevailing interest rates; (iii) Intermedia's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes could be impaired; and (iv) Intermedia may be more leveraged than certain of its competitors, which may be a competitive disadvantage. Intermedia's historical earnings have been insufficient to cover combined fixed charges and dividends on preferred stock by $2.3 million, $3.3 million, $19.8 million, $60.0 million and $245.7 million for each of the years ended December 31, 1993, 1994, 1995, 1996 and 1997, respectively. Combined fixed charges and dividends include interest and dividends whether paid or accrued. On a pro forma basis, after giving effect to the acquisitions of Shared Technologies, LDS and National and each of Intermedia's 1997 debt and equity offerings, as if they had been consummated at the beginning of the year, Intermedia's earnings were insufficient to cover combined fixed charges and dividends on preferred stock by $432.7 million for the year ended December 31, 1997. Intermedia anticipates that earnings will be insufficient to cover fixed charges for the next several years. In order for Intermedia to meet its debt service obligations and its dividend and redemption obligations with respect to its outstanding preferred stock, Intermedia will need to substantially improve its operating results. There can be no assurance that Intermedia's operating results will be of sufficient magnitude to enable Intermedia to meet such debt service, dividend and redemption obligations. In the absence of such operating results, Intermedia could face substantial liquidity problems and may be required to raise additional financing through the issuance 1 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. Significant Capital Requirements and Need for Additional Financing. Expansion of Intermedia'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, joint ventures, debt or equity financing, credit availability and internally generated funds. Intermedia expects that continued expansion of its business will require raising equity and/or debt by the end of fiscal 1999. Depending on market conditions, Intermedia may determine to raise additional capital before such time. There can be no assurance, however, that Intermedia will be successful in raising sufficient debt or equity on terms that it will consider acceptable. Moreover, the terms of Intermedia's outstanding indebtedness and preferred stock impose certain restrictions upon Intermedia's ability to incur additional indebtedness or issue additional preferred stock. In addition, Intermedia'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 Intermedia'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. Lack of Dividend History. Intermedia has never declared or paid any cash dividends on its Common Stock and does not expect to declare any such dividends in the foreseeable future. Payment of any future dividends will depend upon earnings and capital requirements of Intermedia, Intermedia's debt facilities and other factors the Board of Directors considers appropriate. Intermedia intends to retain earnings, if any, to finance the development and expansion of its business, and therefore does not anticipate paying any dividends in the foreseeable future. In addition, the terms of the outstanding indebtedness and preferred stock restrict the payment of dividends on Common Stock. Intermedia may also establish a bank credit facility which may be secured by a substantial portion of the assets of Intermedia and would contain additional dividend restrictions. Risks Associated with Acquisitions. Intermedia has recently consummated its acquisitions of Shared Technologies, LDS and National. Such acquisitions could divert the resources and management time of Intermedia and will require integration with Intermedia's existing networks and services. Consistent with its strategy, Intermedia is currently evaluating and often engages in discussions regarding various acquisition opportunities. There can be no assurance that any other acquisitions will occur or that any acquisitions would be on terms favorable to Intermedia. These acquisitions could be funded by cash on hand and/or Intermedia's securities. It is possible that one or more of such possible future acquisitions, if completed, could adversely affect Intermedia's funds from operations or cash available for distribution, in the short term, in the long term or both, or increase Intermedia's debt, or such an acquisition could be followed by a decline in the market value of Intermedia's securities. In addition, there can be no assurance that any acquisitions, including the acquisitions of Shared Technologies, LDS and National, will be successfully integrated into Intermedia's operations. Failure to Obtain Third Party Consents in connection with an Acquisition or Merger. Intermedia has consummated a number of acquisitions over the past two years, including the acquisitions of Shared Technologies, LDS and National. In connection therewith, Intermedia may not have obtained or, as in the case of the acquisition of Shared Technologies, LDS and National, may have elected not to seek, all required consents from third parties with respect to acquired contracts. In addition, Intermedia may consummate additional acquisitions, and in connection therewith, may not obtain or elect to seek all required consents from third parties with respect to acquired contracts. If an acquired contract required the consent of a third party and such consent was not obtained, the third party could assert a breach of the contract. Intermedia believes that the failure to obtain any such third party consents should not result in any material adverse consequences to Intermedia, although there can be no assurance that such a consequence will not result. Year 2000 Risk. Intermedia has implemented a Year 2000 program to ensure that its computer systems and applications will function properly beyond 1999. Intermedia believes that it has allocated adequate resources for this purpose and expects its date conversion program to be successfully completed on a timely basis. There can, however, be no assurance that this will be the case. Intermedia does not expect to incur significant expenditures to address this issue. 2 The ability of third parties with whom Intermedia transacts business to adequately address their Year 2000 issues is outside of Intermedia's control. There can be no assurance that the failure of Intermedia or such third parties to adequately address their respective Year 2000 issues will not have a material adverse effect on the Intermedia's business, financial condition, cash flows and results of operations. Regulatory Approval Relating to 1997 and 1998 Offerings. Certain states in which Intermedia is certificated provide for prior approval or notification of the issuance of securities by Intermedia. Because of time constraints, Intermedia did not obtain approval from all such states prior to the consummation of the offerings of its securities during 1997 and did not receive approvals from four states for the issuance of securities in connection with the acquisition of LDS prior to its consummation. Three of the states have subsequently approved the securities issuance and it remains pending in Hawaii. Intermedia has received approval for the issuance of securities in connection with the acquisition of National in all required states except Hawaii where it is pending. The requirements for these filings may have been pre-empted by the National Securities Market Improvement Act of 1996, although there is no case law on this point. Intermedia has filed all of the necessary notifications and applications for approval in these states. After consultation with counsel, Intermedia believes the remaining regulatory approvals will be granted and that obtaining such approvals subsequent to the offerings should not result in any material adverse consequences to Intermedia, although there can be no assurance that such a consequence will not result. Maintenance of Peering Relationships. The Internet is comprised of many Internet service providers ("ISPs") who operate their own networks and interconnect with other ISPs at various peering points. The establishment and maintenance of peering relationships with other ISPs is necessary to exchange traffic with other ISPs without having to pay settlement charges. Although Intermedia meets the industry's current standards for peering, there is no assurance that other national ISPs will maintain peering relationships with Intermedia. In addition, there may develop increasing requirements associated with maintaining peering relationships with the major national ISPs with which Intermedia may have to comply. There can be no assurance that Intermedia will be able to expand or adapt its network infrastructure to meet the industry's evolving standards on a timely basis, at a commercially reasonable cost, or at all. Potential Liability of On-Line Service Providers. The law in the United States relating to the liability of on-line service providers and ISPs for information carried on, disseminated through or hosted on their systems is currently unsettled. Several private lawsuits seeking to impose such liability are currently pending. In one case brought against an ISP, Religious Technology Center v. Netcom On-Line Communication Services, Inc., the United States District Court for the Northern District of California ruled in a preliminary phase that, under certain circumstances, ISPs could be held liable for copyright infringement. The Telecommunications Act of 1996 (the "1996 Act") prohibits and imposes criminal penalties for using an interactive computer service to transmit certain types of information and content, such as indecent or obscene communications. On June 26, 1997, the Supreme Court affirmed the decision of a panel of three federal judges which granted a preliminary injunction barring enforcement of this portion of the 1996 Act to the extent enforcement is based upon allegations other than obscenity or child pornography as an impermissible restriction on the First Amendment's right of free speech. In addition, numerous states have adopted or are currently considering similar types of legislation. The imposition upon ISPs or Web hosting sites of potential liability for materials carried on or disseminated through their systems could require Intermedia to implement measures to reduce its exposure to such liability, which could require the expenditure of substantial resources or the discontinuation of certain product or service offerings. Intermedia believes that it is currently unsettled whether the 1996 Act prohibits and imposes liability for any services provided by Intermedia 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 Intermedia's business, financial condition and results of operations. Dependence upon Network Infrastructure; Risk of System Failure; Security Risks. Intermedia's success in marketing its services to business and government users requires that Intermedia provide superior reliability, capacity and security via its network infrastructure. Intermedia's networks are subject to physical damage, power loss, capacity limitations, software defects, breaches of security (by computer virus, break-ins or otherwise) and other factors, certain of which have caused, and will continue to cause, interruptions in service or reduced capacity for Intermedia's customers. Similarly, Intermedia'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 Intermedia's business, financial condition and results of operations. 3 Expansion Risk. Intermedia is experiencing a period of rapid expansion which management expects will increase in the near future. This growth has increased the operating complexity of Intermedia as well as the level of responsibility for both existing and new management personnel. Intermedia'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. Intermedia's inability to effectively manage its expansion could have a material adverse effect on its business. A portion of Intermedia'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 Intermedia's future acquisitions, if any, will be successful or will not impair Intermedia's ability to service its outstanding obligations. Risks of Implementation; Need to Obtain Permits and Rights of Way. Intermedia is continuing to expand its existing networks. Intermedia has identified other expansion opportunities and is currently extending the reach of its networks to pursue such opportunities. There can be no assurance that Intermedia will be able to expand its existing networks on a timely basis. The expansion of Intermedia'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, Intermedia 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 Intermedia's customer base on its existing networks and commencement of operations on new networks. If Intermedia 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, Intermedia 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 for Intermedia. Intermedia also faces competition in most markets in which it operates from one or more integrated communications services providers ("ICPs") and ILECs operating fiber optic networks. In addition, Intermedia faces competition in its integration services business from equipment manufacturers, the regional Bell operating companies ("RBOCs") and other ILECs, long distance carriers and systems integrators, and in its enhanced data services business (including Internet) from local telephone companies, long distance carriers, very small aperture terminal ("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 Intermedia's existing and potential competitors have financial, personnel and other resources significantly greater than those of Intermedia. Intermedia believes that various legislative initiatives, including the 1996 Act, have removed most of the remaining legislative barriers to local exchange competition. Nevertheless, in light of the passage of the 1996 Act, regulators are also likely to provide ILECs with increased pricing flexibility as competition increases. If ILECs are permitted to lower their rates substantially or engage in excessive volume or term discount pricing practices for their customers, the net income or cash flow of ICPs and competitive local exchange carriers ("CLECs"), including Intermedia, could be materially adversely affected. In addition, while Intermedia currently competes with AT&T, MCI and others in the interexchange services market, recent federal legislation permits the RBOCs to provide interexchange services once certain criteria are met. Once the RBOCs begin to provide such services, they will be in a position to offer single source service similar to that being offered by Intermedia. Recently, a Federal District Court in Texas found unconstitutional certain provisions of the 1996 Act restricting the RBOCs from offering long distance service in their operating regions until they could demonstrate that their networks have been made available to competitive providers of local exchange services in those regions. This decision has been stayed pending appeal. If that decision is permitted to stand, it could result in RBOCs providing interexchange service in their operating regions sooner than previously expected. In addition, AT&T and MCI have entered, and other interexchange carriers have announced their intent to enter, the local exchange services market, which is facilitated by the 4 1996 Act's resale and unbundled network element provisions. Intermedia 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 Intermedia's business. Regulation. Intermedia is subject to varying degrees of federal, state and local regulation. Intermedia is not currently subject to price cap or rate of return regulation at the state or federal level, nor is it currently required to obtain Federal Communication Commission ("FCC") authorization for the installation, acquisition or operation of its interstate network facilities. Further, the FCC issued an order holding that non-dominant carriers, such as Intermedia, are required to withdraw interstate tariffs for domestic long distance service. That order has been stayed by a federal appeals court and it is not clear at this time whether the detariffing order will be implemented. Until further action is taken by the court, Intermedia will continue to maintain tariffs for these services. In June 1997, the FCC issued another order stating that non-dominant carriers, such as Intermedia, could withdraw their tariffs for interstate access services. While Intermedia has no immediate plans to withdraw its tariff, this FCC order allows Intermedia to do so. The FCC does require Intermedia to file tariffs on an ongoing basis for international traffic. On May 16, 1997, the FCC released an order that fundamentally restructured the "access charges" that ILECs charge to interexchange carriers and end user customers. Intermedia believes that the FCC's new access charge rules do not adversely affect Intermedia's business plan, and that they in fact present significant new opportunities for new entrants, including Intermedia. Aspects of the access charge order may be changed in the future. Numerous parties have either filed appeals with federal courts or asked the FCC to reconsider portions of its new rules. Intermedia is generally subject to certification or registration and tariff or price list filing requirements for intrastate services by state regulators. The 1996 Act and the issuance by the FCC of rules governing local competition, particularly those requiring the interconnection of all networks and the exchange of traffic among the ILEC and CLECs, as well as pro-competitive policies already developed by state regulatory commissions, have caused fundamental changes in the structure of the markets for local exchange services. On July 18, 1997, the U.S. Court of Appeals for the Eighth Circuit issued a decision vacating the FCC's pricing and "most favored nation" rules, as well as certain other of the FCC's interconnection rules. On October 14, 1997, the Eighth Circuit issued an order clarifying its previous decision. In this order, the Court held that ILECs have an obligation under the 1996 Act to offer other carriers access to the ILECs' network elements on an unbundled basis, but the ILECs do not have an obligation to recombine those elements for use by other carriers. The FCC's and other parties' petitions to the Supreme Court requesting review of these decisions have been granted. Most recently, on January 22, 1998, the Eighth Circuit reiterated that the FCC is bound by the pricing policies of the state regulatory commissions regarding interconnection, unbundled access, resale and transport and termination of local telecommunications traffic and rebuffed what it perceived as an attempt by the FCC to condition the RBOCs' provision of in-region long distance service on compliance with federal pricing policies regarding these items. Even though these decisions restrict the role of the FCC in pricing and other issues, these issues remain subject to scrutiny and oversight by state regulatory commissions. 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 Intermedia. Moreover, while the 1996 Act reduces regulation to which non-dominant local exchange carriers are subject, it also reduces the level of regulation that applies to the ILECs and increases their ability to respond quickly to competition from Intermedia and others. For example, proposals pending before the FCC may permit ILECs to change service rates more quickly and provide them with greater pricing flexibility. In addition, the 1996 Act will permit RBOCs, for the first time, to offer long distance service in the regions where they provide local exchange service upon demonstrating to the FCC and state regulatory agencies that they have complied with the FCC's interconnection regulations designed to foster local exchange competition. While the FCC has not approved the applications to provide in-region long distance service filed to date, it may do so in the future. On December 31, 1997, a federal District Court in Texas found unconstitutional the 5 provisions of the 1996 Act restricting RBOCs from providing long distance service in-region until they made such a demonstration. The Court has stayed the decision and the issue is under appeal but if the decision is upheld, RBOCs may be able to offer in-region long distance service earlier than otherwise expected. RBOCs would then be able to offer a combination of local and interexchange service to customers in direct competition with Intermedia's service offerings. Potential Diminishing Rate of Growth. During the period from 1994 through 1997, Intermedia's revenues grew at a compound annual growth rate of 158.8% (including the effect of acquisitions). While Intermedia 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. Intermedia has recently introduced a number of services, primarily local exchange services, that Intermedia 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 Intermedia as the provider of such services. No assurance can be given that such acceptance will occur; the lack of such acceptance could have a material adverse effect on Intermedia. 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. Intermedia'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 Intermedia's business. Intermedia 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 Intermedia's key executives is a party to a long-term employment agreement with Intermedia. Risk of Cancellation or Non-Renewal of Network Agreements, Licenses and Permits. Intermedia has lease and/or purchase agreements for rights-of-way, utility pole attachments, conduit and dark fiber for its fiber optic networks. Although Intermedia 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 Intermedia's business in the affected metropolitan area. In addition, Intermedia 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 Intermedia 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. Business Combinations; Change of Control. Intermedia 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 Intermedia and (ii) potential joint venture partners looking toward the formation of strategic alliances that would expand the reach of Intermedia's networks or services without necessarily requiring an additional investment in Intermedia. 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. A change of control would require Intermedia to repay its outstanding indebtedness and one series of its outstanding preferred stock. A change of control also requires Intermedia to offer to redeem its other outstanding series of preferred stock. If a change of control does occur, there is no assurance that Intermedia would have sufficient funds, or could obtain any additional debt or equity financing necessary, to make such repayments and redemptions. 6 Anti-Takeover Provisions. Intermedia's Certificate of Incorporation and Bylaws, the provisions of the Delaware General Corporation Law (the "DGCL") and Intermedia's outstanding indebtedness and preferred stock may make it difficult in some respects to effect a change in control of Intermedia and replace incumbent management. In addition, Intermedia'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 Intermedia 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, Intermedia's preferred stock, which may have the effect of delaying or preventing a change in control of Intermedia 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 pursuant to currently effective registration statements, 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, including two outstanding series of convertible preferred stock, could materially adversely affect the market price of shares of Common Stock and could materially impair Intermedia's future ability to raise capital through an offering of equity securities. Substantially all of Intermedia's outstanding shares, other than those held by affiliates, are covered by effective registration statements or are transferable without restriction under the Securities Act. No predictions can be made as to the effect, if any, that market sales of such shares or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. Class Action by DIGEX Stockholders. On June 5, 1997, Intermedia announced that it had agreed to acquire 100% of the outstanding equity of 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 "DIGEX Merger"). On June 20, 1997, two purported class action complaints were filed in the Court of Chancery of the State of Delaware in and for New Castle County respectively by TAAM Associates, Inc. and David and Chaile Steinberg (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 DIGEX Merger and that Intermedia knowingly aided and abetted such violation by offering to retain DIGEX management in their present positions and consenting to stock option grants to certain executive officers of DIGEX. The Complaints sought preliminary and permanent injunctions enjoining the DIGEX Merger, but no applications were made for such injunctions prior to the consummation of the DIGEX Merger on July 11, 1997. In addition, the Complaints seek cash damages from the DIGEX Directors. In August 1997, a motion to dismiss the Complaints was filed on behalf of Intermedia, DIGEX and the DIGEX Directors. The action has been dormant since that time. These cases are in their very early stages and no assurance can be given as to their ultimate outcome. Intermedia, after consultation with its counsel, believes that there are meritorious factual and legal defenses to the claims in the Complaints. Intermedia intends to defend vigorously the claims in the Complaints. Forward Looking Statements. The statements contained in this Prospectus that are not historical facts are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995), which can be identified by the use of forward-looking terminology such as "estimates," "projects," "anticipates," "expects," "intends," "believes" or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader that these forward-looking statements 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 Intermedia or actual events differing from the assumptions underlying such statements. 7 THE COMPANY Intermedia is a rapidly growing ICP delivering local, long distance, enhanced data and Internet-related services to business and government customers. Intermedia is the largest domestic independent company among those companies generally referred to as CLECs (based upon annualized telecommunications services revenues and assuming the closing of the announced transaction between AT&T, Inc. and Teleport Communications Group, Inc.) and is also the largest provider of shared tenant telecommunications services in the United States. As a tier-one ISP and the fourth largest (based on number of nodes) frame relay provider in the United States, Intermedia is also a leading provider of enhanced data services to business and government customers. Intermedia provides services to its customers throughout the United States and in selected international markets through a combination of owned and leased network facilities. As an ICP with over ten years experience focusing on business and government customers, Intermedia believes it is positioned to take advantage of technical, regulatory and market dynamics which currently promote demand for a fully integrated set of communications services. Intermedia was incorporated in the State of Delaware on November 9, 1987, as the successor to a Florida corporation that was founded in 1986. Intermedia's principal offices are located at 3625 Queen Palm Drive, Tampa, Florida 33619, and its telephone number is (813) 829-0011. Recent Developments Acquisitions. In March 1998, Intermedia consummated the acquisition of LDS for a purchase price of approximately $153.0 million, of which approximately $137.0 million was paid by delivering approximately 2.68 million shares of Common Stock and approximately $16.0 million was paid in cash, plus the retirement of approximately $15.0 million of LDS's long-term debt. LDS is an established regional interexchange carrier, providing long distance services and Internet access to more than 45,000 business subscribers and employing over 100 sales and customer service professionals in Louisiana, Texas, Oklahoma, Mississippi and Florida. The acquisition of LDS will provide a significant time-to-market advantage in a region important to Intermedia's expansion plan, while also contributing an experienced regional management team and established sales platform. Because LDS's service portfolio and footprint complements that of Intermedia, Intermedia believes that the acquisition of LDS also presents significant synergy realization opportunities. By joining forces with an established operating company with a staff of experienced sales, management and technical personnel, Intermedia expects to consolidate its position in these southern markets. In April 1998, Intermedia consummated the acquisition of National for a purchase price of approximately $148.2 million, subject to certain post-closing adjustments, of which approximately $88.7 million was paid by delivering approximately 1.5 million shares of Common Stock and approximately $59.5 million was paid in cash, plus the retirement of approximately $2.8 million of National's long-term debt. National is an emerging switch-based CLEC and an established interexchange carrier providing local exchange and long distance voice services to more than 11,000 business customers concentrated in Florida's major metropolitan markets. National had revenues of $65.2 million, net income of $5.9 million and EBITDA of $6.8 million, unaudited, for the year ended December 31, 1997. Intermedia believes that the acquisition of National will help build critical mass in the State of Florida and provide an experienced team of sales professionals. USE OF PROCEEDS Intermedia is not selling any of the Shares and will not receive any proceeds from the sale of the Shares by the Selling Securityholders. 8 THE SELLING SECURITYHOLDERS The following table sets forth certain information regarding the Selling Securityholders' ownership of Intermedia's 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 Intermedia, its predecessors or affiliates during the past three years. To the knowledge of Intermedia, except as disclosed below, the Selling Securityholders own all of the Shares and do not own, nor have any rights to acquire, any other shares of Common Stock as of the date of this Prospectus.
============================================================================================================================== Beneficially Owned Prior to This Offering(1) ----------------------------- Number of Percent of Offered Beneficially Owned Name of Selling Securityholder Shares Shares(2) for Sale After This Offering(1) - ------------------------------ -------- ----------- -------- ---------------------- - ------------------------------------------------------------------------------------------------------------------------------ John A. Mansour (3) 427,249 1.94% 427,249 0 - ------------------------------------------------------------------------------------------------------------------------------ James M. Mansour (4) 427,249(5)(6) 1.94% 306,249 0 - ------------------------------------------------------------------------------------------------------------------------------ Mark A. Mansour 274,583(7) 1.25% 234,583 0 - ------------------------------------------------------------------------------------------------------------------------------ Rover Investment Partnership Ltd. (5) 85,000 * 85,000 0 - ------------------------------------------------------------------------------------------------------------------------------ The James M. Mansour Foundation (6) 36,000 * 36,000 0 - ------------------------------------------------------------------------------------------------------------------------------ The Mark A. Mansour and Sharon A. Mansour Foundation (7) 40,000 * 40,000 0 - ------------------------------------------------------------------------------------------------------------------------------ Ned Michael Jabour Trust, Grantor James M. Mansour 26,910 * 26,910 0 - ------------------------------------------------------------------------------------------------------------------------------ Phyllis Mansour Crews Trust, Grantor James M. Mansour 26,910 * 26,910 0 - ------------------------------------------------------------------------------------------------------------------------------ Samuel Philip Mansour Trust, Grantor John A. Mansour 45,032 * 45,032 0 - ------------------------------------------------------------------------------------------------------------------------------ Mary Margaret Mansour Trust, Grantor John A. Mansour 26,910 * 26,910 0 - ------------------------------------------------------------------------------------------------------------------------------ Teresa Marie Mansour Trust, Grantor John A. Mansour 26,910 * 26,910 0 - ------------------------------------------------------------------------------------------------------------------------------ Samera Louise Mansour Trust, Grantor James M. Mansour 26,910 * 26,910 0 - ------------------------------------------------------------------------------------------------------------------------------ Philip Mansour, Jr. Trust, Grantor John A. Mansour 23,066 * 23,066 0 - ------------------------------------------------------------------------------------------------------------------------------ Philip Mansour, Jr. Trust, Grantor 41,189 * 41,189 0 James M. Mansour ==============================================================================================================================
*Less than one percent. Based on 22,043,089 shares of common stock outstanding on April 30, 1998, including 1,454,898 shares which were issued in connection with the acquisition of National. (1) Under the rules of the Commission, a person is deemed to be the beneficial owner of a security if such person has or shares the power to vote or direct the voting of such security or the power to dispose or direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities if that person has the right to acquire beneficial ownership within 60 days. Accordingly, more than one person may be deemed to be a beneficial owner of the same securities. Unless otherwise indicated by footnote, 9 the named individuals have sole voting and investment power with respect to the securities beneficially owned. (2) The percentage of shares beneficially owned by each Selling Securityholder is based on 22,043,089 shares of common stock outstanding on April 30, 1998 including 1,454,898 shares which were issued at the closing of the acquisition of National. (3) Does not include the shares held by the Ned Michael Jabour Trust, Grantor James M. Mansour; the Phyllis Mansour Crews Trust, Grantor James M. Mansour; the Samera Louise Mansour Trust, Grantor James M. Mansour; and the Philip Mansour, Jr. Trust, Grantor James M. Mansour for which John A. Mansour has voting and dispositive power. (4) Does not include the shares held by the Samuel Philip Mansour Trust, Grantor John A. Mansour; the Mary Margaret Mansour Trust, Grantor John A. Mansour; the Teresa Maria Mansour Trust, Grantor John A. Mansour; and the Philip Mansour, Jr. Trust, Grantor John A. Mansour for which James M. Mansour has voting and dispositive power. (5) James M. Mansour is the sole limited partner, and one of two general partners, of Rover Investment Partnership Ltd., and has voting and dispositive power with respect to the Shares held by Rover Investment Partnership Ltd. (6) James M. Mansour is the sole member of The James M. Mansour Foundation and has voting and dispositive power with respect to the Shares held by The James M. Mansour Foundation. (7) Mark Mansour, his wife Sharon Mansour, and his father-in-law are the three directors of The Mark A. Mansour and Sharon A. Mansour Foundation (the "Foundation"); Mark Mansour has voting and dispositive power with respect to the Shares held by the Foundation. The 1,454,898 Shares owned by the Selling Securityholders represent all of the securities covered by this Registration Statement of which this Prospectus is a part. The 1,454,898 Shares had an aggregate market value of approximately $106,184,821 on April 30, 1998 (based on the $72 63/64 per share closing price of the Common Stock on that date). Upon the closing of the transactions contemplated by that certain Agreement and Plan of Merger dated as of February 11, 1998, as amended, among Intermedia, two wholly-owned subsidiaries of Intermedia, National and the stockholders of National (the "National Merger Agreement"), a pro-rata amount of the Shares owned by the Selling Securityholders were placed in escrow for certain obligations they may have under the National Merger Agreement, as described below. A total of approximately 81,980 Shares (the "Escrow Shares") are held by an Escrow Agent (the "Escrow Agent") as security for certain indemnification obligations of the Selling Securityholders pursuant to the National Merger Agreement. Up to half the Escrow Shares may be released 90 days after the Closing Date if the uncollected Effective Date Receivables do not exceed the Effective Date Reserve (each as defined in the National Merger Agreement). For a period of 270 days following the Closing Date (the "Indemnification Period"), Intermedia may assert claims for indemnification against the remaining Escrow Shares. At the expiration of the Indemnification Period, the Escrow Agent shall deliver any remaining Escrow Shares to the Selling Securityholders. Any Escrow Shares which are required to be delivered to satisfy a payment or indemnity obligation under the National Merger Agreement shall be deemed to be valued at $61 per Share notwithstanding the actual market or other value of the Shares at the time of delivery. The Shares were acquired by the Selling Securityholders pursuant to an exemption from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. Pursuant to the National Merger Agreement and the Registration Rights Agreement entered into by Intermedia and certain stockholders of National (the "Registration Rights Agreement"), the Selling Securityholders have agreed that they will not sell or transfer more than 1/12th of the Shares during each of the 12 months following the date of the closing of the National Merger Agreement (calculated on a cumulative basis). However, this restriction will not prohibit (i) a person or entity to which the Shares are pledged from selling such Shares after a default in the obligations secured by such pledge or (ii) a Selling Securityholder from selling such Shares upon the announcement by Intermedia of a Change in Control of Intermedia (as defined in the National Merger Agreement), whereupon the foregoing restriction on the sale or transfer of the Shares will immediately lapse. In addition, the National Merger Agreement and the Registration Rights Agreement require Intermedia to file a registration statement covering the Shares and to use its reasonable efforts to keep such registration statement 10 continuously effective until the Shares are sold or freely tradeable without restrictions under the Securities Act (or, except as otherwise provided in the National Merger Agreement and the Registration Rights Agreement, to immediately file a new registration statement in the event such effectiveness lapses at any time during such period). Intermedia has filed this Registration Statement to fulfill its obligations under the National Merger Agreement and the Registration Rights Agreement. 11 PLAN OF DISTRIBUTION Intermedia will not receive any proceeds from the sale of the Shares offered hereby. The Shares may be sold from time to time in accordance with the transfer restrictions set forth in the National Merger Agreement and the Registration Rights Agreement to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time in accordance with the transfer restrictions set forth in the National Merger Agreement and the Registration Rights Agreement offer the Shares through brokers, dealers or agents who may receive compensation in amounts to be negotiated immediately prior to the sale in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Shares for whom they may act as agent. The Selling Securityholders and any such brokers, dealers or agents who participate in the distribution of the Shares may be deemed to be "underwriters", and any profits on the sale of the Shares by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Securityholders may be deemed to be underwriters, the Selling Securityholders may be subject to certain statutory liabilities under the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. The Shares offered hereby may be sold by the Selling Securityholders or by pledgees, donees, transferees or other successors in interest from time to time in one or more transactions in accordance with the restrictions on transfer of the Shares set forth in the National Merger Agreement and the Registration Rights Agreement. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise 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 Shares 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 Shares 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 methods. In addition, the Shares covered by this Prospectus which qualify for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144 of the Securities Act rather than pursuant to this Prospectus. From time to time, the Selling Securityholders may engage in short sales, short sales versus the box, puts and calls and other transactions in the Shares or derivatives thereof, and may sell and deliver the Shares in connection therewith. To the best knowledge of Intermedia, there are currently no plans, arrangements or understandings between any Selling Securityholders and any broker, dealer, agent or underwriter regarding the sale of the Shares by the Selling Securityholders. There is no assurance that any Selling Securityholder will sell any or all of the Shares offered by it hereunder or that any such Selling Securityholder will not transfer, devise or gift such Shares 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 Shares by the Selling Securityholders and any other such person. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Intermedia's Certificate of Incorporation provides that Intermedia will to the fullest extent permitted by the DGCL indemnify all persons whom it may indemnify pursuant thereto. Intermedia's Bylaws contain a similar provision requiring indemnification of Intermedia's directors and officers to the fullest extent authorized by the 12 DGCL. The DGCL permits a corporation to indemnify its directors and officers (among others) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought (or threatened to be brought) by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made for expenses (including attorneys' fees) actually and reasonably incurred by directors and officers in connection with the defense or settlement of such action if they had acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged liable to Intermedia unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses. The DGCL further provides that, to the extent any director or officer has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. In addition, Intermedia's Certificate of Incorporation contains a provision limiting the personal liability of Intermedia's directors for monetary damages for certain breaches of their fiduciary duty. Intermedia has indemnification insurance under which directors and officers are insured against certain liability that may occur in their capacity as such. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Intermedia pursuant to the foregoing provisions, Intermedia has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 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. LEGAL MATTERS The legality of the securities offered hereby has been passed upon for Intermedia by Kronish, Lieb, Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036-7798. Ralph J. Sutcliffe, a partner of Kronish, Lieb, Weiner & Hellman LLP, beneficially owns 5,745 shares of the Common Stock and a warrant to purchase 100,000 shares of Common Stock at an exercise price of $41.50 per share. EXPERTS The consolidated financial statements and schedule of Intermedia Communications Inc. and Subsidiaries appearing in Intermedia Communication Inc. and Subsidiaries' Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Shared Technologies Fairchild Inc. and Subsidiaries appearing in Intermedia Communications Inc. and Subsidiaries' Annual Report (Form 10-K) for the year ended December 31, 13 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The 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 upon the authority of such firm as experts in accounting and auditing. The December 31, 1996 audited financial statements of Shared Technologies Fairchild Inc. incorporated by reference in this Prospectus and in this Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The consolidated statements of operations, stockholders' equity and cash flows of Shared Technologies Fairchild Inc. and Subsidiaries for the year ended December 31, 1995 incorporated by reference in this Prospectus have been audited by Rothstein, Kass & Company, P.C., independent certified public accountants, as indicated in their report, which includes an explanatory paragraph relating to the changing of the method of accounting for its investment in one of its subsidiaries, with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing. 14 -----END PRIVACY-ENHANCED MESSAGE-----