AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997
REGISTRATION NO. 333-24359
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
ICG HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ICG COMMUNICATIONS, INC.
(REGISTRANT WITH RESPECT TO THE GUARANTY)
COLORADO 4813, 4899 84-1158866
DELAWARE 4813, 4899 84-1342022
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
ICG HOLDINGS, INC. ICG COMMUNICATIONS, INC.
9605 E. MAROON CIRCLE 9605 E. MAROON CIRCLE
P.O. BOX 6742 P.O. BOX 6742
ENGLEWOOD, COLORADO 80155-6742 ENGLEWOOD, COLORADO 80155-6742
(303) 572-5960 (303) 572-5960
(Address, including zip code, and telephone number, including area code,
of each registrant's principal executive offices)
JAMES D. GRENFELL, EXECUTIVE VICE PRESIDENT
9605 E. MAROON CIRCLE
P.O. BOX 6742
ENGLEWOOD, COLORADO 80155-6742
(303) 572-5960
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each registrant)
WITH A COPY TO:
LEONARD GUBAR, ESQ.
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 603-2000
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX: [ ]
-----------------------
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===========================================================================
<PAGE>
ICG HOLDINGS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF
ITEMS OF FORM S-4
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration
Statement and Outside Facing Page of Registration Statement;
Front Cover Page Cross Reference Sheet; Outside Front
of Prospectus . . . . . . . . Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Page of Inside Front Cover Page of Prospectus;
Prospectus . . . . . . . . . . Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio Prospectus Summary; Risk Factors;
of Earnings to Fixed Summary Historical and Pro Forma
Charges and Other Information Financial and Statistical Information
4. Terms of the Transaction . . . The Exchange Offers; Description of
New Notes; Description of New
Preferred Stock; Certain United States
Federal Income Tax Considerations
5. Pro Forma Financial
Information . . . . . . . . . Not Applicable
6. Material Contracts with
the Company Being Acquired . . Not Applicable
7. Additional Information
Required for Reoffering
by Persons and Parties
Deemed to Be Underwriters . . Not Applicable
8. Interests of Named Experts
and Counsel . . . . . . . . . Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect Prospectus Summary; Description of New
to S-3 Registrants . . . . . . Notes; Description of New Preferred
Stock
11. Incorporation of
Certain Information
by Reference . . . . . . . . . Information Incorporated by Reference
12. Information with Respect
to S-2 or S-3
Registrants . . . . . . . . . Not Applicable
13. Incorporation of
Certain Information
by Reference . . . . . . . . . Not Applicable
14. Information with
Respect to Registrants
Other Than S-3 or
S-2 Registrants . . . . . . . Not Applicable
C. INFORMATION ABOUT THE COMPANY TO BE ACQUIRED
15. Information with Respect
to S-3 Companies . . . . . . . Not Applicable
16. Information with Respect
to S-2 or S-3 Companies . . . Not Applicable
17. Information with Respect
to Companies Other
Than S-3 or S-2 Companies . . Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if
Proxies, Consents or
Authorizations Are
to Be Solicited . . . . . . . Not Applicable
19. Information if
Proxies, Consents or
Authorizations Are Not
to Be Solicited or in
an Exchange Offer . . . . . . Not Applicable
<PAGE>
SUBJECT TO COMPLETION. DATED JUNE 5, 1997.
OFFER TO EXCHANGE
ALL OUTSTANDING
11 5/8% SENIOR DISCOUNT NOTES DUE 2007
FOR
11 5/8% SENIOR EXCHANGE DISCOUNT NOTES DUE 2007
OF
ICG HOLDINGS, INC.
GUARANTEED BY
ICG COMMUNICATIONS, INC.
AND
OFFER TO EXCHANGE
ALL OUTSTANDING
EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2008
(EXCHANGEABLE AT THE OPTION OF HOLDINGS)
FOR
NEW EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2008
(EXCHANGEABLE AT THE OPTION OF HOLDINGS)
OF
ICG HOLDINGS, INC.
----------------------------------
THE EXCHANGE OFFERS
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________, 1997 UNLESS EXTENDED
----------------------------------
ICG Holdings, Inc., a Colorado corporation ("Holdings"), hereby offers
upon the terms and subject to the conditions set forth in this Prospectus
and the accompanying Letter of Transmittal (the "Letter of Transmittal"),
(i) to exchange (the "Note Exchange Offer") its outstanding 11 5/8% Senior
Discount Notes due 2007 (the "Old Notes"), of which an aggregate of
$176,000,000 in principal amount at maturity is outstanding as of the date
hereof, for an equal principal amount of newly issued 11 % Senior Exchange
Discount Notes due 2007 (the "New Notes") and (ii) to exchange (the
"Preferred Stock Exchange Offer") its outstanding Exchangeable Preferred
Stock (the "Old Preferred Stock") for an equal amount of newly issued New
Exchangeable Preferred Stock (the "New Preferred Stock"). The form and
terms of the New Notes will be the same as the form and terms of the Old
Notes except that the New Notes will be registered under the Securities Act
of 1933, as amended (the "Securities Act"), and will not bear legends
restricting the transfer thereof. The form and terms of the New Preferred
Stock will be the same as the form and terms of the Old Preferred Stock
except that the New Preferred Stock will be registered under the Securities
Act and will not bear legends restricting the transfer thereof. The New
Preferred Stock will be entitled to the benefits of the Second Amended and
Restated Articles of Incorporation of Holdings, filed with the Secretary of
State of the State of Colorado on March 10, 1997, governing the Preferred
Stock (the "Amended Articles"). The New Notes will be entitled to the
benefits of the Indenture, dated as of March 11, 1997, governing the Notes
(the "Indenture"). The New Notes and the Old Notes are sometimes referred
to herein collectively as the "Notes" or the "Senior Discount Notes." The
Old Notes and the Old Preferred Stock are sometimes referred to herein
collectively as the "Old Securities," and the New Notes and the New
Preferred Stock are sometimes referred to herein collectively as the "New
Securities." The New Preferred Stock and the Old Preferred Stock are
sometimes referred to herein as the "Preferred Stock." The Note Exchange
Offer and the Preferred Stock Exchange Offer are sometimes collectively
referred to herein as the "Exchange Offers."
(Continued on next page)
-----------
SEE "RISK FACTORS" AT PAGE 17 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD
BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFERS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
There will not be any payment of interest on the New Notes prior to
September 15, 2002. Interest on the New Notes will be paid in cash at the
rate of 11 5/8% per annum on each March 15 and September 15, commencing
September 15, 2002, to holders of record on the immediately preceding March
1 and September 1, respectively. Payment of the New Notes is fully and
unconditionally guaranteed (the "Note Guarantee") by ICG Communications,
Inc., a Delaware corporation ("ICG"). Holdings is an indirectly owned
subsidiary of ICG (ICG together with Holdings, the "Company"). Prior to
these Exchange Offers there has been no public market for any securities of
Holdings and there can be no assurance that such a market will develop. See
"Description of New Notes."
On or after March 15, 2002, the New Notes are redeemable, at the
option of Holdings, in whole or in part, at the redemption prices set forth
herein plus accrued and unpaid interest to the date of redemption. Upon a
Change of Control (as herein defined), the Company is required to
repurchase all of the outstanding Notes at 101% of the accreted value
thereof plus accrued interest to the date of repurchase. At March 31,
1997, (i) ICG had, on an unconsolidated basis, no senior indebtedness;
(ii) Holdings had, on an unconsolidated basis, approximately $863.4 million
of senior indebtedness, including capital lease obligations (which amount
includes the New Notes); and (iii) the subsidiaries of Holdings had, on an
unconsolidated basis, an aggregate of approximately $22.3 million of senior
indebtedness, including capital lease obligations.
Dividends on the New Preferred Stock at a rate of 14% per annum will
be cumulative from the date of issuance and are payable quarterly in cash
or, on or prior to March 15, 2002, at the option of Holdings, in additional
shares of New Preferred Stock, on each March 15, June 15, September 15 and
December 15, commencing June 15, 1997. Holdings is required to redeem the
New Preferred Stock at the liquidation preference of $1,000 per share, plus
accrued and unpaid dividends on March 15, 2008. The New Preferred Stock
will be redeemable, in whole or in part, at the option of Holdings, at any
time on or after March 15, 2002. The New Preferred Stock will be
exchangeable, in whole but not in part, at the option of Holdings, into 14%
Senior Subordinated Exchange Debentures due 2008 of Holdings (the "Exchange
Debentures"). If issued, the Exchange Debentures will be redeemable, in
whole or in part, at the option of Holdings, at any time on or after March
15, 2002. If issued, the Exchange Debentures will be senior subordinated
obligations of Holdings, subordinated to the prior payment when due of the
principal of, and premium, if any, and accrued and unpaid interest on, all
existing and future Senior Indebtedness of Holdings, including the New
Notes. ICG's guarantee of the Exchange Debentures will be senior
subordinated obligations of ICG, subordinated to the prior payment when
due of the principal of, and premium, if any, and accrued and unpaid
interest on, all existing and future Senior Guarantor Indebtedness of
ICG, including the Note Guarantee.
At any time on or prior to March 15, 2000, Holdings may, at its
option, redeem New Notes having an aggregate principal amount of up
to 35% of the aggregate principal amount of all New Notes originally
issued, at a redemption price equal to 111 5/8% of the Accreted Value
thereof on the date of redemption, plus accrued and unpaid interest, and
may redeem shares of New Preferred Stock having an aggregate liquidation
preference, or Exchange Debentures, if issued, having an aggregate
principal amount, of up to 35% of the aggregate liquidation preference of
all shares of New Preferred Stock originally issued, at a redemption price
equal to 114% of the liquidation preference or principal amount thereof,
as the case may be, plus accrued and unpaid dividends or interest, as
the case may be, with the proceeds of one or more Public Equity Offerings
(as defined herein).
The Company will accept for exchange any and all Old Securities which
are properly tendered in the Exchange Offers prior to 5:00 p.m., New York
City time, on __________, 1997 (if and as extended, the "Expiration Date").
Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offers are not
conditioned upon any minimum number of shares of Old Preferred Stock being
tendered for exchange. Old Notes may be tendered only in integral multiples
of $1,000.
Based on a previous interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters to
third parties, the Company believes that the New Securities issued pursuant
to the Exchange Offers may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who
purchases such New Securities directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or
(ii) a person that is an affiliate of the Company (within the meaning of
Rule 405 under the Securities Act)) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the holder or any other such person is acquiring the New
Securities in its ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Securities. Holders of Old Securities wishing to
accept the Exchange Offers must represent to the Company that such
conditions have been met.
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offers must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter," within the meaning of the Securities Act, in connection with
resales of New Securities received in exchange for Old Securities where
such Old Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has
agreed that, for a period of 90 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
The Company believes that none of the registered holders of the Old
Securities is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company. Prior to this Exchange Offer, there has
been no public market for the Old Securities. The Company does not intend
to list the New Securities on any securities exchange or to seek approval
for quotation through any automated quotation system. There can be no
assurance that an active market for the New Securities will develop. To the
extent that a market for the New Securities does develop, the market value
of the New Securities will depend on market conditions (including yields on
alternative investments), general economic conditions, the Company's
financial condition and other conditions. Such conditions might cause the
New Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. The Company has not entered into any
arrangement or understanding with any person to distribute the New
Securities to be received in the Exchange Offers.
The Company will not receive any proceeds from the Exchange Offers.
The Company has agreed to bear the expenses of the Exchange Offers. No
underwriter is being used in connection with the Exchange Offers. The New
Securities have not been rated by a nationally recognized statistical
rating organization.
The date of this Prospectus is ___________, 1997.
<PAGE>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST ADDRESSED TO ICG COMMUNICATIONS, INC., 9605 E. MAROON CIRCLE, P.O.
BOX 6742, ENGLEWOOD, COLORADO 80155-6742, ATTENTION: INVESTOR RELATIONS
(TELEPHONE NUMBER (800) 408-4253). IN ORDER TO INSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY __________, 1997.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Securities
offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further
information with respect to the Company and the New Securities offered
hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as
a part thereof. ICG is and has been subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Summary financial information with respect to Holdings is
contained in the Exchange Act reports of ICG. The Registration Statement
(and the exhibits and schedules thereto), as well as the periodic reports
and other information filed by ICG with the Commission, may be inspected
and copied at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, New
York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511. Copies of such materials may
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. Such materials may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. In addition, reports, proxy statements
and other information concerning the Company can be inspected and copied at
the National Association of Securities Dealers, Inc., 31 Milk Street, 11th
Floor, Boston, Massachusetts 02109.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as contained
in this Prospectus or the accompanying Letter of Transmittal, and, if given
or made, such information or representation must not be relied upon as
having been authorized by the Company. Neither this Prospectus nor the
accompanying Letter of Transmittal or both together constitute an offer to
sell or a solicitation of an offer to buy any security other than the New
Securities offered hereby, nor does it constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby to any person
in any jurisdiction in which it is unlawful to make such offer or
solicitation to such person. Neither the delivery of this Prospectus or the
accompanying Letter of Transmittal or both together, nor any sale made
hereunder shall under any circumstances imply that the information
contained herein is correct as of any date subsequent to the date hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by ICG with the Commission and
are hereby incorporated by reference and made a part of this Prospectus:
1. Annual Report on Form 10-K for the year ended September 30, 1996
(File No. 1-11965).
2. Transition Report on Form 10-K for the transition period from
October 1, 1996 to December 31, 1996 (File No. 1-11965).
3. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997 (File No. 1-11965).
-2-
<PAGE>
4. Current Report on Form 8-K dated February 21, 1997 (File No. 1-
11965).
5. Current Report on Form 8-K dated February 25, 1997 (File No. 1-
11965).
All documents subsequently filed by the Company or ICG with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, after the date of this Prospectus and prior to the termination of this
offering, shall be deemed to be incorporated by reference into the
Registration Statement of which this Prospectus is a part and to be a part
hereof from the date of such filing. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated
by reference in this Prospectus 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 this Prospectus is delivered, upon oral or written request of such
person, a copy of any and all information that has been incorporated by
reference into this Prospectus (not including exhibits to the information
unless such exhibits are specifically incorporated by reference into such
information). Requests for information should be addressed to: ICG
Communications, Inc., 9605 E. Maroon Circle, P.O. Box 6742, Englewood,
Colorado 80155-6742, Attention: Investor Relations (telephone number (800)
408-4253).
--------------------
Until ___________, 1997 (90 days after the date of the Exchange
Offers), all dealers offering transactions in the New Securities, whether
or not participating in the Exchange Offers, may be required to deliver a
Prospectus.
-3-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus as well as the
information appearing in the documents incorporated by reference herein.
Unless the context otherwise requires, the term "Company" means the
combined business operations of ICG and its subsidiaries, including ICG
Holdings (Canada), Inc. ("Holdings (Canada)") and Holdings; the terms
"fiscal" and "fiscal year" refer to ICG's fiscal year ending September 30;
and all dollar amounts are in U.S. dollars. The Company has changed
its fiscal year end to December 31 from September 30, effective
January 1, 1997. Industry figures were obtained from reports published by
the Federal Communications Commission ("FCC"), the U.S. Department of
Commerce, Connecticut Research (an industry research organization) and
other industry sources, which the Company has not independently verified.
Certain information contained in this Prospectus with respect to the
Company's plans and strategy for its business and related financing are
forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act). Such statements are subject to risks and
uncertainties and, as a result, actual results may differ materially from
those expressed in or implied by such forward-looking statements. For a
discussion of important risks of an investment in the New Securities,
including factors that could cause actual results to differ materially from
forward-looking statements, see "Risk Factors." Investors should carefully
consider the information set forth under the caption "Risk Factors"
including the risks relating to historical and anticipated operating losses
and negative cash flow.
THE COMPANY
The Company is one of the largest providers of competitive local
telephone services in the United States, based on estimates of the
industry's 1996 revenue. Competitive local exchange carriers ("CLECs") seek
to provide an alternative to the incumbent local exchange carriers
("ILECs") for a full range of telecommunications services in the newly
opened regulatory environment. As a CLEC, the Company operates networks in
three regional clusters covering major metropolitan statistical areas in
California, Colorado and the Ohio Valley, and in three markets in the
Southeast. The Company is expanding its geographic focus to include Texas
and Oklahoma (and may also expand to Arkansas and Louisiana) through its
recently announced joint venture with Central and South West Corporation
("CSW") that will develop and market telecommunications services, including
local exchange telephone services, in these markets. The Company also
provides a wide range of network systems integration services and maritime
and international satellite transmission services. As a leading participant
in the rapidly growing competitive local telecommunications industry, the
Company has experienced significant growth, with total revenue increasing
from $59.1 million for fiscal 1994 to $217.8 million for the 12-month
period ended March 31, 1997.
The Federal Telecommunications Act of 1996 (the "Telecommunications
Act") and several pro-competitive state regulatory initiatives have
substantially changed the telecommunications regulatory environment in the
United States. Due to these regulatory changes, the Company is now
permitted to offer all interstate and intrastate telephone services,
including local dial tone, and is developing a full set of complementary
services such as long distance and data transmission services. The Company
began marketing and selling competitive local dial tone services in three
of its primary markets: California launched statewide in late January
1997, followed by Ohio in February 1997 and Colorado in March 1997. During
the three months ended March 31, 1997, the Company sold 17,491 local access
lines, of which 5,371 were in service at March 31, 1997. The Company has
17 high capacity digital telephony switches (and one additional switch
located in Phoenix which will be operational through August 1997, after
which it will be relocated) and 15 data communications switches in
operation to support its services, and plans to install additional
telephony and data switches as demand warrants. To facilitate the expansion
of its services, the Company has entered into agreements with Lucent
Technologies, Inc. ("Lucent"), Northern Telecom Inc. ("Nortel") and
Cascade Communications, Inc. ("Cascade") to purchase a full range of
switching systems, fiber optic cable, network electronics, software
and services. See "-Recent Developments."
In conjunction with the increase of its service offerings, the Company
is continuing to invest significant resources to expand its network
footprint. This expansion is being undertaken through a combination of
-4-
<PAGE>
constructing owned facilities, entering into long-term agreements with
other telecommunications carriers and establishing strategic alliances with
utility companies.
TELECOM SERVICES
The Company operates networks in the following markets within its
three regional clusters: California (Sacramento, San Diego and the Los
Angeles and San Francisco metropolitan areas); Colorado (Denver, Colorado
Springs and Boulder); and the Ohio Valley (Akron, Cincinnati, Cleveland,
Columbus, Dayton and Louisville). The Company also operates networks in
Birmingham, Charlotte and Nashville. The Company will continue to expand
its network through construction, leased facilities, and strategic joint
ventures, such as the recently announced joint venture with CSW that will
initially serve Austin and Corpus Christi, Texas and Tulsa, Oklahoma. The
joint venture may also develop business opportunities in other cities in
Texas, Oklahoma, Arkansas and Louisiana. The Company's operating networks
have grown from approximately 780 fiber route miles at the end of fiscal
1994 to approximately 2,483 fiber route miles as of March 31, 1997.
Telecom Services revenue has increased from $14.9 million for fiscal 1994
to $129.6 million for the 12-month period ended March 31, 1997.
Strategy
The Company's objective is to become the dominant alternative to the
ILEC in the markets it serves. In furtherance of this objective, the
Company has developed strategies to leverage its extensive network
footprint, its considerable expertise in the provision of switched
telecommunications services, and its established customer base of long
distance carriers. In addition, the Company has begun to aggressively
market its broad range of telecommunications services to business end
users. Key elements of this strategy are:
Expand Service Offerings. The Company's focus is to provide a wide
range of local, long distance and data communications services to business
and carrier customers within the Company's service areas, with an emphasis
on local dial tone services. The Company believes that customers are
increasingly demanding a broad, full service approach to providing
telecommunications services. By offering a wide array of services,
management believes the Company will be able to capture high volume
business accounts. To this end, the Company plans to complement its core
competitive local exchange services with competitive local toll, long
distance and data communications services tailored to the needs of its
customers.
Market Services to End Users and Carriers. The Company has
historically marketed its services primarily to long distance carriers and
resellers and its "first to market" advantage has enabled it to establish
relationships with such carriers and resellers. As competition in the
provision of local telephone services increases, these carriers and
resellers are attempting to expand their service offerings by developing
and delivering local telephone services and new enhanced products and
services, which the Company is able to provide its carrier customers for
resale. In addition, the Company is expanding its sales and marketing
efforts to include end user business customers. Management believes a
targeted end user strategy can accelerate its penetration of the local
services market and better leverage the Company's network investment. In
support of this entrance into the end user market, the Company is
substantially expanding its distribution channels through a significant
increase in its direct sales force and marketing personnel.
Concentrate Markets in Regional Clusters. The Company believes that
by focusing on regional clusters it will be able to more effectively
service its customers' needs and efficiently market, operate and control
its networks. As a result, the Company has concentrated its networks in
regional clusters serving major metropolitan areas in California, Colorado
and the Ohio Valley. The Company also operates networks in the Southeast in
Birmingham, Charlotte and Nashville. The Company is currently expanding its
network footprint to include Texas and Oklahoma (and may also expand to
Arkansas and Louisiana) in partnership with CSW.
Expand Alliances with Utilities. The Company has established and is
actively pursuing strategic alliances with utility companies to take
advantage of their existing fiber optic infrastructures and customer
relationships. This approach affords the Company the opportunity to license
or lease fiber optic facilities on a long-term basis in a more timely, cost
effective manner than by constructing facilities. In addition, utilities
-5-
<PAGE>
possess conduit and other facilities that enable the Company to more easily
install additional fiber to extend existing networks in a given market.
Finally, management expects these strategic alliances to combine the
Company's expertise in providing high quality telecommunications services
with the utility's name recognition and customer relationships in marketing
telecommunications products and services to the utility's customer base.
NETWORK SERVICES
Through the Company's wholly owned subsidiary, ICG Fiber Optic
Technologies, Inc. ("FOTI"), the Company supplies information technology
services and selected networking products, focusing on network design,
installation, maintenance and support for a variety of end users, including
Fortune 1000 firms and other large businesses and telecommunications
companies. Revenue from Network Services was $64.4 million for the 12-month
period ended March 31, 1997.
SATELLITE SERVICES
The Company's Satellite Services operations provide satellite voice
and data services to major cruise lines, commercial shipping vessels,
yachts, the U.S. Navy and offshore oil platforms. The Company also owns a
teleport facility which provides international voice and data transmission
services. Revenue for the Satellite Services operations (adjusted to
reflect the sale of certain teleport assets) was $11.4 million for fiscal
1995 and $23.7 million for the 12-month period ended March 31, 1997.
RECENT DEVELOPMENTS
CSW Agreement. In January 1997, the Company announced a joint
venture with CSW which will develop and market telecommunications services
in Texas and Oklahoma (and may also expand to Arkansas and Louisiana). The
new company, CSW/ICG ChoiceCom, L.P. ("ChoiceCom"), will be based in
Austin, Texas and will initially serve Austin and Corpus Christi, Texas and
Tulsa, Oklahoma with local telephone, long distance and data transmission
services. ChoiceCom also expects to develop business opportunities in other
cities in Texas, Oklahoma, Arkansas and Louisiana.
Lucent Agreement. In September 1996, the Company entered into an
equipment purchase agreement with Lucent for advanced telecommunications
products and services. Lucent will provide the Company with a full range of
systems, software and services which will be used by the Company to build
and expand the Company's advanced communications networks, including 5ESS -
2000 switching systems, synchronous optical network equipment, access
equipment, power plants, application software systems, Advanced
Intelligence Network platforms, data networking products and fiber optic
cable. Lucent has also agreed to provide engineering, installation, onsite
technical support and other professional services.
Cascade Agreement. In April 1997, the Company entered into an
agreement with Cascade for the purchase of data switching components
that will enable the Company to provide high-speed data connectivity to its
customers. The agreement also provides for the purchase of high-speed
frame relay and asynchronous transfer mode ("ATM") switching products.
In addition, the Company will utilize turnkey services from Cascade for
product planning and deployment of the initial product launch, including
program management, network design, onsite operations support and training.
The Company recently began offering its data communications services in
California, Colorado and Ohio.
Nortel Agreement. In December 1996, the Company entered into an
equipment and software licensing agreement with Nortel under which Nortel
will provide the Company with telecommunications equipment and software.
Network Expansion. The Company continues to expand its network
footprint through several strategic initiatives with utility companies and
others. These include a 30-year agreement and two indefeasible rights of
use ("IRU") agreements with the Los Angeles Department of Water and Power
for 105 miles of fiber optic capacity in Los Angeles, including Century
City, West Los Angeles, Mid-Wilshire and Sherman Oaks; a 15-year agreement
-6-
<PAGE>
with the City of Burbank, California to lease fiber optic capacity on an
11.5 mile network; and a ten-year agreement and three ten-year IRU
agreements with the City of Alameda Bureau of Electricity, under which the
Company will have access to approximately seven miles of fiber optic cable.
FINANCING
In April 1996, the Company raised net proceeds of $433.0 million from
the issuance of 12 1/2% Senior Discount Notes due 2006 (the "12 1/2%
Notes") and 14 1/4% Exchangeable Preferred Stock Mandatorily Redeemable
2007 (the "14 1/4% Preferred Stock") of Holdings (the "1996 Offering").
In March 1997, Holdings completed a private offering (the "Private
Offering") of (i) the Old Notes which are guaranteed on a senior unsecured
basis by ICG (the "Note Guarantee"), and (ii) the Old Preferred Stock, for
aggregate gross proceeds of approximately $199.9 million. The Company
believes that its liquidity will be improved because the Notes and the
Preferred Stock do not require the payment of cash interest and of cash
dividends, respectively, prior to 2002.
The Preferred Stock accrues dividends quarterly at an annual rate of
14% per annum. Dividends are payable quarterly in cash or, on or prior to
March 15, 2002, at the sole option of Holdings, in additional shares of
Preferred Stock.
Management believes that the net proceeds from the Private Offering,
amounts expected to be available through vendor financing arrangements and
the funds remaining from the 1996 Offering will permit the Company to
expand its telecom services business as currently planned and to fund its
operating deficits for approximately 17 months.
THE EXCHANGE OFFERS
The Note Exchange
Offer....... The Company is offering to exchange $1,000 principal
amount of New Notes for each $1,000 principal amount of
Old Notes that are properly tendered and accepted. The
Company will issue the New Notes on or promptly after
the Expiration Date. The New Notes will be fully and
unconditionally guaranteed by ICG. There are
$176,000,000 aggregate principal amount at maturity
($99,908,160 original issue price) of Old Notes
outstanding. See "The Exchange Offers."
The Preferred Stock
Exchange Offer... The Company is offering to exchange one share of New
Preferred Stock for each share of Old Preferred Stock
that is properly tendered and accepted. The Company
will issue the New Preferred Stock on or promptly after
the Expiration Date. There are 100,000 shares of Old
Preferred Stock outstanding. See "The Exchange Offers."
Resale of New
Securities...... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, including "Exxon Capital Holdings
Corporation" (available May 13, 1988), "Morgan Stanley
& Co. Incorporated" (available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available June 5, 1991), "Warnaco,
Inc." (available October 11, 1991) and "K-III
Communications Corp." (available May 14, 1993), the
Company believes that New Securities issued pursuant to
the Exchange Offers in exchange for Old Securities may
be offered for resale, resold and otherwise transferred
by any holder thereof (other than any such holder which
is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance
-7-
<PAGE>
with the registration and prospectus delivery
provisions of the Securities Act, provided that such
New Securities are acquired in the ordinary course of
such holder's or any other such person's business and
that such holder or any other such person has no
arrangement or understanding with any person to
participate in the distribution of such New Securities.
Under no circumstances may this Prospectus be used for
an offer to resell or other retransfer of New
Securities. In the event that the Company's belief is
inaccurate, holders of New Securities who transfer New
Securities in violation of the prospectus delivery
provisions of the Securities Act and without an
exemption from registration thereunder may incur
liability thereunder. The Company does not assume or
indemnify holders against such liability. The Exchange
Offers are not being made to, nor will the Company
accept surrenders for exchange from, holders of Old
Securities (i) in any jurisdiction in which the
Exchange Offers or the acceptance thereof would not be
in compliance with the securities or blue sky laws of
such jurisdiction or (ii) if any holder is engaged or
intends to engage in a distribution of the New
Securities. Each broker-dealer that receives New
Securities for its own account in exchange for Old
Securities, where such Old Securities were acquired by
such broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. The
Company has not entered into any arrangement or
understanding with any person to distribute the New
Securities to be received in the Exchange Offers. See
"Plan of Distribution."
Expiration Date.. The Exchange Offers will expire at 5:00 p.m., New York
City time, on __________, 1997 unless extended, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offers are
extended. The Company will accept for exchange any and
all Old Securities which are properly tendered in the
Exchange Offers prior to 5:00 p.m., New York City time,
on the Expiration Date. The New Securities issued
pursuant to the Exchange Offers will be delivered on or
promptly after the Expiration Date.
Conditions to the
Exchange Offers.. The Company may terminate the Exchange Offers if it
determines that its ability to proceed with the
Exchange Offers could be materially impaired due to any
legal or governmental action, any new law, statute,
rule or regulation, any interpretation by the staff of
the Commission of any existing law, statute, rule or
regulation or the failure to obtain any necessary
approvals of governmental agencies or holders of the
Old Securities. The Company does not expect any of the
foregoing conditions to occur, although there can be no
assurances that such conditions will not occur.
Procedures for
Tendering Old Notes
and Old Preferred
Stock........... Each holder of Old Securities wishing to participate in
the Exchange Offers must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Old
Notes or such Old Preferred Stock, as the case may be,
and any other required documentation to Norwest Banks,
as exchange agent for the Notes (the "Exchange Agent"),
or to American Stock Transfer & Trust Company, as
transfer agent for the Preferred Stock (the "Transfer
Agent") at the addresses set forth herein. By executing
-8-
<PAGE>
the Letter of Transmittal, each holder will represent
to the Company that, among other things, the New
Securities acquired pursuant to the Exchange Offers are
being obtained in the ordinary course of business of
the person receiving such New Securities, whether or
not such person has an arrangement or understanding
with any person to participate in the distribution of
such New Securities and that neither the holder nor any
such other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company.
Special Procedures
for Beneficial
Owners.......... Any beneficial owner whose Old Securities are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to
tender such Old Securities in the Exchange Offers
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering its Old Securities, either
make appropriate arrangements to register ownership of
the Old Securities in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date.
Guaranteed Delivery
Procedures.. Holders of Old Securities who wish to tender their Old
Securities and whose Old Securities are not immediately
available or who cannot deliver their Old Securities or
the Letter of Transmittal to the Exchange Agent or the
Transfer Agent, as the case may be, prior to the
Expiration Date, must tender their Old Securities
according to the guaranteed delivery procedures set
forth in "The Exchange Offer-Guaranteed Delivery
Procedures."
Withdrawal Rights. Tenders of Old Securities may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date.
Certain Federal
Income Tax
Considerations... The exchange of New Preferred Stock for Old Preferred
Stock, and New Notes for Old Notes, will not constitute
a taxable event for U.S. federal income tax purposes.
As a result, holders of New Preferred Stock or New
Notes will not recognize any income, gain or loss with
respect to such exchange. The New Notes will be, and
the Exchange Debentures may be, issued with original
issue discount ("OID") for U.S. federal income tax
purposes. United States Holders of New Notes or
Exchange Debentures issued with OID must include such
OID in income on a constant yield accrual method,
regardless of such holders' method of accounting. As
a result, such holders will include OID in income in
advance of the receipt of cash attributable to that
income. For a discussion of certain U.S. federal
income tax considerations relating to the exchange of
the New Notes for the Old Notes and the New Preferred
Stock for the Old Preferred Stock, see "Certain
United States Federal Income Tax Considerations."
-9-
<PAGE>
Exchange Agent... Norwest Banks is the Exchange Agent. Its telephone
number is (612) 667-4070. The address of the Exchange
Agent is set forth in "The Exchange Offers-Exchange
Agent."
Transfer Agent... American Stock Transfer & Trust Company is the Transfer
Agent. Its telephone number is (212) 936-5100. The
address of the Transfer Agent is as set forth in "The
Exchange Offers-Transfer Agent."
THE NEW NOTES
Aggregate Amount. $176,000,000 principal amount at maturity ($99,908,160
original issue price) of 11 5/8% Senior Exchange
Discount Notes due March 15, 2007.
Yield and Interest From and after March 15, 2002, the New Notes will bear
interest, which will be payable in cash, at a rate of
11 5/8% per annum on each March 15 and September 15,
commencing September 15, 2002.
Optional Redemption On or after March 15, 2002, the New Notes will be
redeemable at the option of Holdings, in whole or in
part, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption.
See "Description of New Notes-Optional Redemption."
Optional Redemption
Upon Public Equity
Offering......... At any time, or from time to time, on or prior to March
15, 2000, Holdings may, at its option, redeem New Notes
having a principal amount of up to 35% of the principal
amount of the Old Notes initially issued, at a
redemption price equal to 111 5/8% of the Accreted
Value of such New Notes on the date of redemption, with
the proceeds of one or more Public Equity Offerings.
See "Description of New Notes-Optional Redemption."
Guarantee........ The New Notes will be guaranteed on a senior, unsecured
basis by ICG.
Ranking.......... The New Notes and the Note Guarantee will be senior,
unsecured obligations of Holdings and ICG,
respectively, will rank pari passu in right of payment
with all existing and future unsecured, unsubordinated
obligations and will be senior in right of payment to
all existing and future subordinated indebtedness of
Holdings and ICG. At March 31, 1997, Holdings and
ICG had, on an unconsolidated basis, approximately
$762.9 million of senior indebtedness (which amount
includes the Old Notes and the Note Guarantee),
including capitalized lease obligations. ICG and
Holdings are each holding companies and therefore must
rely upon dividend and other payments from their
subsidiaries to generate the funds necessary to meet
their obligations, including the payment of principal
and interest on the New Notes. The New Notes and
the Note Guarantee will be effectively subordinated to
all liabilities (including trade payables) of the
subsidiaries of ICG and Holdings and at March 31,
1997, the subsidiaries of Holdings had approximately
$94.2 million of liabilities (excluding intercompany
payables), including $31.5 million of indebtedness.
See "Risk Factors-Substantial Indebtedness; Ability to
Service Debt" and "-Holding Company Reliance on
Subsidiaries' Funds; Priority of Creditors;
Subordination of Exchange Debentures."
Certain Covenants. The Indenture contains certain covenants which, among
-10-
<PAGE>
other things, restrict the ability of ICG, Holdings and
their Restricted Subsidiaries (as defined herein) to
incur additional indebtedness for, among other things,
the acquisition of network assets, inventory and
equipment; create liens; engage in sale-leaseback
transactions; pay dividends or make distributions
in respect of their capital stock (other than
permitted dividends with respect to the Preferred
Stock and the 14 1/4% Preferred Stock); make
investments or make certain other restricted payments;
sell assets; create restrictions on the ability of
Restricted Subsidiaries to make certain payments; issue
or sell stock of certain subsidiaries; enter into
transactions with stockholders or affiliates; and, with
respect to ICG and Holdings, consolidate, merge or sell
all or substantially all of its assets. See
"Description of New Notes-Covenants."
Change of Control. Upon a Change of Control (as defined herein), Holdings
is required to make an offer to purchase the New Notes
at a purchase price equal to 101% of their Accreted
Value on the date of purchase plus accrued interest, if
any. See "Description of New Notes-Repurchase of New
Notes upon a Change of Control."
THE NEW PREFERRED STOCK
Preferred Stock.. 100,000 shares of New Exchangeable Preferred Stock.
Dividends........ Cumulative at 14% per annum. All dividends will be
payable quarterly in cash or, on or prior to March 15,
2002, at the sole option of Holdings, in additional
shares of Preferred Stock, on March 15, June 15,
September 15 and December 15 of each year, commencing
June 15, 1997. Dividends on the New Preferred Stock
will accrue and be cumulative from the date of issuance
thereof. For federal income tax purposes, distributions
with respect to the New Preferred Stock are not
expected to qualify as dividends and will be treated as
a return of capital until Holdings has earnings and
profits as determined under applicable federal income
tax principles. See "Certain United States Federal
Income Tax Considerations-Tax Consequences to United
States Holders-Dividends on the New Preferred Stock."
Liquidation
Preference....... $1,000 per share, plus accrued and unpaid dividends.
Voting........... Holders of the New Preferred Stock will have no voting
rights except as provided by law and as provided in the
Amended Articles. In the event that dividends are not
paid for any four quarters, whether or not consecutive,
or upon certain other events (including failure to
comply with covenants and failure to pay the mandatory
redemption price when due), then the number of
directors constituting Holdings' Board of Directors
will be adjusted to permit the holders of the majority
of the then outstanding New Preferred Stock, voting
separately as a class, to elect two directors. See
"Description of New Preferred Stock-Voting Rights."
Mandatory
Redemption....... Holdings is required to redeem the New Preferred Stock
on March 15, 2008 (subject to the legal availability of
funds therefor) at a redemption price equal to the
liquidation preference, plus accrued and unpaid
dividends to the redemption date. See "Description of
New Preferred Stock-Mandatory Redemption."
-11-
<PAGE>
Optional Redemption On or after March 15, 2002, the New Preferred Stock is
redeemable, at the option of Holdings, in whole or in
part, at the redemption prices set forth herein, plus
accrued and unpaid dividends to the redemption date.
See "Description of New Preferred Stock-Optional
Redemption."
Optional
Redemption Upon
Public Equity
Offering......... At any time, or from time to time, on or prior to March
15, 2000, Holdings may, at its option, redeem shares of
Old Preferred Stock having an aggregate liquidation
preference of up to 35% of the aggregate liquidation
preference of all shares of New Preferred Stock
originally issued at a redemption price equal to 114%
of the liquidation preference thereof, plus accrued and
unpaid dividends to the redemption date, with the
proceeds of one or more Public Equity Offerings. See
"Description of New Preferred Stock-Optional
Redemption."
Ranking.......... The New Preferred Stock will rank (i) senior to all
common stock of Holdings and to all other capital stock
of Holdings unless the terms of such stock expressly
provide that it ranks senior to or on a parity with the
New Preferred Stock; (ii) on a parity with any capital
stock of Holdings the terms of which expressly provide
that it will rank on a parity with the New Preferred
Stock, including the 14 1/4% Preferred Stock; and (iii)
junior to all capital stock of Holdings the terms of
which expressly provide that such stock will rank
senior to the New Preferred Stock. Holdings is a
holding company and therefore must rely upon dividend
and other payments from its subsidiaries to generate
the funds necessary to meet its obligations, including
the payment of cash dividends on, and the mandatory
redemption price of, the New Preferred Stock. See
"Risk Factors-Substantial Indebtedness; Ability to
Service Debt" and "Description of New Preferred Stock-
Ranking."
Optional Exchange
Feature.......... The New Preferred Stock is exchangeable into Exchange
Debentures at the option of Holdings, in whole but not
in part, subject to (i) such exchange being permitted
by the terms of the Indenture, the indenture under
which the 12 1/2% Notes were issued (the "12 1/2% Notes
Indenture") and the indenture under which the 13 1/2%
Senior Discount Notes due September 15, 2005 (the "13
1/2 Notes") of Holdings were issued (the "13 1/2%
Notes Indenture"), and (ii) the conditions described
in the Amended Articles being satisfied. See
"Description of New Preferred Stock-Exchange" and
"Description of Exchange Debentures."
Certain Covenants. The Amended Articles contain certain covenants which,
among other things, restrict the ability of Holdings
and its Restricted Subsidiaries to incur additional
indebtedness and issue preferred stock; create liens;
pay dividends or make distributions in respect of their
capital stock (other than permitted dividends with
respect to the Preferred Stock and the 14 1/4%
Preferred Stock); make investments or make certain
other restricted payments; sell assets; create
restrictions on the ability of Restricted Subsidiaries
to make certain payments; issue or sell stock of
Restricted Subsidiaries; enter into transactions with
stockholders or affiliates; incur senior subordinated
indebtedness; and, with respect to each of ICG and
Holdings, consolidate, merge or sell all or
substantially all of its assets. See "Description of
New Preferred Stock-Certain Covenants."
Change of Control Upon a Change of Control, Holdings is required to make
-12-
<PAGE>
an offer to purchase the shares of New Preferred Stock
at a purchase price equal to 101% of their liquidation
preference on the date of purchase, plus accrued and
unpaid dividends to the date of purchase. See
"Description of New Preferred Stock-Change of Control."
THE EXCHANGE DEBENTURES
Exchange
Debentures....... 14% Senior Subordinated Exchange Debentures due March
15, 2008 in an aggregate principal amount equal to the
aggregate liquidation preference of, and accrued but
unpaid dividends on, the New Preferred Stock
outstanding on the Exchange Date (as defined herein).
Interest Payment
Dates....... March 15 and September 15 of each year, commencing with
the first of such dates to occur after the Exchange
Date. On or prior to March 15, 2002, the Company may
pay interest on the Exchange Debentures by issuing
additional Exchange Debentures.
Optional
Redemption.. On or after March 15, 2002, the Exchange Debentures are
redeemable, at the option of Holdings, in whole or in
part, at the redemption prices set forth herein, plus
accrued and unpaid interest to the redemption date. See
"Description of Exchange Debentures-Optional
Redemption."
Optional Redemption
Upon Public
Equity Offering.. At any time, or from time to time, on or prior to March
15, 2000, Holdings may, at its option, redeem Exchange
Debentures having a principal amount equal to 35% of
the liquidation preference of the Preferred Stock
initially issued at a redemption price equal to 114% of
the principal amount thereof, plus accrued and unpaid
interest to the redemption date, with the proceeds of
one or more Public Equity Offerings. See "Description
of Exchange Debentures-Optional Redemption."
Guarantee........ ICG will guarantee the Exchange Debentures on a senior
subordinated unsecured basis (the "Debenture
Guarantee").
Ranking.......... The Exchange Debentures will be senior subordinated
Indebtedness (as defined herein) of Holdings,
subordinated to the prior payment when due of the
principal of, and premium, if any, and accrued and
unpaid interest on, all existing and future Senior
Indebtedness (as defined herein) of Holdings (including
the New Notes) and senior to the prior payment when due
of the principal and premium, if any, and accrued and
unpaid interest on, all subordinated Indebtedness of
Holdings. ICG's guarantee of the Exchange Debentures
will be senior subordinated Indebtedness of ICG,
subordinated to the prior payment when due of the
principal of, and premium, if any, and accrued and
unpaid interest on, all existing and future Senior
Guarantor Indebtedness (as defined herein) of ICG
(including the Note Guarantee) and senior to the prior
payment when due of the principal of, and premium, if
any, and accrued and unpaid interest on, all
subordinated Indebtedness of ICG. ICG and Holdings are
each holding companies and therefore must rely upon
dividend and other payments from their subsidiaries to
generate the funds necessary to meet their obligations,
including the payment of principal and interest on the
Exchange Debentures. See "Risk Factors-Substantial
Indebtedness; Ability to Service Debt."
-13-
<PAGE>
Certain Covenants. The indenture under which the Exchange Debentures will
be issued (the "Exchange Debenture Indenture") will
contain certain covenants which, among other things,
restricts the ability of ICG, Holdings and their
Restricted Subsidiaries to incur additional
indebtedness for, among other things, the acquisition
of network assets, inventory and equipment; create
liens; pay dividends or make distributions in
respect of their capital stock; make investments or
make certain other restricted payments; sell assets;
create restrictions on the ability of Restricted
Subsidiaries to make certain payments; issue or sell
stock of certain subsidiaries; enter into transactions
with stockholders or affiliates; incur senior
subordinated indebtedness; and, with respect to each
of ICG and Holdings, consolidate, merge or sell
all or substantially all of their assets. See
"Description of Exchange Debentures-Certain Covenants."
Registration
Requirements..... The Exchange Debentures may not be issued unless such
issuance is registered under the Securities Act or is
exempt from registration.
Change of Control. Upon a Change of Control, Holdings is required to make
an offer to purchase the Exchange Debentures at a
purchase price equal to 101% of their principal amount
on the date of purchase plus accrued interest, if any.
See "Description of Exchange Debentures-Change of
Control."
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a
discussion of certain risks that should be considered by prospective
investors in connection with the Exchange Offers and an investment in the
New Securities, including the risks related to historical and anticipated
operating losses, negative cash flow and substantial indebtedness.
-14-
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND STATISTICAL INFORMATION(1)
(IN THOUSANDS, EXCEPT STATISTICAL DATA)
YEARS ENDED SEPTEMBER 30,
------------------------------------------
PRO FORMA
1994 1995 1996 1996 (2)
------ ------ ------ ---------
STATEMENT OF OPERATIONS
DATA:(3)
Revenue:
Telecom services . . . . $ 14,854 32,330 87,681 87,681
Network services . . . . 36,019 58,778 60,116 60,116
Satellite services(4) . . 8,121 20,502 21,297 21,297
Other . . . . . . . . . . 118 - - -
-------- ------- ------- -------
Total revenue . . . . . 59,112 111,610 169,094 169,094
Operating loss . . . . . . (15,226) (46,814) (73,252) (73,252)
Interest expense . . . . . (8,481) (24,368) (85,714) (97,708)
Minority interests,
including preferred stock
dividends . . . . . . . . 435 (1,123) (25,306) (39,697)
Net loss . . . . . . . . . $(23,868) (76,648) (184,107) (210,492)
Loss per share. . . . . . . $(1.56) (3.25) (6.83) (7.81)
Weighted average number
of shares outstanding(5) . 15,342 23,604 26,955 26,955
OTHER DATA:
EBITDA(6) . . . . . . . . . $(7,068) (30,190) (42,884) (42,884)
Net cash used by
operating activities . . . (7,532) (43,039) (47,361) (47,361)
Net cash used by
investing activities . . . (51,452) (71,342) (131,200) (131,200)
Net cash provided (used)
by financing activities. . 49,428 377,772 360,227 552,035
Capital expenditures(7) . . 54,921 88,495 175,148 175,148
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(8) . . . . . . . - - - -
STATISTICAL DATA:(9)
Full time employees . . . . 714 938 1,323
Telecom services:
Buildings connected:
On-net . . . . . . . . . 226 280 478
Off-net . . . . . . . . - 1,095 1,589
-------- ------- -------
Total buildings connected 226 1,375 2,067
Customer circuits in
service (VGEs)(11) . . . 224,072 430,535 630,697
Operational switches:
Telephony . . . . . . . 1 13 14
Frame relay. . . . . . . - - -
------- ------- -------
Total operational
switches . . . . . . . 1 13 14
Switched minutes of use
(in millions) . . . . . 2 283 1,635
Fiber route miles:(12)
Operational . . . . . . 323 627 2,143
Under construction. . . - - -
Fiber strand miles:(13)
Operational . . . . . . 14,959 27,150 70,067
Under construction. . . - - -
Wireless route miles(14) 606 568 491
Satellite services:
Very small aperture
terminals ("VSATs") . 810 626 835
C-Band
installations(15) . . - 28 48
L-Band
installations(16) . . - - 109
THREE MONTHS ENDED,
-------------------------------------------
PRO FORMA
DECEMBER MARCH MARCH MARCH
31, 31, 31, 31,
1996 1996 1997 1997(2)
-------- ------ ------ ---------
STATEMENT OF OPERATIONS
DATA:(3)
Revenue:
Telecom services . . . 34,787 17,635 38,280 38,280
Network services . . . 15,981 13,973 17,987 17,987
Satellite services(4) . 6,188 4,336 6,783 6,783
Other . . . . . . . . . - - - -
------- ------- ------- -------
Total revenue . . . 56,956 35,944 63,050 63,050
Operating loss . . . . . (27,051) (15,823) (40,783) (40,783)
Interest expense . . . . (24,454) (14,217) (25,140) (27,503)
Minority interests,
including preferred
stock dividends . . . . (4,988) (1,970) (5,753) (8,564)
Net loss . . . . . . . . (49,823) (26,939) (66,781) (71,955)
Loss per share. . . . . . (1.56) (1.04) (2.09) (2.25)
Weighted average
number of shares
outstanding(5) . . . . . 31,840 25,803 31,938 31,938
OTHER DATA:
EBITDA(6) . . . . . . . . (17,226) (8,381) (29,901) (29,901)
Net cash used by
operating activities . . (8,639) (17,022) (14,769) (14,769)
Net cash used by
investing activities . . (82,339) (50,700) (58,565) (58,565)
New cash provided (used)
by financing activities. (170) (23,956) 172,688 172,688
Capital expenditures(7) . 78,238 76,433 61,545 61,545
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(8) . . . . . . - - - -
STATISTICAL DATA:(9)
Full time employees . . . 1,424 1,061 1,606
Telecom services:
Buildings connected:
On-net . . . . . . . . 522 327 545
Off-net. . . . . . . . 1,547(10) 1,401 1,550
------- ------- -------
Total buildings
connected. . . . . . 2,069 1,728 2,095
Customer circuits in
service (VGEs)(11) . . 748,528 510,755 816,238
Operational switches:
Telephony . . . . . . 14 13 16
Frame relay . . . . . 1 - 10
------- ------- -------
Total operational
switches . . . . . . 15 13 26
Switched minutes of use
(in millions). . . . . 607 362 682
Fiber route miles:(12)
Operational . . . . . 2,385 780 2,483
Under construction . . - - 639
Fiber strand
miles:(13)
Operational . . . . . 75,490 36,310 83,334
Under construction . . - - 28,310
Wireless route
miles(14) . . . . . . 506 582 511
Satellite services:
Very small aperture
terminals ("VSATs") 860 658 875
C-Band
installations(15) . . 54 36 57
L-Band
installations(16) . . 204 3 355
(Accompanying notes are on the following page)
-15-
<PAGE>
MARCH 31, 1997
--------------
BALANCE SHEET DATA:
Cash and short-term
investments . . . . . . . . . . . . . . . . $491,035
Working capital . . . . . . . . . . . . . . . . 465,248
Property and equipment,
net . . . . . . . . . . . . . . . . . . . . 456,725
Total assets . . . . . . . . . . . . . . . . . 1,089,681
Current portion of long-term debt
and capital lease obligations . . . . . . . . 8,455
Long-term debt and capital
lease obligations, less current portion . . . 882,476
14 1/4% Preferred Stock of Holdings
(redeemable) ($170.6 million
liquidation value) . . . . . . . . . . . . . 165,122
Preferred Stock of Holdings
(redeemable) ($100.8 million
liquidation value) . . . . . . . . . . . . . . 96,787
Common Stock and additional paid-in capital . . 303,673
Accumulated deficit . . . . . . . . . . . . . . (435,421)
Stockholders' deficit . . . . . . . . . . . . . (131,748)
--------------------
(1) The Summary Historical and Pro Forma Financial and Statistical
Information relates to ICG and its subsidiaries. All of ICG's business
is conducted through Holdings and its subsidiaries and, therefore,
consolidated financial statements for Holdings are not being presented
since such financial statements would not differ substantially from
the financial statements of ICG.
(2) Pro Forma Statement of Operations Data reflects the receipt of the
net proceeds from the Private Offering and interest expense on
$99.9 million gross proceeds of Senior Discount Notes and preferred
stock dividends on $100.0 million liquidation preference of Preferred
Stock, without giving effect to any increased interest income
on available cash or the capitalization of any interest associated
with construction in progress, as if such events had occurred
at the beginning of the periods presented.
(3) During fiscal 1996, the Company changed its method of accounting for
long-term telecom services contracts to recognize revenue as services
are provided. The effect of this change in accounting for the periods
presented was not significant.
(4) Revenue from Satellite Services is generated through the Company's
satellite (voice and data) operations and, after January 1995, also
includes revenue from maritime communications operations. The Company
completed the sale of four of its teleports in March 1996, and has
reported results of operations from these assets through December 31,
1995.
(5) Weighted average number of shares outstanding for fiscal years 1994
and 1995 represents Holdings (Canada) common shares outstanding.
Weighted average number of shares outstanding for fiscal 1996
represents Holdings (Canada) common shares outstanding for the period
October 1, 1995 through August 2, 1996, and represents ICG Common
Stock and Holdings (Canada) Class A common shares (owned by third
parties) outstanding for the period August 5, 1996 through September
30, 1996. Weighted average number of shares outstanding for the
three-month periods ended December 31, 1996 and March 31, 1997
represent ICG Common Stock and Holdings (Canada) Class A common
shares (owned by third parties) outstanding for the period October
1, 1996 through December 31, 1996 and January 1, 1997 through March
31, 1997, respectively.
(6) EBITDA consists of operating loss plus depreciation and amortization.
EBITDA is provided because it is a measure commonly used in the
telecommunications industry. EBITDA is presented to enhance an
understanding of the Company's operating results and is not intended
to represent cash flow or results of operations in accordance with
generally accepted accounting principles ("GAAP") for the periods
indicated. EBITDA is not a measurement under GAAP and is not
necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and financing
activities as calculated according to GAAP are also presented in Other
Data.
(7) Capital expenditures include assets acquired under capital leases and
through the issuance of debt or warrants.
(8) For fiscal 1994, 1995 and 1996 and the three months ended December 31,
1996, March 31, 1996 and 1997, earnings were insufficient to cover
combined fixed charges and preferred stock dividends by $24.8
million, $77.3 million, $188.5 million and $50.6 million, $31.8
million and $67.8 million, respectively. On a pro forma basis
giving effect to the Private Offering as if it occurred at
the beginning of the periods presented and without giving effect to
any increased interest income on additional available cash or the
capitalization of any interest associated with construction in
progress, earnings would have been insufficient to cover fixed
charges and preferred stock dividends by $214.9 million and $73.0
million for fiscal 1996 and the three months ended March 31, 1997,
respectively. Combined fixed charges and preferred stock dividends
consist of interest charges and amortization of debt expense and
discount or premium related to indebtedness, whether expensed or
capitalized, that portion of rental expense the Company believes to
be representative of interest (i.e., one-third of rental expense) and
preferred stock dividends.
(9) Amounts presented are for 12-month and three month periods ended, or
as of the end of the period presented.
(10) Buildings connected off-net declined from September 30, 1996 to
December 31, 1996 due to the sale of the Company's 50% interest in the
Phoenix joint venture.
(11) Customer circuits in service is measured in voice grade equivalents
("VGEs").
(12) Fiber route miles refers to the number of miles of fiber optic cable,
including leased fiber. As of March 31, 1997, the Company had 2,483
fiber route miles, of which 359 fiber route miles were leased under
operating leases. Fiber route miles under construction represents
fiber under construction and fiber which is expected to be operational
within six months.
(13) Fiber strand miles refers to the number of fiber route miles,
including leased fiber, along a telecommunications path multiplied by
the number of fiber strands along that path. As of March 31, 1997,
the Company had 83,334 fiber strand miles, of which 7,080 fiber strand
miles were leased under operating leases. Fiber strand miles under
construction represents fiber under construction and fiber which is
expected to be operational within six months.
(14) Wireless route miles represents the total distance of the digital
microwave paths between Company transmitters which are used in the
Company's telecom services networks.
(15) C-Band installations service cruise ships, U.S. Navy vessels and
offshore oil platform installations.
(16) L-Band installations service smaller maritime installations, and both
mobile and fixed land-based units.
-16-
<PAGE>
RISK FACTORS
An investment in the New Securities offered hereby involves a high
degree of risk. The following risk factors, together with the other
information set forth in this Prospectus and appearing in the documents
incorporated by reference herein, should be considered when evaluating an
investment in the New Securities.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
The Company has incurred and expects to continue to incur significant
operating and net losses. For the 12 months ended March 31, 1997, the
Company had revenue of approximately $217.8 million, an operating loss of
approximately $110.0 million, interest expense of approximately $105.9
million and a net loss of approximately $239.1 million. In conjunction
with the increase in its service offerings, the Company is required to
invest significant amounts on sales, marketing, customer service and
engineering personnel prior to the generation of appreciable revenue.
The Company expects to continue to generate negative cash flow from
operating activities while it emphasizes development, construction
and expansion of its telecom services business and until the Company
establishes a sufficient revenue generating customer base. As the
Company's customer base grows, the Company anticipates that operating
margins and cash flow will improve as incremental revenue will exceed
incremental operating expenses. This is dependent upon the successful
implementation of the Company's local dial tone, data transmission and
long distance strategies, increased traffic on the Company's facilities
and actions of competitors and regulatory authorities, any or all of
which may not occur. The Company's operating loss, interest expense
and net loss are each expected to increase in the near term as a result
of the continuation of the Company's expansion strategy. The Company
had an accumulated deficit and stockholders' deficit of approximately
$435.4 million and $131.7 million, respectively, at March 31, 1997.
There can be no assurance that the Company will achieve or sustain
profitability or positive cash flow in the future or at any time have
sufficient resources to make payments on its indebtedness, including the
Notes and, if issued, the Exchange Debentures, or cash dividends on, or the
mandatory redemption price of, the Preferred Stock. See "Summary Historical
and Pro Forma Financial and Statistical Information," including the notes
thereto.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
The Company is more highly leveraged than its competitors. At March
31, 1997, (i) ICG had, on an unconsolidated basis, no senior indebtedness;
(ii) Holdings had, on an unconsolidated basis, approximately $863.4 million
of senior indebtedness, including capital lease obligations (which amount
includes the New Notes); and (iii) the subsidiaries of Holdings had, on an
unconsolidated basis, an aggregate of approximately $22.3 million of
senior indebtedness, including capital lease obligations. The accretion of
original issue discount on the Notes, the 13 1/2% Notes and the 12 1/2%
Notes will cause an increase in indebtedness of approximately $506.6
million by March 15, 2002. In addition, the Preferred Stock and the
Exchange Debentures issuable in exchange for the Preferred Stock
may pay dividends or interest, respectively, through the issuance of
additional shares of Preferred Stock or Exchange Debentures, as the case
may be, through March 15, 2002, and the 14 1/4% Preferred Stock and the
14 1/4% Subordinated Exchange Debentures due May 1, 2007 (the "14 1/4%
Exchange Debentures") issuable in exchange for the 14 1/4% Preferred
Stock, may pay dividends or interest through the issuance of additional
shares of 14 1/4% Preferred Stock or 14 1/4% Exchange Debentures,
as the case may be, through May 1, 2001. The Indenture, the
Amended Articles governing the terms of the Preferred Stock and the
14 1/4% Preferred Stock, the 12 1/2% Notes Indenture and the 13 1/2%
Notes Indenture limit, but do not prohibit, the incurrence of
additional indebtedness by ICG, Holdings and their subsidiaries,
for, among other things, the acquisition of network assets, inventory and
equipment. Although the net proceeds from the Private Offering are
expected to enhance liquidity and improve the Company's financial
flexibility in the near term, the Company's total indebtedness, interest
expense and dividend requirements will be significantly increased as
a result of the Private Offering.
-17-
<PAGE>
The level of the Company's indebtedness could have important
consequences to holders of the Notes, the Preferred Stock and the Exchange
Debentures, including the following: (i) the debt service requirements of
any additional indebtedness could make it more difficult for the Company to
make payments on the Notes and to pay cash dividends on, and the mandatory
redemption price of, the Preferred Stock and, if issued, to make payments
on the Exchange Debentures; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be limited;
(iii) a substantial portion of the Company's cash flow from operations, if
any, must be dedicated to the payment of principal and interest on its
indebtedness and other obligations (including dividends on the Preferred
Stock when required to be paid in cash) and will not be available for other
purposes; (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business; (v)
the Company is more highly leveraged than all of its competitors, which may
place it at a competitive disadvantage; and (vi) the Company's high degree
of indebtedness will make it more vulnerable in the event of a downturn in
its business.
The Company has been experiencing substantial negative EBITDA and, on
a pro forma basis after giving effect to the Private Offering, the
Company's earnings before combined fixed charges and preferred stock
dividend requirements would have been insufficient to cover combined fixed
charges and preferred stock dividend requirements for fiscal 1996 and the
three months ended March 31, 1997 by approximately $214.9 million and
$73.0 million, respectively. In addition, for the same periods on the same
pro forma basis, the Company's EBITDA minus capital expenditures and
interest expense and preferred stock dividends would have been
approximately $(339.2) million and $(128.4) million, respectively. There
can be no assurance that the Company will be able to improve its earnings
before combined fixed charges and preferred stock dividends or that the
Company will be able to meet its debt service obligations, including its
obligations on the Notes, the Preferred Stock and, if issued, the Exchange
Debentures. In the event the Company's cash flow is inadequate to meet its
obligations, the Company could face substantial liquidity problems as the
Company has no revolving credit line. If the Company is unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if the Company otherwise fails to comply with the various
covenants in its indebtedness, it would be in default under the terms
thereof, which would permit the holders of such indebtedness to accelerate
the maturity of such indebtedness and could cause defaults under other
indebtedness of the Company. Such defaults could result in a default on the
Notes and, if issued, the Exchange Debentures, and could delay or preclude
payment of interest or principal on the Notes and, if issued, the Exchange
Debentures or the payment of cash dividends on, or the mandatory redemption
price of, the Preferred Stock. The ability of the Company to meet its
obligations will be dependent upon the future performance of the Company,
which will be subject to prevailing economic conditions and to financial,
business and other factors, including factors beyond the control of the
Company. See "Description of New Notes," "Description of New Preferred
Stock" and "Description of Exchange Debentures."
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's current plans for expansion of existing networks, the
development of new networks, the further development of the Company's
products and services and the continued funding of operating losses may
require additional cash from outside sources. The Company's arrangements
with utilities require it to make significant cash payments and the
development of the Company's networks requires significant capital
expenditures for transmission equipment, switching facilities and network
build-out from the utilities' fiber backbone to end user locations. The
Company must also purchase a substantial amount of equipment and other
assets from vendors. The Company anticipates that its substantial cash
requirements will continue into the foreseeable future. Due to the number
of opportunities arising from changes in the telecommunications regulatory
environment and the cash required to take advantage of these opportunities,
management believes that the net proceeds from the Private Offering, cash
on hand and amounts expected to be available through vendor financing
arrangements will provide sufficient funds necessary for the Company to
expand its telecom services business as currently planned and to fund its
operating deficits for approximately 17 months. Additional sources of cash
may include public and private equity and debt financings of ICG, Holdings
or their subsidiaries, sales of non-strategic assets, capitalized leases
and other financing arrangements. There can be no assurance that additional
financing will be available to the Company or, if available, that it can be
-18-
<PAGE>
obtained on terms acceptable to the Company. Failure to obtain such
financing could result in the delay or abandonment of some or all of the
Company's acquisition, development and expansion plans and expenditures,
which could have a material adverse effect on its business prospects and
limit the Company's ability to make principal and interest payments,
including on the Notes and, if issued, the Exchange Debentures, or to make
payments of cash dividends on, or the mandatory redemption price of, the
Preferred Stock.
RISKS RELATED TO SWITCHED SERVICES STRATEGY
The Company has 17 high capacity digital telephony switches (and one
additional switch located in Phoenix which will be operational through
August 1997, after which it will be relocated) and 15 data communications
switches in operation to support its services, and plans to install
additional telephony and data switches as demand warrants. The Company
began generating switched services revenue in the fourth quarter of fiscal
1994. Currently, the Company is experiencing negative operating margins
from the provision of switched services while its networks are in the
development and construction phases and while the Company relies on ILEC
networks to terminate and originate a significant portion of its customers'
switched traffic. The Company expects to realize improved operating margins
from switched services on a given network when (i) increased volumes of
traffic are attained and build-out enables such traffic to be carried on
the Company's own network instead of ILEC facilities, and (ii) higher
margin enhanced services are provided to customers on the Company's
network. In addition, the Company believes that the unbundling of ILEC
services and the implementation of local telephone number portability,
which are mandated by the Telecommunications Act, will reduce the Company's
costs of providing switched services and facilitate the marketing of such
services. However, the Company's switched services strategy has not yet
been profitable and may not become profitable due to, among other factors,
lack of customer demand, competition from other CLECs and downward pricing
pressure from the ILECs. In addition, to fully implement its switched
services strategy, the Company must make significant capital expenditures
to provide additional switching capacity, network infrastructure and
electronic components. There can be no assurance that the Company's
switched services strategy will be successful.
RISKS RELATED TO LOCAL SERVICES STRATEGY
The Company is a recent entrant in the newly created competitive local
telecommunications services industry. The local dial tone services market
has only recently opened to competition due to the passage of the
Telecommunications Act and subsequent state and Federal regulatory rulings
designed to implement the Telecommunications Act. The Company is also
initiating the provision of long distance and data communications services.
The Company believes that offering a full-service portfolio of local, long
distance and data products is the best method for gaining market share
among business customers and reducing customer churn. However, the Company
has only recently begun providing local and data communications services
and has not deployed its long distance products. The Company will have to
make significant operating and capital investments in order to provide
local dial tone services. There are numerous operating complexities
associated with providing these services. The Company will be required to
develop new products, services and systems and will need to develop new
marketing initiatives and hire and train a new sales force responsible for
selling these services. The Company will also need to implement the
necessary billing and collecting systems for these services. The Company
may face significant competition from the Regional Bell Operating Companies
("RBOCs"), whose core business is providing local dial tone service. The
RBOCs, who currently are the dominant providers of services in their
markets, are expected to mount a significant competitive response to new
entrants in their market, such as the Company. The Company may face
significant competitive product and pricing pressures from the RBOCs in
these markets, as well as from other CLECs as they enter these markets.
-19-
<PAGE>
HOLDING COMPANY RELIANCE ON SUBSIDIARIES' FUNDS; PRIORITY OF CREDITORS;
SUBORDINATION OF EXCHANGE DEBENTURES
ICG and Holdings are each holding companies. The sole material asset
of ICG consists of the common stock of Holdings (Canada) and the sole
material asset of Holdings (Canada) consists of the common stock of
Holdings. The principal asset of Holdings consists of common stock of its
subsidiaries. Holdings intends to loan or contribute a substantial portion
of the net proceeds from the Private Offering to certain of its
subsidiaries. Holdings must rely upon dividends and other payments from its
subsidiaries to generate the funds necessary to meet its obligations,
including the payment of principal and interest on the Notes and the
Exchange Debentures and the payment of cash dividends on, and the mandatory
redemption price of, the Preferred Stock. The terms of each
subsidiary's existing and future indebtedness may materially limit its
ability to pay such dividends and other payments to ICG and Holdings.
The subsidiaries are legally distinct from Holdings and have no
obligation, contingent or otherwise, to pay amounts due with respect
to the Notes, the Preferred Stock or, if issued, the Exchange
Debentures or to make funds available for such payments. Holdings'
subsidiaries will not guarantee the Notes or, if issued, the Exchange
Debentures. The ability of Holdings' subsidiaries to make such
payments to Holdings will be subject to, among other things, the
availability of funds, the terms of each subsidiary's indebtedness and
applicable state laws. In particular, several of Holdings' subsidiaries
have entered into credit facilities, certain of which are guaranteed by
ICG, which prohibit or restrict the payment of dividends by those
subsidiaries to Holdings. Claims of creditors of Holdings' subsidiaries,
including trade creditors, will generally have priority as to the assets of
such subsidiaries over the claims of Holdings and the holders of Holdings'
and ICG's indebtedness and Preferred Stock, including the Notes, the
Preferred Stock and, if issued, the Exchange Debentures. Accordingly, the
Notes and, if issued, the Exchange Debentures will be effectively
subordinated to the liabilities (including trade payables) of the
subsidiaries of Holdings. At March 31, 1997, the subsidiaries of
Holdings had approximately $94.2 million of liabilities (excluding
intercompany payables to Holdings), including $31.5 million of
indebtedness. The Exchange Debentures, if issued, would be subordinate in
right of payment to the prior payment in full of the Notes, the 12 1/2%
Notes, the 13 1/2% Notes and all other existing and future senior
indebtedness of the Company. As of March 31, 1997, ICG and Holdings had
approximately $707.5 million and $762.9 million of Senior Guarantor
Indebtedness and Senior Indebtedness, respectively, outstanding. In the
event of a bankruptcy or similar proceeding of ICG and/or Holdings, the
assets of ICG and Holdings will be available to pay obligations on the
Exchange Debentures and ICG's guarantee thereof only after all senior
indebtedness of ICG has been satisfied in full, and there may not be
sufficient assets remaining to pay the Exchange Debentures. In addition,
the Exchange Debentures, if issued, will rank pari passu with the 14 1/4%
Exchange Debentures, if issued. See "Description of Exchange Debentures."
The Notes will be unsecured, unsubordinated indebtedness of Holdings
and will be guaranteed on an unsecured unsubordinated basis by ICG. At
March 31, 1997, the Company had, on a consolidated basis, an aggregate
of approximately $86.9 million of secured indebtedness, including
capitalized lease obligations. In the event such secured indebtedness goes
into default and the holders thereof foreclose on the collateral, the
holders of secured indebtedness will be entitled to payment out of the
proceeds of their collateral prior to any holders of general unsecured
indebtedness, including the Notes, notwithstanding the existence of any
event of default with respect to the Notes. The Indenture also permits the
Company to incur additional secured indebtedness, to grant additional liens
and, on or after May 1, 2001, to pay cash dividends on the Preferred Stock,
the 14 1/4% Preferred Stock and, if issued, to pay interest on the Exchange
Debentures and the 14 1/4% Exchange Debentures at any time. See
"Description of New Notes-Covenants." In the event of bankruptcy,
liquidation or reorganization of the Company, holders of secured
indebtedness will have a claim, prior to the claim of the holders of the
Notes, on the assets of the Company securing such indebtedness. In
addition, to the extent that the value of such collateral is insufficient
to satisfy such secured indebtedness, holders of amounts remaining
outstanding on such secured indebtedness (as well as other unsubordinated
creditors of the Company, including holders of the 12 1/2% Notes and the
13 1/2% Notes) would be entitled to share pari passu with the Notes with
respect to any other assets of ICG and Holdings. Assets remaining after
satisfaction of the claims of holders of secured indebtedness may not be
-20-
<PAGE>
sufficient to pay amounts due on any or all of the Notes then outstanding.
Payments on the Preferred Stock and, if issued, the Exchange Debentures
will also be subject to the prior claims of secured creditors.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The 12 1/2% Notes Indenture, the 13 1/2% Notes Indenture, the
Indenture, the terms of the 14 1/4% Preferred Stock, the terms of the
Preferred Stock, and, if the 14 1/4% Exchange Debentures or the Exchange
Debentures are issued, the 14 1/4% Exchange Debenture Indenture, the
Exchange Debenture Indenture and other indebtedness of the Company impose
significant operating and financial restrictions on the Company. Such
restrictions affect, and in certain cases significantly limit or prohibit,
among other things, the ability of the Company to incur additional
indebtedness for, among other things, the acquisition of network assets,
inventory and equipment, or create liens on its assets, pay dividends,
sell assets, engage in mergers or acquisitions or make investments.
Failure to comply with such covenants could limit the ability of the
Company to make other borrowings or result in a default thereunder,
in which case the lenders will be able to accelerate the maturity of
the applicable indebtedness. Moreover, the instruments governing the
Company's material indebtedness contain cross-default provisions which
provide that a default under other indebtedness will be considered
a default under the indebtedness in question. In the event that a
cross-default were triggered, the maturity of substantially all of
the Company's approximately $794.5 million of indebtedness at March
31, 1997 would be accelerated and become immediately due and payable.
As a result, the Company would not be able to satisfy all of its debt
obligations. There can be no assurance that the Company will be able
to comply with such covenants in the future. A default under such
indebtedness could result in an acceleration of the Notes and, if
issued, the Exchange Debentures, in which case the holders of the Notes,
the Preferred Stock and the Exchange Debentures may not be paid in full.
PAYMENTS DUE ON INDEBTEDNESS PRIOR TO MATURITY AND REDEMPTION OF THE
SECURITIES; REFINANCING RISK
As of March 31, 1997, an aggregate of approximately $77.6 million
of capitalized lease obligations and an aggregate accreted value of
approximately $707.5 million was outstanding under the 12 1/2% Notes
and 13 1/2% Notes. The 12 1/2% Notes and 13 1/2% Notes require payments
of interest to be made in cash commencing on November 1, 2001 and
March 15, 2001, respectively, and mature on May 1, 2006 and September
15, 2005, respectively, and the 14 1/4% Preferred Stock requires payments
of dividends to be made in cash commencing August 1, 2001. As of
March 31, 1997, the Company had $9.3 million of other indebtedness
outstanding. The Company may also have additional payment obligations
prior to such time, the amount of which cannot presently be determined.
The net proceeds from the Private Offering, cash on hand and amounts
expected to be available through vendor financing arrangements will
provide sufficient funds necessary for the Company to expand its
Telecom Services business as currently planned and to fund its operating
deficits for approximately 17 months. Accordingly, the Company may
have to refinance a substantial amount of indebtedness and obtain
substantial additional funds prior to March 2001. The Company's ability to
obtain additional sources of cash will depend on, among other things, its
financial condition at the time, the restrictions in the instruments
governing its indebtedness and other factors, including market conditions,
beyond the control of the Company. Additional sources of cash may include
public and private equity and debt financings by ICG, Holdings and their
subsidiaries, sales of non-strategic assets, capitalized leases and other
financing arrangements. There can be no assurance that the Company will be
able to refinance such indebtedness, including such capitalized leases, or
obtain such additional funds, and if the Company is unable to effect such
refinancings or obtain additional funds, the Company's ability to make
principal and interest payments on its indebtedness, including the Notes
(and if issued, the Exchange Debentures), or make payments of cash
dividends on, or the mandatory redemption price of, the Preferred Stock,
would be adversely affected.
RISKS RELATED TO RAPID EXPANSION OF BUSINESS
The continued rapid expansion and development of the Company's
business will depend on, among other things, the Company's ability to
successfully implement its sales and marketing strategy, evaluate markets,
lease fiber from utilities, design fiber backbone routes, secure financing,
-21-
<PAGE>
install facilities, acquire rights of way and building access, obtain any
required government authorizations, implement interconnection to, and
collocation with, facilities owned by ILECs and obtain appropriately priced
unbundled network elements from the ILECs, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions. In addition,
such expansion may involve acquisitions which, if made, could divert the
resources and management time of the Company and require integration with
the Company's existing networks and service offerings. The Company's
ability to effectively manage its rapid expansion will require it to
continue to implement and improve its operating, financial and accounting
systems and to expand, train and manage its employee base. The inability to
effectively manage its planned expansion could have a material adverse
effect on the Company's business, growth, financial condition and results
of operations.
COMPETITION
The Company operates in an increasingly competitive environment
dominated by ILECs such as the RBOCs and GTE Corporation ("GTE"). The
Company's current competitors include RBOCs, GTE, independent ILECs, other
CLECs, network systems integration service providers, microwave and
satellite service providers, teleport operators, wireless
telecommunications providers and private networks built by large end users.
Potential competitors include cable television companies, utilities, local
telephone companies outside their current local service areas and the local
access operations of long distance carriers. Consolidation of
telecommunications companies, including pending mergers between certain of
the RBOCs, and the formation of strategic alliances within the
telecommunications industry, as well as the development of new
technologies, could give rise to increased competition. One of the primary
purposes of the Telecommunications Act is to promote competition,
particularly in the local telephone market. Since enactment of the
Telecommunications Act, several telecommunications companies have indicated
their intention to aggressively expand their ability to address many
segments of the telecommunications industry, including segments in which
the Company participates and expects to participate. For example, AT&T
Corp. and MCI Communications Corp. are entering the local markets as
competitors of the Company. This may result in more participants than can
ultimately be successful in a given market.
As a recent entrant in the telecom services industry, the Company,
like other CLECs, has not achieved a significant market share. The ILECs
have long-standing relationships with their customers, have the potential
to subsidize services with revenue from a variety of businesses and have
benefitted from certain state and federal regulations that, until recently,
favored the incumbent operator over potential competitors. The
Telecommunications Act, other recent state legislative actions, and current
federal and state regulatory initiatives provide increased business
opportunities for the Company by removing or substantially reducing
barriers to local exchange competition. However, these new competitive
opportunities are expected to be accompanied by new competitive
opportunities for the ILECs, as the Telecommunications Act removes previous
restrictions on the provision of long distance services by the RBOCs and
GTE. It is also expected that increased local competition will result in
increased pricing flexibility for, and relaxation of regulatory oversight
of, the ILECs. If the ILECs are permitted to engage in increased volume and
discount pricing practices or charge CLECs increased fees for
interconnection to their networks, or if the ILECs seek to delay
implementation of interconnection to their networks, the Company's results
of operations and financial condition could be adversely affected. In
addition, the Company has experienced declining access unit prices and
increasing price competition which have been more than offset by increasing
network usage. The Company expects to continue to experience declining
access unit prices for the foreseeable future. There can be no assurance
that the Company will be able to achieve or maintain adequate market share
or revenue, or compete effectively in any of its markets. Certain of the
Company's interconnection agreements do not contain "most favored nation"
pricing clauses. The Company believes it is entitled to "most favored
nation" pricing provisions under federal law, but this issue is being
litigated. If this litigation is finally judicially resolved adversely to
the Company's position, the Company will be subject to the risk that other
CLECs may obtain more favorable pricing terms from ILECs. In addition, the
success of the Company's strategy of leasing or licensing fiber optic cable
from utilities depends upon the ability to connect end users to the
Company's network. Such connections require significant capital
expenditures, time and effort and, in some cases, end users targeted by the
Company may already be connected to another competitor. There can be no
assurance regarding the number of end users the Company will be able to
connect to its network.
-22-
<PAGE>
REGULATION
The Company operates in an industry that is undergoing substantial
regulatory change as a result of the passage of the Telecommunications Act.
As a non-dominant carrier, the Company must file tariffs for its interstate
services and its rate must be reasonable. Pursuant to authority granted in
the Telecommunications Act, however, the FCC has indicated its intention to
lessen certain regulatory requirements for providers of competitive
services. In addition, the FCC may have the authority, which it is not
presently exercising, to impose restrictions on foreign ownership of
communications services providers not utilizing radio facilities. The
Company must obtain and maintain certain FCC authorizations for its
satellite and wireless services. The Company currently provides maritime
communication services pursuant to an experimental license and a grant of
Special Temporary Authority ("STA"). The Company's experimental license has
been renewed by the FCC on several occasions. In January 1997, the Company
submitted an application for the modification and renewal of the
experimental license, which was due to expire on February 1, 1997. On
January 30, 1997, the Company was granted the STA. Although the Company
expects that the FCC will issue a permanent license, there can be no
assurance the Company will be granted a permanent license, that the
experimental license currently being used to provide maritime services will
be renewed for a further term or that any license granted by the FCC will
not require substantial payments from the Company.
State regulatory agencies regulate the Company's provision of local
dial tone and other intrastate common carrier services. In general, the
Company is required to obtain certification from the relevant state public
utilities commission prior to the initiation of intrastate service and is
also required to file tariffs listing the rates, terms, and conditions of
intrastate services provided. In addition, local authorities control the
Company's access to municipal rights of way. Any failure to maintain proper
federal and state tariffing or state certification, or noncompliance with
federal, state or local laws or regulations, could have a material adverse
effect on the Company.
The Telecommunications Act generally requires ILECs to provide
interconnection and nondiscriminatory access to ILEC networks on more
favorable terms than were previously available. The Telecommunications Act
imposes a variety of new duties on the ILECs in order to promote
competition in the markets for local exchange and access services,
including the duty to negotiate in good faith with competitors requesting
interconnection to the ILEC network. However, negotiations with each ILEC
have sometimes involved considerable delays and the resulting negotiated
agreements may not necessarily be obtained on terms and conditions that are
acceptable to the Company. In such instances, the Company may petition the
proper state regulatory agency to arbitrate disputed issues. In addition,
following state review either party in the negotiations can appeal to the
FCC or federal court. There can be no assurance that the Company will be
able to negotiate acceptable new interconnection agreements with ILECs or
that if state regulatory authorities impose terms and conditions on the
parties in arbitration, such terms will be acceptable to the Company. On
August 8, 1996, the FCC adopted rules and policies implementing the local
competition provisions of the Telecommunications Act, which rules, in
general, are favorable to new competitive entrants. The FCC's rules have
been challenged in the federal courts of appeals by GTE, RBOCs, large
independent ILECs and state regulatory commissions. On October 15, 1996,
the U.S. Court of Appeals for the Eighth Circuit issued a stay of the
implementation of certain of the FCC's rules, to be in effect until the
Court issues a decision on the merits of the FCC's rules. The Court
stayed implementation of the pricing provisions of the FCC's rules, and
of the "most favored nation" rules, which enable new entrants to "pick and
choose" elements of established interconnection agreements. The Court's
stay does not affect the implementation of the FCC's other interconnection
rules, and does not affect the statutory requirements of the Tele-
communications Act, including the statutory requirements that ILECs
conduct negotiations and enter into interconnection agreements with
competitive carriers. Although the Company believes that the Tele-
communications Act and other state and federal regulatory initiatives
that favor increased competition are advantageous to the Company, there
can be no assurance that changes in current or future state or federal
regulations, including changes that may result from Court review of the
FCC's interconnection rules, or increased competitive opportunities
resulting from such changes, will not have a material adverse effect on
the Company.
-23-
<PAGE>
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest customers accounted for approximately 28%
of the Company's consolidated revenue in fiscal 1996 and 30% and 29% for
the three months ended December 31, 1996 and March 31, 1997, respectively.
The loss of, or decrease of business from, one or more of these customers
could have a material adverse effect on the business, financial condition
and results of operations of the Company. While the Company actively
markets its products and services, there can be no assurance that the
Company will be able to attract new customers or retain its existing
customers.
RISKS OF ENTRY INTO LONG DISTANCE BUSINESS
In order to offer its end user customers a complete package of
telecommunications services, the Company recently began offering long
distance services in all of its markets. Although the Company has
extensive experience in the telecommunications business, including an
executive team with sales, marketing and long distance management
expertise, the Company has no direct experience providing long distance
services. The long distance business is extremely competitive and prices
have declined substantially in recent years and are expected to continue to
decline. As a new entrant in the long distance business, the Company
expects to generate low or negative gross margins and substantial start-up
expenses as it rolls out its long distance service offerings. The Company
does not expect long distance services to generate a material portion of
its revenues over the near term.
Long distance telecommunications services will involve the origination
of traffic from end user customers, either directly connected to the
Company's network or through facilities leased from the ILEC, to the
Company's telecommunications switches. The Company will rely on other
carriers to provide transmission and termination services for a majority of
its long distance traffic and will therefore be dependent on such carriers.
The Company is expected to enter into resale agreements with long distance
carriers to provide it with long distance transmission services. Such
agreements typically provide for the resale of long distance services on a
per minute basis (some with minimum volume commitments). Where the Company
anticipates higher volumes of traffic, it may lease point-to-point circuits
on a monthly or longer term fixed cost basis. The negotiation of these
agreements involves estimates of future supply and demand for long distance
telecommunications transmission capacity as well as estimates of the
calling pattern and traffic levels of the Company's future long distance
customers. Should the Company fail to meet its minimum volume commitments,
if any, pursuant to these resale agreements, it may be obligated to pay
underutilization charges. Likewise, the Company may underestimate its need
for long distance facilities and therefore be required to obtain the
necessary transmission capacity through more expensive means. There can be
no assurance that the Company will acquire long distance capacity on
favorable terms or that the Company can accurately predict long distance
prices and volumes so that it can generate positive gross margins. The
success of the Company's entry into the long distance business will be
dependent upon, among other things, the Company's ability to select new
equipment and software and integrate these into its networks, hire and
train qualified personnel, enhance its billing, back-office and information
systems to accommodate long distance services and the acceptance of
potential customers of the Company's long distance service offerings. If
the Company's long distance transmission business fail to generate positive
gross margins or if the Company fails in any of the foregoing respects,
such failure may have a material adverse effect on the Company's business.
In addition, a majority of the Company's Telecom Services revenue is
derived from long distance carrier customers. The Company is subject to the
risk that its entry into the long distance business will adversely affect
its relationship with its long distance carrier customers.
RISKS OF ENTRY INTO DATA TRANSMISSION BUSINESS
To complement its telecommunications services offerings, the Company
recently began offering data transmission services in California,
Colorado and Ohio. These services, which include frame relay and ATM,
are targeted at the Company's existing and potential customers with
substantial data communications requirements. Although the Company
-24-
<PAGE>
has extensive experience in the telecommunications business, including
an executive team with significant telecommunications expertise, the
Company has no direct experience providing data transmission
services. The data transmission business is extremely competitive and
prices have declined substantially in recent years and are expected to
continue to decline. As a new entrant in the data transmission business,
the Company expects to generate low or negative gross margins and
substantial start-up expenses as it rolls out its data transmission
service offerings. The Company does not expect data transmission services
to generate a material portion of its revenues over the near term. In
providing these services, the Company will be dependent upon vendors
for assistance in the planning and deployment of its initial data
product offerings, as well as ongoing training and support. The
success of the Company's entry into the data transmission business will be
dependent upon, among other things, the Company's ability to select new
equipment and software and integrate these into its networks, hire and
train qualified personnel, enhance its billing, back-office and information
systems to accommodate data transmission services and customer acceptance
of the Company's service offerings. No assurance can be given that the
Company will be successful with respect to these matters. If the Company is
not successful with respect to these matters, there may be a material
adverse effect on the Company's business.
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to the
Company's growth and its ability to monitor costs, bill customers,
provision customer orders and achieve operating efficiencies. Billing and
information systems for the Company's historical lines of business have
been produced largely in-house with partial reliance on third-party
vendors. These systems have generally met the Company's needs due in part
to the Company's low volume of bills. As the Company commences providing
dial tone and long distance services, the need for sophisticated billing
and information systems will increase significantly. The Company's current
dial tone platform billing plans rely on delivery of products and services
by third party vendors. Additionally, the Company is developing customer
service centers to provision orders. Information systems are vital to the
success of these centers, and the information systems for these centers are
largely being developed by third party vendors. The inability of (i) these
vendors to deliver proposed products and services in a timely and effective
manner, (ii) the Company to adequately identify all of its information and
processing needs, or (iii) the Company to upgrade systems as necessary,
could have a material adverse impact on the ability of the Company to reach
its objectives, on its financial condition and results of operations and on
its ability to pay interest and principal on the Notes and cash dividends
on, and the mandatory redemption price of, the Preferred Stock.
RISKS RELATED TO JOINT VENTURES AND STRATEGIC ALLIANCES
The Company has formed a joint venture with CSW and has formed
strategic alliances with utility companies to lease fiber optic facilities.
The Company expects to continue to enter into strategic alliances, joint
ventures and other similar arrangements in the future. The other parties to
such existing arrangements, and to arrangements in which the Company may
subsequently participate, may at any time have economic, business or legal
interests or goals that are inconsistent with those of the strategic
alliance, joint venture or similar arrangement or those of the Company. In
addition, a joint venture partner may be unable to meet its economic or
other obligations to the venture, which, depending upon the nature of such
obligations, could adversely affect the Company.
RAPID TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant
changes in technology. The effect of technological changes, including
changes relating to emerging wireline and wireless transmission
technologies, on the business of the Company cannot be predicted.
-25-
<PAGE>
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS
The Company must obtain easements, rights of way, franchises and
licenses from various private parties, including actual and potential
competitors, and local governments in order to construct and maintain fiber
optic networks. There can be no assurance that the Company will obtain
rights of way and franchise agreements to expand its networks or that these
agreements will be on terms acceptable to the Company, or that current or
potential competitors will not obtain similar rights of way and franchise
agreements. Because certain of these agreements are short-term or are
terminable at will, there can be no assurance that the Company will
continue to have access to existing rights of way and franchises after the
expiration of such agreements. An important element of the Company's
strategy is to enter into long-term agreements with utilities to take
advantage of their existing facilities and to license or lease their excess
fiber capacity. The Company has entered into contracts and is negotiating
letters of intent with several utilities, however other CLECs are seeking
to enter into similar arrangements and have bid and are expected to
continue to bid against the Company for future licenses or leases.
Furthermore, utilities are required by state or local regulators to retain
the right to "reclaim" fiber licensed or leased to the Company if such
fiber is needed for the utility's core business. There can be no assurance
that the Company will be able to obtain additional licenses or leases on
satisfactory terms or that such arrangements will not be subject to
reclamation. If a franchise, license or lease agreement was terminated and
the Company was forced to remove or abandon a significant portion of its
network, such termination could have a material adverse effect on the
Company.
KEY PERSONNEL
The efforts of a small number of key management and operating
personnel will largely determine the Company's success. The success of the
Company also depends in part upon its ability to hire and retain highly
skilled and qualified operating, marketing, financial and technical
personnel. The competition for qualified personnel in the
telecommunications industry is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain necessary
personnel. The loss of certain key personnel could adversely affect the
Company.
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES FOR HOLDERS OF NOTES, PREFERRED STOCK AND EXCHANGE DEBENTURES
AND THE COMPANY
The Notes will be issued at a substantial discount from their
principal amount at maturity. Although cash interest will not accrue on the
Notes prior to March 15, 2002, and there will be no periodic payments of
cash interest on the Notes prior to September 15, 2002, original issue
discount ("OID"), which is the difference between the stated redemption
price at maturity and the issue price of the Notes, will accrue from the
issue date of the Notes. OID will be includible as interest income
periodically (including for periods to March 15, 2002) in a U.S.
noteholder's gross income for U.S. federal income tax purposes in advance
of receipt of the cash payments to which the income is attributable.
If a bankruptcy case is commenced by or against Holdings under the
U.S. Bankruptcy Code after the issuance of the Notes, the claim of a holder
of a Note with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that
portion of the OID that is not deemed to constitute "unmatured interest"
for purposes of the U.S. Bankruptcy Code. Any OID that was not amortized as
of any such bankruptcy filing would constitute "unmatured interest."
The Company does not presently have any current or accumulated
earnings and profits as determined under United States federal income tax
principles and it is unlikely to have current or accumulated earnings and
profits in the foreseeable future. As a result, until such time as the
Company does have earnings and profits, distributions on the Preferred
Stock will be treated as a nontaxable return of capital and will be applied
against and reduce the adjusted tax basis (but not below zero) on the
Preferred Stock in the hands of each holder, thus increasing the amount of
any gain (or reducing the amount of any loss) which would otherwise be
-26-
<PAGE>
realized by such holder upon the disposition of the Preferred Stock.
Consequently, distributions with respect to the Preferred Stock will not
qualify as dividends for federal income tax purposes and, as a result, will
be treated as a return of capital.
Upon a redemption of Preferred Stock in exchange for Exchange
Debentures, the holder will have capital gain or loss equal to the
difference between the issue price of the Exchange Debentures received and
the holder's adjusted basis in the Preferred Stock redeemed, except to the
extent all or a portion of the Exchange Debentures received is treated as a
dividend payment. Because of Holdings' option through March 15, 2002 to pay
interest on the Exchange Debentures by issuing additional Exchange
Debentures, any Exchange Debentures issued prior to that date will be
treated as issued with OID, unless under special rules for interest
holidays the amount of OID is treated as de minimis. Holders would have to
accrue all such OID into income over the entire term of the Exchange
Debentures, but would not treat the receipt of stated interest on the
Exchange Debentures as interest for federal income tax purposes.
The Exchange Debentures may be subject to the rules for "applicable
high yield discount obligations," in which case the Company's deduction for
OID on the Exchange Debentures will be substantially deferred, and a
portion of such deduction may be disallowed.
For a discussion of these and other relevant tax issues, see "Certain
United States Federal Income Tax Considerations."
ABSENCE OF PUBLIC MARKET
The Notes and the Preferred Stock are, and the Exchange Debentures, if
issued, will be, new issues of securities for which there is currently no
active trading market. If any such securities are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and the
financial condition, performance of, and prospects for the Company.
THE EXCHANGE OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
The Old Securities were sold by Morgan Stanley & Co. Incorporated (the
"Placement Agent") on March 11, 1997 to a limited number of institutional
investors (the "Purchasers"). In connection with the sale of the Old
Securities, the Company and the Purchasers entered into registration rights
agreements dated March 11, 1997 (collectively the "Registration Rights
Agreements"), which require the Company (i) to cause the Old Securities to
be registered under the Securities Act or (ii) to file with the Commission
a registration statement under the Securities Act with respect to New
Securities identical in all material respects to the Old Securities and to
use its best efforts to cause such registration statement to become
effective under the Securities Act. The Company is further obligated, upon
the effectiveness of that registration statement, to offer the holders of
the Old Securities the opportunity to exchange their Old Notes and Old
Preferred Stock for a like principal amount of New Notes and a like number
of shares of New Preferred Stock, respectively, which will be issued
without a restrictive legend and may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act. Copies of the
Registration Rights Agreements have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The Exchange
Offers are being made pursuant to the Registration Rights Agreements to
satisfy the Company's obligations thereunder. The term "Holder" with
respect to the Exchange Offers means any person in whose name Old
Securities are registered on the Company's books or any other person who
has obtained a properly completed assignment from the registered holder.
-27-
<PAGE>
In order to participate in the Exchange Offers, a Holder must
represent to the Company, among other things, that (i) the New Securities
acquired pursuant to the Exchange Offers are being obtained in the ordinary
course of business of the person receiving such New Securities, whether or
not such person is the Holder, (ii) neither the Holder nor any such other
person is engaging in or intends to engage in a distribution of such New
Securities, (iii) neither the Holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Securities, and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company. In the event that any Holder of
Old Securities cannot make the requisite representations to the Company in
order to participate in the Exchange Offers, such Holder may be entitled to
have such Holder's Old Securities registered in a "shelf" registration
statement on an appropriate form pursuant to Rule 415 under the Securities
Act.
Based on a previous interpretation by the staff of the Commission set
forth in no-action letters issued to third-parties, including "Exxon
Capital Holdings Corporation" (available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991), "Warnaco, Inc." (available October 11, 1991) and
"K-III Communications Corp." (available May 14, 1993), the Company believes
that the New Securities issued pursuant to the Exchange Offers may be
offered for resale, resold and otherwise transferred by any Holder of such
New Securities (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Securities are acquired in the
ordinary course of such Holder's business and such Holder has no
arrangement or understanding with any person to participate in the
distribution of such New Securities. Any Holder who tenders in the Exchange
Offers for the purpose of participating in a distribution of the New
Securities cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Under no circumstances may this Prospectus be used for an
offer to resell, resale or other retransfer of the New Securities. In the
event that the Company's belief is inaccurate, Holders of the New
Securities who transfer New Securities in violation of the prospectus
delivery provisions of the Securities Act and without an exemption from
registration thereunder may incur liability thereunder. The Company does
not assume or indemnify Holders against such liability. The Exchange Offers
are not being made to, nor will the Company accept surrenders for exchange
from, Holders of Old Securities in any jurisdiction in which the Exchange
Offers or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction. Each broker-dealer that
receives New Securities for its own account in exchange for Old Securities,
where such Old Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Securities. The Company has not entered into any arrangement or
understanding with any person to distribute the New Securities to be
received in the Exchange Offers. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letters of Transmittal, the Company will accept any
and all Old Securities validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes surrendered pursuant to the Note Exchange
Offer. However, Old Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Notes will be the same as the form and
terms of the Old Notes except that the New Notes will be registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof. The New Notes will evidence the same debt as the Old Notes. The
New Notes will be issued under and entitled to the benefits of the
Indenture, which also authorized the issuance of the Old Notes, such that
both series will be treated as a single class of debt securities under the
Indenture. The form and terms of the New Preferred Stock will be the same
as the form and terms of the Old Preferred Stock except that the New
Preferred Stock will be registered under the Securities Act and hence will
not bear legends restricting the transfer thereof. The New Preferred Stock
-28-
<PAGE>
will evidence the same rights, privileges and obligations as the Old
Preferred Stock. The New Preferred Stock will be issued under and entitled
to the benefits of the Amended Articles which also authorized the issuance
of the Old Preferred Stock, such that both series will be treated as a
single class of equity securities under the Amended Articles.
As of the date of this Prospectus, $176,000,000 aggregate principal
amount at maturity of the Old Notes and 100,000 shares of Old Preferred
Stock are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered Holders of the Old Notes and
Old Preferred Stock.
The Company intends to conduct the Exchange Offers in accordance with
the provisions of the Registration Rights Agreements and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes that are not tendered for exchange in the
Note Exchange Offer will remain outstanding and will be entitled to the
rights and benefits such Holders have under the Indenture. Old Preferred
Stock that is not tendered for exchange under the Preferred Stock Exchange
Offer will remain outstanding and will be entitled to the rights as set
forth in the Amended Articles.
The Company shall be deemed to have accepted validly tendered Old
Securities when, as and if the Company shall have given oral or written
notice thereof to the Exchange Agent or the Transfer Agent, as the case may
be. The Exchange Agent will act as agent for the tendering Holders for the
purposes of receiving the New Notes from the Company and the Transfer Agent
will act as agent for the tendering Holders for the purposes of receiving
the New Preferred Stock from the Company.
If any tendered Old Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Securities
will be returned, without expense, to the tendering Holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Securities in the Exchange Offers will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange pursuant to the Exchange Offers. The Company will pay all
charges and expenses, other than certain applicable taxes described below,
in connection with the Exchange Offers. See "-Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time
on __________, 1997, unless the Company, in its sole discretion, extends
the Exchange Offers, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offers are extended.
In order to extend the Exchange Offers, the Company will notify the
Exchange Agent and the Transfer Agent of any extension by oral or written
notice and will mail to the registered Holders an announcement thereof,
prior to 9:00 a.m., New York City time, on the next business day after the
then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Securities, to extend the Exchange Offers or to terminate
the Exchange Offers if any of the conditions set forth below under "-
Conditions" shall not have been satisfied by giving oral or written notice
of such delay, extension or termination to the Exchange Agent and the
Transfer Agent or (ii) to amend the terms of the Exchange Offers in any
manner. Any such delay in acceptances, extension, termination or amendment
will be followed as promptly as practicable by oral or written notice
thereof to the registered Holders. If either Exchange Offer is amended in a
manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the
Company will extend the Exchange Offers for a period of five to ten
business days, depending upon the significance of the amendment and the
-29-
<PAGE>
manner of disclosure to the registered Holders, if the Exchange Offers
would otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of
the Exchange Offers, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the Exchange
Offers, the Company will accept, promptly after the Expiration Date, all
Old Securities properly tendered and will issue the New Securities promptly
after acceptance of the Old Securities. See "-Conditions." For purposes of
the Exchange Offers, the Company shall be deemed to have accepted properly
tendered Old Securities for exchange when, as and if the Company shall have
given oral or written notice thereof to the Exchange Agent or the Transfer
Agent, as the case may be.
In all cases, issuance of the New Securities for Old Securities that
are accepted for exchange pursuant to the Exchange Offers will be made only
after timely receipt by the Exchange Agent or the Transfer Agent, as the
case may be, of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offers. If any tendered Old
Securities are not accepted for any reason set forth in the terms and
conditions of the Exchange Offers or if Old Securities are submitted for a
greater principal amount, or a greater number of shares, respectively, than
the Holder desires to exchange, then such unaccepted or non-exchanged Old
Securities evidencing the unaccepted portion, as appropriate, will be
returned without expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offers.
CONDITIONS
Notwithstanding any other term of the Exchange Offers, the Company
will not be required to exchange any New Securities for any Old Securities
and may terminate the Exchange Offers before the acceptance of any Old
Securities for exchange, if:
(a) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the Exchange
Offers which, in the Company's reasonable judgment, might materially impair
the ability of the Company to proceed with the Exchange Offers; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offers; or
(c) any governmental approval or approval by Holders of the Old
Securities has not been obtained, which approval the Company shall, in its
reasonable judgment, deem necessary for the consummation of the Exchange
Offers as contemplated hereby.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Old
Securities and return all tendered Old Securities to the tendering Holders,
(ii) extend the Exchange Offers and retain all Old Securities tendered
prior to the expiration of the Exchange Offers, subject, however, to the
rights of Holders who tendered such Old Securities to withdraw their
tendered Old Securities or (iii) waive such unsatisfied conditions with
respect to the Exchange Offers and accept all properly tendered Old
Securities which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offers, the Company will promptly disclose
such waiver by means of a prospectus supplement that will be distributed to
the registered Holders, and the Company will extend the Exchange Offers for
a period of five to ten business days, depending upon the significance of
-30-
<PAGE>
the waiver and the manner of disclosure to the registered Holders, if the
Exchange Offers would otherwise expire during such five to ten business day
period.
PROCEDURES FOR TENDERING
To tender in the Exchange Offers, a Holder must complete, sign and
date the Letter of Transmittal, or facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent, with respect to the Notes, or the Transfer Agent, with
respect to the Preferred Stock prior to the Expiration Date. In addition,
either (i) certificates for such Old Securities must be received by the
Exchange Agent or Transfer Agent, as the case may be, along with the Letter
of Transmittal, or (ii) a timely confirmation of book-entry transfer (a
"Book-Entry Confirmation") of such Old Securities, if such procedure is
available, into the Exchange Agent's or Transfer Agent's account at the
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below must be received by
the Exchange Agent or Transfer Agent, as the case may be, prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed
delivery procedures described below. To be tendered effectively, the
Letter of Transmittal and other required documents must be received by the
Exchange Agent or Transfer Agent, as the case may be, at the address set
forth below under "-Exchange Agent; Transfer Agent" prior to the Expiration
Date.
The tender by a Holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD SECURITIES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT OR TRANSFER AGENT,
AS THE CASE MAY BE, IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT OR TRANSFER AGENT, AS THE CASE MAY BE,
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD SECURITIES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT
THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Securities are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered Holder promptly and
instruct such registered Holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Old Securities, either make
appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed assignment from the
registered Holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Securities tendered pursuant thereto is tendered (i)
by a registered Holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantor must be a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
-31-
<PAGE>
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Securities listed therein, such Old Securities
must be endorsed or accompanied by a properly completed bond or stock
power, as the case may be, signed by such registered Holder as such
registered Holder's name appears on such Old Securities.
If the Letter of Transmittal or any Old Securities or bond or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing,
and unless waived by the Company, evidence satisfactory to the Company of
their authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Securities and withdrawal of tendered
Old Securities will be determined by the Company in its sole discretion,
which determination will be final and binding. The Company reserves the
absolute right to reject any and all Old Securities not properly tendered
or any Old Securities the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves
the right to waive any defects, irregularities or conditions of tender as
to particular Old Securities. The Company's interpretation of the terms and
conditions of the Exchange Offers (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Securities
must be cured within such time as the Company shall determine. Although the
Company intends to notify Holders of defects or irregularities with respect
to tenders of Old Securities, none of the Company, the Exchange Agent, the
Transfer Agent, or any other person shall incur any liability for failure
to give such notification. Tenders of Old Securities will not be deemed to
have been made until such defects or irregularities have been cured or
waived. Any Old Securities received by the Exchange Agent or the Transfer
Agent, as the case may be, that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent, or the Transfer Agent, as the case may be,
to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Securities that remain outstanding
subsequent to the Expiration Date or, as set forth above under "-
Conditions," to terminate the Exchange Offers and, to the extent permitted
by applicable law, purchase Old Securities in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offers.
By tendering, each Holder will represent to the Company that, among
other things, (i) the New Securities acquired pursuant to the Exchange
Offers are being obtained in the ordinary course of business of the Person
receiving such New Securities, whether or not such person is the Holder,
(ii) neither the Holder nor any such other person is engaging in or intends
to engage in a distribution of such New Securities (iii) neither the Holder
nor any such other person has an arrangement or understanding with any
Person to participate in the distribution of such New Securities, and (iv)
neither the Holder nor any such other Person is an "affiliate," as defined
in Rule 405 of the Securities Act, of the Company.
In all cases, issuance of New Securities that are accepted for
exchange pursuant to the Exchange Offers will be made only after timely
receipt by the Exchange Agent or Transfer Agent of certificates for such
Old Securities or a timely Book-Entry Confirmation of such Old Securities
into the Exchange Agent's or Transfer Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old
Securities are not accepted for any reason set forth in the terms and
conditions of the Exchange Offers or if Old Securities are submitted for a
greater principal amount or greater number of shares, as the case may be,
than the Holder desires to exchange, such unaccepted or non-exchanged Old
Securities will be returned without expense to the tendering Holder thereof
(or, in the case of Old Securities tendered by book-entry transfer into the
Exchange Agent's or Transfer Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below,
-32-
<PAGE>
such non-exchanged Old Securities will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after
the expiration or termination of the Exchange Offers.
BOOK-ENTRY TRANSFER
Each of the Exchange Agent and the Transfer Agent each will make a
request to establish an account with respect to the Old Notes and the Old
Preferred Stock, respectively, at the Book-Entry Transfer Facility for
purposes of the Exchange Offers within two business days after the date of
this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Old
Securities by causing the Book-Entry Transfer to transfer such Old Notes or
Old Preferred Stock into the Exchange Agent's or the Transfer Agent's
account, respectively, at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Securities may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by
the Exchange Agent or the Transfer Agent, as the case may be, at the
address set forth below under "-Exchange Agent; Transfer Agent" "-Transfer
Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Securities and (i) whose Old
Securities are not immediately available or (ii) who cannot deliver their
Old Securities, the Letter of Transmittal or any other required documents
to the Exchange Agent or the Transfer Agent, as the case may be, or the
Transfer Agent, as the case may be prior to the Expiration Date, may effect
a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent or the
Transfer Agent, as the case may be or the Transfer Agent, as the case may
be, receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder, the
certificate number(s) of such Old Notes or Old Preferred Stock and the
principal amount of Old Notes or number of shares of Old Preferred Stock
tendered stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes or Old Preferred Stock and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent or the Transfer Agent, as
the case may be; and
(c) Such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes or Old Preferred Stock in proper form for transfer and
other documents required by the Letter of Transmittal are received by the
Exchange Agent or Transfer Agent, as the case may be, within five New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent or the Transfer Agent, as the case
may be, a Notice of Guaranteed Delivery will be sent to Holders who wish to
tender their Old Notes or Old Preferred Stock according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
-33-
<PAGE>
To withdraw a tender of Old Securities in the Exchange Offers, a
written or facsimile transmission notice of withdrawal must be received by
the Exchange Agent or the Transfer Agent, as the case may be, or the
Transfer Agent, as the case may be, at its respective address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Securities to be withdrawn (the "Depositor"), (ii)
identify the Old Securities to be withdrawn (including the certificate
number or), (iii) be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old
Securities were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes, or the Transfer Agent with respect to the Old
Preferred Stock, register the transfer of such Old Securities in the name
of the person withdrawing the tender and (iv) specify the name in which any
such Old Securities are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Old Securities so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offers and no New Securities will be
issued with respect thereto unless the Old Securities so withdrawn are
validly retendered. Any Old Securities which have been tendered but which
are not accepted for payment will be returned to the Holder thereof without
cost to such Holder as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offers. Properly withdrawn Old
Securities may be retendered by following one of the procedures described
above under "-Procedures for Tendering" at any time prior to the Expiration
Date.
EXCHANGE AGENT; TRANSFER AGENT
Norwest Banks has been appointed as Exchange Agent of the Note
Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery with respect to the exchange of
the Old Notes should be directed to the Exchange Agent addressed as
follows:
By Registered Mail or Certified By Overnight Courier:
Mail:
Norwest Banks Norwest Banks
Corporate Trust Section Corporate Trust Section
P.O. Box 1517 NorthStar East Building
Minneapolis, MN 55480-1517 Sixth and Marquette
Avenues
Minneapolis, MN 55479-
0113
By Telephone: By Facsimile:
(612) 667-4070 (612) 667-4972
American Stock Transfer & Trust Company has been appointed Transfer
Agent of the Preferred Stock Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or the Letter
of Transmittal and requests for Notice of Guaranteed Delivery with respect
to the Old Preferred Stock should be addressed to the Transfer Agent as
follows:
By Registered Mail, Certified By Telephone:
Mail or Overnight Courier:
(212) 936-5100
American Stock Transfer &
Trust Company By Facsimile:
40 Wall Street
New York, NY 10005 (718) 236-4588
-34-
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopier, telephone or in person by officers
and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offers and will not make any payments to brokers-dealers or others
soliciting acceptances of the Exchange Offers. The Company, however, will
pay the Exchange Agent and the Transfer Agent reasonable and customary fees
for their services and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange
Offers will be paid by the Company and are estimated in the aggregate to be
approximately $100,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent and the Transfer Agent, accounting and legal
fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Securities pursuant to the Exchange Offers. If,
however, certificates representing New Securities for principal amounts or
number of shares not tendered or accepted for exchange are to be delivered
to, or are to be issued in the name of, any person other than the
registered Holder of Old Securities tendered, or if tendered the Old
Securities are registered in the name of, any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Old Securities pursuant to the
Exchange Offers, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by
the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
Holder.
-35-
<PAGE>
DESCRIPTION OF NEW NOTES
The New Notes are to be issued under an Indenture, dated as of March
11, 1997 (the "Senior Discount Notes Indenture"), among Holdings, as
issuer, ICG, as guarantor (including its successors and assigns, the
"Guarantor"), and Norwest Bank Colorado, National Association, as Trustee
(the "Trustee"). A copy of the Senior Discount Notes Indenture is available
upon request from Holdings. The following summary of certain provisions of
the Senior Discount Notes Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Senior Discount Notes Indenture, including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Whenever particular defined terms of the Senior Discount Notes Indenture
not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. References herein to "$" refers to U.S.
dollars.
GENERAL
The New Notes will be unsecured senior obligations of Holdings and
will mature on March 15, 2007. After March 15, 2002, interest on the New
Notes will accrue at the rate of 11 5/8% per annum from the most recent
Interest Payment Date to which interest has been paid or provided for,
payable semiannually (to Holders of record at the close of business on
March 1 or September 1 immediately preceding the Interest Payment Date) on
March 15 and September 15 of each year, commencing September 15, 2002.
Although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by
a Holder of New Notes as such discount is amortized from the date of
issuance of the New Notes, Holders of New Notes will not receive any cash
payments of interest on the New Notes until September 15, 2002. See
"Certain United States Federal Income Tax Considerations."
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office
or agency of Holdings (which initially will be the corporate trust office
of the Trustee at 1740 Broadway, Denver, Colorado); provided that, at the
option of Holdings, payment of interest may be made by check mailed to the
address of the Holders as such address appears in the Security Register.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount at maturity and any
integral multiple thereof. See "-Book Entry; Delivery and Form." No service
charge will be made for any registration of transfer or exchange of New
Notes, but Holdings may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
The Senior Discount Notes Indenture contains certain covenants which,
among other things, restrict the ability of Holdings, ICG and their
Restricted Subsidiaries to incur additional indebtedness for, among
other things, the acquisition of network assets, inventory and equipment.
Subject to the covenants in their Indebtedness and applicable law,
Holdings and ICG may issue additional New Notes under the Senior Discount
Notes Indenture. The New Notes, together with any New Notes subsequently
issued, will be treated as a single class for all purposes under the Senior
Discount Notes Indenture.
OPTIONAL REDEMPTION
The New Notes will be redeemable, at Holdings' option, in whole or in
part, at any time or from time to time, on or after March 15, 2002 and
prior to maturity, upon not less than 30 nor more than 60 days' prior
notice mailed by first class mail to each Holder's last address as it
appears in the Security Register, at the following Redemption Prices
(expressed in percentages of principal amount at maturity), plus accrued
-36-
<PAGE>
and unpaid interest, if any, to the Redemption Date (subject to the right
of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing March 15 of the
years set forth below:
Year Percentage
---- ---------
2002 . . . . . . . . 105.81250%
2003 . . . . . . . . 102.90625%
2004 and thereafter . 100.00000%
In addition, at any time on or prior to March 15, 2000, Holdings may,
at its option from time to time, redeem New Notes having an aggregate
principal amount of up to 35% of the aggregate principal amount of all New
Notes issued in the Private Offering, at a redemption price equal to 111
5/8% of the Accreted Value thereof on the redemption date, with proceeds of
one or more Public Equity Offerings of Common Stock of (A) ICG or (B)
Holdings, provided that (i), with respect to a Public Equity Offering
referred to in clause (A) above, cash proceeds of such Public Equity
Offering in an amount sufficient to effect the redemption of New Notes to
be so redeemed are contributed by ICG to Holdings prior to such redemption
and used by Holdings to effect such redemption and (ii) such redemption
occurs within 180 days after consummation of such Public Equity Offering.
In the case of any partial redemption, selection of the New Notes for
redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the New
Notes are listed or, if the New Notes are not listed on a national
securities exchange, on a pro rata basis or by lot; provided that no New
Note of $1,000 in principal amount at maturity or less shall be redeemed in
part. If any New Note is to be redeemed in part only, the notice of
redemption relating to such New Note shall state the portion of the
principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original New Note.
GUARANTEE
Holdings' obligations under the New Notes are fully and
unconditionally guaranteed on a senior basis by the Guarantor; provided
that the Note Guarantee shall not be enforceable against the Guarantor in
an amount in excess of the net worth of the Guarantor at the time that
determination of such net worth is, under applicable law, relevant to the
enforceability of such Note Guarantee. Such net worth shall include any
claim of the Guarantor against Holdings for reimbursement.
RANKING
The New Notes and the Note Guarantee will be senior unsecured
indebtedness of Holdings and ICG, respectively, will rank pari passu in
right of payment with all existing and future unsecured, unsubordinated
indebtedness and will be senior in right of payment to all existing and
future subordinated indebtedness of Holdings and ICG. ICG and Holdings
are each holding companies and therefore must rely upon dividend and other
payments from their subsidiaries to generate the funds necessary to meet
their obligations, including the payment of principal and interest on the
New Notes. See "Risk Factors-Substantial Indebtedness; Ability to Service
Debt" and "-Holding Company Reliance on Subsidiaries' Funds; Priority
of Creditors; Subordination of Exchange Debentures."
-37-
<PAGE>
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Senior Discount Notes Indenture.
Reference is made to the Senior Discount Notes Indenture for the full
definition of all terms as well as any other capitalized term used herein
for which no definition is provided.
"Accreted Value" is defined to mean, for any Specified Date, the
amount calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000
principal amount at maturity of New Notes:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
Accreted
Semi-Annual Accrual Date Value
----------------------- --------
March 11, 1997 . . . . $567.66
September 15, 1997 . . $601.41
March 15, 1998 . . . . $636.36
September 15, 1998 . . $673.35
March 15, 1999 . . . . $712.49
September 15, 1999 . . $753.90
March 15, 2000 . . . . $797.72
September 15, 2000 . . $844.09
March 15, 2001 . . . . $893.15
September 15, 2002 . . $945.07
March 15, 2002 . . . . $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
and (b) an amount equal to the product of (1) the Accreted Value for the
first Semi-Annual Accrual Date less the original issue price multiplied by
(2) a fraction, the numerator of which is the number of days from the issue
date of the New Notes to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the issue date of the New Notes to the first Semi-Annual Accrual Date,
using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Adjusted Consolidated Net Income" means for any period, the aggregate
net income (or loss) of the Guarantor and its Restricted Subsidiaries for
such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income
(without duplication): (i) the net income of any Person (other than net
income attributable to a Restricted Subsidiary) in which any Person (other
than the Guarantor or any of its Restricted Subsidiaries) has a joint
interest and the net income of any Unrestricted Subsidiary, except to the
extent of the amount of dividends or other distributions actually paid to
the Guarantor or any of its Restricted Subsidiaries by such other Person or
such Unrestricted Subsidiary during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described below (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or
loss) of any Person accrued prior to the date it becomes a Restricted
-38-
<PAGE>
Subsidiary or is merged into or consolidated with the Guarantor or any of
its Restricted Subsidiaries or all or substantially all of the property and
assets of such Person are acquired by the Guarantor or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at
the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v)
except for purposes of calculating the amount of Restricted Payments that
may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount
paid or accrued as dividends on preferred stock of the Guarantor or any
Restricted Subsidiary owned by Persons other than the Guarantor and any of
its Restricted Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Guarantor and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Guarantor and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Guarantor
and its Restricted Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Guarantor or any of
its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Guarantor or shall be
merged into or consolidated with the Guarantor or any of its Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Guarantor and its
Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by the Guarantor or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Guarantor or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person; provided that the property and assets
acquired are related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Guarantor or any of
its Restricted Subsidiaries to any Person other than the Guarantor or any
of its Restricted Subsidiaries of (i) all or any of the Capital Stock of
any Restricted Subsidiary, (ii) all or substantially all of the property
and assets of an operating unit or business of the Guarantor or any of its
Restricted Subsidiaries or (iii) any other property and assets of the
Guarantor or any of its Restricted Subsidiaries outside the ordinary course
of business of the Guarantor or such Restricted Subsidiary and, in each
case, that is not governed by the provisions of the Senior Discount Notes
Indenture applicable to mergers, consolidations and sales of assets of the
Guarantor; provided that the meaning of "Asset Sale" shall not include (A)
sales or other dispositions of inventory, receivables and other current
assets, and (B) dispositions of assets of the Guarantor or any of its
Restricted Subsidiaries, in substantially simultaneous exchanges for
consideration consisting of any combination of cash, Temporary Cash
Investments and assets that are used or useful in the telecommunications
business of the Guarantor or its Restricted Subsidiaries, if such
-39-
<PAGE>
consideration has an aggregate fair market value substantially equal to the
fair market value of the assets so disposed of; provided, however, that
fair market value shall be determined in good faith by the Board of
Directors of Holdings, whose determination shall be conclusive and
evidenced by a Board Resolution delivered to the Trustee; and provided
further that any cash or Temporary Cash Investments received by the
Guarantor or any of its Restricted Subsidiaries pursuant to any transaction
described in clause (B) above shall be applied in accordance with clause
(A) or (B) of the first paragraph of the "Limitation on Asset Sales"
covenant.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
and (b) the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Senior Discount Notes Indenture, including,
without limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such
Person; and "Capitalized Lease Obligations" means the discounted present
value of the rental obligations under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of Voting Stock having more than 40% of the voting power of
the total Voting Stock of the Guarantor on a fully diluted basis; (ii)
individuals who on the Closing Date constitute the Board of Directors of
the Guarantor (together with any new directors whose election by the Board
of Directors or whose nomination for election by the Guarantor's
stockholders was approved by a vote of at least a majority of the members
of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office; or (iii)
all of the Common Stock of Holdings is not beneficially owned by the
Guarantor.
"ChoiceCom" means CSW/ICG ChoiceCom, L.P., a Delaware limited
partnership.
"Closing Date" means the date on which the Senior Discount Notes are
originally issued under the Senior Discount Notes Indenture.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and
(vi) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Guarantor and its Restricted Subsidiaries in
conformity with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) by an amount
equal to (A) the amount of the Adjusted Consolidated Net Income
-40-
<PAGE>
attributable to such Restricted Subsidiary multiplied by (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by the Guarantor or any
of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of
such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Guarantor or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Guarantor and its Restricted Subsidiaries
during such period; excluding, however, without duplication, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof
(but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the offering of the 13 1/2% Notes and the warrants issued
therewith, the 12 1/2% Notes, the 14 1/4% Preferred Stock, the New Notes
and/or the Preferred Stock, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with
GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly
or annual consolidated balance sheet of the Guarantor and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to
the date of such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to Redeemable
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the
Guarantor or any of its Restricted Subsidiaries, each item to be determined
in conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Guarantor or any of its Restricted Subsidiaries against
fluctuations in currency values to or under which the Guarantor or any of
its Restricted Subsidiaries is a party or a beneficiary on the Closing Date
or becomes a party or a beneficiary thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"FOTI" means ICG Fiber Optic Technologies Inc., a Colorado
corporation.
"14 1/4% Preferred Stock" means the 14 1/4% Exchangeable Preferred
Stock mandatorily redeemable May 1, 2007 of Holdings, and any shares of
preferred stock issued as payment in kind dividends thereon.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios
and computations contained in the Senior Discount Notes Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of
the covenants and with other provisions of the Senior Discount Notes
Indenture shall be made without giving effect to (i) the amortization of
-41-
<PAGE>
any expenses incurred in connection with the offering of the 13 1/2% Notes
and the warrants issued therewith, the 12 1/2% Notes, the 14 1/4% Preferred
Stock, the New Notes and/or the Preferred Stock and (ii) except as
otherwise provided, the amortization of any amounts required or permitted
by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise)
or (ii) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Holdings (Canada)" means ICG Holdings (Canada), Inc. and its
successors and assigns.
"ICG" means ICG Communications, Inc., a Delaware corporation, and its
successors and assigns.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness. The term
"Incurrence" has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, except Trade Payables,
(v) all obligations of such Person as lessee under Capitalized Leases, (vi)
all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the original issue
price of such Indebtedness and (ii) that Indebtedness shall not include (A)
any amount of money borrowed, at the time of the Incurrence of the related
Indebtedness, for the purpose of pre-funding any interest payable on such
related Indebtedness or (B) any liability for federal, state, local or
other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Guarantor,
Holdings and their Restricted Subsidiaries on a consolidated basis as at
the date of determination to (ii) the Consolidated EBITDA of the Guarantor
for the then most recent four full fiscal quarters for which reports have
been filed pursuant to the "Commission Reports and Reports to Holders"
covenant described below (such four full fiscal quarter period being
referred to herein as the "Four Quarter Period"); provided that (x) pro
-42-
<PAGE>
forma effect shall be given to any Indebtedness Incurred from the beginning
of the Four Quarter Period through the Transaction Date (including any
Indebtedness Incurred on the Transaction Date), to the extent outstanding
on the Transaction Date, (y) if during the period commencing on the first
day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), the Guarantor, Holdings or any of the Restricted
Subsidiaries shall have engaged in any Asset Sale, Consolidated EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the assets which are the subject of such Asset
Sale and any related retirement of Indebtedness as if such Asset Sale and
related retirement of Indebtedness had occurred on the first day of such
Reference Period or (z) if during such Reference Period the Guarantor,
Holdings or any of the Restricted Subsidiaries shall have made any Asset
Acquisition, Consolidated EBITDA of the Guarantor shall be calculated on a
pro forma basis as if such Asset Acquisition and any related financing had
occurred on the first day of such Reference Period.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of the Guarantor or its
Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition
of Capital Stock, bonds, notes, debentures or other similar instruments
issued by, such Person and shall include the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described below, (i) "Investment" shall include the fair market
value of the assets (net of liabilities) of any Restricted Subsidiary of
the Guarantor at the time that such Restricted Subsidiary of the Guarantor
is designated an Unrestricted Subsidiary and shall exclude the fair market
value of the assets (net of liabilities) of any Unrestricted Subsidiary at
the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Guarantor and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board of Directors
in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof, any
sale with recourse against the seller or any Affiliate of the seller, or
any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to the Guarantor or any
Restricted Subsidiary of the Guarantor) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
(i) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Guarantor and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that
either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts
to be provided by the Guarantor or any Restricted Subsidiary of the
Guarantor as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or
sale in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form
-43-
<PAGE>
of cash or cash equivalents (except to the extent such obligations are
financed or sold with recourse to the Guarantor or any Restricted
Subsidiary of the Guarantor) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Offer to Purchase" means an offer to purchase New Notes by Holdings
from the Holders commenced by mailing a notice to the Trustee and each
Holder stating: (i) the covenant pursuant to which the offer is being made
and that all New Notes validly tendered will be accepted for payment on a
pro rata basis; (ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Payment Date"); (iii) that any New
Note not tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless Holdings defaults in the payment of the purchase price,
any New Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that Holders
electing to have a New Note purchased pursuant to the Offer to Purchase
will be required to surrender the New Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the New
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding
the Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business
on the third Business Day immediately preceding the Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of New Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such New
Notes purchased; and (vii) that Holders whose New Notes are being purchased
only in part will be issued new New Notes equal in principal amount to the
unpurchased portion of the New Notes surrendered; provided that each New
Note purchased and each new New Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, Holdings
shall (i) accept for payment on a pro rata basis New Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the
Paying Agent money sufficient to pay the purchase price of all New Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered,
to the Trustee all New Notes or portions thereof so accepted together with
an Officers' Certificate specifying the New Notes or portions thereof
accepted for payment by Holdings. The Paying Agent shall promptly mail to
the Holders of New Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to
such Holders a new New Note equal in principal amount to any unpurchased
portion of the New Note surrendered; provided that each New Note purchased
and each new New Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. Holdings will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. Holdings
will comply with Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable, in the event that Holdings is required to repurchase New Notes
pursuant to an Offer to Purchase.
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, the Guarantor or
a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Guarantor and
its Restricted Subsidiaries on the date of such Investment; (ii) a
Temporary Cash Investment; (iii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to
be treated as expenses in accordance with GAAP; (iv) loans or advances to
employees made in the ordinary course of business in accordance with past
practice of the Guarantor or its Restricted Subsidiaries and that do not in
the aggregate exceed $2 million at any time outstanding; (v) stock,
obligations or securities received in satisfaction of judgments; and (vi)
Investments in an amount not to exceed, at any one time outstanding, all of
-44-
<PAGE>
the net cash proceeds received by the Guarantor from the sale of its Common
Stock (to a Person other than one of its Subsidiaries) after the Closing
Date.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made; (iii)
Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security; (iv) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights of
way, municipal and zoning ordinances and similar charges, encumbrances,
title defects or other irregularities that do not materially interfere with
the ordinary course of business of the Guarantor or any of its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant
described below, (1) to finance the cost (including the cost of improvement
or construction) of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other
than such item of property or assets and any improvements on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Guarantor and its
Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial
payments by a customer of the Guarantor or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor
in the property subject to any Capitalized Lease or operating lease; (x)
Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation
becomes, or becomes a part of, any Restricted Subsidiary; provided that
such Liens do not extend to or cover any property or assets of the
Guarantor or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of the Guarantor or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or
order against the Guarantor or any Restricted Subsidiary of the Guarantor
that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties
in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are
either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward
contracts, options, future contracts, futures options or similar agreements
or arrangements designed to protect the Guarantor or any of its Restricted
Subsidiaries from fluctuations in the price of commodities; (xvii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Guarantor or any of
its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Guarantor and its Restricted
Subsidiaries prior to the Closing Date; and (xviii) Liens on or sales of
receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of such Person's
-45-
<PAGE>
preferred or preference stock, whether now outstanding or issued after the
date of the Senior Discount Notes Indenture, including, without limitation,
all series and classes of such preferred or preference stock.
"Preferred Stock" means the preferred stock of Holdings issued on the
Closing Date and any shares of preferred stock issued as payment in kind
dividends thereon.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of ICG or Holdings pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the New Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to
the Stated Maturity of the New Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Stated Maturity of
the New Notes; provided that any Capital Stock that would not constitute
Redeemable Stock but for provisions thereof giving holders thereof the
right to require such Person to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring
prior to the Stated Maturity of the New Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of
such Capital Stock than the provisions contained in "Limitation on Asset
Sales" and "Repurchase of New Notes Upon a Change of Control" covenants
described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Guarantor's repurchase of such New Notes as are
required to be repurchased pursuant to the "Limitation on Asset Sales" and
"Repurchase of New Notes Upon a Change of Control" covenants described
below.
"Restricted Subsidiary" means any Subsidiary of the Guarantor other
than an Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Guarantor that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Guarantor,
accounted for more than 10% of the consolidated revenues of the Guarantor
and its Restricted Subsidiaries or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Guarantor
and its Restricted Subsidiaries, all as set forth on the most recently
available consolidated financial statements of the Guarantor for such
fiscal year.
"Specified Date" means any redemption date, any date of purchase for
any purchase of New Notes pursuant to the "Limitation on Asset Sales" or
"Repurchase of New Notes upon a Change of Control" covenants described
below or any date on which the New Notes are due and payable after an Event
of Default.
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of Holdings owed to a Strategic Investor that is contractually subordinate
in right of payment to the New Notes to at least the following extent: no
payment of principal (or premium, if any) or interest on or otherwise
payable in respect of such Indebtedness may be made (whether as a result of
-46-
<PAGE>
a default or otherwise) prior to the payment in full of all of the
Guarantor's and Holdings' obligations under the New Notes, provided,
however, that prior to the payment of such obligations, interest on
Strategic Investor Subordinated Indebtedness may be payable solely in kind
or in Common Stock (other than Redeemable Stock) of the Guarantor.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 270 days of the date of
acquisition thereof, bankers' acceptances with maturities not exceeding 270
days, and overnight bank deposits, in each case issued by or with a bank or
trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $100 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term
of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Guarantor) organized and in existence under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according
to Standard & Poor's Ratings Group, and (v) securities with maturities of
six months or less from the date of acquisition issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or Moody's Investors Service, Inc.
"Trade Payables" means, with respect to any person, any accounts
payable or any other debt or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the
acquisition of goods or services.
"13 1/2% Notes" means the 13 1/2% Senior Discount Notes due 2005 of
Holdings guaranteed by Holdings (Canada) and ICG on a senior unsecured
basis.
"13 1/2% Notes Indenture" means the Indenture dated as of August 8,
1995, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 13 1/2% Notes.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Guarantor or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"12 1/2% Notes" means the 12 1/2% Senior Discount Notes due 2006 of
Holdings guaranteed by Holdings (Canada) and ICG on a senior unsecured
basis.
"12 1/2% Notes Indenture" means the Indenture dated as of April 30,
1996, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 12 1/2% Notes.
-47-
<PAGE>
"Unrestricted Subsidiary" means (i) any Subsidiary of the Guarantor
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary of the Guarantor (including any newly
acquired or newly formed Subsidiary of the Guarantor), other than Holdings
or a Subsidiary that has given a Subsidiary Guarantee, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of,
or owns or holds any Lien on any property of, the Guarantor or any
Restricted Subsidiary; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under
the "Limitation on Restricted Payments" covenant described below. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Guarantor; provided that immediately after giving effect
to such designation (x) the Guarantor could Incur $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant described below and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a
copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if 98% or more of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Senior Discount Notes Indenture, the
Guarantor will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the New Notes, the Guarantor's
Guarantee thereof and Indebtedness existing on the Closing Date); provided
that the Guarantor and Holdings may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Indebtedness to EBITDA Ratio
would be greater than zero and less than 5:1.
Notwithstanding the foregoing, the Guarantor and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness of the Guarantor or Holdings outstanding at any
time, which Indebtedness generates gross proceeds to the Guarantor or
Holdings of up to $400 million, less the gross proceeds of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below; provided that (A) Indebtedness generating gross
proceeds to the Guarantor or Holdings of up to $150 million may be Incurred
under this clause (i) with no additional requirements and (B) prior to, or
contemporaneously with, the Incurrence of Indebtedness generating all or
any part of the remaining $250 million of gross proceeds referred to under
this clause (i), the Guarantor or Holdings shall have issued or shall issue
preferred stock (which has a final stated redemption date later than the
Stated Maturity of the 13 1/2% Notes) generating an amount of gross
proceeds equal to or greater than the amount of Indebtedness so Incurred
and (x) with respect to preferred stock issued on the same date as
Indebtedness Incurred under this clause (i)(B), having a dividend rate of
-48-
<PAGE>
no more than 2.75 percentage points higher than the interest rate on the
Indebtedness so Incurred, and (y) with respect to preferred stock issued at
any other time which will be applied to satisfy the criteria under this
clause (i)(B), having a secondary market yield, on the same date as the
Indebtedness so Incurred, which a nationally recognized investment banking
firm certifies to the Trustee is no more than 2.75 percentage points higher
than the interest rate on the Indebtedness that is being Incurred pursuant
to this clause (i)(B); (ii) Indebtedness to the Guarantor or any of its
Wholly Owned Restricted Subsidiaries; provided that any subsequent issuance
or transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Guarantor
or another Wholly Owned Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness, other than Indebtedness Incurred under clause (i), (ii), (v),
(vi), (viii), (ix), (xi) or (xii) of this paragraph, and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund the New
Notes or Indebtedness that is pari passu with, or subordinated in right of
payment to, the New Notes or the Note Guarantee shall only be permitted
under this clause (iii) if (A) in case the New Notes are refinanced in part
or the Indebtedness to be refinanced is pari passu with the New Notes or
the Note Guarantee, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining New Notes or the Note Guarantee, as the case may
be, (B) in case the Indebtedness to be refinanced is subordinated in right
of payment to the New Notes or the Note Guarantee, such new Indebtedness,
by its terms or by the terms of any agreement or instrument pursuant to
which such new Indebtedness is issued or remains outstanding, is expressly
made subordinate in right of payment to the New Notes or the Note
Guarantee, as the case may be, at least to the extent that the Indebtedness
to be refinanced is subordinated to the New Notes or the Note Guarantee, as
the case may be and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded; and provided further
that in no event may Indebtedness of the Guarantor or Holdings be
refinanced by means of any Indebtedness of any Restricted Subsidiary of the
Guarantor or Holdings, as the case may be, pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements do not increase
the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates
or by reason of fees, indemnities and compensation payable thereunder; and
(C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of
Holdings or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of Holdings (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of Holdings for the purpose of
financing such acquisition), in a principal amount at maturity not to
exceed the gross proceeds actually received by Holdings or any Restricted
Subsidiary in connection with such disposition; (v) Indebtedness of the
Guarantor or, to the extent the proceeds referred to below are contributed
to Holdings, Holdings, not to exceed, at any one time outstanding, twice
the amount of Net Cash Proceeds received by the Guarantor after the Closing
Date from the issuance and sale of its Capital Stock (other than Redeemable
Stock); provided that such Indebtedness does not mature prior to the Stated
Maturity of the New Notes and has an Average Life longer than the New
Notes; (vi) Strategic Investor Subordinated Indebtedness; (vii)
Indebtedness of the Guarantor or Holdings, to the extent the proceeds
thereof are immediately used after the Incurrence thereof to purchase New
Notes, 13 1/2% Notes and/or 12 1/2% Notes tendered in an Offer to Purchase
or an offer to purchase, as the case may be, made as a result of a Change
of Control or a change of control, as the case may be; (viii) Indebtedness
of any Restricted Subsidiary of the Guarantor Incurred pursuant to any
credit agreement (including equipment leasing or financing agreements) of
such Restricted Subsidiary in effect on August 8, 1995 (or any agreement
refinancing Indebtedness under such credit agreement), up to the amount of
the commitment under such credit agreement on August 8, 1995; (ix)
Indebtedness of the Guarantor or Holdings, in an amount not to exceed $100
million at any one time outstanding, consisting of Capitalized Lease
-49-
<PAGE>
Obligations with respect to assets that are used or useful in the
telecommunications business of the Guarantor or its Restricted
Subsidiaries; (x) Indebtedness Incurred to defease the New Notes; (xi)
Indebtedness of any Person that becomes a Restricted Subsidiary of the
Guarantor after March 31, 1996, which Indebtedness exists or for which
there is a commitment to lend at the time such Person becomes a Restricted
Subsidiary and subsequent Incurrences thereof ("Acquired Indebtedness"), in
an accreted amount not to exceed $50 million at any one time outstanding in
the aggregate for all such Restricted Subsidiaries; provided that such
Acquired Indebtedness does not exceed 65% of the consideration (calculated
by including the Acquired Indebtedness as a part of such consideration) for
the acquisition of such Person; (xii) Indebtedness of the Guarantor or
Holdings, in an amount not to exceed $30 million at any one time
outstanding, consisting of letters of credit and similar arrangements used
to support obligations of the Guarantor or any of its Restricted
Subsidiaries with respect to the acquisition of (by purchase, lease or
otherwise), construction of, or improvements on, assets that will be used
or useful in the telecommunications business of the Guarantor or its
Restricted Subsidiaries; and (xiii) Indebtedness Incurred to finance the
cost (including the cost of design, development, construction, installation
or integration) of assets, equipment or inventory used or useful in the
telecommunications business of the Guarantor or any of its Restricted
Subsidiaries that is acquired by the Guarantor or any of its Restricted
Subsidiaries after the Closing Date.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not
be included. For purposes of determining compliance with this "Limitation
on Indebtedness" covenant, in the event that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness described in the
above clauses, Holdings, in its sole discretion, shall classify such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
So long as any of the New Notes are outstanding, the Guarantor will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on its
Capital Stock held by Persons other than the Guarantor or any of its
Restricted Subsidiaries (other than dividends or distributions payable
solely in shares of its or such Restricted Subsidiary's Capital Stock
(other than Redeemable Stock) of the same class held by such holders or in
options, warrants or other rights to acquire such shares of Capital Stock
and other than pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise
acquire for value any shares of Capital Stock of the Guarantor or any
Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the
Guarantor or any of its Wholly Owned Restricted Subsidiaries (except for
Capital Stock of ChoiceCom, MTN, StarCom, Ohio LINX, FOTI and Zycom to the
extent the consideration therefor consists solely of Common Stock (other
than Redeemable Stock) of the Guarantor transferred in compliance with the
Securities Act), (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of Holdings or the
Guarantor that is subordinated in right of payment to the New Notes or the
Note Guarantee, as the case may be, or (iv) make any Investment, other than
a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred
and be continuing, (B) the Guarantor could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount expended for all Restricted Payments
(the amount so expended, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) after the date of the Senior Discount
Notes Indenture shall exceed the sum of (1) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of such amount) (determined by excluding
income resulting from transfers of assets by the Guarantor or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis
-50-
<PAGE>
during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter immediately following the Closing Date and ending
on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to the "Commission Reports and
Reports to Holders" covenant plus (2) the aggregate Net Cash Proceeds
received by the Guarantor after the Closing Date from the issuance and sale
permitted by the Senior Discount Notes Indenture of its Capital Stock
(other than Redeemable Stock) to a Person who is not a Subsidiary of the
Guarantor, or from the issuance to a Person who is not a Subsidiary of the
Guarantor of any options, warrants or other rights to acquire Capital Stock
of the Guarantor (in each case, exclusive of any Redeemable Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
New Notes) plus (3) an amount equal to the net reduction in Investments
(other than reductions in Permitted Investments) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans
or advances, or other transfers of assets, in each case to the Guarantor or
any Restricted Subsidiary (except to the extent any such payment is
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not
to exceed the amount of Investments previously made by the Guarantor and
its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the New Notes or the Note Guarantee, as the case may
be, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii)
of the second paragraph of the "Limitation on Indebtedness" covenant; (iii)
the repurchase, redemption or other acquisition of Capital Stock of the
Guarantor or Holdings (or options, warrants or other rights to acquire such
Capital Stock) and with respect to any preferred stock of Holdings, the
payment of accrued dividends thereon in exchange for, or out of the
proceeds of a substantially concurrent issuance or sale of, shares of
Capital Stock (other than Redeemable Stock) of the Guarantor or Holdings;
provided that the redemption of any preferred stock and the payment of
accrued dividends thereon pursuant to any mandatory redemption feature
thereof and any redemption of any other Capital Stock and with respect to
any preferred stock, the payment of accrued dividends thereon (or options,
warrants or other rights to acquire such Capital Stock) shall be deemed to
be "substantially concurrent" with such issuance and sale if the required
notice with respect to such redemption is irrevocably given by a date which
is no later than five Business Days after receipt of the proceeds of such
issuance and sale and such redemption and payment is consummated within the
period provided for in the documents providing for the redemption of such
preferred stock or the documents governing the redemption of such other
Capital Stock, as the case may be; (iv) the acquisition of Indebtedness of
Holdings or the Guarantor which is subordinated in right of payment to the
New Notes or the Note Guarantee, as the case may be, in exchange for, or
out of the proceeds of, a substantially concurrent offering of, shares of
the Capital Stock of the Guarantor (other than Redeemable Stock); (v)
payments or distributions, in the nature of satisfaction of dissenters'
rights, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Senior Discount
Notes Indenture applicable to mergers, consolidations and transfers of all
or substantially all of the property and assets of Holdings or the
Guarantor; (vi) Investments, not to exceed $10 million in the aggregate,
each evidenced by a senior promissory note payable to Holdings that
provides that it will become due and payable prior to (or, in the case of
acceleration, concurrently with) any required repayment (including pursuant
to an Offer to Purchase in connection with a Change of Control) of the New
Notes; (vii) Investments, not to exceed $5 million in the aggregate, that
meet the requirements of clause (vi) above; provided that the Board of
Directors of the Guarantor shall have determined, in good faith, that each
such Investment under this clause (vii) will enable the Guarantor, Holdings
or one of their Restricted Subsidiaries to obtain additional business that
it might not be able to obtain without the making of such Investment;
(viii) with respect to preferred stock permitted to be issued and sold
under the "Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries" covenant, the payment (A) of dividends on such preferred
stock in additional shares of preferred stock and (B) of cash dividends on
such preferred stock and accrued interest on unpaid dividends, in each case
after May 1, 2001; (ix) the repurchase, in the event of a Change of
-51-
<PAGE>
Control, of preferred stock of Holdings or the Guarantor and Indebtedness
of Holdings or the Guarantor into which such preferred stock has been
exchanged; provided that prior to repurchasing such preferred stock or
Indebtedness, Holdings or the Guarantor, as the case may be, shall have
made a Change of Control Offer to repurchase the New Notes in accordance
with the terms of the Senior Discount Notes Indenture (and an offer to
repurchase other Indebtedness, if required by the terms thereof, in
accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any New Notes (and other
Indebtedness) properly tendered in connection with such Change of Control
Offer for the New Notes or change of control offer for such other
Indebtedness; and (x) the issuance of Indebtedness permitted to be issued
under the Senior Discount Notes Indenture in exchange for preferred stock;
provided that the Incurrence of such Indebtedness complies with the
"Limitation on Indebtedness" covenant; provided that, except in the case of
clauses (i) and (iii), no Default or Event of Default shall have occurred
and be continuing or occur as a consequence of the actions or payments set
forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clauses (ii), (viii)(A)
and (x) thereof), and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (iii) or (iv) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to
any subsequent Restricted Payments. Notwithstanding the foregoing, in the
event the proceeds of an issuance of Capital Stock of the Guarantor are
used for the redemption, repurchase or other acquisition of the New Notes,
or Indebtedness that is pari passu with the New Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of such Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the New Notes are outstanding, the Guarantor will
not, and will not permit any Restricted Subsidiary to, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions permitted by applicable law
on any Capital Stock of such Restricted Subsidiary owned by the Guarantor
or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to the
Guarantor or any other Restricted Subsidiary, (iii) make loans or advances
to the Guarantor or any other Restricted Subsidiary or (iv) transfer any of
its property or assets to the Guarantor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Senior Discount Notes
Indenture or any other agreement in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such
Person acquired by the Guarantor or any Restricted Subsidiary, existing at
the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired; (iv) in the case of clause (iv) of the
first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict
in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Guarantor or any Restricted Subsidiary not
otherwise prohibited by the Senior Discount Notes Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract
from the value of property or assets of the Guarantor or any Restricted
Subsidiary in any manner material to the Guarantor or any Restricted
-52-
<PAGE>
Subsidiary; (v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) imposed
pursuant to preferred stock of Holdings issued under clause (vi) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant, or exchange debentures or exchange notes of
Holdings issued in exchange therefor; provided that such restrictions (A)
may include a prohibition (x) on payments on Capital Stock upon
liquidation, winding-up and dissolution of Holdings and (y) on the payment
of dividends on and the making of any distribution on, or the purchase,
redemption, retirement or other acquisition for value of Capital Stock of
Holdings if dividends or other amounts on such preferred stock are unpaid
and (B) any restrictions imposed pursuant to preferred stock of Holdings
other than pursuant to clause (A) shall be no more restrictive than the
restrictions contained in the Senior Discount Notes Indenture (assuming
that references to the Guarantor in the Senior Discount Notes Indenture
were replaced with references to Holdings). Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Guarantor or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the
Guarantor or any of its Restricted Subsidiaries that secure Indebtedness of
the Guarantor or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Senior Discount Notes Indenture, the Guarantor
will not sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares
of such Capital Stock) except (i) to the Guarantor or a Wholly Owned
Restricted Subsidiary; (ii) issuances or sales to foreign nationals of
shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law; (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; (iv) with respect to Common Stock of
ChoiceCom, MTN, StarCom and Zycom; provided that the proceeds of any such
sale under clause (iv) shall be applied in accordance with clause (A) or
(B) of the first paragraph of the "Limitation on Asset Sales" covenant
described below; (v) with respect to Common Stock of FOTI; provided that
FOTI shall not retain any net proceeds from such sales or issuances in
excess of $10 million in the aggregate and any net proceeds in excess of
such $10 million shall be received by, or paid promptly by FOTI to, the
Guarantor, Holdings or any Wholly Owned Restricted Subsidiary of the
Guarantor; and (vi) with respect to (A) preferred stock of Holdings having
an initial liquidation preference of up to $250 million and (B) any
preferred stock of Holdings issued as dividends on such preferred stock;
provided that such preferred stock does not require the payment of cash
dividends prior to May 1, 2001.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Guarantor will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of Holdings or any Indebtedness
of the Guarantor ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Senior Discount Notes Indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the New Notes by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Guarantor, Holdings or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee;
provided that this paragraph shall not be applicable to any Guarantee of
any Restricted Subsidiary that (x) existed at the time such Person became a
Restricted Subsidiary and (y) was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the New Notes or the Note
Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be pari
passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the New Notes or the Note Guarantee, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary
-53-
<PAGE>
Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the New Notes or the Note Guarantee, as the case may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person not an Affiliate of the Guarantor
of all of Holdings' and each Restricted Subsidiary's Capital Stock in, or
all or substantially all the assets of, such Restricted Subsidiary (which
sale, exchange or transfer is not prohibited by the Senior Discount Notes
Indenture) or (ii) the release or discharge of the Guarantee which resulted
in the creation of such Subsidiary Guarantee, except a discharge or release
by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Senior Discount Notes Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or
the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Guarantor or
with any Affiliate of the Guarantor or any Restricted Subsidiary, except
upon fair and reasonable terms no less favorable to the Guarantor or such
Restricted Subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Guarantor or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to
the Guarantor or such Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Guarantor and any of its Wholly
Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of the Guarantor, Holdings or Holdings (Canada) who are not
employees of the Guarantor, Holdings or Holdings (Canada); (iv) any
payments or other transactions pursuant to any tax-sharing agreement
between the Guarantor and any other Person with which the Guarantor files a
consolidated tax return or with which the Guarantor is part of a
consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (iv) of this
paragraph, the aggregate amount of which exceeds $2 million in value, must
be approved or determined to be fair in the manner provided for in clause
(i)(A) or (B) above.
Limitation on Liens
Under the terms of the Senior Discount Notes Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, create, incur,
assume or suffer to exist any Lien on any of its assets or properties of
any character, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the
New Notes (or, in the case of a Lien on assets or properties of the
Guarantor, the Note Guarantee) and all other amounts due under the Senior
Discount Notes Indenture to be directly secured equally and ratably with
(or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the New Notes or the Note Guarantee,
prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of Holdings (Canada), Holdings or any of their Restricted
Subsidiaries created in favor of the Holders; (iii) Liens with respect to
the assets of a Restricted Subsidiary granted by such Restricted Subsidiary
to the Guarantor or a Wholly Owned Restricted Subsidiary to secure
-54-
<PAGE>
Indebtedness owing to the Guarantor or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of the
Guarantor, Holdings or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; (v) Liens with respect
to assets or properties of any Person that becomes a Restricted Subsidiary
after the Closing Date; provided that such Liens do not extend to or cover
any assets or properties of the Guarantor or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject to
such Lien on the date such Person becomes a Restricted Subsidiary; and
provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi)
Permitted Liens; or (vii) Liens, solely in favor of Acquired Indebtedness,
on Capital Stock of Persons that become Restricted Subsidiaries of the
Guarantor after the Closing Date.
Limitation on Sale-Leaseback Transactions
Under the terms of the Senior Discount Notes Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties
whether now owned or hereafter acquired, whereby the Guarantor or a
Restricted Subsidiary sells or transfers such assets or properties and then
or thereafter leases such assets or properties or any part thereof or any
other assets or properties which the Guarantor or such Restricted
Subsidiary, as the case may be, intends to use for substantially the same
purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of
not in excess of three years; (ii) the lease secures or relates to
industrial revenue or pollution control bonds; (iii) the transaction is
between the Guarantor and any Wholly Owned Restricted Subsidiary or between
Wholly Owned Restricted Subsidiaries; or (iv) the Guarantor or such
Restricted Subsidiary, within six months after the sale or transfer of any
assets or properties is completed, applies an amount not less than the net
proceeds received from such sale in accordance with clause (A) or (B) of
the first paragraph of the "Limitation on Asset Sales" covenant described
below.
Limitation on Asset Sales
Under the terms of the Senior Discount Notes Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, consummate any
Asset Sale, unless (i) the consideration received by the Guarantor or such
Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments. In the event and
to the extent that the Net Cash Proceeds received by the Guarantor or its
Restricted Subsidiaries from one or more Asset Sales occurring on or after
the Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of Holdings and its Subsidiaries has been
prepared), then the Guarantor shall or shall cause the relevant Restricted
Subsidiary to (i) within six months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply
an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Guarantor or Holdings, or Indebtedness
of any Restricted Subsidiary other than Holdings, in each case owing to a
Person other than the Guarantor or any of its Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to clause
(A) (or enter into a definitive agreement committing to so invest within
six months after the date of such agreement), in property or assets of a
nature or type or that are used in a business (or in a company having
property and assets of a nature or type, or engaged in a business) similar
or related to the nature or type of the property and assets of, or the
business of, the Guarantor and its Restricted Subsidiaries existing on the
date of such investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the six-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
-55-
<PAGE>
applied pursuant to clause (i)) as provided in the following paragraphs of
this "Limitation on Asset Sales" covenant. The amount of such excess Net
Cash Proceeds required to be applied (or to be committed to be applied)
during such six-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10 million,
Holdings must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate Accreted Value of New Notes equal to the Excess Proceeds
on such date, at a purchase price equal to 101% of the Accreted Value of
the New Notes, plus, in each case, accrued interest (if any) to the date of
purchase.
Repurchase of New Notes upon a Change of Control
Holdings must commence, within 30 days of the occurrence of a Change
of Control, and consummate an Offer to Purchase for all New Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value
thereof, plus accrued interest (if any) to the date of purchase. Prior to
the mailing of the notice to Holders commencing such Offer to Purchase, but
in any event within 30 days following any Change of Control, Holdings
covenants to (i) repay in full all indebtedness of Holdings that would
prohibit the repurchase of the New Notes pursuant to such Offer to Purchase
or (ii) obtain any requisite consents under instruments governing any such
indebtedness of Holdings to permit the repurchase of the New Notes.
Holdings shall first comply with the covenant in the preceding sentence
before it shall be required to repurchase New Notes pursuant to this
"Repurchase of New Notes upon a Change of Control" covenant.
If Holdings is unable to repay all of its indebtedness that would
prohibit repurchase of the New Notes or is unable to obtain the consents of
the holders of indebtedness, if any, of Holdings outstanding at the time of
a Change of Control whose consent would be so required to permit the
repurchase of New Notes, then Holdings will have breached such covenant.
This breach will constitute an Event of Default under the Senior Discount
Notes Indenture if it continues for a period of 30 consecutive days after
written notice is given to Holdings by the Trustee or the Holders of at
least 25% in aggregate principal amount of the New Notes outstanding. In
addition, the failure by Holdings to repurchase New Notes at the conclusion
of the Offer to Purchase will constitute an Event of Default without any
waiting period or notice requirements.
There can be no assurance that Holdings will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of New Notes) required by the foregoing covenant (as
well as may be contained in other securities of Holdings which might be
outstanding at the time). The above covenant requiring Holdings to
repurchase the New Notes will, unless the consents referred to above are
obtained, require Holdings to repay all indebtedness then outstanding which
by its terms would prohibit such New Note repurchase, either prior to or
concurrently with such New Note repurchase.
Commission Reports and Reports to Holders
Whether or not Holdings or the Guarantor is required to file reports
with the Commission, if any New Notes are outstanding Holdings and the
Guarantor shall file with the Commission all such reports and other
information as they would be required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934, as
amended. See "Available Information." Holdings shall supply the Trustee and
each Holder, or shall supply to the Trustee for forwarding to each Holder,
without cost to such Holder, copies of such reports or other information.
-56-
<PAGE>
Events of Default
The following events will be defined as "Events of Default" in the
Senior Discount Notes Indenture: (a) default in the payment of principal of
(or premium, if any, on) any New Note when the same becomes due and payable
at maturity, upon acceleration, redemption or otherwise; (b) default in the
payment of interest on any New Note when the same becomes due and payable,
and such default continues for a period of 30 days; (c) Holdings or the
Guarantor defaults in the performance of or breaches any other covenant or
agreement of Holdings or the Guarantor in the Senior Discount Notes
Indenture or under the New Notes and such default or breach continues for a
period of 30 consecutive days after written notice to Holdings or the
Guarantor by the Trustee or the Holders of 25% or more in aggregate
principal amount at maturity of the New Notes; (d) there occurs with
respect to any issue or issues of Indebtedness of Holdings, the Guarantor
or any Significant Subsidiary having an outstanding principal amount at
maturity of $10 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment
default; (e) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against Holdings, the Guarantor or any Significant Subsidiary and
shall not be paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (f) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of Holdings, the Guarantor or any Significant Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of Holdings, the Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of Holdings, the Guarantor or
any Significant Subsidiary or (C) the winding up or liquidation of the
affairs of Holdings, the Guarantor or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or (g) Holdings, the Guarantor or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under
any such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of Holdings, the Guarantor or any Significant Subsidiary or for
all or substantially all of the property and assets of Holdings, the
Guarantor or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to Holdings or the
Guarantor) occurs and is continuing under the Senior Discount Notes
Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount at maturity of the New Notes, then outstanding, by written
notice to Holdings (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall,
declare the Accreted Value of, premium, if any, and accrued interest, if
any, on the New Notes to be immediately due and payable. Upon a declaration
of acceleration, such Accreted Value of, premium, if any, and accrued
interest, if any, shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause
(d) above has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of default
triggering such Event of Default pursuant to clause (d) shall be remedied
or cured by Holdings, the Guarantor or the relevant Significant Subsidiary
or waived by the holders of the relevant Indebtedness within 60 days after
the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (f) or (g) above occurs with respect to
Holdings or the Guarantor, the Accreted Value of, premium, if any, and
accrued interest, if any, on the New Notes then outstanding shall ipso
facto become and be immediately due and payable without any declaration or
-57-
<PAGE>
other act on the part of the Trustee or any Holder. The Holders of at least
a majority in principal amount of the outstanding New Notes by written
notice to Holdings and to the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if,
among other things, (i) all existing Events of Default, other than the
nonpayment of the Accreted Value of, premium, if any, and accrued interest
on the New Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
For information as to the waiver of defaults, see "-Modification and
Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding New Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Senior Discount Notes Indenture, that may involve the Trustee in personal
liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders of New Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of New Notes. A
Holder may not pursue any remedy with respect to the Senior Discount Notes
Indenture or the New Notes unless: (i) the Holder gives the Trustee written
notice of a continuing Event of Default; (ii) the Holders of at least 25%
in aggregate principal amount of outstanding New Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders
offer the Trustee indemnity satisfactory to the Trustee against any costs,
liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding New Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations
do not apply to the right of any Holder of a New Note to receive payment of
the principal of, premium, if any, or interest on, such New Note or to
bring suit for the enforcement of any such payment, on or after the due
date expressed in the New Notes, which right shall not be impaired or
affected without the consent of the Holder.
The Senior Discount Notes Indenture will require certain officers of
Holdings and the Guarantor to certify, on or before a date not more than 90
days after the end of each fiscal year of the Guarantor, that a review has
been conducted of the activities of Holdings, or the Guarantor, as the case
may be, and its Restricted Subsidiaries and Holdings', or the Guarantor's,
and its Restricted Subsidiaries' performance under the Senior Discount
Notes Indenture and that Holdings and the Guarantor have fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment
of any such obligation, specifying each such default and the nature and
status thereof. Holdings and the Guarantor will also be obligated to notify
the Trustee of any default or defaults in the performance of any covenants
or agreements under the Senior Discount Notes Indenture.
Consolidation, Merger and Sale of Assets
Neither Holdings nor the Guarantor shall consolidate with, merge with
or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with or
into a Wholly Owned Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person, Holdings or
the Guarantor) shall be issued or distributed to the stockholders of
Holdings or the Guarantor) or permit any Person to merge with or into
Holdings or the Guarantor unless: (i) Holdings or the Guarantor shall be
the continuing Person, or the Person (if other than Holdings or the
Guarantor) formed by such consolidation or into which Holdings or the
Guarantor is merged or that acquired or leased such property and assets of
Holdings or the Guarantor shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed
and delivered to the Trustee, all of the obligations of Holdings or the
Guarantor, as the case may be, under the Senior Discount Notes Indenture;
(ii) immediately after giving effect to such transaction, no Default or
-58-
<PAGE>
Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, Holdings or
the Guarantor, as the case may be, or any Person becoming the successor
obligor of the New Notes or the Note Guarantee, as the case may be, shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of Holdings or the Guarantor, as the case may be, immediately prior
to such transaction; (iv) immediately after giving effect to such
transaction on a pro forma basis Holdings, or any Person becoming the
successor obligor of the New Notes, as the case may be, could Incur at
least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant; and (v) Holdings delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv) above) and an Opinion of Counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been
complied with; provided, however, that clauses (iii) and (iv) above do not
apply if, in the good faith determination of the Board of Directors of the
Guarantor, whose determination shall be evidenced by a Board Resolution,
the principal purpose of such transaction is part of a plan to change the
jurisdiction of incorporation of Holdings or the Guarantor to a state of
the United States; and provided further that any such transaction shall not
have as one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Senior Discount Notes Indenture will
provide that Holdings will be deemed to have paid and will be discharged
from any and all obligations in respect of the New Notes on the 123rd day
after the deposit referred to below, and the provisions of the Senior
Discount Notes Indenture will no longer be in effect with respect to the
New Notes (except for, among other matters, certain obligations to register
the transfer or exchange of the New Notes, to replace stolen, lost or
mutilated New Notes, to maintain paying agencies and to hold monies for
payment in trust) if, among other things, (A) Holdings or the Guarantor has
deposited with the Trustee, in trust, money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest
on the New Notes on the Stated Maturity of such payments in accordance with
the terms of the Senior Discount Notes Indenture and the New Notes, (B)
Holdings has delivered to the Trustee (i) either (x) an Opinion of Counsel
to the effect that Holders will not recognize income, gain or loss for
federal income tax purposes as a result of Holdings' exercise of its option
under this "Defeasance" provision and will be subject to federal income tax
on the same amount and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable federal income tax law after the date
of the Senior Discount Notes Indenture such that a ruling is no longer
required or (y) a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect as the aforementioned Opinion of Counsel
and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will
not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of
Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which Holdings or the Guarantor is a party or by which
Holdings or the Guarantor is bound and (D) if at such time the New Notes
are listed on a national securities exchange, Holdings has delivered to the
Trustee an Opinion of Counsel to the effect that the New Notes will not be
delisted as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Senior Discount Notes Indenture further will provide that the provisions of
the Senior Discount Notes Indenture will no longer be in effect with
respect to clauses (iii) and (iv) under "-Consolidation, Merger and Sale of
-59-
<PAGE>
Assets" and all the covenants described herein under "-Covenants," clause
(c) under "-Events of Default" with respect to such covenants and clauses
(iii) and (iv) under "-Consolidation, Merger and Sale of Assets," and
clauses (d) and (e) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the New Notes on the Stated
Maturity of such payments in accordance with the terms of the Senior
Discount Notes Indenture and the New Notes, the satisfaction of the
provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by Holdings to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such deposit and defeasance of certain covenants and Events of Default
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event Holdings
exercises its option to omit compliance with certain covenants and
provisions of the Senior Discount Notes Indenture with respect to the New
Notes as described in the immediately preceding paragraph and the New Notes
are declared due and payable because of the occurrence of an Event of
Default that remains applicable, the amount of money and/or U.S. Government
Obligations on deposit with the Trustee will be sufficient to pay amounts
due on the New Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the New Notes at the time of the
acceleration resulting from such Event of Default. However, Holdings will
remain liable for such payments and the Note Guarantee with respect to such
payments will remain in effect.
MODIFICATION AND WAIVER
Modifications and amendments of the Senior Discount Notes Indenture
may be made by Holdings, the Guarantor and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount at
maturity of the outstanding New Notes; provided, however, that no such
modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any New Note, (ii) reduce the principal amount
at maturity of, or premium, if any, payable upon the redemption of, or the
rate of interest on, any New Note, (iii) adversely affect any right of
repayment at the option of any Holder of any New Note, (iv) change the
currency in which principal of, or premium, if any, or interest on, any New
Note is payable, (v) impair the right to institute suit for the enforcement
of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any New Note, (vi) waive a
default in the payment of principal of, premium, if any, or interest on the
New Notes, (vii) reduce the percentage in principal amount at maturity of
outstanding New Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Senior Discount Notes
Indenture or for waiver of certain defaults or (viii) release the Guarantor
from its Note Guarantee.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS,
OR EMPLOYEES
The Senior Discount Notes Indenture provides that no recourse for the
payment of the principal of, premium, if any, or interest on any of the New
Notes or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of Holdings
or the Guarantor in the Senior Discount Notes Indenture, or in any of the
New Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, shareholder, officer,
director, employee or controlling person of Holdings or the Guarantor or of
any successor Person thereof. Each Holder, by accepting the New Notes,
waives and releases all such liability.
-60-
<PAGE>
CONCERNING THE TRUSTEE
The Senior Discount Notes Indenture provides that, except during the
continuance of a Default, the Trustee will not be liable, except for the
performance of such duties as are specifically set forth in such Senior
Discount Notes Indenture. If an Event of Default has occurred and is
continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Senior Discount Notes Indenture and provisions of the Trust
Indenture Act incorporated by reference therein contain limitations on the
rights of the Trustee, should it become a creditor of Holdings or the
Guarantor, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claims, as security
or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.
BOOK ENTRY; DELIVERY AND FORM
So long as The Depository Trust Company ("DTC"), or its nominee, is
the registered owner or holder of the Global New Note, DTC or such nominee,
as the case may be, will be considered the sole owner or holder of the New
Notes represented by such Global New Note for all purposes under the Senior
Discount Notes Indenture and the New Notes. No beneficial owner of an
interest in the Global New Note will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Senior Discount Notes Indenture and, if applicable,
those of Euroclear System ("Euroclear") and Cedel Bank S.A. ("Cedel").
Payments of the principal of, and interest on, the Global New Notes
will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Holdings will have no responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global New Notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Holdings expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of the Global New Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global New
Note, as shown on the records of DTC or its nominee. Holdings also expects
that payments by participants to owners of beneficial interest in such
Global New Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities
held for the accounts of customers registered in the names of nominees for
such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules. Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
Holdings understands that DTC will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global New Notes is
credited and only in respect of such portion of the aggregate principal
amount of New Notes as to which such participant or participants has or
have given such direction. However, if there is an Event of Default under
the New Notes, DTC will exchange the Global New Notes for Certificated New
Notes, which it will distribute to its participants.
Holdings understands: DTC is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within
the meaning of New York Banking Law, 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. DTC was created to hold
securities for its participants and facilitate the clearance and settlement
of securities transaction between participants through electronic book
-61-
<PAGE>
entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates and certain other organizations.
Indirect access to the DTC 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
("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interest in the Global New
Notes among participants of DTC, Euroclear and Cedel, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Holdings will have no
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated New Notes. If DTC is at any time unwilling or unable to
continue as a depositary for the Global New Note and a successor depositary
is not appointed by Holdings within 90 days, Holdings will issue
Certificated New Notes in exchange for the Global New Note.
-62-
<PAGE>
DESCRIPTION OF NEW PREFERRED STOCK
The New Preferred Stock will be issued pursuant to the Amended
Articles. The summary contained herein of certain provisions of the New
Preferred Stock does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Amended Articles, a copy of
which is available from Holdings upon request. The definitions of certain
terms used in the Amended Articles and in the following summary are set
forth below. See "-Certain Definitions." References herein to "$" refers to
U.S. dollars.
GENERAL
Holdings is authorized to issue 1,000,000 shares of preferred stock,
without par value. On the date of this Prospectus, 266,647 shares of
preferred stock are outstanding. Holdings' Board of Directors has
authority, without further action by stockholders of Holdings (Canada) or
ICG, to authorize the issuance of classes of such preferred stock of
Holdings from time to time in one or more series, with such designations,
preferences and relative rights within the limits prescribed by the
Colorado Business Corporation Act (the "CBCA"), as may be determined by
Holdings' Board of Directors. The Board of Directors of Holdings has
authorized the issuance of up to 1,000,000 shares of Preferred Stock, which
consist of 150,000 shares of the 14 1/4% Preferred Stock, plus additional
shares of 14 1/4% Preferred Stock which may be used to pay dividends on the
14 1/4% Preferred Stock if Holdings elects to pay dividends in additional
shares of 14 1/4% Preferred Stock and the 100,000 shares of Preferred Stock
issued in the Private Offering, plus additional shares of Preferred Stock
which may be used to pay dividends on the Preferred Stock if Holdings
elects to pay dividends in additional shares of Preferred Stock. Holdings
has filed the Amended Articles with the Secretary of State of Colorado as
required by Colorado law. See "-Exchange." The New Preferred Stock, when
issued by Holdings and paid for by the Placement Agent, will be fully paid
and non-assessable, and the holders thereof will not have any subscription
or preemptive rights related thereto. American Stock Transfer & Trust
Company, 40 Wall Street, 46th floor, New York, New York 10005, will be
transfer agent and registrar (the "Transfer Agent") for the New Preferred
Stock.
RANKING
The New Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of
Holdings, rank (i) senior to all classes of common stock of Holdings and to
each other class of capital stock or series of preferred stock established
after the date of this Memorandum by Holdings' Board of Directors the terms
of which do not expressly provide that it ranks senior to or on a parity
with the New Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up and dissolution of Holdings (collectively
referred to with the common stock of Holdings as "Junior Securities"); (ii)
on a parity with the 14 1/4% Preferred Stock and any class of capital stock
or series of preferred stock issued by Holdings established after the date
of this Memorandum by Holdings' Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
New Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of Holdings (collectively referred
to as "Parity Securities"); and (iii) subject to certain conditions
described below, junior to each class of capital stock or series of
preferred stock issued by Holdings established after the date of this
Memorandum by Holdings' Board of Directors, the terms of which expressly
provide that such class or series will rank senior to the New Preferred
Stock as to dividend distributions and distributions upon liquidation,
winding-up and dissolution of Holdings (collectively referred to as "Senior
Securities"). The New Preferred Stock will be subject to the issuance of
series of Junior Securities, Parity Securities and Senior Securities;
provided that Holdings may not issue any new class of Senior Securities
without the approval of the holders of at least a majority of the shares of
New Preferred Stock then outstanding, voting or consenting, as the case may
be, separately as one class, except that without the approval of holders of
the New Preferred Stock, Holdings may issue shares of Senior Securities (1)
in exchange for, or the proceeds of which are used to redeem or repurchase,
all, but not less than all, shares of New Preferred Stock then outstanding,
or (2) in exchange for, or the proceeds of which are used to repay, any
outstanding Indebtedness of Holdings. Holdings is a holding company and
-63-
<PAGE>
therefore must rely upon dividend and other payments from its subsidiaries
to generate the funds necessary to meet its obligations, including the
payment of cash dividends on, and the mandatory redemption price of, the
New Preferred Stock.
DIVIDENDS
Holders of New Preferred Stock will be entitled to receive, when, as
and if declared by Holdings' Board of Directors, out of funds legally
available therefor, dividends on the New Preferred Stock, payable
quarterly. All dividends will be cumulative, whether or not earned or
declared, on a daily basis from the date of issuance of the New Preferred
Stock and will be payable quarterly in arrears on March 15, June 15,
September 15 and December 15 of each year, commencing on June 15, 1997. The
Amended Articles provide that on or before March 15, 2002, Holdings may, at
its option, pay dividends in cash or in additional fully paid and
non-assessable shares of New Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. However, the
13 1/2% Notes Indenture, the 12 1/2% Notes Indenture and the Senior
Discount Notes Indenture contain limitations on Holdings' ability to pay
dividends in cash prior to May 1, 2001. The Amended Articles provide that
after March 15, 2002, dividends may be paid only in cash. Future agreements
of Holdings, Holdings (Canada) or ICG could restrict the payment of cash
dividends by Holdings. If any dividend (or portion thereof) payable on any
dividend payment date on or before March 15, 2002 is not declared or paid
in full in cash or in shares of New Preferred Stock as described above on
such dividend payment date, the amount of the accrued and unpaid dividend
will bear interest at the dividend rate on the New Preferred Stock,
compounding quarterly from such dividend payment date until paid in full.
If any dividend (or portion thereof) payable on any dividend payment date
after March 15, 2002 is not declared or paid in full in cash on such
dividend payment date, the amount of the accrued and unpaid dividend will
bear interest at the dividend rate on the New Preferred Stock, compounding
quarterly from such dividend payment date until paid in full.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Junior Security or Parity Securities for any
period unless full cumulative dividends on the New Preferred Stock shall
have been or contemporaneously are declared and paid in full or declared
and, if payable in cash, a sum in cash set apart for such payment on the
New Preferred Stock. If full dividends are not so paid, the New Preferred
Stock will share dividends pro rata with the Parity Securities.
OPTIONAL REDEMPTION
The New Preferred Stock may be redeemed (subject to contractual and
other restrictions with respect thereto and to the legal availability of
funds therefor) at any time or, from time to time, on or after March 15,
2002, in whole or in part, at the option of Holdings, at the redemption
prices (expressed as a percentage of the liquidation preference thereof)
set forth below, plus an amount in cash equal to all accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption
date to the redemption date, subject to the right of holders of preferred
stock on a record date to receive dividends on a dividend payment date) if
redeemed during the 12-month period beginning March 15 of each of the years
set forth below:
Year Percentage
---- ---------
2002 . . . . . . . 107.0000%
2003 . . . . . . . 104.6667%
2004 . . . . . . . 102.3333%
2005 and thereafter 100.0000%
-64-
<PAGE>
In addition, on or prior to March 15, 2000, Holdings may, at its
option from time to time, redeem shares of New Preferred Stock having an
aggregate liquidation preference of up to 35% of the aggregate liquidation
preference of all shares of New Preferred Stock issued in the Private
Offering, at a redemption price equal to 114% of the liquidation preference
thereof (subject to the right of holders of New Preferred Stock on relevant
record dates to receive dividends due on relevant dividend payment dates),
plus an amount in cash equal to a prorated dividend for the period from the
dividend payment date immediately prior to the redemption date to the
redemption date, with proceeds of one or more Public Equity Offerings of
Common Stock of (A) Holdings or (B) ICG, provided that (i) with respect to
a Public Equity Offering referred to in clause (B) above, cash proceeds of
such Public Equity Offering in an amount sufficient to effect the
redemption of New Preferred Stock to be so redeemed are contributed by ICG
to Holdings prior to such redemption and used by Holdings to effect such
redemption and (ii) such redemption occurs within 180 days after
consummation of such Public Equity Offering.
No optional redemption may be authorized or made unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart
for such payment on the New Preferred Stock.
In the event of partial redemptions of New Preferred Stock, the shares
to be redeemed will be determined pro rata, except that Holdings may redeem
such shares held by any holder of fewer than 100 shares without regard to
such pro rata redemption requirement. The Senior Discount Notes Indenture,
the 12 1/2% Notes Indenture and the 13 1/2% Notes Indenture restrict the
ability of Holdings to redeem the New Preferred Stock, and future
agreements may contain similar provisions. See "Description of New Notes."
Notice of redemption shall be mailed by first class mail at least 30 but no
more than 60 days before the redemption date to each holder of New
Preferred Stock to be redeemed at its registered address. If any New
Preferred Stock is to be redeemed in part, the notice of redemption that
related to such New Preferred Stock shall state the portion of the
liquidation preference to be redeemed. New shares of New Preferred Stock
having an aggregate liquidation preference equal to the unredeemed portion
will be issued in the name of the holder thereof upon cancellation of the
original share of New Preferred Stock and, unless Holdings fails to pay the
redemption price on the redemption date, after the redemption date
dividends will cease to accrue on the New Preferred Stock called for
redemption.
MANDATORY REDEMPTION
The New Preferred Stock will be subject to mandatory redemption
(subject to the legal availability of funds therefor but without regard to
any contractual or other restriction with respect thereto) in whole on
March 15, 2008 at a price, payable in cash, equal to the liquidation
preference thereof, plus all accumulated and unpaid dividends to the date
of redemption. Future agreements of Holdings, Holdings (Canada) or ICG may
restrict or prohibit Holdings from redeeming the New Preferred Stock, but
Holdings will be required to redeem the New Preferred Stock on March 15,
2008, notwithstanding any such restriction.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Holdings will be required
(subject to any contractual and other restrictions with respect thereto and
to the legal availability of funds therefor) to make an offer (the "Change
of Control Offer") to each holder of New Preferred Stock to repurchase all
or any part of such holder's New Preferred Stock at a cash purchase price
equal to 101% of the liquidation preference thereof, plus an amount in cash
equal to all accumulated and unpaid dividends per share to the date of
purchase (including an amount in cash equal to a prorated dividend from the
dividend payment date immediately preceding the date of purchase to the
date of purchase). The Change of Control Offer must be made within 30 days
following a Change of Control, must remain open for at least 30 and not
more than 40 days and must comply with the requirements of Rule 14e-1 under
the Exchange Act and any other applicable securities laws and regulations.
Notwithstanding the foregoing, Holdings will not be required to make a
Change of Control Offer if any of the New Notes, 12 1/2% Notes or 13 1/2%
Notes are outstanding upon the occurrence of a Change of Control unless all
of the New Notes, 12 1/2% Notes and 13 1/2% Notes tendered pursuant to the
-65-
<PAGE>
"Change of Control Offers" with respect thereto are repurchased as a result
of such Change of Control, in which case the date on which all New Notes,
12 1/2% Notes and 13 1/2% Notes (and any other Indebtedness or Senior
Securities of Holdings having provisions similar to Section 4.04(x) of the
Senior Discount Notes Indenture) are so repurchased will, under the Amended
Articles, be deemed to be the date on which such Change of Control shall
have occurred.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of Voting Stock having more than 40% of the voting power of
the total Voting Stock of ICG on a fully diluted basis; (ii) individuals
who on the Closing Date constitute the Board of Directors of ICG (together
with any new directors whose election by the Board of Directors or whose
nomination for election by ICG's stockholders was approved by a vote of at
least a majority of the members of the Board of Directors then in office
who either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board of
Directors then in office; or (iii) all of the Common Stock of Holdings is
not beneficially owned, directly or indirectly, by ICG.
None of the provisions in the Amended Articles relating to a purchase
upon a Change of Control can be waived by Holdings' Board of Directors.
Holdings could, in the future, enter into certain transactions, including
certain recapitalizations of Holdings, that would not constitute a Change
of Control, but would increase the amount of indebtedness outstanding at
such time. If a Change of Control were to occur, Holdings would be
obligated to offer to repurchase all of the New Notes, the 12 1/2% Notes
and the 13 1/2% Notes prior to making an offer to repurchase shares of New
Preferred Stock, and there can be no assurance that Holdings would have
sufficient funds to pay the purchase price for all shares of New Preferred
Stock that Holdings is required to purchase. In the event that Holdings
were required to purchase outstanding shares of New Preferred Stock
pursuant to a Change of Control Offer, Holdings expects that it would need
to seek third-party financing, to the extent it does not have available
funds, to meet its purchase obligations. However, there can be no assurance
that Holdings would be able to obtain such financing. In addition,
Holdings' ability to purchase the New Preferred Stock may be limited by
other then-existing agreements and by restrictions imposed by the CBCA.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of Holdings, holders of New Preferred Stock will be entitled to
be paid, out of the assets of Holdings available for distribution, $1,000
per share, plus an amount in cash equal to accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up
(including an amount equal to a prorated dividend for the period from the
last dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities,
including, without limitation, Holdings Common Stock. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of
Holdings, the amounts payable with respect to the New Preferred Stock and
all other Parity Securities are not paid in full, the holders of the New
Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of Holdings with respect to the New Preferred
Stock and Parity Securities, in proportion to the full liquidation
preference and accumulated and unpaid dividends to which each is entitled.
After payment of the full amount of the liquidation preferences and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of New Preferred Stock will not be entitled to any further
participation in any distribution of assets of Holdings. However, a merger,
consolidation or sale of substantially all of Holdings' assets that
complies with the provisions described below under the "Mergers,
Consolidation and Sale of Assets" covenant shall be deemed not to be a
liquidation, dissolution or winding up of Holdings.
The Amended Articles do not contain any provision requiring funds to
be set aside to protect the liquidation preference of the New Preferred
Stock. The CBCA provides that no distribution to shareholders of a Colorado
corporation (including a dividend or a purchase, redemption or other
-66-
<PAGE>
acquisition of shares, but not including the payment of dividends through
the issuance of capital stock), may be made if, after giving effect to such
distribution, (i) the corporation would not be able to pay its debts as
they become due in the usual course of business or (ii) the corporation's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. A corporation's board of directors may base its
determination that a distribution is not prohibited by the restriction
described in the foregoing sentence either on financial statements prepared
on the basis of accounting practices and principles that are reasonable
under the circumstances or on a fair valuation or other method that is
reasonable under the circumstances.
VOTING RIGHTS
Holders of the New Preferred Stock will have no voting rights with
respect to any matters except as provided by law or as set forth in the
Amended Articles. The Amended Articles provide that if (i) (a) dividends on
the New Preferred Stock are in arrears and have not been paid (or if, after
March 15, 2002, such dividends have not been paid in cash) for four
quarterly periods (whether or not consecutive), (b) Holdings fails to
discharge any redemption obligation with respect to the New Preferred
Stock, (c) a breach or violation by Holdings of the provisions described
below under "-Exchange" occurs, or Holdings fails to exchange Exchange
Debentures for the New Preferred Stock tendered for exchange on the
Exchange Date (as defined below), whether or not Holdings satisfies the
conditions to permit such exchange, (d) Holdings fails to make a Change of
Control Offer or cash payment with respect thereto if required by the
provisions set forth above under "-Change of Control," (e) a breach or
violation of the provisions described below under "-Certain Covenants"
occurs and is not remedied within 30 days after notice thereof to Holdings
by holders of 25% or more of the liquidation preference of the New
Preferred Stock then outstanding, or (f) a default occurs on the obligation
to pay principal of, interest on or any other payment obligation when due
(a "Payment Default") at final maturity, on one or more classes of
Indebtedness of Holdings or any Subsidiary of Holdings, whether such
Indebtedness exists on the Closing Date or is incurred thereafter, having
individually or in the aggregate an outstanding principal amount of $10
million or more, or any other Payment Default occurs on one or more such
classes of Indebtedness and such class or classes of Indebtedness are
declared due and payable prior to their respective maturities, and (ii) in
the case of clauses (e) and (f), such event continues for a period of 180
days or more, then the number of directors' constituting Holdings' Board of
Directors will be adjusted to permit the holders of the majority of the
then outstanding New Preferred Stock, voting separately as a class, to
elect two directors. Such voting rights and the term of office of such
elected directors will continue until such time as (i) all dividends in
arrears on the New Preferred Stock are paid in full (and, in the case of
dividends payable with respect to any period after March 15, 2002, are paid
in cash) and (ii) any failure, breach or default referred to in clause (b),
(c), (d), (e) or (f) is remedied, at which time the term of any directors
elected pursuant to the provisions of this paragraph shall terminate. For
the purpose of determining the number of quarterly periods for which
accrued dividends have not been paid, any accrued and unpaid dividend that
is subsequently paid shall not be treated as unpaid. Each such event
described in clauses (a) through (f) above is referred to herein as a
"Voting Rights Triggering Event." Within 15 days of the time Holdings
becomes aware of the occurrence of any default referred to in clause (f)
above, Holdings shall give notice thereof to holders of the New Preferred
Stock at their addresses as they appear on the records of the Transfer
Agent.
The Amended Articles provide that upon the occurrence of a Voting
Rights Triggering Event, the number of directors constituting Holdings'
Board of Directors will be increased by two directors, whom the holders of
the New Preferred Stock will be entitled to elect. Whenever the right of
the holders of New Preferred Stock to elect directors shall cease, the
number of directors constituting Holdings' Board of Directors will be
restored to the number of directors constituting Holdings' Board of
Directors prior to the time or event which entitled the holders of New
Preferred Stock to elect directors.
-67-
<PAGE>
Any vacancy occurring in the office of a director elected by holders
of the New Preferred Stock may be filled by the remaining director elected
by such holders unless and until such vacancy shall be filled by vote of
such holders.
The Amended Articles provide that, except as stated above under "-
Ranking," Holdings will not issue any class of Senior Securities without
the affirmative vote or consent of holders of at least a majority of the
shares of New Preferred Stock then outstanding, voting or consenting, as
the case may be, separately as one class. The Amended Articles also provide
that Holdings may not amend the Amended Articles so as to affect adversely
the specified rights, preferences, privileges or voting rights of holders
of shares of the New Preferred Stock or authorize the issuance of any
additional shares of New Preferred Stock (other than to pay dividends in
kind on New Preferred Stock), without the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of New
Preferred Stock, voting or consenting, as the case may be, separately as
one class; provided, however, that the amendment of the provisions of the
Amended Articles so as to authorize or create, or to increase the
authorized amount of, any of Holdings' Junior Securities or to authorize
the issuance of or to authorize or create any Parity Security (up to the
amount of authorized preferred stock) shall not be deemed to affect
adversely the voting rights, rights, privileges, or preferences of the
holders of shares of New Preferred Stock. The holders of at least a
majority of the outstanding shares of New Preferred Stock, voting or
consenting, as the case may be, separately as one class, may also waive
compliance with any provision of the Amended Articles.
Under Colorado law, holders of New Preferred Stock will be entitled to
vote as a separate voting group upon a proposed amendment to the Amended
Articles that requires a shareholder vote, whether or not entitled to vote
thereon by the Amended Articles, if the amendment would: (i) increase or
decrease the aggregate number of authorized shares of preferred stock; (ii)
effect an exchange or reclassification of all or part of the shares of the
New Preferred Stock into shares of another class or series; (iii) effect an
exchange or reclassification, or create the right of exchange, of all or
part of the shares of another class or series into shares of New Preferred
Stock; (iv) change the designation, preferences, limitations or relative
rights of all or part of the shares of New Preferred Stock; (v) change the
shares of all or part of the New Preferred Stock into a different number of
shares of New Preferred Stock; (vi) create a new class of shares having
rights or preferences with respect to distributions or dissolution that are
prior, superior, or substantially equal to the New Preferred Stock; (vii)
increase the rights, preferences, or number of authorized shares of any
class that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the New Preferred Stock; or (viii)
cancel or otherwise affect rights to distributions or dividends that have
accumulated but have not yet been declared on all or part of the shares of
New Preferred Stock. Under Colorado law, if an amendment that entitles two
or more series of a class of shares to vote as separate voting groups would
affect those two or more series in the same or a substantially similar way,
the shares of all the series so affected are instead required to vote
together as a single voting group rather than as separate voting groups.
In general, except as otherwise provided in the Amended Articles, the
voting rights described in the foregoing paragraph will not apply to an
amendment to the Amended Articles that is approved by Holdings' Board of
Directors, without being subject to any requirement for shareholder action,
establishing the preferences, limitations, and relative rights of any class
or series of Holdings preferred stock already authorized by the Amended
Articles at the time of such amendment. Under the Amended Articles,
Holdings' Board of Directors has the authority to authorize the issuance of
classes or series of preferred stock up to the 1,000,000 shares authorized
without further action by shareholders, including without any voting by
holders of New Preferred Stock under Colorado law as described in the
preceding paragraph. See "-General." Notwithstanding the foregoing, the
Amended Articles provide that Holdings will not authorize or issue any
class of Senior Securities without the affirmative vote of holders of a
majority of the shares of Preferred Stock then outstanding voting
separately as a class, except as described above under "-Ranking." See "-
Voting Rights."
-68-
<PAGE>
CERTAIN COVENANTS
Incurrence of Indebtedness and Issuance of New Preferred Stock
(a) Under the terms of the Amended Articles, Holdings will not, and
will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the New Notes, the Exchange Debentures and
Indebtedness existing on the Closing Date) or issue any Redeemable Stock;
provided that Holdings may Incur Indebtedness or issue Redeemable Stock if,
after giving effect to the Incurrence of such Indebtedness or the issuance
of such Redeemable Stock and the receipt and application of the proceeds
therefrom, the Indebtedness to EBITDA Ratio would be greater than zero and
less than 5:1.
Notwithstanding the foregoing, Holdings and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of Holdings or any Restricted Subsidiary or Redeemable Stock
of Holdings outstanding at any time, which Indebtedness or Redeemable Stock
generates gross proceeds to Holdings of up to $900 million, less (without
duplication) the gross proceeds of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant contained in the 13
1/2% Notes Indenture, the 12 1/2% Notes Indenture and the Senior Discount
Notes Indenture; (ii) Indebtedness to ICG, Holdings or any of Holdings'
Wholly Owned Restricted Subsidiaries; provided that any subsequent issuance
or transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to ICG, Holdings
or another Wholly Owned Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness or Redeemable Stock issued in exchange
for, or the net proceeds of which are used to refinance or refund, then
outstanding Indebtedness or Redeemable Stock, other than Indebtedness
Incurred or Redeemable Stock issued under clause (i), (ii), (v), (vi),
(viii), (ix), (x) or (xi) of this paragraph, and any refinancings thereof
in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, accrued dividends, fees and expenses); provided
that such new Indebtedness or Redeemable Stock, determined as of the date
of Incurrence of such new Indebtedness or issuance of Redeemable Stock,
does not mature prior to the Stated Maturity of the Indebtedness or have a
mandatory redemption date prior to the Redeemable Stock to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal
to the remaining Average Life of the Indebtedness to be refinanced or
refunded; and provided further that in no event may Indebtedness or
Redeemable Stock of Holdings be refinanced by means of any Indebtedness or
Redeemable Stock of any Restricted Subsidiary of Holdings pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest Rate Agreements; provided that such
agreements do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing
for indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of Holdings or any of its Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of Holdings
(other than Guarantees of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or Restricted Subsidiary of
Holdings for the purpose of financing such acquisition), in a principal
amount at maturity not to exceed the gross proceeds actually received by
Holdings or any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness or Redeemable Stock of Holdings, to the extent the
proceeds referred to below are contributed to Holdings, not to exceed, at
any one time outstanding, twice the amount of Net Cash Proceeds received by
ICG after the Closing Date from the issuance and sale of its Capital Stock
(other than Redeemable Stock); provided that such Indebtedness does not
mature prior to the final mandatory redemption date of the New Preferred
Stock; (vi) Strategic Investor Subordinated Indebtedness; (vii)
Indebtedness or Redeemable Stock of Holdings, to the extent the proceeds
thereof are immediately used after the Incurrence or issuance thereof to
purchase New Preferred Stock or preferred stock, as the case may be,
tendered in a Change of Control Offer or a change of control offer, as the
case may be; (viii) Indebtedness of any Restricted Subsidiary of Holdings
Incurred pursuant to any credit agreement of such Restricted Subsidiary in
effect on August 8, 1995 (or any agreement refinancing Indebtedness under
such credit agreement), up to the amount of the commitment under such
-69-
<PAGE>
credit agreement (including equipment leasing or financing agreements) on
August 8, 1995; (ix) Indebtedness of Holdings, in an amount not to exceed
$100 million at any one time outstanding, consisting of Capitalized Lease
Obligations with respect to assets that are used or useful in the
telecommunications business of Holdings or its Restricted Subsidiaries; (x)
Indebtedness or Redeemable Stock of any Person that becomes a Restricted
Subsidiary of Holdings after the Closing Date, which Indebtedness exists
or, with respect to such Indebtedness for which there is a commitment to
lend, at the time such Person becomes a Restricted Subsidiary and, with
respect to such Indebtedness, the subsequent incurrence thereof ("Acquired
Indebtedness"), in an accreted amount not to exceed $50 million at any one
time outstanding in the aggregate for all such Restricted Subsidiaries;
provided that such Acquired Indebtedness does not exceed 65% of the
consideration (calculated by including such Acquired Indebtedness as a part
of such consideration) paid by Holdings and its Restricted Subsidiaries for
the acquisition of such Person; (xi) Indebtedness of Holdings, in an amount
not to exceed $30 million at any one time outstanding, consisting of
letters of credit and similar arrangements used to support obligations of
Holdings or any of its Restricted Subsidiaries with respect to the
acquisition of (by purchase, lease or otherwise), construction of, or
improvements on, assets that will be used or useful in the
telecommunications business of Holdings or its Restricted Subsidiaries; and
(xii) Indebtedness Incurred to finance the cost (including the cost of
design, development, construction, installation or integration) of assets,
equipment or inventory used or useful in the telecommunications business of
ICG or any of the Restricted Subsidiaries that is acquired by ICG or any of
its Restricted Subsidiaries after the Closing Date.
(b) For purposes of determining any particular amount of Indebtedness
under this "Incurrence of Indebtedness and Issuance of New Preferred Stock"
covenant, Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included. For purposes of determining
compliance with this "Incurrence of Indebtedness and Issuance of New
Preferred Stock" covenant, in the event that an item of Indebtedness or
Redeemable Stock meets the criteria of more than one of the types of
Indebtedness or Redeemable Stock described in the above clauses, Holdings,
in its sole discretion, shall classify such item of Indebtedness or
Redeemable Stock and only be required to include the amount and type of
such Indebtedness or Redeemable Stock in one of such clauses.
Limitation on Restricted Payments
So long as any shares of the New Preferred Stock are outstanding,
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on Junior Securities held by Persons other than Holdings or
any of its Restricted Subsidiaries (other than dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Junior
Securities (other than Redeemable Stock) of the same class held by such
holders or in options, warrants or other rights to acquire such shares of
Junior Securities and other than pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries); (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Junior Securities of Holdings or
any Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Junior Securities) held by Persons other than
Holdings or any of its Wholly Owned Restricted Subsidiaries (except for
Junior Securities of ChoiceCom, MTN, StarCom, Ohio LINX, FOTI and Zycom to
the extent the consideration therefor consists solely of common stock
(other than Redeemable Stock) of ICG or Junior Securities of Holdings, in
each case, transferred in compliance with the Securities Act); or (iii)
make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iii) being
collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment: (A) an event referred to in
clauses (i)(a) through (i)(f) under "Voting Rights" shall have occurred and
be continuing, (B) Holdings could not Incur at least $1.00 of Indebtedness
under the first paragraph of the "Incurrence of Indebtedness and Issuance
of New Preferred Stock" covenant, (C) the aggregate amount expended for all
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) after the date of
the Amended Articles shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted
-70-
<PAGE>
Consolidated Net Income is a loss, minus 100% of such amount) (determined
by excluding income resulting from transfers of assets by Holdings or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed pursuant
to the "Reports" covenant plus (2) the aggregate Net Cash Proceeds received
by Holdings after the Closing Date (x) from the issuance and sale,
permitted by the Amended Articles, of Junior Securities (other than
Redeemable Stock) to a Person who is not a Subsidiary of Holdings, or from
the issuance to a Person who is not a Subsidiary of Holdings of any
options, warrants or other rights to acquire Junior Securities of Holdings
(in each case, exclusive of any Redeemable Stock or any options, warrants
or other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the New Preferred
Stock) or (y) as a capital contribution from ICG plus (3) an amount equal
to the net reduction in Investments (other than reductions in Permitted
Investments) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to Holdings or any Restricted Subsidiary
(except to the extent any such payment is included in the calculation of
Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investments"), not to exceed the amount of Investments
previously made by Holdings and its Restricted Subsidiaries in such Person
or (D) dividends on the New Preferred Stock shall not have been paid in
full as provided in the Amended Articles.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the repurchase, redemption or other acquisition
of Junior Securities of Holdings (or options, warrants or other rights to
acquire such Junior Securities) and with respect to any Junior Securities,
the payment of accrued dividends thereon, in exchange for, or out of the
proceeds of a substantially concurrent issuance or sale of, shares of
Junior Securities (other than Redeemable Stock) of Holdings; provided that
the redemption of any preferred stock pursuant to any mandatory redemption
feature thereof and any redemption of any other Junior Securities and, in
each case, the payment of accrued dividends thereon (or options, warrants
or other rights to acquire such Junior Securities) and with respect to any
Junior Securities, the payment of accrued dividends thereon, shall be
deemed to be "substantially concurrent" with such issuance and sale if the
required notice with respect to such redemption is irrevocably given by a
date which is no later than five Business Days after receipt of the
proceeds of such issuance and sale and such redemption and payment is
consummated within the period provided for in the document governing such
preferred stock or the documents governing the redemption of such other
Junior Securities, as the case may be; (iii) payments or distributions, in
the nature of satisfaction of dissenters' rights, pursuant to or in
connection with a consolidation, merger or transfer of assets that complies
with the provisions of the Amended Articles applicable to mergers,
consolidations and transfers of all or substantially all of the property
and assets of Holdings; (iv) Investments, not to exceed $10 million in
aggregate, each evidenced by a senior promissory note payable to Holdings
that provides that it will become due and payable prior to any required
repurchase (including pursuant to an Offer to Purchase in connection with a
Change of Control) of the New Preferred Stock; (v) Investments, not to
exceed $5 million in the aggregate, that meet the requirements of clause
(iv) above; provided that the Board of Directors of Holdings shall have
determined, in good faith, that each such Investment under this clause (v)
will enable Holdings or one of its Restricted Subsidiaries to obtain
additional business that it might not be able to obtain without the making
of such Investment; (vi) with respect to Junior Securities permitted to be
issued and sold by the "Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant, the payment (A) of dividends on such
Junior Securities in additional shares of Junior Securities and (B) of cash
dividends on such Junior Securities in an amount not to exceed the dividend
rate thereon and accrued interest on unpaid dividends, in each case after
May 1, 2001; (vii) the repurchase, in the event of a Change of Control, of
Junior Securities of Holdings and Indebtedness of Holdings into which such
Junior Securities have been exchanged; provided that prior to repurchasing
such Junior Securities or Indebtedness, Holdings shall have made a Change
of Control Offer to repurchase the shares of New Preferred Stock in
accordance with the terms of the Amended Articles (and an offer to
repurchase other Indebtedness, if required by the terms thereof, in
-71-
<PAGE>
accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any shares of New
Preferred Stock (and other Indebtedness) properly tendered in connection
with such Change of Control Offer for the shares of New Preferred Stock or
change of control offer for such other Indebtedness; and (viii) the
issuance of Indebtedness permitted to be issued under the Amended Articles
in exchange for preferred stock; provided that the Incurrence of such
Indebtedness complies with the "Incurrence of Indebtedness and Issuance of
New Preferred Stock" covenant; provided that, except in the case of clause
(i), no Default or Event of Default shall have occurred and be continuing
or occur as a consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payments referred to in clauses (vi)(A) and
(viii) thereof), and the Net Cash Proceeds from any issuance of Junior
Securities referred to in clause (ii), shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to
any subsequent Restricted Payments. Notwithstanding the foregoing, in the
event the proceeds of an issuance of Junior Securities are used for the
redemption, repurchase or other acquisition of the New Preferred Stock, or
Parity Securities, then the Net Cash Proceeds of such issuance shall be
included in clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent such proceeds are not used
for such redemption, repurchase or other acquisition of New Preferred Stock
or Parity Securities.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any shares of New Preferred Stock are outstanding, Holdings
will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted
by applicable law on any Capital Stock of such Restricted Subsidiary owned
by Holdings or any other Restricted Subsidiary, (ii) pay any Indebtedness
owed to Holdings or any other Restricted Subsidiary, (iii) make loans or
advances to Holdings or any other Restricted Subsidiary or (iv) transfer
any of its property or assets to Holdings or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in any agreements in effect
on the Closing Date, and any extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the holders of the New
Preferred Stock than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with respect
to any Person or the property or assets of such Person acquired by Holdings
or any Restricted Subsidiary, existing at the time of such acquisition and
not incurred in contemplation thereof, which encumbrances or restrictions
are not applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of Holdings or
any Restricted Subsidiary not otherwise prohibited by the Amended Articles
or (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of Holdings or any
Restricted Subsidiary in any manner material to Holdings or any Restricted
Subsidiary; or (v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary. Nothing contained in
this "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant shall prevent Holdings or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
-72-
<PAGE>
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of Holdings
or any of its Restricted Subsidiaries that secure Indebtedness of Holdings
or any of its Restricted Subsidiaries.
Limitation on Issuances and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Amended Articles, Holdings will not sell, and
will not permit any Restricted Subsidiary, directly or indirectly, to issue
or sell, any shares of Capital Stock of a Restricted Subsidiary (including
options, warrants or other rights to purchase shares of such Capital Stock)
except (i) to Holdings or a Wholly Owned Restricted Subsidiary; (ii)
issuances or sales to foreign nationals of shares of Capital Stock of
foreign Restricted Subsidiaries, to the extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary;
(iv) with respect to Common Stock of ChoiceCom, MTN, StarCom and Zycom;
provided that the proceeds of any such sale under clause (iv) shall be
reinvested in the business of Holdings and its Restricted Subsidiaries or
used to repay Indebtedness of Holdings or any of its Restricted
Subsidiaries or Senior Securities; and (v) with respect to Common Stock of
FOTI; provided that FOTI shall not retain any net proceeds from such sales
or issuances in excess of $10 million in the aggregate and any net proceeds
in excess of such $10 million shall be received by, or paid promptly by
FOTI to, Holdings or any Wholly Owned Restricted Subsidiary of Holdings.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Amended Articles, Holdings will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter
into, renew or extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering
of any service) with any holder (or any Affiliate of such holder) of 5% or
more of any class of Capital Stock of Holdings or with any Affiliate of
Holdings or any Restricted Subsidiary, except upon fair and reasonable
terms no less favorable to Holdings or such Restricted Subsidiary than
could be obtained, at the time of such transaction or at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors of Holdings or (B) for which Holdings or a Restricted
Subsidiary delivers to the Transfer Agent a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to
Holdings or such Restricted Subsidiary from a financial point of view; (ii)
any transaction solely between Holdings and any of its Wholly Owned
Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of Holdings who are not employees of Holdings; (iv) any payments
or other transactions pursuant to any tax-sharing agreement (or a similar
agreement that is not materially adverse to the interests of holders of the
New Preferred Stock) between Holdings and any other Person with which
Holdings files a consolidated tax return or with which Holdings is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (iv) of this
paragraph, the aggregate amount of which exceeds $2 million in value, must
be approved or determined to be fair in the manner provided for in clause
(i)(A) or (B) above.
Limitation on Liens
Under the terms of the Amended Articles, Holdings will not, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties, now or hereafter
acquired, or any shares of Capital Stock of or Indebtedness of any
Restricted Subsidiary.
-73-
<PAGE>
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of Holdings or its Restricted Subsidiaries created in favor
of the holders of the New Preferred Stock; (iii) Liens with respect to the
assets of a Restricted Subsidiary granted by such Restricted Subsidiary to
Holdings or a Wholly Owned Restricted Subsidiary to secure Indebtedness
owing to Holdings or such other Restricted Subsidiary; (iv) Liens securing
Indebtedness which is Incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iii) of the second paragraph of the
"Incurrence of Indebtedness and Issuance of New Preferred Stock" covenant;
provided that such Liens do not extend to or cover any property or assets
of Holdings or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced; (v) Liens with respect to
assets or properties of any Person that becomes a Restricted Subsidiary
after the Closing Date; provided that such Liens do not extend to or cover
any assets or properties of Holdings or any of its Restricted Subsidiaries
other than the assets or properties of such Person subject to such Lien on
the date such Person becomes a Restricted Subsidiary; and provided further
that such Liens are not incurred in contemplation of, or in connection
with, such Person becoming a Restricted Subsidiary; (vi) Permitted Liens;
and (vii) Liens securing Indebtedness.
Merger, Consolidation and Sale of Assets
Holdings shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of
its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than
a consolidation or merger with or into a Wholly Owned Restricted Subsidiary
with a positive net worth; provided that, in connection with any such
merger or consolidation, no consideration (other than Common Stock in the
surviving Person or Holdings) shall be issued or distributed to the
stockholders of Holdings) or permit any Person to merge with or into
Holdings unless: (i) Holdings shall be the continuing Person, or the Person
(if other than Holdings) formed by such consolidation or into which
Holdings is merged or that acquired or leased such property and assets of
Holdings shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and the
New Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor company, having in respect of such
successor or resulting company substantially the same powers, preferences
and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon that the New Preferred
Stock had immediately prior to such transaction; (ii) immediately after
giving effect to such transaction, no event referred to under clauses (a)
through (e) under "-Voting Rights" or any default, breach or violation that
would become such an event after the giving of notice, the passage of time
or both, shall have occurred and be continuing; (iii) immediately after
giving effect to such transaction on a pro forma basis, Holdings or any
Person becoming the successor issuer of the New Preferred Stock, as the
case may be, shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of Holdings immediately prior to such
transaction; (iv) immediately after giving effect to such transaction on a
pro forma basis Holdings, or any Person becoming the successor issuer of
the New Preferred Stock, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of the "Incurrence of Indebtedness
and Issuance of New Preferred Stock" covenant; and (v) Holdings delivers to
the Transfer Agent an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and (iv) above)
and an Opinion of Counsel, in each case stating that such consolidation,
merger or transfer complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been
complied with; provided, however, that clauses (iii) and (iv) above do not
apply if, in the good faith determination of the Board of Directors of
Holdings, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is part of a plan to change the
jurisdiction of incorporation of Holdings to a different state of the
United States; and provided further that any such transaction shall not
have as one of its purposes the evasion of the foregoing limitations.
-74-
<PAGE>
Senior Subordinated Indebtedness
So long as any shares of New Preferred Stock are outstanding, Holdings
will not Incur any Indebtedness, other than the Exchange Debentures, that
is expressly made subordinated in right of payment to any Senior
Indebtedness (as defined in the Exchange Debenture Indenture) unless such
Indebtedness, by its terms and by the terms of any agreement or instrument
pursuant to which such Indebtedness is outstanding is expressly made pari
passu with, or subordinate in right of payment to, the Exchange Debentures
pursuant to provisions substantially similar to those contained in Article
Eleven of the Exchange Debenture Indenture; provided that the foregoing
limitations shall not apply to distinctions between categories of Senior
Indebtedness that exist by reason of any Liens or Guarantees arising or
created in respect of some but not all Senior Indebtedness.
Reports
So long as any shares of New Preferred Stock are outstanding, Holdings
shall file with the Commission the annual reports, quarterly reports and
the information, documents and other reports required to be filed by
Holdings with the Commission pursuant to Sections 13 or 15 of the Exchange
Act, whether or not Holdings has or is required to have a class of
securities registered under the Exchange Act, at the time it is or would be
required to file the same with the Commission and, within 15 days after
Holdings is or would be required to file such reports, information or
documents with the Commission.
EXCHANGE
Holdings may, at the sole option of the Board of Directors (subject to
the legal availability of funds therefor), exchange all, but not less than
all, of the outstanding shares of New Preferred Stock, including any shares
of New Preferred Stock issued as payment for dividends, into Exchange
Debentures at any time following the date on which such exchange is
permitted by the terms of the Senior Discount Notes Indenture, the 12 1/2%
Notes Indenture and the 13 1/2% Notes Indenture and the terms of all
then-existing Indebtedness of Holdings, and subject to the conditions set
forth in the next succeeding paragraph. Presently, the Exchange of the New
Preferred Stock for Exchange Debentures would be restricted by covenants in
such indentures relating to the incurrence of Indebtedness. There can be no
assurance that the conditions in such covenants for the exchange of New
Preferred Stock for Exchange Debentures will be satisfied or that the
exchange will occur or that future Indebtedness of Holdings would not also
restrict an exchange. See "Description of New Notes." In order to effect
such exchange, Holdings shall (a) if necessary to satisfy the condition set
forth in clause (B) in the following paragraph based upon the written
advice of counsel to Holdings, file a registration statement with the
Commission relating to the exchange, and (b) if a registration statement is
filed with the Commission pursuant to clause (a), use its best efforts to
cause such registration statement to be declared effective as soon as
practicable by the Commission unless the opinion referred to in clause (B)
in the following paragraph shall have been subsequently delivered.
Prior to initiating such exchange, Holdings shall certify, to the
satisfaction of the trustees under the 13 1/2% Notes Indenture, the 12 1/2%
Notes Indenture and the Senior Discount Notes Indenture, that such exchange
is permitted under such respective Indentures. Holdings shall also provide
such Trustees with an Officer's Certificate setting forth with specificity
the basis for Holdings' conclusion that such exchange is so permitted. In
order to effectuate such exchange, Holdings shall send a written notice of
exchange by mail to each holder of record of shares of New Preferred Stock,
which notice shall state (i) that Holdings is exchanging the New Preferred
Stock into Exchange Debentures pursuant to the Amended Articles and (ii)
the date fixed for exchange (the "Exchange Date"), which date shall not be
less than 15 days nor more than 60 days following the date on which such
notice is mailed (except as provided in the last sentence of this
paragraph). On the Exchange Date, if the conditions set forth in clauses
(A) through (E) below are satisfied and if the exchange is then permitted
under the Senior Discount Notes Indenture, the 12 1/2% Notes Indenture and
the 13 1/2% Notes Indenture, Holdings shall issue Exchange Debentures in
exchange for the New Preferred Stock as provided in the next paragraph,
provided that on the Exchange Date: (A) there shall be legally available
funds sufficient therefor (including, without limitation, legally available
funds sufficient therefor under Section 7-106-401 (or any successor
-75-
<PAGE>
provision) of the CBCA); (B) a registration statement relating to the
Exchange Debentures shall have been declared effective under the Securities
Act prior to such exchange and shall continue to be effective on the
Exchange Date or Holdings shall have obtained a written opinion of counsel
that an exemption from the registration requirements of the Securities Act
is available for such exchange and that upon receipt of such Exchange
Debentures pursuant to such exchange made in accordance with such
exemption, each holder of an Exchange Debenture that is not an Affiliate of
Holdings will not be subject to any restrictions imposed by the Securities
Act upon the resale of such Exchange Debenture, and such exemption is
relied upon by Holdings for such exchange; (C) the Exchange Debenture
Indenture and the trustee thereunder shall have been qualified under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"); (D)
immediately after giving effect to such exchange, no Default or Event of
Default (each as defined in the Exchange Debenture Indenture) would exist
under the Exchange Debenture Indenture; and (E) Holdings shall have
delivered to the Trustee under the Exchange Debenture Indenture a written
opinion of counsel, dated the date of exchange, regarding the satisfaction
of the conditions set forth in clauses (A), (B) and (C). In the event that
(i) the issuance of the Exchange Debentures is not permitted on the
Exchange Date or (ii) any of the conditions set forth in clause (A) through
(E) of the preceding sentence are not satisfied on the Exchange Date,
Holdings shall use its best efforts to satisfy such conditions and effect
such exchange as soon as practicable.
Upon any exchange pursuant to the preceding paragraph, the holders of
outstanding shares of New Preferred Stock will be entitled to receive a
principal amount of Exchange Debentures for shares of New Preferred Stock,
the liquidation preference of which, plus the amount of accumulated and
unpaid dividends (including a prorated dividend for the period from the
immediately preceding dividend payment date to the date of exchange) with
respect to which, equals such principal amount. The Exchange Debentures
will be issued in registered form, without coupons. Exchange Debentures
issued in exchange for New Preferred Stock will be in principal amounts of
$1,000 and integral multiples thereof to the extent practicable, and will
also be issued in principal amounts less than $1,000 so that each holder of
New Preferred Stock will receive certificates representing the entire
principal amount of Exchange Debentures to which its shares of New
Preferred Stock entitle it, provided that Holdings may, at the sole option
of the Board of Directors, subject to the restrictions in the Senior
Discount Notes Indenture, the 12 1/2% Notes Indenture and the 13 1/2% Notes
Indenture and any of its other then-existing Indebtedness, pay cash in lieu
of issuing an Exchange Debenture in a principal amount less than $1,000. On
and after the date of exchange, dividends will cease to accrue on the
outstanding shares of New Preferred Stock, and all rights of the holders of
New Preferred Stock (except the right to receive the Exchange Debentures,
an amount in cash, to the extent applicable, equal to the accrued and
unpaid dividends to the Exchange Date, and if Holdings so elects, cash in
lieu of any Exchange Debenture which is in an amount that is not an
integral multiple of $1,000) will terminate. The person entitled to receive
the Exchange Debentures issuable upon such exchange will be treated for all
purposes as the registered holder of such Exchange Debentures.
ICG and Holdings will comply with the provisions of Rule 13e-4
promulgated pursuant to the Exchange Act in connection with any exchange,
to the extent applicable.
NEW PREFERRED STOCK BOOK ENTRY; DELIVERY AND FORM
So long as DTC, or its nominee, is the registered owner or holder of a
Global New Preferred Stock Certificate, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the New Preferred
Stock represented by such Global New Preferred Stock Certificate for all
purposes under the Amended Articles and the New Preferred Stock. No
beneficial owner of an interest in the Global New Preferred Stock
Certificate will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under
the Amended Articles.
Payments made with respect to the Global New Preferred Stock
Certificate will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Holdings will have no responsibility or liability
for any aspect of the records relating to or payments made on account of
-76-
<PAGE>
beneficial ownership interests in the Global New Preferred Stock or for
maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Holdings expects that DTC or its nominee, upon receipt of any payments
made with respect to the Global New Preferred Stock, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the amount of such Global New Preferred
Stock as shown on the records of DTC or its nominee. Holdings also expects
that payments by participants to owners of beneficial interest in such
Global New Preferred Stock held through such participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of
such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
The Company understands that DTC will take any action permitted to be
taken by a holder of New Preferred Stock (including the presentation of New
Preferred Stock for exchange as described below) only at the direction of
one or more participants to whose account the DTC interests in the Global
New Preferred Stock is credited and only in respect of such portion of the
aggregate liquidation preference of New Preferred Stock as to which such
participant or participants has or have given such direction.
The Company understands: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, 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. DTC was created to hold
securities for its participants and facilitate the clearance and settlement
of securities transaction between participants through electronic book
entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates and certain other organizations.
Indirect access to the DTC 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
("indirect participants").
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interest in the Global New Preferred Stock
Certificate among participants of DTC, it is under no obligation to perform
or continue to perform such procedures, and such procedures may be
discontinued at any time. The Company will have no responsibility for the
performance by DTC or its respective participants or indirect participants
of its respective obligations under the rules and procedures governing
their operations.
CERTIFICATED NEW PREFERRED STOCK
If DTC is at any time unwilling or unable to continue as a depositary
for the Global New Preferred Stock and a successor depositary is not
appointed by Holdings within 90 days, Holdings will issue Certificated New
Preferred Stock in exchange for the Global New Preferred Stock Certificate.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Amended
Articles. Reference is made to the Amended Articles for the full definition
of such terms, as well as any other capitalized terms used herein for which
no definition is provided.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of Holdings and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the
-77-
<PAGE>
following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income of any Person (other than
net income attributable to a Restricted Subsidiary) in which any Person
(other than Holdings or any of its Restricted Subsidiaries) has a joint
interest and the net income of any Unrestricted Subsidiary, except to the
extent of the amount of dividends or other distributions actually paid to
Holdings or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described above (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with Holdings or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by Holdings or any of its Restricted Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described above, any amount paid or accrued as dividends
on preferred stock of Holdings or any Restricted Subsidiary owned by
Persons other than Holdings and any of its Restricted Subsidiaries; and
(vi) all extraordinary gains and extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by Holdings or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of Holdings or shall be merged into or
consolidated with Holdings or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or complementary
to the businesses of Holdings and its Restricted Subsidiaries on the date
of such investment or (ii) an acquisition by Holdings or any of its
Restricted Subsidiaries of the property and assets of any Person other than
Holdings or any of its Restricted Subsidiaries that constitutes
substantially all of a division or line of business of such Person;
provided that the property and assets acquired are related, ancillary or
complementary to the businesses of Holdings and its Restricted Subsidiaries
on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by Holdings or any of its
Restricted Subsidiaries to any Person other than Holdings or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the property and
assets of an operating unit or business of Holdings or any of its
Restricted Subsidiaries or (iii) any other property and assets of Holdings
or any of its Restricted Subsidiaries outside the ordinary course of
business of Holdings or such Restricted Subsidiary and, in each case, that
is not governed by the provisions described under "-Merger, Consolidation
and Sale of Assets;" provided that the meaning of "Asset Sale" shall not
include (A) sales or other dispositions of inventory, receivables and other
current assets, and (B) dispositions of assets of Holdings or any of its
Restricted Subsidiaries, in substantially simultaneous exchanges for
consideration consisting of any combination of cash, Temporary Cash
Investments and assets that are used or useful in the telecommunications
business of Holdings or its Restricted Subsidiaries, if such consideration
has an aggregate fair market value substantially equal to the fair market
value of the assets so disposed of; provided, however, that fair market
-78-
<PAGE>
value shall be determined in good faith by the Board of Directors of
Holdings, whose determination shall be conclusive and evidenced by a
resolution of the Board of Directors delivered to the Transfer Agent.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
and (b) the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Amended Articles, including, without
limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such
Person; and "Capitalized Lease Obligations" means the discounted present
value of the rental obligations under any such Capitalized Lease.
"ChoiceCom" means CSW/ICG ChoiceCom, L.P., a Delaware limited
partnership.
"Closing Date" means the date on which the Preferred Stock is
originally issued under the Amended Articles.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and
(vi) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for Holdings and its Restricted Subsidiaries in
conformity with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) by an amount
equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by Holdings or any of
its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of
such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by Holdings or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by Holdings and its Restricted Subsidiaries during
such period; excluding, however, without duplication, (i) any amount of
such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted
-79-
<PAGE>
Consolidated Net Income pursuant to clause (iii) of the definition thereof
(but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the offering of the 13 1/2% Notes and the warrants issued
therewith, the 12 1/2% Notes, the 14 1/4% Preferred Stock, the New Notes
and/or the New Preferred Stock, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with
GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly
or annual consolidated balance sheet of Holdings and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to
the date of such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to Redeemable
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of Holdings
or any of its Restricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect Holdings or any of its Restricted Subsidiaries against fluctuations
in currency values to or under which Holdings or any of its Restricted
Subsidiaries is a party or a beneficiary on the Closing Date or becomes a
party or a beneficiary thereafter.
"Event of Default" means a Voting Rights Triggering Event as defined
above under "-Voting Rights."
"FOTI" means ICG Fiber Optic Technologies Inc., a Colorado
corporation.
"14 1/4% Preferred Stock" means the 14 1/4% Exchangeable Preferred
Stock mandatorily redeemable May 1, 2007 of Holdings, and any shares of
preferred stock issued as payment in kind dividends thereon.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios
and computations contained in the Indenture shall be computed in conformity
with GAAP applied on a consistent basis, except that calculations made for
purposes of determining compliance with the terms of the covenants and with
other provisions of the Indenture shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the
offering of the 13 1/2% Notes and the warrants issued therewith, the 12
1/2% Notes, the 14 1/4% Preferred Stock, the New Notes and/or the New
Preferred Stock and (ii) except as otherwise provided, the amortization of
any amounts required or permitted by Accounting Principles Board Opinion
Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise)
or (ii) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Holdings" means ICG Holdings, Inc. and its successors and assigns.
-80-
<PAGE>
"Holdings (Canada)" means ICG Holdings (Canada), Inc. and its
successors and assigns.
"ICG" means ICG Communications, Inc. and its successors and assigns.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, except Trade Payables,
(v) all obligations of such Person as lessee under Capitalized Leases, (vi)
all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the original issue
price of such Indebtedness and (ii) that Indebtedness shall not include (A)
any amount of money borrowed, at the time of the Incurrence of the related
Indebtedness, for the purpose of pre-funding any interest payable on such
related Indebtedness or (B) any liability for federal, state, local or
other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of Holdings and its
Restricted Subsidiaries on a consolidated basis as at the date of
determination (the "Transaction Date") to (ii) the Consolidated EBITDA of
Holdings for the then most recent four full fiscal quarters for which
reports have been filed pursuant to the "Reports" covenant described above
(such four full fiscal quarter period being referred to herein as the "Four
Quarter Period"); provided that (x) pro forma effect shall be given to any
Indebtedness Incurred from the beginning of the Four Quarter Period through
the Transaction Date (including any Indebtedness Incurred on the
Transaction Date), to the extent outstanding on the Transaction Date, (y)
if during the period commencing on the first day of such Four Quarter
Period through the Transaction Date (the "Reference Period"), Holdings or
any of the Restricted Subsidiaries shall have engaged in any Asset Sale,
Consolidated EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject of
such Asset Sale and any related retirement of Indebtedness as if such Asset
Sale and related retirement of Indebtedness had occurred on the first day
of such Reference Period or (z) if during such Reference Period Holdings or
any of the Restricted Subsidiaries shall have made any Asset Acquisition,
Consolidated EBITDA of Holdings shall be calculated on a pro forma basis as
if such Asset Acquisition and any related financing had occurred on the
first day of such Reference Period. In calculating this ratio for purposes
of the Amended Articles, the amount of outstanding Indebtedness shall be
deemed to include the liquidation preference of any preferred stock then
outstanding.
-81-
<PAGE>
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of Holdings or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such
Person and shall include the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
above, (i) "Investment" shall include the fair market value of the assets
(net of liabilities) of any Restricted Subsidiary of Holdings at the time
that such Restricted Subsidiary of Holdings is designated an Unrestricted
Subsidiary and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of Holdings
and (ii) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof, any
sale with recourse against the seller or any Affiliate of the seller, or
any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to Holdings or any
Restricted Subsidiary of Holdings) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
(i) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of Holdings and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that
either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts
to be provided by Holdings or any Restricted Subsidiary of Holdings as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance or
sale of Capital Stock, the proceeds of such issuance or sale in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold
with recourse to Holdings or any Restricted Subsidiary of Holdings) and
proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"New Notes" means the New Notes Due 2007 of Holdings, guaranteed by
ICG on a senior unsecured basis and issued on the Closing Date.
"Offer to Purchase" means an offer to purchase shares of New Preferred
Stock by Holdings from the Holders commenced by mailing a notice to the
Transfer Agent and each Holder stating: (i) the covenant pursuant to which
the offer is being made and that all shares of New Preferred Stock validly
-82-
<PAGE>
tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any shares of New Preferred Stock
not tendered will continue to accrue dividends pursuant to its terms; (iv)
that, unless Holdings defaults in the payment of the purchase price, any
shares of New Preferred Stock accepted for payment pursuant to the Offer to
Purchase shall cease to accrue dividends on and after the Payment Date; (v)
that Holders electing to have any shares of New Preferred Stock purchased
pursuant to the Offer to Purchase will be required to surrender the shares
of New Preferred Stock together with a form entitled "Option of the Holder
to Elect Purchase" (the form of which will be mailed with such notice), to
the Paying Agent at the address specified in the notice prior to the close
of business on the Business Day immediately preceding the Payment Date;
(vi) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third Business
Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the
liquidation preference of the shares of New Preferred Stock delivered for
purchase and a statement that such Holder is withdrawing his election to
have such shares of New Preferred Stock purchased; and (vii) that Holders
whose shares of New Preferred Stock are being purchased only in part will
be issued new shares of New Preferred Stock equal to the liquidation
preference of the unpurchased portion of the shares of New Preferred Stock
surrendered; provided that each share of New Preferred Stock purchased and
each new share of New Preferred Stock issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, Holdings
shall (i) accept for payment on a pro rata basis shares of New Preferred
Stock or portions thereof tendered pursuant to an Offer to Purchase; (ii)
deposit with the Paying Agent money sufficient to pay the purchase price of
all shares of New Preferred Stock or portions thereof, so accepted; and
(iii) deliver, or cause to be delivered, to the Transfer Agent all shares
of New Preferred Stock or portions thereof, so accepted together with an
Officers' Certificate specifying the shares of New Preferred Stock or
portions thereof accepted for payment by Holdings. The Paying Agent shall
promptly mail to the Holders of shares of New Preferred Stock so accepted,
payment in an amount equal to the purchase price, and the Transfer Agent
shall promptly authenticate and mail to such Holders new shares of New
Preferred Stock equal in liquidation preference to any unpurchased portion
of the shares of New Preferred Stock surrendered; provided that each share
of New Preferred Stock purchased and each new share of New Preferred Stock
issued shall be in a principal amount of $1,000 or integral multiples
thereof. Holdings will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Transfer Agent
shall act as the Paying Agent for an Offer to Purchase. Holdings will
comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that Holdings is required to repurchase shares of
New Preferred Stock pursuant to an Offer to Purchase.
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, Holdings or a
Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of Holdings and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary
Cash Investment; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) loans or advances to
employees made in the ordinary course of business in accordance with past
practice of Holdings or its Restricted Subsidiaries and that do not in the
aggregate exceed $2 million at any time outstanding; (v) stock, obligations
or securities received in satisfaction of judgments; (vi) Indebtedness of
ICG or Holdings (Canada) owed to Holdings, in an amount not to exceed the
reasonable expenses of ICG or Holdings (Canada), as the case may be, as a
holding company that are actually incurred, and paid, by ICG or Holdings
(Canada); provided that such Indebtedness of ICG or Holdings (Canada), as
the case may be, is evidenced by an unsubordinated promissory note that
provides that it will be paid prior to any mandatory redemption of the New
Preferred Stock if such payment would be necessary to effectuate such
redemption; and (vii) Investments in an amount not to exceed, at any one
-83-
<PAGE>
time outstanding, all of the Net Cash Proceeds received by Holdings from
the sale of Common Stock of ICG (to a person other than one of ICG's
Subsidiaries) after the Closing Date.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made; (iii)
Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security; (iv) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights of
way, municipal and zoning ordinances and similar charges, encumbrances,
title defects or other irregularities that do not materially interfere with
the ordinary course of business of Holdings or any of its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Incurrence of Indebtedness and Issuance
of New Preferred Stock" covenant described above, (1) to finance the cost
(including the cost of improvement or construction) of the item of property
or assets subject thereto and such Lien is created prior to, at the time of
or within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2)
to refinance any Indebtedness previously so secured, (b) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of
such cost and (c) any such Lien shall not extend to or cover any property
or assets other than such item of property or assets and any improvements
on such item; (vii) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of Holdings and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial
payments by a customer of Holdings or its Restricted Subsidiaries relating
to such property or assets; (ix) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of stock or Indebtedness
of, any corporation existing at the time such corporation becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens do
not extend to or cover any property or assets of Holdings or any Restricted
Subsidiary other than the property or assets acquired; (xii) Liens in favor
of Holdings or any Restricted Subsidiary; (xiii) Liens arising from the
rendering of a final judgment or order against Holdings or any Restricted
Subsidiary that does not give rise to an Event of Default; (xiv) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are
either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward
contracts, options, future contracts, futures options or similar agreements
or arrangements designed to protect Holdings or any of its Restricted
Subsidiaries from fluctuations in the price of commodities; (xvii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by Holdings or any of its
Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of Holdings and its Restricted Subsidiaries prior
to the Closing Date; and (xviii) Liens on or sales of receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of such Person's
-84-
<PAGE>
preferred or preference stock, whether now outstanding or issued after the
date of the Amended Articles, including, without limitation, all series and
classes of such preferred or preference stock.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of ICG or Holdings pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior
to the mandatory redemption date of the shares of New Preferred Stock, (ii)
redeemable at the option of the holder of such class or series of Capital
Stock at any time prior to the mandatory redemption date of the shares of
New Preferred Stock, or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the mandatory redemption date of the shares of
New Preferred Stock; provided that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of a "change of control" occurring prior
to the mandatory redemption date of the shares of New Preferred Stock shall
not constitute Redeemable Stock if the "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of
such Capital Stock than the provisions contained in the "Change of Control"
covenant described above and such Capital Stock specifically provides that
such Person will not repurchase or redeem any such stock pursuant to such
provision prior to Holdings' repurchase of New Preferred Stock as described
above under "-Change of Control."
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Senior Discount Notes Indenture" means the Indenture dated as March
11, 1997 among Holdings, ICG and the Trustee pursuant to which the New
Notes will be issued.
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of Holdings owed to a Strategic Investor that is contractually subordinate
in right of payment to the shares of New Preferred Stock to at least the
following extent: no payment of principal (or premium, if any) or interest
on or otherwise payable in respect of such Indebtedness may be made
(whether as a result of a default or otherwise) prior to the payment in
full of all of Holdings' obligations under the shares of New Preferred
Stock; provided, however, that prior to the payment of such obligations,
interest on Strategic Investor Subordinated Indebtedness may be payable
solely in kind or in common stock (other than Redeemable Stock) of ICG or
Holdings.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 270 days of the date of
acquisition thereof, bankers' acceptances with maturities not exceeding 270
days, and overnight bank deposits, in each case issued by or with a bank or
trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $100 million (or the foreign currency
-85-
<PAGE>
equivalent thereof) and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term
of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of ICG) organized and in existence under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
& Poor's Ratings Group, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.
"13 1/2% Notes" means the 13 1/2% Senior Discount Notes Due 2005 of
Holdings guaranteed by ICG and Holdings (Canada) on a senior unsecured
basis.
"13 1/2% Notes Indenture" means the Indenture dated as of August 8,
1995, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 13 1/2% Notes.
"Trade Payables" means, with respect to any person, any accounts
payable or any other debt or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by Holdings or any of its Restricted Subsidiaries or the
issuance of any Redeemable Stock of Holdings, the date such Indebtedness is
to be Incurred or such issuance is to be made and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"12 1/2% Notes" means the 12 1/2% Senior Discount Notes due 2006 of
Holdings guaranteed by ICG and Holdings (Canada) on a senior unsecured
basis.
"12 1/2% Notes Indenture" means the Indenture dated as of April 30,
1996, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 12 1/2% Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary of Holdings (including any newly acquired or newly
formed Subsidiary of Holdings), other than Holdings or a Subsidiary that
has given a Subsidiary Guarantee, to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, Holdings or any Restricted Subsidiary; provided that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted
Payments" covenant described above. The Board of Directors may designate
any Unrestricted Subsidiary to be a Restricted Subsidiary of Holdings;
provided that immediately after giving effect to such designation (x)
Holdings could Incur $1.00 of additional Indebtedness under the first
paragraph of the "Incurrence of Indebtedness and Issuance of New Preferred
Stock" covenant described above and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Transfer Agent by promptly filing with
the Transfer Agent a copy of the resolution of the Board of Directors
giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing provisions.
-86-
<PAGE>
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if 98% or more of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
DESCRIPTION OF EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Debenture Indenture among Holdings, ICG, as guarantor, and Norwest Bank
Colorado, National Association, as trustee or such other trustee as may
qualify under the Trust Indenture Act and be selected by Holdings (the
"Trustee"). A copy of the form of Exchange Debenture Indenture is available
from Holdings upon request. The terms of the Exchange Debentures include
those stated in the Exchange Debenture Indenture and those made part of the
Exchange Debenture Indenture by reference to the Trust Indenture Act.
Prospective holders of the Exchange Debentures are referred to the Exchange
Debenture Indenture and the Trust Indenture Act for a statement of such
terms. The following summary of certain provisions of the Exchange
Debenture Indenture does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Trust Indenture Act and
to all of the provisions of the Exchange Debenture Indenture, including the
definitions of certain terms therein and those terms made a part of the
Exchange Debenture Indenture by reference to the Trust Indenture Act. The
definitions of certain terms used in the Exchange Debenture Indenture and
in the following summary are set forth below under "-Certain Definitions."
References herein to "$" refers to U.S. dollars.
GENERAL
The Exchange Debentures will be general unsecured obligations of
Holdings and will be limited in aggregate principal amount to the aggregate
liquidation preference of the New Preferred Stock (including shares of
Preferred Stock issued in payment of dividends), plus accrued and unpaid
dividends, on the date of exchange of the Preferred Stock into Exchange
Debentures (plus any additional Exchange Debentures issued in lieu of cash
interest as described herein). The Exchange Debentures will be issued in
fully registered form only in denominations of $1,000 and integral
multiples thereof (other than as described in "Description of Preferred
Stock-Exchange" or with respect to additional Exchange Debentures issued in
lieu of cash interest as described herein). The Exchange Debentures will be
senior subordinated obligations of Holdings, subordinated to all existing
and future Senior Indebtedness of Holdings and senior to all subordinated
obligations of Holdings.
Principal of, and premium, if any, and interest on the Exchange
Debentures will be payable, and the Exchange Debentures may be presented
for registration of transfer or exchange, at the office of the Paying Agent
and Registrar. At Holding's option, interest, to the extent paid in cash,
may be paid by check mailed to the registered address of Holders of the
Exchange Debentures as shown on the register for the Exchange Debentures.
The Trustee will initially act as Paying Agent and Registrar. Holdings may
change any Paying Agent and Registrar without prior notice to Holders of
the Exchange Debentures. Holders of the Exchange Debentures must surrender
Exchange Debentures to the Paying Agent to collect principal payments.
-87-
<PAGE>
The Exchange Debentures will mature on March 15, 2008. Each Exchange
Debenture will bear interest from the Exchange Debenture Issue Date or from
the most recent interest payment date to which interest has been paid or
provided for. Interest will be payable semiannually in cash (or, on or
prior to March 15, 2002, at the option of Holdings, in additional Exchange
Debentures, subject to the restrictions contained in the Senior Discount
Notes Indenture, the 12 1/2% Notes Indenture, the 13 1/2% Notes Indenture
and any other agreement of Holdings, Holdings (Canada) or ICG) in arrears
on each March 15 and September 15 commencing with the first such date after
the Exchange Debenture Issue Date. Interest on the Exchange Debentures will
be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed.
Because of Holding's option through March 15, 2002 to pay interest on
the Exchange Debentures by issuing additional Exchange Debentures, any
Exchange Debentures issued prior to that date will be treated as issued
with OID, unless under special rules for interest holidays the amount of
OID is treated as de minimis. See "Certain United States Federal Income Tax
Consequences."
The Exchange Debenture Indenture contains certain covenants which,
among other things, restrict the ability of Holdings, ICG and their
Restricted Subsidiaries to incur additional indebtedness for, among
other things, the acquisition of network assets, inventory and
equipment.
Subject to the covenants in their Indebtedness and applicable law,
Holdings and ICG may issue additional Exchange Debentures under the
Exchange Debenture Indenture. The Exchange Debentures, together with any
Exchange Debentures subsequently issued, will be treated as a single class
for all purposes under the Exchange Debenture Indenture.
GUARANTEE
Holdings' obligations under the Exchange Debentures will be fully and
unconditionally guaranteed (the "Debenture Guarantee") on a senior
subordinated basis by ICG (in such context, the "Guarantor"); provided that
the Debenture Guarantee shall not be enforceable against the Guarantor in
an amount in excess of the net worth of the Guarantor at the time that
determination of such net worth is, under applicable law, relevant to the
enforceability of such Debenture Guarantee. Such net worth shall include
any claim of the Guarantor against Holdings for reimbursement.
SUBORDINATION AND RANKING
The Exchange Debentures will be senior subordinated Indebtedness of
Holdings, subordinated to the prior payment when due of the principal of,
and premium, if any, and accrued and unpaid interest on, all existing and
future Senior Indebtedness of Holdings, including the New Notes, and senior
to the prior payment when due of the principal of, and premium, if any,
and accrued and unpaid interest on, all subordinated Indebtedness of
Holdings. ICG's guarantee of the Exchange Debentures will be senior
subordinated Indebtedness of ICG, subordinated to the prior payment
when due of the principal of, and premium, if any, and accrued and
unpaid interest on, all existing and future Senior Guarantor Indebtedness
of ICG, including the Note Guarantee, and senior to the prior payment
when due of the principal of, and premium, if any and accrued and unpaid
interest on, all subordinated Indebtedness of ICG. ICG and Holdings are
each holding companies and therefore must rely upon dividend and other
payments from their subsidiaries to generate the funds necessary to meet
their obligations, including the payment of principal and interest on
the Exchange Debentures.
Upon (a) any distribution to creditors of Holdings in a liquidation or
dissolution of Holdings or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Holdings or its property or
(b) an assignment for the benefit of creditors or any marshalling of
Holdings' assets and liabilities, the holders of Senior Indebtedness shall
be entitled to receive payment in full of all Obligations due in respect of
-88-
<PAGE>
such Senior Indebtedness (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior
Indebtedness) before holders of the Exchange Debentures shall be entitled
to receive any payment with respect to the Exchange Debentures. Until all
Obligations with respect to Senior Indebtedness are paid in full, any
distribution to which holders of the Exchange Debentures would be entitled
shall be made to holders of Senior Indebtedness. Notwithstanding the
foregoing, holders of the Exchange Debentures may receive securities that
are subordinated, at least to the same extent as the Exchange Debentures,
to Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness.
In addition, Holdings may not make any payment upon or in respect of
the Exchange Debentures (except in such subordinated securities) if (a) a
default in the payment of any principal, premium, if any, interest or other
Obligations with respect to any Designated Senior Indebtedness occurs and
is continuing beyond any applicable grace period (whether upon maturity, as
a result of acceleration or otherwise) or (b) any other default occurs and
is continuing with respect to any Designated Senior Indebtedness that
permits holders of such Designated Senior Indebtedness to accelerate its
maturity, and Holdings and the Trustee receive a notice of such default (a
"Payment Blockage Notice") from the holders, or from the trustee, agent or
other representative of the holders, of any such Designated Senior
Indebtedness. Payments on the Exchange Debentures may and shall be resumed
upon the earlier of (i) the date upon which the default is cured or waived
or (ii) in the case of a default referred to in clause (b) above, 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced within 360
days after the receipt by the Trustee of any prior Payment Blockage Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such
default shall have been cured or waived for a period of not less than 180
days.
Upon (a) any distribution to creditors of ICG in a liquidation or
dissolution of ICG or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to ICG or its property or (b)
an assignment for the benefit of creditors or any marshalling of ICG's
assets and liabilities, the holders of Senior Guarantor Indebtedness shall
be entitled to receive payment in full of all Obligations due in respect of
such Senior Guarantor Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Guarantor Indebtedness) before holders of the Exchange Debentures
shall be entitled to receive any payment with respect to the Exchange
Debentures. Until all Obligations with respect to Senior Guarantor
Indebtedness are paid in full, any distribution to which holders of the
Exchange Debentures would be entitled shall be made to holders of Senior
Guarantor Indebtedness. Notwithstanding the foregoing, holders of the
Exchange Debentures may receive securities that are subordinated, at least
to the same extent as the Exchange Debentures, to Senior Guarantor
Indebtedness and any securities issued in exchange for Senior Guarantor
Indebtedness.
ICG may not make any payment upon or in respect of its Debenture
Guarantee (except in subordinated securities described in the second
paragraph above) if (a) a default in the payment of any principal, premium,
if any, interest or other Obligations with respect to any Designated Senior
Guarantor Indebtedness occurs and is continuing beyond any applicable grace
period (whether upon maturity, as a result of acceleration or otherwise) or
(b) any other default occurs and is continuing with respect to any
Designated Senior Guarantor Indebtedness that permits holders of such
Designated Senior Guarantor Indebtedness to accelerate its maturity, and
ICG and the Trustee receive a notice of such default (a "Guarantor Payment
Blockage Notice") from the holders, or from the trustee, agent or other
representative of the holders, of any such Designated Senior Guarantor
Indebtedness. Payments on the Exchange Debentures may and shall be resumed
upon the earlier of (i) the date upon which the default is cured or waived
or (ii) in the case of a default referred to in clause (b) above, 179 days
after the date on which the applicable Guarantor Payment Blockage Notice is
received, unless the maturity of any Designated Senior Guarantor
Indebtedness has been accelerated. No new period of payment blockage may be
commenced within 360 days after the receipt by the Trustee of any prior
Guarantor Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Guarantor Payment Blockage
-89-
<PAGE>
Notice to the Trustee shall be, or be made, the basis for a subsequent
Guarantor Payment Blockage Notice unless such default shall have been cured
or waived for a period of not less than 180 days.
The Exchange Debenture Indenture will further require that Holdings
promptly notify holders of Senior Indebtedness if payment on the Exchange
Debentures is accelerated because of an Event of Default.
"Designated Senior Indebtedness" under the Exchange Debenture
Indenture is defined to mean the Indebtedness specified in clause (i)(A) of
the definition of Senior Indebtedness and any Indebtedness constituting
Senior Indebtedness that, at the date of determination, has an aggregate
principal amount of at least $25 million and that is specifically
designated by Holdings in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Designated Senior Guarantor Indebtedness" under the Exchange
Debenture Indenture is defined to mean the Indebtedness specified in clause
(i)(A) of the definition of Senior Guarantor Indebtedness and any
Indebtedness constituting Senior Guarantor Indebtedness that, at the date
of determination, has an aggregate principal amount of at least $25 million
and that is specifically designated by the Guarantor in the instrument
creating or evidencing such Senior Guarantor Indebtedness as "Designated
Guarantor Senior Indebtedness."
"Senior Guarantor Indebtedness" means (i) Indebtedness of the
Guarantor under its Guarantee of the New Notes and its Guarantee under the
Senior Discount Notes Indenture, its Guarantee of the 13 1/2% Notes and the
12 1/2% Notes and its Guarantee under the 13 1/2% Notes Indenture and the
12 1/2% Notes Indenture and all fees, expenses and indemnities payable in
connection with any of the foregoing and (ii) all other Indebtedness of the
Guarantor (other than the Debenture Guarantee), including principal and
interest on such Indebtedness, unless such Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is pari passu with, or subordinated in right of
payment to, the Debenture Guarantee; provided that the term "Senior
Guarantor Indebtedness" shall not include (a) any Indebtedness of the
Guarantor that, when Incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code, was without recourse
to the Guarantor, (b) any Indebtedness of the Guarantor to a Subsidiary of
the Guarantor or to a joint venture in which the Guarantor has an interest,
(c) any Indebtedness of the Guarantor, to the extent not permitted by the
"Limitation on Indebtedness" or the "Senior Subordinated Indebtedness"
covenants described below, (d) any repurchase, redemption or other
obligation in respect of Redeemable Stock, (e) any Indebtedness to any
employee of the Guarantor or any of its Subsidiaries, (f) any liability for
federal, state, local or other taxes owed or owing by the Guarantor, (g)
the Guarantor's obligations with respect to the Convertible Subordinated
Notes or (h) any trade payables. Senior Indebtedness will also include
interest accruing subsequent to events of bankruptcy of the Guarantor at
the rate provided for in the document governing such Senior Guarantor
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under federal bankruptcy law.
"Senior Indebtedness" means (i) Indebtedness of Holdings under the New
Notes and the Senior Discount Notes Indenture, the 12 1/2% Notes and the 12
1/2% Notes Indenture, the 13 1/2% Notes and the 13 1/2% Notes Indenture and
all fees, expenses and indemnities payable in connection with any of the
foregoing and (ii) all other Indebtedness of Holdings (other than the
Exchange Debentures), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is
pari passu with, or subordinated in right of payment to, the Exchange
Debentures; provided that the term "Senior Indebtedness" shall not include
(a) any Indebtedness of Holdings that, when Incurred and without respect to
any election under Section 1111(b) of the United States Bankruptcy Code,
was without recourse to Holdings, (b) any Indebtedness of Holdings to a
Subsidiary of Holdings or to a joint venture in which Holdings has an
interest, (c) any Indebtedness of Holdings, to the extent not permitted by
the "Limitation on Indebtedness" or the "Senior Subordinated Indebtedness"
covenants described below, (d) any repurchase, redemption or other
obligation in respect of Redeemable Stock, (e) any Indebtedness to any
employee of Holdings or any of its Subsidiaries, (f) any liability for
federal, state, local or other taxes owed or owing by Holdings or (g) any
-90-
<PAGE>
trade payables. Senior Indebtedness will also include interest accruing
subsequent to events of bankruptcy of Holdings at the rate provided for in
the document governing such Senior Indebtedness, whether or not such
interest is an allowed claim enforceable against the debtor in a bankruptcy
case under federal bankruptcy law.
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of the Exchange Debentures
may recover less ratably than other creditors of Holdings or ICG. ICG and
Holdings are expected to incur substantial amounts of additional
indebtedness in the future, subject to compliance with the limitations
contained in the Senior Discount Notes Indenture, the 12 1/2% Notes
Indenture, the 13 1/2% Notes Indenture and the Exchange Debenture
Indenture. See "Risk Factors-Substantial Indebtedness; Ability to Service
Debt" and "-Holding Company Reliance on Subsidiaries' Funds; Priority of
Creditors; Subordination of Exchange Debentures."
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable at Holdings' option on or
after March 15, 2002. Thereafter, the Exchange Debentures will be subject
to redemption at the option of Holdings, in whole or in part, at any time
upon not less than 30 nor more than 60 days' prior notice mailed by first
class mail to each Holder's last address as it appears in the Security
Register, at the redemption prices (expressed as a percentage of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
applicable redemption date (subject to the right of Holders of record on
the relevant Regular Record Date that is on or prior to the redemption date
to receive interest due on an Interest Payment Date), if redeemed during
the 12-month period beginning on March 15 of the years indicated below:
Year Percentage
---- ----------
2002 . . . . . 107.0000%
2003 . . . . . 104.6667%
2004 . . . . . 102.3333%
2005 and
thereafter. . . 100.0000%
In addition, at any time on or prior to March 15, 2000, Holdings may,
at its option from time to time, redeem Exchange Debentures having an
aggregate principal amount of up to 35% of the liquidation preference of
the Preferred Stock originally issued at a redemption price equal to 114%
of the principal amount thereof, with proceeds of one or more Public Equity
Offerings of Common Stock of (A) Holdings or (B) ICG, provided that (i)
with respect to the Public Equity Offering referred to in clause (B) above,
cash proceeds of such Public Equity Offering in an amount sufficient to
effect the redemption of Exchange Debentures to be so redeemed are
contributed by ICG to Holdings prior to such redemption and used by
Holdings to effect such redemption and (ii) such redemption occurs within
180 days after consummation of such Public Equity Offering.
If less than all of the Exchange Debentures are to be redeemed at any
time, the Trustee shall select the Exchange Debentures to be redeemed on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate (and in such manner as complies with
applicable legal and stock exchange requirements, if any); provided that no
Exchange Debentures with a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail
at least 30 but no more than 60 days before the redemption date to each
Holder of Exchange Debentures to be redeemed at its registered address. If
any Exchange Debenture is to be redeemed in part only the notice of
redemption that related to such Exchange Debenture shall state the portion
of the principal amount to be redeemed. A new Exchange Debenture in
principal amount equal to the unredeemed portion will be issued in the name
of the Holder thereof upon cancellation of the original Exchange Debenture,
and after the redemption date, interest will cease to accrue on the
Exchange Debentures called for redemption.
-91-
<PAGE>
REPURCHASE OF EXCHANGE DEBENTURES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Holdings will be required
(whether or not funds are available therefor) to make an offer (the "Change
of Control Offer") to each holder of Exchange Debentures to repurchase all
or any part of such holder's Exchange Debentures at a cash purchase price
equal to 101% of the aggregate principal amount thereof, plus an amount in
cash equal to accumulated and unpaid interest, if any, accrued to the date
of purchase. The Change of Control Offer must be made within 30 days
following a Change of Control, must remain open for at least 30 and not
more than 40 days and must comply with the requirements of Rule 14e-1 under
the Exchange Act and any other applicable securities laws and regulations.
Notwithstanding the foregoing, Holdings will not be required to make a
Change of Control Offer if any of the New Notes, 12 1/2% Notes or 13 1/2%
Notes are outstanding upon the occurrence of a Change of Control unless all
of the New Notes, 12 1/2% Notes and 13 1/2% Notes tendered pursuant to the
"Change of Control Offers" with respect thereto are repurchased as a result
of such Change of Control, in which case the date on which all New Notes,
12 1/2% Notes and 13 1/2% Notes (and any other Indebtedness of Holdings
having provisions similar to Section 4.04(x) of the Senior Discount Notes
Indenture) are so repurchased will, under the Exchange Indenture, be deemed
to be the date on which such Change of Control shall have occurred.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of Voting Stock having more than 40% of the voting power of
the total Voting Stock of ICG on a fully diluted basis; (ii) individuals
who on the Closing Date constitute the Board of Directors of ICG (together
with any new directors whose election by the Board of Directors or whose
nomination for election by ICG's stockholders was approved by a vote of at
least a majority of the members of the Board of Directors then in office
who either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board of
Directors then in office; or (iii) all of the Common Stock of Holdings is
not beneficially owned by ICG.
None of the provisions in the Exchange Debenture Indenture relating to
a purchase upon a Change of Control are waivable by Holdings' Board of
Directors. Holdings could, in the future, enter into certain transactions,
including certain recapitalizations of Holdings, that would not constitute
a Change of Control, but would increase the amount of indebtedness
outstanding at such time. If a Change of Control were to occur, Holdings
would be obligated to offer to repurchase all of the New Notes, 12 1/2%
Notes and 13 1/2% Notes prior to making an offer to repurchase Exchange
Debentures, and there can be no assurance that Holdings would have
sufficient funds to pay the purchase price for all the Exchange Debentures
that Holdings is required to purchase. In the event that Holdings were
required to purchase outstanding Exchange Debentures pursuant to a Change
of Control Offer, Holdings expects that it would need to seek third-party
financing, to the extent it does not have available funds, to meet its
purchase obligations. However, there can be no assurance that Holdings
would be able to obtain such financing. In addition, Holdings' ability to
purchase Exchange Debentures may be limited by other then-existing
agreements.
CERTAIN COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Exchange Debenture Indenture, the
Guarantor will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the Exchange Debentures, the
Debenture Guarantee and Indebtedness outstanding on the Exchange Debenture
Issue Date); provided that the Guarantor and Holdings may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness
and the receipt and application of the proceeds therefrom, the Indebtedness
to EBITDA Ratio would be greater than zero and less than 5:1.
-92-
<PAGE>
Notwithstanding the foregoing, the Guarantor and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness of the Guarantor or Holdings outstanding at any
time, which Indebtedness generates gross proceeds to the Guarantor or
Holdings of up to $900 million, less the gross proceeds of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below; (ii) Indebtedness to the Guarantor or any of its
Wholly Owned Restricted Subsidiaries; provided that any subsequent issuance
or transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Guarantor
or another Wholly Owned Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii); (iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness, other than Indebtedness Incurred under clause (i), (ii), (v),
(vi), (viii), (ix), (xi) or (xii) of this paragraph, and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund the
Exchange Debentures or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Exchange Debentures or the
Debenture Guarantee shall only be permitted under this clause (iii) if (A)
in case the Exchange Debentures are refinanced in part or the Indebtedness
to be refinanced is pari passu with the Exchange Debentures or the
Debenture Guarantee, as the case may be, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such
new Indebtedness is outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Exchange Debentures or
the Debenture Guarantee, as the case may be, (B) in case the Indebtedness
to be refinanced is subordinated in right of payment to the Exchange
Debentures or the Debenture Guarantee, as the case may be, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Exchange
Debentures or the Debenture Guarantee, as the case may be, at least to the
extent that the Indebtedness to be refinanced is subordinated to the
Exchange Debentures or the Debenture Guarantee, as the case may be and (C)
such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Guarantor or Holdings be refinanced by means
of any Indebtedness of any Restricted Subsidiary of the Guarantor or
Holdings, as the case may be, pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided
in the ordinary course of business, (B) under Currency Agreements and
Interest Rate Agreements; provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of
Holdings or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of Holdings (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of Holdings for the purpose of
financing such acquisition), in a principal amount at maturity not to
exceed the gross proceeds actually received by Holdings or any Restricted
Subsidiary in connection with such disposition; (v) Indebtedness of the
Guarantor or, to the extent the proceeds referred to below are contributed
to Holdings, Holdings, not to exceed, at any one time outstanding, twice
the amount of Net Cash Proceeds received by the Guarantor after the Closing
Date from the issuance and sale of its Capital Stock (other than Redeemable
Stock); provided that such Indebtedness does not mature prior to the Stated
Maturity of the Exchange Debentures and has an Average Life longer than the
Exchange Debentures; (vi) Strategic Investor Subordinated Indebtedness;
(vii) Indebtedness of the Guarantor or Holdings, to the extent the proceeds
thereof are immediately used after the Incurrence thereof to purchase
Exchange Debentures or 14 1/4% Exchange Debentures, as the case may be,
tendered in an Offer to Purchase made as a result of a Change of Control or
a change of control, as the case may be; (viii) Indebtedness of any
Restricted Subsidiary of the Guarantor Incurred pursuant to any credit
agreement (including equipment leasing or financing agreements) of such
Restricted Subsidiary in effect on August 8, 1995 (or any agreement
-93-
<PAGE>
refinancing Indebtedness under such credit agreement), up to the amount of
the commitment under such credit agreement on August 8, 1995; (ix)
Indebtedness of the Guarantor or Holdings, in an amount not to exceed $100
million at any one time outstanding, consisting of Capitalized Lease
Obligations with respect to assets that are used or useful in the
telecommunications business of the Guarantor or its Restricted
Subsidiaries; (x) Indebtedness incurred to defease the Exchange Debentures;
(xi) Indebtedness of any Person that becomes a Restricted Subsidiary of the
Guarantor after the Closing Date, which Indebtedness exists or for which
there is a commitment to lend at the time such Person becomes a Restricted
Subsidiary, and subsequent Incurrences thereof ("Acquired Indebtedness"),
in an accreted amount not to exceed $50 million at any one time outstanding
in aggregate for all such Restricted Subsidiaries; provided that such
Acquired Indebtedness does not exceed 65% of the consideration (calculated
by including the Acquired Indebtedness as part of such consideration) for
the acquisition of such Person; (xii) Indebtedness of the Guarantor or
Holdings, in an amount not to exceed $30 million at any one time
outstanding, consisting of letters of credit and similar arrangements used
to support obligations of the Guarantor or any of its Restricted
Subsidiaries with respect to the acquisition of (by purchase, lease or
otherwise), construction of, or improvements on, assets that will be used
or useful in the telecommunications business of the Guarantor or its
Restricted Subsidiaries; and (xiii) Indebtedness Incurred to finance the
cost (including the cost of design, development, construction, installation
or integration) of assets, equipment or inventory used or useful in the
telecommunications business of the Guarantor or any of its Restricted
Subsidiaries that is acquired by the Guarantor or any of its Restricted
Subsidiaries after the Closing Date.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not
be included. For purposes of determining compliance with this "Limitation
on Indebtedness" covenant, in the event that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness or Redeemable
Stock described in the above clauses, Holdings, in its sole discretion,
shall classify such item of Indebtedness or Redeemable Stock and only be
required to include the amount and type of such Indebtedness or Redeemable
Stock in one of such clauses.
Limitation on Restricted Payments
So long as any of the Exchange Debentures are outstanding, the
Guarantor will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital
Stock (other than Redeemable Stock) of the same class held by such holders
or in options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Guarantor or any of its Restricted
Subsidiaries (and other than pro rata dividends or distributions on Common
Stock of Restricted Subsidiaries), (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of the Guarantor or
any Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the
Guarantor or any of its Wholly Owned Restricted Subsidiaries (except for
Capital Stock of ChoiceCom, MTN, StarCom, Ohio LINX, FOTI and Zycom to the
extent the consideration therefor consists solely of Common Stock (other
than Redeemable Stock) of the Guarantor transferred in compliance with the
Securities Act), (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of Holdings or the
Guarantor that is subordinated in right of payment to the Exchange
Debentures or the Debenture Guarantee, as the case may be; or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments
or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) the Guarantor could not
Incur at least $1.00 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant or (C) the aggregate amount expended
for all Restricted Payments (the amount so expended, if other than in cash,
to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution)
after the date of the Exchange Debenture Indenture shall exceed the sum of
-94-
<PAGE>
(1) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of such
amount) (determined by excluding income resulting from transfers of assets
by the Guarantor or a Restricted Subsidiary to an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one accounting
period) beginning on the first day of the fiscal quarter immediately
following the Closing Date and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been filed
pursuant to the "Reports" covenant plus (2) the aggregate Net Cash Proceeds
received by the Guarantor after the Closing Date from the issuance and sale
permitted by the Exchange Debenture Indenture of its Capital Stock (other
than Redeemable Stock) to a Person who is not a Subsidiary of the
Guarantor, or from the issuance to a Person who is not a Subsidiary of the
Guarantor of any options, warrants or other rights to acquire Capital Stock
of the Guarantor (in each case, exclusive of any Redeemable Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Exchange Debentures) plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments
of loans or advances, or other transfers of assets, in each case to the
Guarantor or any Restricted Subsidiary (except to the extent any such
payment is included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed the amount of Investments previously made by
the Guarantor and its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Exchange Debentures or the Debenture Guarantee, as
the case may be, including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of the "Limitation on
Indebtedness" covenant; (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Guarantor or Holdings (or options,
warrants or other rights to acquire such Capital Stock) and with respect to
any preferred stock, the payment of accrued dividends thereon, in exchange
for, or out of the proceeds of a substantially concurrent issuance or sale
of, shares of Capital Stock (other than Redeemable Stock) of the Guarantor
or Holdings; provided that the redemption of any preferred stock and the
payment of accrued dividends thereon pursuant to any mandatory redemption
feature thereof and any redemption of any other Capital Stock and with
respect to any preferred stock, the payment of accrued dividends thereon
(or options, warrants or other rights to acquire such Capital Stock) shall
be deemed to be "substantially concurrent" with such issuance and sale if
the required notice with respect to such redemption is irrevocably given by
a date which is no later than five Business Days after receipt of the
proceeds of such issuance and sale and such redemption and payment is
consummated within the period provided for in the documents providing for
the redemption of such preferred stock or the documents governing the
redemption of such other Capital Stock, as the case may be; (iv) the
acquisition of Indebtedness of Holdings or the Guarantor which is
subordinated in right of payment to the Exchange Debentures or the
Debenture Guarantee, as the case may be, in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the Capital
Stock of the Guarantor (other than Redeemable Stock); (v) payments or
distributions, in the nature of satisfaction of dissenters' rights,
pursuant to or in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Exchange Debenture
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of Holdings or the Guarantor;
(vi) Investments, not to exceed $10 million in aggregate, each evidenced by
a senior promissory note payable to Holdings that provides that it will
become due and payable prior to (or, in the case of acceleration,
concurrently with) any required repayment (including pursuant to an Offer
to Purchase in connection with a Change of Control) of the Exchange
Debentures; (vii) Investments, not to exceed $5 million in the aggregate,
that meet the requirements of clause (vi) above; provided that the Board of
Directors of the Guarantor shall have determined, in good faith, that each
such Investment under this clause (vii) will enable the Guarantor, Holdings
or one of their Restricted Subsidiaries to obtain additional business that
it might not be able to obtain without the making of such Investment;
(viii) with respect to preferred stock permitted to be issued and sold by
-95-
<PAGE>
the "Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant, the payment (A) of dividends on such preferred
stock in additional shares of preferred stock and (B) of cash dividends on
such preferred stock and accrued interest on unpaid dividends, in each case
after May 1, 2001; (ix) the repurchase, in the event of a Change of
Control, of preferred stock of Holdings or the Guarantor and Indebtedness
of Holdings or the Guarantor into which such preferred stock has been
exchanged; provided that prior to repurchasing such preferred stock or
Indebtedness, Holdings or the Guarantor, as the case may be, shall have
made a Change of Control Offer to repurchase the Exchange Debentures in
accordance with the terms of the Exchange Debenture Indenture (and an offer
to repurchase other Indebtedness, if required by the terms thereof, in
accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any Exchange Debentures
(and other Indebtedness) properly tendered in connection with such Change
of Control Offer for the Exchange Debentures or change of control offer for
such other Indebtedness; and (x) the issuance of Indebtedness permitted to
be issued under the Exchange Debenture Indenture in exchange for preferred
stock; provided that the Incurrence of such Indebtedness complies with the
"Limitation on Indebtedness" covenant; provided that, except in the case of
clauses (i) and (iii), no Default or Event of Default shall have occurred
and be continuing or occur as a consequence of the actions or payments set
forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clauses (ii), (viii)(A)
and (x) thereof), and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (iii) or (iv) shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to
any subsequent Restricted Payments. Notwithstanding the foregoing, in the
event the proceeds of an issuance of Capital Stock of the Guarantor are
used for the redemption, repurchase or other acquisition of the Exchange
Debentures, or Indebtedness that is pari passu with or senior to the
Exchange Debentures, then the Net Cash Proceeds of such issuance shall be
included in clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent such proceeds are not used
for such redemption, repurchase or other acquisition of such Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Exchange Debentures are outstanding, the
Guarantor will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted
Subsidiary owned by the Guarantor or any other Restricted Subsidiary, (ii)
pay any Indebtedness owed to the Guarantor or any other Restricted
Subsidiary, (iii) make loans or advances to the Guarantor or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Guarantor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Exchange Debenture Issue Date in the
Exchange Debenture Indenture or any other agreements in effect on the
Exchange Debenture Issue Date, and any extensions, refinancings, renewals
or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason
of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Guarantor or any
Restricted Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired; (iv)
in the case of clause (iv) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue
-96-
<PAGE>
of any transfer of, agreement to transfer, option or right with respect to,
or Lien on, any property or assets of the Guarantor or any Restricted
Subsidiary not otherwise prohibited by the Exchange Debenture Indenture or
(C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Guarantor or any
Restricted Subsidiary in any manner material to the Guarantor or any
Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) imposed
pursuant to preferred stock of Holdings issued pursuant to clause (vi) of
the "Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant, or exchange debentures or exchange notes of
Holdings issued in exchange therefor; provided that such restrictions (A)
may include a prohibition (x) on payments on Capital Stock upon
liquidation, winding-up and dissolution of Holdings and (y) on the payment
of dividends on and the making of any distribution on, or the purchase,
redemption, retirement or other acquisition for value of, Capital Stock of
Holdings if dividends or other amounts on such preferred stock are unpaid
and (B) any restrictions imposed pursuant to preferred stock of Holdings
other than pursuant to clause (A) shall be no more restrictive than the
restrictions contained in the Exchange Debenture Indenture (assuming that
references to the Guarantor in the Exchange Debenture Indenture were
replaced with references to Holdings). Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Guarantor or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the
Guarantor or any of its Restricted Subsidiaries that secure Indebtedness of
the Guarantor or any of its Restricted Subsidiaries.
Limitation on Issuances and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares
of such Capital Stock) except (i) to the Guarantor or a Wholly Owned
Restricted Subsidiary; (ii) issuances or sales to foreign nationals of
shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law; (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; (iv) with respect to Common Stock of
ChoiceCom, MTN, StarCom and Zycom; provided that the proceeds of any such
sale under clause (iv) shall be applied in accordance with clause (A) or
(B) of the first paragraph of the "Limitation on Asset Sales" covenant
described below; (v) with respect to Common Stock of FOTI; provided that
FOTI shall not retain any net proceeds from such sales or issuances in
excess of $10 million in the aggregate and any net proceeds in excess of
such $10 million shall be received by, or paid promptly by FOTI to, the
Guarantor, Holdings or any Wholly Owned Restricted Subsidiary of the
Guarantor; and (vi) with respect to (A) preferred stock of Holdings having
an initial liquidation preference of up to $250 million and (B) any
preferred stock of Holdings issued as dividends on such preferred stock;
provided that such preferred stock does not require the payment of cash
dividends prior to May 1, 2001.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Guarantor will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of Holdings or any Indebtedness
of the Guarantor ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to
the Exchange Debenture Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Exchange Debentures by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Guarantor, Holdings or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee;
provided that this paragraph shall not be applicable to any Guarantee of
any Restricted Subsidiary that (x) existed at the time such Person became a
Restricted Subsidiary and (y) was not Incurred in connection with, or in
-97-
<PAGE>
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Exchange Debentures or
the Debenture Guarantee, then the Guarantee of such Guaranteed Indebtedness
shall be pari passu with, or subordinated to, the Subsidiary Guarantee or
(B) subordinated to the Exchange Debentures or the Debenture Guarantee,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to
the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Exchange Debentures or the Debenture
Guarantee, as the case may be.
If, on or prior to the Exchange Debenture Issue Date, any Restricted
Subsidiary shall have Guaranteed any Guaranteed Indebtedness, the Guarantor
shall cause such Restricted Subsidiary to grant a Subsidiary Guarantee
meeting the requirements of the preceding paragraph. Such Subsidiary
Guarantee shall be granted on the Exchange Debenture Issue Date.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person not an Affiliate of the
Guarantor, of all of Holdings' and each Restricted Subsidiary's Capital
Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Exchange Debenture Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee,
except a discharge or release by or as a result of payment under such
Guarantee.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or
the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Guarantor or
with any Affiliate of the Guarantor or any Restricted Subsidiary, except
upon fair and reasonable terms no less favorable to the Guarantor or such
Restricted Subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Guarantor or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to
the Guarantor or such Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Guarantor and any of its Wholly
Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of the Guarantor, Holdings (Canada) or Holdings who are not
employees of the Guarantor, Holdings (Canada) or Holdings; (iv) any
payments or other transactions pursuant to any tax-sharing agreement
between the Guarantor and any other Person with which the Guarantor files a
consolidated tax return or with which the Guarantor is part of a
consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (iv) of this
paragraph, the aggregate amount of which exceeds $2 million in value, must
be approved or determined to be fair in the manner provided for in clause
(i)(A) or (B) above.
Limitation on Liens
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, create, incur,
assume or suffer to exist any Lien on any of its assets or properties of
-98-
<PAGE>
any character, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the
Exchange Debentures (or, in the case of a Lien on assets or properties of
the Guarantor, the Debenture Guarantee) and all other amounts due under the
Exchange Debenture Indenture to be directly secured equally and ratably
with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Exchange Debentures or the
Debenture Guarantee, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of Holdings (Canada), Holdings or any of their Restricted
Subsidiaries created in favor of the Holders; (iii) Liens with respect to
the assets of a Restricted Subsidiary granted by such Restricted Subsidiary
to the Guarantor or a Wholly Owned Restricted Subsidiary to secure
Indebtedness owing to the Guarantor or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of the
Guarantor, Holdings or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; (v) Liens with respect
to assets or properties of any Person that becomes a Restricted Subsidiary
after the Closing Date; provided that such Liens do not extend to or cover
any assets or properties of the Guarantor or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject to
such Lien on the date such Person becomes a Restricted Subsidiary; and
provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi)
Permitted Liens; (vii) Liens securing Senior Indebtedness or Senior
Guarantor Indebtedness; or (viii) Liens, solely in favor of Acquired
Indebtedness, on Capital Stock of Persons that become Restricted
Subsidiaries of the Guarantor after the Closing Date.
Merger, Consolidation and Sale of Assets
Neither Holdings nor the Guarantor shall consolidate with, merge with
or into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with or
into a Wholly Owned Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person, Holdings or
the Guarantor) shall be issued or distributed to the stockholders of
Holdings or the Guarantor) or permit any Person to merge with or into
Holdings or the Guarantor unless: (i) Holdings or the Guarantor shall be
the continuing Person, or the Person (if other than Holdings or the
Guarantor) formed by such consolidation or into which Holdings or the
Guarantor is merged or that acquired or leased such property and assets of
Holdings or the Guarantor shall be a corporation organized and validly
existing under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture, executed
and delivered to the Trustee, all of the obligations of Holdings or the
Guarantor, as the case may be, and under the Exchange Debenture Indenture;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, Holdings or
the Guarantor, as the case may be, or any Person becoming the successor
obligor of the Exchange Debentures or the Debenture Guarantee, as the case
may be, shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Holdings or the Guarantor, as the case may be,
immediately prior to such transaction; (iv) immediately after giving effect
to such transaction on a pro forma basis Holdings, or any Person becoming
the successor obligor of the Exchange Debentures, as the case may be, could
Incur at least $1.00 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant; and (v) Holdings delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv) above) and an Opinion of
Counsel, in each case stating that such consolidation, merger or transfer
and such supplemental indenture complies with this provision and that all
conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clauses (iii) and (iv) above do
not apply if, in the good faith determination of the Board of Directors of
the Guarantor, whose determination shall be evidenced by a Board
-99-
<PAGE>
Resolution, the principal purpose of such transaction is part of a plan to
change the jurisdiction of incorporation of Holdings or the Guarantor to a
state of the United States; and provided further that any such transaction
shall not have as one of its purposes the evasion of the foregoing
limitations.
Limitation on Asset Sales
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, consummate any
Asset Sale, unless (i) the consideration received by the Guarantor or such
Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments. In the event and
to the extent that the Net Cash Proceeds received by the Guarantor or its
Restricted Subsidiaries from one or more Asset Sales occurring on or after
the Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of Holdings and its Subsidiaries has been
prepared), then the Guarantor shall or shall cause the relevant Restricted
Subsidiary to (i) within six months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply
an amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Guarantor or Holdings, or Indebtedness
of any Restricted Subsidiary other than Holdings, in each case owing to a
Person other than the Guarantor or any of its Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to clause
(A) (or enter into a definitive agreement committing to so invest within
six months after the date of such agreement), in property or assets of a
nature or type or that are used in a business (or in a company having
property and assets of a nature or type, or engaged in a business) similar
or related to the nature or type of the property and assets of, or the
business of, the Guarantor and its Restricted Subsidiaries existing on the
date of such investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the six-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of
this "Limitation on Asset Sales" covenant. The amount of such excess Net
Cash Proceeds required to be applied (or to be committed to be applied)
during such six-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $10 million,
Holdings must commence, not later than the seventy-fifth Business Day
following the first day of such month, and consummate an Offer to Purchase
from the Holders on a pro rata basis an aggregate principal amount of
Exchange Debentures equal to the Excess Proceeds on such date, at a
purchase price equal to 101% of the aggregate principal amount of the
Exchange Debentures, plus, in each case, accrued interest (if any) to the
date of purchase.
Senior Subordinated Indebtedness
Neither the Guarantor nor Holdings will incur any Indebtedness, other
than the Exchange Debentures or the Debenture Guarantee, respectively, that
is expressly made subordinated in right of payment to any Senior
Indebtedness or Senior Guarantor Indebtedness, unless such Indebtedness, by
its terms and by the terms of any agreement or instrument pursuant to which
such Indebtedness is outstanding is expressly made pari passu with, or
subordinate in right of payment to, the Exchange Debentures or the
Debenture Guarantee, as the case may be, pursuant to provisions
substantially similar to those contained in Article Eleven of the Exchange
Debenture Indenture; provided that the foregoing limitations shall not
apply to distinctions between categories of Senior Indebtedness that exist
by reason of any Liens or Guarantees arising or created in respect of some
but not all Senior Indebtedness.
-100-
<PAGE>
Reports
So long as any Exchange Debentures are outstanding, Holdings and the
Guarantor shall file with the Commission the annual reports, quarterly
reports and the information, documents and other reports required to be
filed by Holdings with the Commission pursuant to Sections 13 or 15 of the
Exchange Act, whether or not Holdings has or is required to have a class of
securities registered under the Exchange Act, at the time it is or would be
required to file the same with the Commission and, within 15 days after
Holdings is or would be required to file such reports, information or
documents with the Commission, shall mail such reports, information and
documents to the Trustee and to holders of the Exchange Debentures.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Exchange Debenture Indenture: (a) default in the payment of principal of
(or premium, if any, on) any Exchange Debenture when the same becomes due
and payable at maturity, upon acceleration, redemption or otherwise whether
or not such payment is prohibited by Article Eleven of the Exchange
Debenture Indenture; (b) default in the payment of interest on any Exchange
Debenture when the same becomes due and payable, and such default continues
for a period of 30 days whether or not such payment is prohibited by
Article Eleven of the Exchange Debenture Indenture; (c) Holdings or the
Guarantor defaults in the performance of or breaches any other covenant or
agreement of Holdings or the Guarantor in the Exchange Debenture Indenture
or under the Exchange Debentures and such default or breach continues for a
period of 30 consecutive days after written notice to Holdings by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Exchange Debentures; (d) there occurs with respect to any issue or issues
of Indebtedness of Holdings, the Guarantor or any Significant Subsidiary
having an outstanding principal amount at maturity of $10 million or more
in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to
be due and payable prior to its Stated Maturity and such Indebtedness has
not been discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to
make a principal payment at the final (but not any interim) fixed maturity
and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (e) any final judgment or order
(not covered by insurance) for the payment of money in excess of $10
million in the aggregate for all such final judgments or orders against all
such Persons (treating any deductibles, self-insurance or retention as not
so covered) shall be rendered against Holdings, the Guarantor or any
Significant Subsidiary and shall not be paid or discharged, and there shall
be any period of 30 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; (f) a court having jurisdiction in the premises enters a decree
or order for (A) relief in respect of Holdings, the Guarantor or any
Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of Holdings, the Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of Holdings, the Guarantor or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of Holdings, the Guarantor or any
Significant Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days; or (g)
Holdings, the Guarantor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of Holdings, the
Guarantor or any Significant Subsidiary or for all or substantially all of
the property and assets of Holdings, the Guarantor or any Significant
Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to Holdings or the
Guarantor) occurs and is continuing under the Exchange Debenture Indenture,
-101-
<PAGE>
the Trustee or the Holders of at least 25% in aggregate principal amount of
the Exchange Debentures, then outstanding, by written notice to Holdings
(and to the Trustee if such notice is given by the Holders), may, and the
Trustee at the request of such Holders shall, declare the principal amount
of, premium, if any, and accrued interest, if any, on the Exchange
Debentures to be immediately due and payable. Upon a declaration of
acceleration, such principal amount, premium, if any, and accrued interest,
if any, shall be immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (d) above
has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering
such Event of Default pursuant to clause (d) shall be remedied or cured by
Holdings, the Guarantor or the relevant Significant Subsidiary or waived by
the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (f) or (g) above occurs with respect to Holdings or the
Guarantor, the principal amount of, premium, if any, and accrued interest,
if any, on the Exchange Debentures then outstanding shall ipso facto become
and be immediately due and payable without any declaration or other act on
the part of the Trustee or any Holder. The Holders of at least a majority
in principal amount of the outstanding Exchange Debentures by written
notice to Holdings and to the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if,
among other things, (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and accrued interest on
the Exchange Debentures that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction.
For information as to the waiver of defaults, see "-Modification and
Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Exchange Debentures may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Exchange Debenture Indenture, that may involve the Trustee in personal
liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders of Exchange Debentures not joining in
the giving of such direction and may take any other action it deems proper
that is not inconsistent with any such direction received from Holders of
Exchange Debentures. A Holder may not pursue any remedy with respect to the
Exchange Debenture Indenture or the Exchange Debentures unless: (i) the
Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Exchange Debentures make a written request to the Trustee to
pursue the remedy; (iii) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense; (iv)
the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) during such 60-day
period, the Holders of a majority in aggregate principal amount of the
outstanding Exchange Debentures do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to
the right of any Holder of an Exchange Debenture to receive payment of the
principal of, premium, if any, or accrued interest on, such Exchange
Debenture or to bring suit for the enforcement of any such payment, on or
after the due date expressed in the Exchange Debentures, which right shall
not be impaired or affected without the consent of the Holder.
The Exchange Debenture Indenture will require certain officers of
Holdings and the Guarantor to certify, on or before a date not more than 90
days after the end of each fiscal year of the Guarantor, that a review has
been conducted of the activities of Holdings, or the Guarantor, as the case
may be, and its Restricted Subsidiaries and Holdings', or the Guarantor's,
and its Restricted Subsidiaries' performance under the Exchange Debenture
Indenture and that Holdings and the Guarantor have fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment
of any such obligation, specifying each such default and the nature and
status thereof. Holdings and the Guarantor will also be obligated to notify
the Trustee of any default or defaults in the performance of any covenants
or agreements under the Exchange Debenture Indenture.
-102-
<PAGE>
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Exchange Debentures
("legal defeasance"). Such legal defeasance means that Holdings shall be
deemed to have paid and discharged the entire indebtedness represented by
the outstanding Exchange Debentures, except for (a) the rights of Holders
of outstanding Exchange Debentures to receive payments in respect of the
principal of, and premium, if any, and interest on, such Exchange
Debentures when such payments are due, or on the redemption date, as the
case may be, (b) Holdings' obligations with respect to the Exchange
Debentures concerning issuing temporary Exchange Debentures, registration
of Exchange Debentures, mutilated, destroyed, lost or stolen Exchange
Debentures and the maintenance of an office or agency for payment and money
for security payments held in trust, (c) the rights, powers, trust, duties
and immunities of the Trustee, and Holdings' obligations in connection
therewith and (d) the legal defeasance provisions of the Exchange Debenture
Indenture. In addition, Holdings may, at its option and at any time, elect
to have the obligations of Holdings released with respect to certain
covenants that are described in the Exchange Debenture Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the
Exchange Debentures. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Exchange Debentures.
In order to exercise either legal defeasance or covenant defeasance,
(i) Holdings must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Exchange Debentures, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Trustee, to pay the
principal of, and premium, if any, and interest on, the outstanding
Exchange Debentures on the stated maturity or on the applicable optional
redemption date, as the case may be, of such principal or installment of
principal of, or premium, if any, or interest on, the outstanding Exchange
Debentures; (ii) in the case of legal defeasance, Holdings shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) Holdings has
received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the Preferred Stock Issue Date, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that,
the holders of the outstanding Exchange Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of such
legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred; (iii) in the case of
covenant defeasance, Holdings shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the holders of the outstanding Exchange Debentures
will not recognize income, gain or loss for federal income tax purposes as
a result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the
date of such deposit or, insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
123rd day after the date of deposit; (v) such legal defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a
default under, the Exchange Debenture Indenture or any other material
agreement or instrument to which Holdings is a party or by which Holdings
is bound; (vi) Holdings shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by Holdings with the
intent of preferring the holders of Exchange Debentures over the other
creditors of Holdings or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and (vii) Holdings shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent relating to the legal
defeasance or the covenant defeasance have been complied with.
MODIFICATION AND WAIVER
Modifications and amendments of the Exchange Debenture Indenture may
be made by Holdings, the Guarantor and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the
-103-
<PAGE>
outstanding Exchange Debentures; provided, however, that no such
modification or amendment may, without consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Exchange Debenture, (ii) reduce the
principal amount of, or any premium, if any, payable upon the redemption
of, or the rate of interest on, any Exchange Debenture, (iii) adversely
affect the right of repayment at the option of any Holder of any Exchange
Debenture, (iv) change the currency in which principal of, or premium, if
any, or interest on, any Exchange Debenture is payable, (v) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Exchange Debenture, (vi) waive a default in the
payment of principal of, premium, if any, or interest on the Exchange
Debenture, (vii) reduce the percentage in principal amount of outstanding
Exchange Debentures the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Exchange Debenture Indenture or
for waiver of certain defaults, (viii) release the Guarantor from its
Debenture Guarantee or (ix) modify any of the provisions of Article Eleven
of the Exchange Debenture Indenture in a manner adverse to the Holders.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS,
OR EMPLOYEES
The Exchange Debenture Indenture provides that no recourse for the
payment of the principal of, premium, if any, or interest on any of the
Exchange Debentures or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or
agreement of Holdings or the Guarantor in the Exchange Debenture Indenture,
or in any of the Exchange Debentures or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of Holdings
or the Guarantor or of any successor Person thereof. Each Holder, by
accepting the Exchange Debentures, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Exchange Debenture Indenture provides that, except during the
continuance of a Default, the Trustee will not be liable, except for the
performance of such duties as are specifically set forth in such Exchange
Debenture Indenture. If an Event of Default has occurred and is continuing,
the Trustee will use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of
such person's own affairs.
The Exchange Debenture Indenture and provisions of the Trust Indenture
Act of 1939, as amended, incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of
Holdings or the Guarantor, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Exchange
Debenture Indenture. Reference is made to the Exchange Debenture Indenture
for the full definition of such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Guarantor and its Restricted
Subsidiaries for such period determined in conformity with GAAP; provided
that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any
Person (other than net income attributable to a Restricted Subsidiary) in
which any Person (other than the Guarantor or any of its Restricted
Subsidiaries) has a joint interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Guarantor or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during
-104-
<PAGE>
such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described
above (and in such case, except to the extent includable pursuant to clause
(i) above), the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Guarantor or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by
the Guarantor or any of its Restricted Subsidiaries; (iii) the net income
of any Restricted Subsidiary to the extent that the declaration or payment
of dividends or similar distributions by such Restricted Subsidiary of such
net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to Asset
Sales; (v) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described above, any
amount paid or accrued as dividends on preferred stock of the Guarantor or
any Restricted Subsidiary owned by Persons other than the Guarantor and any
of its Restricted Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Guarantor and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Guarantor and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Guarantor
and its Restricted Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Guarantor or any of
its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Guarantor or shall be
merged into or consolidated with the Guarantor or any of its Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Guarantor and its
Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by the Guarantor or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Guarantor or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person; provided that the property and assets
acquired are related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Guarantor or any of
its Restricted Subsidiaries to any Person other than the Guarantor or any
of its Restricted Subsidiaries of (i) all or any of the Capital Stock of
any Restricted Subsidiary, (ii) all or substantially all of the property
and assets of an operating unit or business of the Guarantor or any of its
Restricted Subsidiaries or (iii) any other property and assets of the
Guarantor or any of its Restricted Subsidiaries outside the ordinary course
of business of the Guarantor or such Restricted Subsidiary and, in each
case, that is not governed by the provisions of the Exchange Debenture
Indenture applicable to mergers, consolidations and sales of assets of the
Guarantor; provided that the meaning of "Asset Sale" shall not include (A)
sales or other dispositions of inventory, receivables and other current
-105-
<PAGE>
assets, and (B) dispositions of assets of the Guarantor or any of its
Restricted Subsidiaries, in substantially simultaneous exchanges for
consideration consisting of any combination of cash, Temporary Cash
Investments and assets that are used or useful in the telecommunications
business of the Guarantor or its Restricted Subsidiaries, if such
consideration has an aggregate fair market value substantially equal to the
fair market value of the assets so disposed of; provided, however, that
fair market value shall be determined in good faith by the Board of
Directors of ICG, whose determination shall be conclusive and evidenced by
a Board Resolution delivered to the Trustee; and provided further that any
cash or Temporary Cash Investments received by the Guarantor or any of its
Restricted Subsidiaries pursuant to any transaction described in clause (B)
above shall be applied in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described above.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
and (b) the amount of such principal payment by (ii) the sum of all such
principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Exchange Debenture Indenture, including,
without limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such
Person; and "Capitalized Lease Obligations" means the discounted present
value of the rental obligations under such lease.
"ChoiceCom" means CSW/ICG ChoiceCom, L.P., a Delaware limited
partnership.
"Closing Date" means the date on which the Preferred Stock is
originally issued under the Amended Articles.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation
expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (v) amortization expense, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income, and
(vi) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Guarantor and its Restricted Subsidiaries in
conformity with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced
(to the extent not otherwise reduced in accordance with GAAP) by an amount
equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient
of (1) the number of shares of outstanding Common Stock of such Restricted
Subsidiary not owned on the last day of such period by the Guarantor or any
of its Restricted Subsidiaries divided by (2) the total number of shares of
outstanding Common Stock of such Restricted Subsidiary on the last day of
such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
-106-
<PAGE>
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Guarantor or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Guarantor and its Restricted Subsidiaries
during such period; excluding, however, without duplication, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof
(but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net
Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the offering of the 13 1/2% Notes and the warrants issued
therewith, the 12 1/2% Notes, the 14 1/4% Preferred Stock, the New Notes
and/or the Preferred Stock, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with
GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly
or annual consolidated balance sheet of the Guarantor and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to
the date of such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to Redeemable
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the
Guarantor or any of its Restricted Subsidiaries, each item to be determined
in conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Convertible Subordinated Notes" means the 8% Convertible Subordinated
Notes and the 7% Convertible Subordinated Notes of Holdings (Canada).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Guarantor or any of its Restricted Subsidiaries against
fluctuations in currency values to or under which the Guarantor or any of
its Restricted Subsidiaries is a party or a beneficiary on the date of the
Exchange Debenture Indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Exchange Debenture Issue Date" means the date the Exchange Debentures
are originally issued under the Exchange Debenture Indenture.
"FOTI" means ICG Fiber Optic Technologies Inc., a Colorado
corporation.
"14 1/4% Exchange Debentures" means the 14 1/4% Senior Subordinated
Exchange Debentures due 2007 of Holdings which may be issued upon exchange
of the 14 1/4% Preferred Stock by Holdings.
"14 1/4% Preferred Stock" means the 14 1/4% Exchangeable Preferred
Stock mandatorily redeemable May 1, 2007 of Holdings, and any shares of
preferred stock issued as payment in kind dividends thereon.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios
and computations contained in the Exchange Debenture Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of
the covenants and with other provisions of the Exchange Debenture Indenture
shall be made without giving effect to (i) the amortization of any expenses
-107-
<PAGE>
incurred in connection with the offering of the 13 1/2% Notes and the
warrants issued therewith, the 12 1/2% Notes, the 14 1/4% Preferred Stock,
the New Notes and/or the Preferred Stock and (ii) except as otherwise
provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions or otherwise)
or (ii) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness or other obligation of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Holdings (Canada)" means ICG Holdings (Canada), Inc. and its
successors and assigns.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness. The term
"Incurrence" has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and
title thereto or the completion of such services, except Trade Payables,
(v) all obligations of such Person as lessee under Capitalized Leases, (vi)
all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the original issue
price of such Indebtedness and (ii) that Indebtedness shall not include (A)
any amount of money borrowed, at the time of the Incurrence of the related
Indebtedness, for the purpose of pre-funding any interest payable on such
related Indebtedness or (B) any liability for federal, state, local or
other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Guarantor,
Holdings and their Restricted Subsidiaries on a consolidated basis as at
the Transaction Date to (ii) the Consolidated EBITDA of the Guarantor for
the then most recent four full fiscal quarters for which reports have been
filed pursuant to the "Reports" covenant described above (such four full
fiscal quarter period being referred to herein as the "Four Quarter
Period"); provided that (x) pro forma effect shall be given to any
Indebtedness Incurred from the beginning of the Four Quarter Period through
the Transaction Date (including any Indebtedness Incurred on the
Transaction Date), to the extent outstanding on the Transaction Date, (y)
-108-
<PAGE>
if during the period commencing on the first day of such Four Quarter
Period through the Transaction Date (the "Reference Period"), the
Guarantor, Holdings or any of the Restricted Subsidiaries shall have
engaged in any Asset Sale, Consolidated EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the
assets which are the subject of such Asset Sale and any related retirement
of Indebtedness as if such Asset Sale and related retirement of
Indebtedness had occurred on the first day of such Reference Period or (z)
if during such Reference Period the Guarantor, Holdings or any of the
Restricted Subsidiaries shall have made any Asset Acquisition, Consolidated
EBITDA of the Guarantor shall be calculated on a pro forma basis as if such
Asset Acquisition and any related financing had occurred on the first day
of such Reference Period. In calculating this ratio for purposes of the
Amended Articles, the amount of outstanding Indebtedness shall be deemed to
include the liquidation preference of any preferred stock then outstanding.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of the Guarantor or its
Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition
of Capital Stock, bonds, notes, debentures or other similar instruments
issued by, such Person and shall include the designation of a Restricted
Subsidiary as an Unrestricted Subsidiary. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described above, (i) "Investment" shall include the fair market
value of the assets (net of liabilities) of any Restricted Subsidiary of
the Guarantor at the time that such Restricted Subsidiary of the Guarantor
is designated an Unrestricted Subsidiary and shall exclude the fair market
value of the assets (net of liabilities) of any Unrestricted Subsidiary at
the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Guarantor and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board of Directors
in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof, any
sale with recourse against the seller or any Affiliate of the seller, or
any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to the Guarantor or any
Restricted Subsidiary of the Guarantor) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
(i) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Guarantor and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that
either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts
to be provided by the Guarantor or any Restricted Subsidiary of the
Guarantor as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or
sale in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations (to the extent corresponding to the
-109-
<PAGE>
principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are
financed or sold with recourse to the Guarantor or any Restricted
Subsidiary of the Guarantor) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Notes" means the New Notes Due 2007 of Holdings, guaranteed by
ICG on a senior unsecured basis and issued on the Closing Date.
"Offer to Purchase" means an offer to purchase Exchange Debentures by
Holdings from the Holders commenced by mailing a notice to the Trustee and
each Holder stating: (i) the covenant pursuant to which the offer is being
made and that all Exchange Debentures validly tendered will be accepted for
payment on a pro rata basis; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed) (the "Payment Date");
(iii) that any Exchange Debenture not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless Holdings defaults in the
payment of the purchase price, any Exchange Debenture accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and
after the Payment Date; (v) that Holders electing to have an Exchange
Debenture purchased pursuant to the Offer to Purchase will be required to
surrender the Exchange Debenture, together with the form entitled "Option
of the Holder to Elect Purchase" on the reverse side of the Exchange
Debenture completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Exchange Debentures delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Exchange Debentures purchased; and (vii) that Holders whose Exchange
Debentures are being purchased only in part will be issued new Exchange
Debentures equal in principal amount to the unpurchased portion of the
Exchange Debentures surrendered; provided that each Exchange Debenture
purchased and each new Exchange Debenture issued shall be in a principal
amount of $1,000 or integral multiples thereof. On the Payment Date,
Holdings shall (i) accept for payment on a pro rata basis Exchange
Debentures or portions thereof tendered pursuant to an Offer to Purchase;
(ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Exchange Debentures or portions thereof, so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee or Transfer Agent,
as the case may be, all Exchange Debentures or portions thereof, so
accepted together with an Officers' Certificate specifying the Exchange
Debentures or portions thereof accepted for payment by Holdings. The Paying
Agent shall promptly mail to the Holders of Exchange Debentures so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Exchange
Debenture equal in principal amount to any unpurchased portion of the
Exchange Debenture surrendered; provided that each Exchange Debenture
purchased and each new Exchange Debenture issued shall be in a principal
amount of $1,000 or integral multiples thereof. Holdings will publicly
announce the results of an Offer to Purchase as soon as practicable after
the Payment Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. Holdings will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable, in the event that Holdings is required
to repurchase Exchange Debentures pursuant to an Offer to Purchase.
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into or
transfer or convey all or substantially all its assets to, the Guarantor or
a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Guarantor and
its Restricted Subsidiaries on the date of such Investment; (ii) a
Temporary Cash Investment; (iii) payroll, travel and similar advances to
-110-
<PAGE>
cover matters that are expected at the time of such advances ultimately to
be treated as expenses in accordance with GAAP; (iv) loans or advances to
employees made in the ordinary course of business in accordance with past
practice of the Guarantor or its Restricted Subsidiaries and that do not in
the aggregate exceed $2 million at any time outstanding; (v) stock,
obligations or securities received in satisfaction of judgments; and (vi)
Investments in an amount not to exceed, at any one time outstanding, all of
the net cash proceeds received by the Guarantor from the sale of its Common
Stock (to a Person other than one of its Subsidiaries) after the Closing
Date.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made; (iii)
Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security; (iv) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights of
way, municipal and zoning ordinances and similar charges, encumbrances,
title defects or other irregularities that do not materially interfere with
the ordinary course of business of the Guarantor or any of its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant
described above, (1) to finance the cost (including the cost of improvement
or construction) of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other
than such item of property or assets and any improvements on such item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Guarantor and its
Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering
property or assets under construction arising from progress or partial
payments by a customer of the Guarantor or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor
in the property subject to any Capitalized Lease or operating lease; (x)
Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation
becomes, or becomes a part of, any Restricted Subsidiary; provided that
such Liens do not extend to or cover any property or assets of the
Guarantor or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of the Guarantor or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment or
order against the Guarantor or any Restricted Subsidiary of the Guarantor
that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties
in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are
either within the general parameters customary in the industry and incurred
in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward
contracts, options, future contracts, futures options or similar agreements
or arrangements designed to protect the Guarantor or any of its Restricted
Subsidiaries from fluctuations in the price of commodities; (xvii) Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Guarantor or any of
-111-
<PAGE>
its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Guarantor and its Restricted
Subsidiaries prior to the Closing Date; and (xviii) Liens on or sales of
receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) of such Person's
preferred or preference stock, whether now outstanding or issued after the
date of the Exchange Debenture Indenture, including, without limitation,
all series and classes of such preferred or preference stock.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of Holdings or ICG pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Exchange Debentures, (ii) redeemable at the
option of the holder of such class or series of Capital Stock at any time
prior to the Stated Maturity of the Exchange Debentures, or (iii)
convertible into or exchangeable for Capital Stock referred to in clause
(i) or (ii) above or Indebtedness having a scheduled maturity prior to the
Stated Maturity of the Exchange Debentures; provided that any Capital Stock
that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the Stated Maturity of the Exchange
Debentures shall not constitute Redeemable Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions
contained in "Limitation on Asset Sales" and "Repurchase of Exchange
Debentures upon a Change of Control" covenants described above and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Guarantor's
or Holdings' repurchase of such Exchange Debentures, as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Exchange Debentures upon a Change of Control" covenants described above.
"Restricted Subsidiary" means any Subsidiary of the Guarantor other
than an Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Guarantor that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Guarantor,
accounted for more than 10% of the consolidated revenues of the Guarantor
and its Restricted Subsidiaries or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Guarantor
and its Restricted Subsidiaries, all as set forth on the most recently
available consolidated financial statements of the Guarantor for such
fiscal year.
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of Holdings owed to a Strategic Investor that is contractually subordinate
in right of payment to the Exchange Debentures to at least the following
extent: no payment of principal (or premium, if any) or interest on or
otherwise payable in respect of such Indebtedness may be made (whether as a
result of a default or otherwise) prior to the payment in full of all of
-112-
<PAGE>
the Guarantor's and Holdings' obligations under the Exchange Debentures;
provided, however, that prior to the payment of such obligations, interest
on Strategic Investor Subordinated Indebtedness may be payable solely in
kind or in Common Stock (other than Redeemable Stock) of the Guarantor.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 270 days of the date of
acquisition thereof, bankers' acceptances with maturities not exceeding 270
days, and overnight bank deposits, in each case issued by or with a bank or
trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $100 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term
of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing not more
than 180 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Guarantor) organized and in existence under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according
to Standard & Poor's Ratings Group, and (v) securities with maturities of
six months or less from the date of acquisition issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or Moody's Investors Service, Inc.
"13 1/2% Notes" means the 13 1/2% Senior Discount Notes Due 2005 of
Holdings guaranteed by Holdings (Canada) and ICG on a senior unsecured
basis.
"13 1/2% Notes Indenture" means the Indenture dated as of August 8,
1995, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 13 1/2% Notes.
"Trade Payables" means, with respect to any person, any accounts
payable or any other debt or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries
arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Guarantor or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"12 1/2% Notes" means the 12 1/2% Senior Discount Notes due 2006 of
Holdings guaranteed by Holdings (Canada) and ICG on a senior unsecured
basis.
"12 1/2% Notes Indenture" means the Indenture dated as of April 30,
1996, as amended, among Holdings, Holdings (Canada) and the Trustee
pursuant to which Holdings issued the 12 1/2% Notes.
-113-
<PAGE>
"Unrestricted Subsidiary" means (i) any Subsidiary of the Guarantor
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary of the Guarantor (including any newly
acquired or newly formed Subsidiary of the Guarantor), other than Holdings
or a Subsidiary that has given a Subsidiary Guarantee, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of,
or owns or holds any Lien on any property of, the Guarantor or any
Restricted Subsidiary; provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under
the "Limitation on Restricted Payments" covenant described above. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Guarantor; provided that immediately after giving effect
to such designation (x) the Guarantor could Incur $1.00 of additional
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant described above and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a
copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if 98% or more of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
-114-
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Reid & Priest LLP, counsel to the Company, has advised the Company
that the following summary as to legal matters expresses their opinion as
to the material anticipated federal income tax consequences of the
purchase, ownership and disposition of the New Notes, the New Preferred
Stock and the Exchange Debentures. Except where noted, it deals only with
New Notes, New Preferred Stock and Exchange Debentures held as capital
assets by United States Holders and does not deal with special situations,
such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding New Notes, New
Preferred Stock or Exchange Debentures as a part of a hedging or conversion
transaction or a straddle or United States Holders whose "functional
currency" is not the U.S. dollar. Furthermore, the discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, including final Treasury regulations
addressing debt instruments issued with original issue discount (the "OID
Regulations"), rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed
below. In addition, the discussion below includes certain matters as to
which Holdings has made determinations which it believes are accurate. ALL
PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, THE NEW PREFERRED
STOCK OR THE EXCHANGE DEBENTURES.
EXCHANGE OF NEW PREFERRED STOCK OR NEW NOTES
An exchange of the New Preferred Stock for the Old Preferred Stock, or
the New Notes for the Old Notes will not constitute a taxable event for
U.S. federal income tax purposes because the New Preferred Stock will not
be considered to differ materially in kind or extent from the Old Preferred
Stock and the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Preferred Stock received
by a holder will be treated as a continuation of the Old Preferred Stock
in the hands of such holder and the New Notes will be treated as a
continuation of the Old Notes in the hands of such holder. As a result,
holders who exchange their Old Preferred Stock for New Preferred Stock or
their Old Notes for New Notes will not recognize any income, gain or loss
for U.S. federal income tax purposes with respect to such exchange. The
following discussion assumes that an exchange of New Preferred Stock for
Old Preferred Stock or an exchange of New Notes for Old Notes will not be
treated as an exchange for federal income tax purposes.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, a "United States Holder" means a beneficial owner that
is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United
States or any political subdivision thereof, an estate the income of which
is subject to United States federal income taxation regardless of its
source, or a trust the administration of which is subject to the primary
supervision of a court within the United States and for which one or more
fiduciaries have the authority to control all substantial decisions. An
individual may, subject to certain exceptions, be deemed to be a resident
(as opposed to a non-resident alien) of the United States by virtue of
being present in the United States on at least 31 days in the calendar year
and for an aggregate of at least 183 days during a three-year period ending
in the current calendar year (counting for such purposes all of the days
present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). A "Non-United States Holder" is a holder that is not a
United States Holder.
-115-
<PAGE>
DIVIDENDS ON THE NEW PREFERRED STOCK
Distributions of cash or of additional New Preferred Stock on the New
Preferred Stock will be treated as dividends to United States Holders to
the extent of Holdings' current and accumulated earnings and profits as
determined under federal income tax principles. The amount of Holdings'
earnings and profits at any time will depend upon the future actions and
financial performance of Holdings. The amount of a distribution of
additional New Preferred Stock will equal the fair market value New
Preferred Stock distributed on the date of the distribution.
Holdings has determined that it does not presently have any current or
accumulated earnings and profits. Consequently, unless Holdings generates
earnings and profits in the future, distributions with respect to the New
Preferred Stock may not qualify as dividends for federal income tax
purposes. To the extent that the amount of a distribution on the New
Preferred Stock exceeds Holdings' current and accumulated earnings and
profits, such distributions will be treated as a nontaxable return of
capital and will be applied against and reduce the adjusted tax basis of
the New Preferred Stock in the hands of each United States Holder (but not
below zero), thus increasing the amount of any gain (or reducing the amount
of any loss) which would otherwise be realized by such United States Holder
upon the sale or other taxable disposition of such New Preferred Stock. The
amount of any such distribution which exceeds the adjusted tax basis of the
New Preferred Stock in the hands of the United States Holder will be
treated as capital gain and will be either long-term or short-term capital
gain depending on the United States Holder's holding period for the New
Preferred Stock.
Under Section 243 of the Code, corporate United States Holders
generally will be able to deduct 70% of the amount of any distribution
qualifying as a dividend. There are, however, many exceptions and
restrictions relating to the availability of such dividends-received
deduction. Section 246A of the Code reduces the dividends-received
deduction allowed to a corporate United States Holder that has incurred
indebtedness "directly attributable" to its investment in portfolio stock.
Section 246(c) of the Code requires that, in order to be eligible for the
dividends-received deduction, a corporate United States Holder must
generally hold the shares of New Preferred Stock for a 46-day minimum
holding period or a 91-day period in certain circumstances. A taxpayer's
holding period for these purposes is suspended during any period in which a
United States Holder has certain options or contractual obligations with
respect to substantially identical stock or holds one or more other
positions with respect to substantially identical stock that diminishes the
risk of loss from holding the New Preferred Stock. A proposal in President
Clinton's fiscal 1998 budget plan would (i) reduce the dividends-received
deduction from 70% to 50%, and (ii) modify the manner in which the 46 or 91
-day minimum holding period is determined. In addition, another proposal in
President Clinton's fiscal 1998 budget plan would eliminate the dividends
received deduction for certain limited term preferred stock such as the New
Preferred Stock. It is unclear whether and in what form such proposals will
be enacted.
Under Section 1059 of the Code a corporate United States Holder is
required to reduce its tax basis (but not below zero) in the New Preferred
Stock by the nontaxed portion of any "extraordinary dividend" if such stock
has not been held for more than two years before the earliest of the date
such dividend is declared, announced or agreed to. Generally, the nontaxed
portion of an extraordinary dividend is the amount excluded from income by
operation of the dividends-received deduction provisions of Section 243 of
the Code. An extraordinary dividend on the New Preferred Stock generally
would be a dividend that (i) equals or exceeds 5% of the corporate United
States Holder's adjusted tax basis in the New Preferred Stock, treating all
dividends having ex-dividend dates within an 85-day period as one dividend
or (ii) exceeds 20% of the corporate United States Holder's adjusted tax
basis in such stock, treating all dividends having ex-dividend dates within
a 365-day period as one dividend. In determining whether a dividend paid on
the New Preferred Stock is an extraordinary dividend, a corporate United
States Holder may elect to substitute the fair market value of the New
Preferred Stock for such United States Holder's tax basis for purposes of
applying these tests, provided such fair market value is established to the
satisfaction of the Secretary of Treasury as of the day before the ex-
dividend date. An extraordinary dividend also currently includes any amount
-116-
<PAGE>
treated as a dividend in the case of a redemption that is either non-pro
rata as to all stockholders or in partial liquidation of Holdings,
regardless of the stockholder's holding period and regardless of the size
of the dividend, including a redemption pursuant to Holdings' right to
redeem the New Preferred Stock for cash or exchange the New Preferred Stock
for Exchange Debentures. If any part of the nontaxed portion of an
extraordinary dividend is not applied to reduce the corporate United States
Holder's tax basis as a result of the limitation on reducing such basis
below zero, such part will be treated as gain upon sale or exchange of the
New Preferred Stock. However, a proposal in President Clinton's fiscal 1998
budget plan would require gain on the nontaxed portion of an extraordinary
dividend to be recognized at the time when the extraordinary dividend is
paid rather than at the time of the sale or exchange of the New Preferred
Stock to the extent the basis of the New Preferred Stock with respect to
which any extraordinary dividend is received would be reduced below zero.
It is unclear whether and in what form such legislation will be enacted.
Special rules exist with respect to extraordinary dividends for "qualified
preferred dividends." A qualified preferred dividend is any fixed dividend
payable with respect to any share of stock which (i) provides for fixed
preferred dividends payable not less frequently than annually and (ii) is
not in arrears as to dividends at the time the United States Holder
acquires such stock. A qualified preferred dividend does not include any
dividend payable with respect to any share of stock if the actual rate of
return of such stock exceeds 15%. Section 1059 does not apply to qualified
preferred dividends if the corporate United States Holder holds such stock
for more than five years. If the United States Holder disposes of such
stock before it has been held for more than five years, the amount subject
to extraordinary dividend treatment with respect to qualified preferred
dividends is limited to the excess of the actual rate of return over the
stated rate of return. Actual or stated rates of return are the actual or
stated dividends expressed as a percentage of the lesser of (1) the United
States Holder's tax basis in such stock or (2) the liquidation preference
of such stock. CORPORATE UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO
THEIR OWNERSHIP AND DISPOSITION OF THE NEW PREFERRED STOCK.
A corporate United States Holder's liability for alternative minimum
tax may be affected by the portion of the dividends received which such
corporate United States Holder deducts in computing taxable income. This
results from the fact that corporate stockholders are required to increase
alternative minimum taxable income by 75% of the excess of current earnings
and profits (with certain adjustments) over alternative minimum taxable
income (determined without regard to earnings and profit adjustments or the
alternative tax net operating loss deduction).
REDEMPTION PREMIUM
Under Section 305(c) of the Code and the applicable Treasury
regulations thereunder, if the redemption price of New Preferred Stock
exceeds its issue price, the difference ("redemption premium") may be
taxable as a constructive distribution of additional New Preferred Stock to
the United States Holder (treated as a dividend to the extent of Holdings'
current and accumulated earnings and profits and otherwise subject to the
treatment described above for distributions) over a certain period. Because
the New Preferred Stock provides for an optional right of redemption by
Holdings at a price in excess of the issue price, United States Holders
could be required to recognize such redemption premium under a constant
interest rate method similar to that described below for accruing OID (see
"-Original Issue Discount") if, based on all of the facts and
circumstances, the optional redemption is more likely than not to occur. If
stock may be redeemed at more than one time, the time and price at which
such redemption is most likely to occur must be determined based on all of
the facts and circumstances. Applicable Treasury regulations provide a
"safe harbor" under which a right to redeem will not be treated as more
likely than not to occur if (i) the issuer and the United States Holder are
not related within the meaning of the Treasury regulations; (ii) there are
no plans, arrangements or agreements that effectively require or are
intended to compel the issuer to redeem the stock (disregarding, for this
purpose, a separate mandatory redemption) and (iii) exercise of the right
to redeem would not reduce the yield of the stock, as determined under the
Treasury regulations. Further, the Treasury regulations provide that such
redemption premium is not taxable as a constructive distribution if it is
solely in the nature of a penalty for premature redemption. A redemption
premium is solely in the nature of a penalty for premature redemption if it
is paid as a result of changes in economic or market conditions over which
-117-
<PAGE>
neither the issuer nor the holder have control. Regardless of whether the
optional redemption is more likely than not to occur or whether the
redemption premium is solely in the nature of a penalty for premature
redemption, constructive dividend treatment will not result if the
redemption premium does not exceed a de minimis amount. Based on the
Treasury regulations, Holdings intends to take the position that the
existence of Holdings' optional redemption right does not result in a
constructive distribution to the United States Holders.
REDEMPTION AND EXCHANGE FOR EXCHANGE DEBENTURES
A redemption of shares of the New Preferred Stock for cash or an
exchange of the New Preferred Stock for Exchange Debentures will be a
taxable transaction on which a United States Holder will generally
recognize capital gain or loss (except to the extent of amounts received on
the exchange that are attributable to declared dividends, which will be
treated in the same manner as distributions described above) provided that
the redemption (i) results in complete termination of the holder's stock
interest in Holdings or (ii) results in a "meaningful reduction" in a
United States Holder's stock interest in Holdings. Whether a redemption
will result in a meaningful reduction depends on the particular holder's
facts and circumstances. In determining whether a United States Holder's
interest in Holdings has been reduced or terminated, the holder is deemed,
under the constructive ownership rules of Section 302(c) of the Code, to
own any shares of Holdings' stock that are owned, or deemed owned, by
certain related persons and entities and any shares that such holder, or
related person or entity, has the right to acquire by exercise of an
option. If the redemption of the New Preferred Stock does not result in a
complete termination or meaningful reduction, as described above, the
transaction would be treated as a distribution of cash or Exchange
Debentures, as the case may be. Such distribution will be treated in the
same manner as distributions described above. However, corporate holders
should be aware that to the extent such distribution is treated as a
dividend it would be an extraordinary dividend under Section 1059 of the
Code. If the redemption of the New Preferred Stock does result in a
complete termination or meaningful reduction, the gain or loss recognized
on such exchange will generally be equal to the difference between the
amount realized by the United States Holder of the New Preferred Stock and
such United States Holder's adjusted tax basis in the New Preferred Stock
surrendered in the redemption.
In the case of a redemption for cash, the amount realized will be the
cash received on the redemption. In the case of an exchange of New
Preferred Stock for Exchange Debentures, the amount realized on receipt of
the Exchange Debenture would be equal to the "issue price" of the Exchange
Debenture. Thus, the amount realized on the exchange will be equal to the
issue price of the Exchange Debentures plus any cash received on the
exchange (other than cash received with respect to declared dividends). The
issue price of an Exchange Debenture would be equal to its fair market
value if as of the exchange date the Exchange Debentures or the New
Preferred Stock are traded on an established securities market on or at any
time during the 60-day period ending 30 days after the exchange date. If
neither the New Preferred Stock nor the Exchange Debentures are so traded,
the issue price of the Exchange Debentures would be the stated principal
amount of the Exchange Debentures provided that the yield on the Exchange
Debentures is equal to or greater than the "applicable federal rate" in
effect at the time the Exchange Debenture is issued. If the yield on the
Exchange Debentures is less than such applicable federal rate, its issue
price under Section 1274 of the Code would be equal to the present value as
of the issue date of all payments to be made on the Exchange Debentures,
discounted at the applicable federal rate. It cannot be determined at the
present time whether the New Preferred Stock or the Exchange Debentures
will be, at the relevant time, traded on an established securities market
within the meaning of the OID Regulations.
Depending upon a United States Holder's particular circumstances, the
tax consequences of holding Exchange Debentures may be less advantageous
than the tax consequences of holding New Preferred Stock because, for
example, payments of interest on the Exchange Debentures will not be
eligible for any dividends-received deduction that may be available to
corporate United States Holders and because, as discussed below, the
Exchange Debentures may be issued with OID.
-118-
<PAGE>
PAYMENTS OF INTEREST ON THE NEW NOTES AND EXCHANGE DEBENTURES
The stated interest on a New Note and, if issued with OID, an Exchange
Debenture will not be treated as interest for federal income tax purposes,
but instead will be subject to the OID rules described below. If the
Exchange Debentures are not issued with OID, then interest on an Exchange
Debenture generally will be includible in a United States Holder's income
as ordinary income under the Holder's method of accounting.
In the event ICG makes interest payments to a United States Holder
pursuant to the Note Guarantee or the Debenture Guarantee, such Holder will
be required to include in income, as ordinary income, any such amounts.
ORIGINAL ISSUE DISCOUNT
The New Notes were, and the Exchange Debentures, if issued in exchange
for New Preferred Stock, may be, issued with OID, as further discussed
below. United States Holders of New Notes or Exchange Debentures issued
with OID will be subject to special tax accounting rules, as described in
greater detail below. Holders of such New Notes or Exchange Debentures
should be aware that they generally must include OID in gross income for
federal income tax purposes on an annual basis under a constant yield
accrual method. As a result, Holders will include OID in income in advance
of the receipt of cash attributable to that income. However, United States
Holders of New Notes or Exchange Debentures issued with OID generally will
not be required to include separately in income cash payments received on
such Notes or Debentures, even if denominated as interest, to the extent
such payments do not constitute qualified stated interest (as defined
below). The New Notes and Exchange Debentures issued with OID will be
referred to as "Original Issue Discount Debentures." Holdings will report
to United States Holders of New Notes on a timely basis the reportable
amount of OID and interest income based on its understanding of applicable
law and, if any Exchange Debentures are issued with OID, Holdings will
report such amounts to United States Holders of such Debentures.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES OF OWNING EXCHANGE DEBENTURES.
The amount of OID, if any, on a debt instrument is the excess of its
"stated redemption price at maturity" over its "issue price," subject to a
statutorily defined de minimis exception. The "issue price" of a debt
instrument issued for cash is equal to the first price (excluding sales to
bond houses and brokers) at which price a substantial amount of such debt
instruments are sold. The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other payments
required thereunder, other than payments of "qualified stated interest"
(defined generally as stated interest that is unconditionally payable in
cash or in property (other than the debt instruments of the issuer), at
least annually at a single fixed rate that appropriately takes into account
the length of intervals between payments).
Because interest on the New Notes is not payable until September 15,
2002, the stated interest on the New Notes will not be treated as qualified
stated interest. In addition, the New Notes were issued at a price that was
less than their stated principal amount. As a result, the New Notes will be
treated as having been issued with OID equal to the excess of their stated
redemption price at maturity (which will be equal to the sum of the
principal amount plus all payments of stated interest) over the issue price
of the Old Notes (which will be equal to the initial price at which a
substantial amount of Old Notes were sold (excluding sales to bond houses
and brokers)).
Because Holdings has the option through March 15, 2002 to pay interest
on the Exchange Debentures by issuing additional Exchange Debentures, if
any Exchange Debentures are issued on or prior to that date none of the
stated interest on the Exchange Debentures would be treated as qualified
stated interest unless under special rules for interest holidays the amount
of OID is treated as de minimis. Any Exchange Debentures so issued would be
treated as having been issued with OID equal to the excess of their stated
redemption price at maturity (which will be equal to the sum of the
principal amount plus all payments of stated interest) over their issue
price (which will be as described under the "-Redemption and Exchange for
Exchange Debentures", above). Any additional Exchange Debentures issued in
-119-
<PAGE>
lieu of cash would not be treated as debt instruments separate from the
Exchange Debentures upon which they were issued, but instead are aggregated
with such Exchange Debentures.
The right to issue additional Exchange Debentures in lieu of paying
cash interest through March 15, 2002 is treated for purposes of the
original issue discount provisions of the Code as an option to defer the
interest payments on the Exchange Debentures until maturity. Treasury
regulations provide that in the case of a debt instrument that provides the
issuer with an unconditional option or options exercisable during the term
of the debt instrument that, if exercised, require payments to be made on
the debt instrument under an alternative payment schedule, the yield and
maturity of such debt instrument for purposes of calculating OID are
determined by assuming the issuer exercises or does not exercise the option
in a manner that minimizes the yield on the debt instrument.
If the issue price of the Exchange Debentures is equal to their
principal amount, the yield to maturity of the Exchange Debentures if the
option to pay interest with additional Exchange Debentures is exercised
will be equal to the yield to maturity if the option is not exercised.
Accordingly, for purposes of calculating OID, it would be assumed that
Holdings will not exercise the option because exercise of the option
will not minimize the yield. If the option was in fact subsequently
exercised and additional Exchange Debentures were issued by Holdings in
lieu of cash, such additional Exchange Debentures would be aggregated
with the Exchange Debentures upon which they were issued, and OID would
be calculated for the remainder of the term of the Exchange Debentures
based upon an adjusted issue price which includes the principal amount
of the additional Exchange Debentures. As a result of such exercise,
United States Holders of Exchange Debentures would include OID in income
in advance of the receipt of cash, regardless of such Holders' regular
methods of accounting.
If the issue price of the Exchange Debentures is less than their
principal amount, the yield to maturity of the Exchange Debentures, if the
option to pay interest with additional Exchange Debentures is exercised,
will be less than the yield to maturity if the option is not exercised.
Accordingly, for purposes of calculating OID, it would be assumed that
Holdings will exercise the option because to do so will minimize the yield.
If Holdings does in fact exercise its option and issues additional Exchange
Debentures in lieu of cash, United States Holders of Exchange Debentures
will include OID in income in advance of the receipt of cash, regardless of
such Holders' regular methods of accounting. If Holdings subsequently makes
a cash payment instead of exercising its option and issuing an additional
Exchange Debenture, the cash payment made will be treated as a prepayment
of the Exchange Debentures, partially retiring such Exchange Debentures on
a pro rata basis on the date of such payment. Such retirement would be a
taxable exchange to the Holder of the Exchange Debenture.
If the Exchange Debentures are issued after March 15, 2002, Holdings
would not have the option to pay interest with additional Exchange
Debentures. In such event, (i) all interest payments on any Exchange
Debenture issued will be qualified stated interest, (ii) the redemption
price at maturity of any Exchange Debenture will be equal to its principal
amount, and (iii) any Exchange Debenture will therefore be issued with OID
only to the extent its principal amount exceeds its issue price (provided
that such excess is not de minimis).
The amount of OID includible in income by the initial United States
Holder of an Original Issue Discount Debenture is the sum of the "daily
portions" of OID with respect to the Original Issue Discount Debenture for
each day during the taxable year or portion of the taxable year in which
such United States Holder held such Debenture ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. The "accrual
period" for an Original Issue Discount Debenture may be of any length and
may vary in length over the term of the Original Issue Discount Debenture,
provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the
final day of an accrual period. The amount of OID allocable to any accrual
period is an amount equal to the excess, if any, of (a) the product of the
Original Issue Discount Debenture's adjusted issue price at the beginning
of such accrual period and its yield to maturity (determined on the basis
of compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) over (b) the sum of any qualified
stated interest allocable to the accrual period. OID allocable to a final
-120-
<PAGE>
accrual period is the difference between the amount payable at maturity
(other than a payment of qualified stated interest) and the adjusted issue
price at the beginning of the final accrual period. The yield of a New Note
is, rounded to two decimal places, 11.62%. Special rules will apply for
calculating OID for an initial short accrual period. The "adjusted issue
price" of an Original Issue Discount Debenture at the beginning of any
accrual period is equal to its issue price increased by the accrued OID for
each prior accrual period (determined without regard to the amortization of
any acquisition or bond premium, as described below) and reduced by any
payments made on such Debenture (other than qualified stated interest) on
or before the first day of the accrual period.
Both the New Notes and the Exchange Debentures may be redeemed prior
to their Stated Maturity at the option of Holdings. For purposes of
computing the yield of such instrument, Holdings will be deemed to exercise
or not exercise its option to redeem the Original Issue Discount Debentures
in a manner that minimizes the yield on the Original Issue Discount
Debentures. It is not anticipated that Holdings' ability to redeem prior to
stated maturity would affect the yield of such instrument.
In the event of a change of control, Holdings will be required to
offer to repurchase all of the New Notes and the Exchange Debentures. The
right of holders to require repurchase upon a Change of Control will not
affect the yield or maturity date of the New Notes or the Exchange
Debentures provided that, based on all the facts and circumstances as of
the issue date, the payment schedule on such Notes or Exchange Debentures
that does not reflect a change of control is significantly more likely than
not to occur. Holdings does not intend to treat the change of control
provisions of the New Notes or the Exchange Debentures as affecting the
computation of the yield to maturity of any New Notes or Exchange
Debentures.
United States Holders may elect to treat all interest on any New Note
or Exchange Debenture as OID and calculate the amount includible in gross
income under the constant yield method described above. For the purposes of
this election, interest includes stated interest, acquisition discount,
OID, de minimis OID, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium or
acquisition premium. The election is to be made for the taxable year in
which the United States Holder acquired the New Note or Exchange Debenture,
and may not be revoked without the consent of the Internal Revenue Service
(the "IRS"). UNITED STATES HOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS ABOUT THIS ELECTION.
MARKET DISCOUNT ON RESALE OF NEW NOTES OR EXCHANGE DEBENTURES
If a United States Holder purchases an Exchange Debenture (other than
an Original Issue Discount Debenture) for an amount less than its stated
redemption price at maturity or, in the case of an Original Issue Discount
Debenture, for an amount that is less than its adjusted issue price, the
amount of the difference will be treated as "market discount" for federal
income tax purposes, unless such difference is less than a specified de
minimis amount. However, with respect to a United States Holder who
purchased a New Note at original issuance, such instrument will not be
treated as issued with market discount unless it is purchased for less than
its issue price and the difference between the purchase price and the issue
price is greater than a specified de minimis amount. Under the market
discount rules, a United States Holder will be required to treat any
principal payment on a New Note or an Exchange Debenture, or any gain on
the sale, exchange, retirement or other disposition of a New Note or an
Exchange Debenture as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such New Note or Exchange Debenture at the time of such payment
or disposition. In addition, the United States Holder may be required to
defer, until the maturity of the New Note or the Exchange Debenture or its
earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such New Note or Exchange Debenture.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the New Note or
the Exchange Debenture, unless the United States Holder elects to accrue on
a constant interest method. A United States Holder of a New Note or the
-121-
<PAGE>
Exchange Debenture may elect to include market discount in income currently
as it accrues (on either a ratable or constant interest method), in which
case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired
on or after the first taxable year to which the election applies and may
not be revoked without the consent of the IRS.
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a New Note or an Exchange
Debenture for an amount that is greater than its adjusted issue price but
equal to or less than the sum of all amounts payable on the New Note or
Exchange Debenture after the purchase date, other than qualified stated
interest, will be considered to have purchased such New Note or Exchange
Debenture at an "acquisition premium." Under the acquisition premium rules,
the amount of OID, if any, which such United States Holder must include in
its gross income with respect to such New Note or Exchange Debenture for
any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
If at the time the New Preferred Stock is exchanged for Exchange
Debentures or at the time a subsequent United States Holder purchases
Exchange Debentures, the United States Holder's tax basis in any such
Exchange Debenture exceeds the sum of all amounts payable on the Exchange
Debenture after the exchange date or purchase date, other than qualified
stated interest, such excess may constitute "premium" and such United
States Holder will not be required to include any OID in income. A United
States Holder generally may elect to amortize bond premium over the
remaining term of the Exchange Debenture on a constant yield method. The
amount amortized in any year will be treated as a reduction of the United
States Holder's interest income from the Exchange Debenture. Bond premium
on an Exchange Debenture held by a United States Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Exchange Debenture. The election to
amortize bond premium on a constant yield method once made applies to all
debt obligations held or subsequently acquired by the electing United
States Holder on or after the first day of the first taxable year to which
the election applies and may not be revoked without the consent of the IRS.
REDEMPTION, SALE OR EXCHANGE OF NEW NOTES OR EXCHANGE DEBENTURES
The adjusted tax basis of a United States Holder who receives Exchange
Debentures in exchange for New Preferred Stock will, in general, be equal
to the issue price of such Exchange Debentures, increased by OID and market
discount previously included in income by the United States Holder and
reduced by any amortized premium and any cash payments on the Exchange
Debentures other than qualified stated interest. A United States Holder's
tax basis in a New Note will, in general, be the United States Holder's
cost therefor, increased by OID and market discount previously included in
income by the United States Holder and reduced by any cash payments on the
New Notes. Upon the redemption, sale, exchange or retirement of a New Note
or Exchange Debenture, a United States Holder will recognize gain or loss
equal to the difference between the amount realized upon the redemption,
sale, exchange or retirement (less any accrued qualified stated interest,
not previously taken into account, which will be taxable as such) and the
adjusted tax basis of the New Note or Exchange Debenture. Such gain or loss
will be capital gain or loss and will be long-term capital gain or loss if
at the time of redemption, sale, exchange or retirement the New Note or
Exchange Debenture has been held for more than one year.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
If the yield to maturity on Original Issue Discount Debentures equals
or exceeds the sum of (x) the "applicable federal rate" (as determined
under Section 1274(d) of the Code) in effect for the month in which the
Original Issue Discount Debentures are issued (the "AFR") and (y) 5% and
the OID on such Original Issue Discount Debentures is "significant," the
Original Issue Discount Debentures will be considered "applicable high
yield discount obligations" ("AHYDOs") under Section 163(i) of the Code and
-122-
<PAGE>
will be subject to special rules that will defer Holdings' deduction for
interest (including OID) until such interest is actually paid. The
"applicable federal rate" is 6.75% for long-term debt instruments issued in
March 1997.
Moreover, if the yield to maturity on the Original Issue Discount
Debenture exceeds the sum of (x) the AFR and (y) 6% (such excess shall be
referred to hereinafter as the "Disqualified Yield"), the deduction for
interest (including OID) accrued on the Original Issue Discount Debentures
will be permanently disallowed (regardless of whether the Company actually
pays such interest or OID in cash or in other property) for U.S. federal
income tax purposes to the extent such interest or OID is attributable to
the Disqualified Yield on the Original Issue Discount Debentures
("Dividend-Equivalent Interest"). For purposes of the dividends-received
deduction, such Dividend-Equivalent Interest will be treated as a dividend
to the extent it is deemed to have been paid out of the Company's current
or accumulated earnings and profits.
Due to their maturity date, yield to maturity, and amount of OID, the
New Notes will not be subject to the applicable high yield discount
obligation rules described above. Because the amount of OID, if any,
attributable to the Exchange Debentures will be determined at such time
such Exchange Debentures are issued and the AFR at the time such Exchange
Debentures are issued in exchange for New Preferred Stock is not
predictable, it is impossible to determine at the present time whether an
Exchange Debenture will be treated as an AHYDO.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, OID, and premium and to the
proceeds of sales of New Notes, Exchange Debentures and New Preferred Stock
made to United States Holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if
the United States Holder fails to provide a taxpayer identification number
or certification of foreign or other exempt status or fails to report in
full dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against such United States Holder's U.S.
federal income tax liability provided the required information is furnished
to the IRS.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
DIVIDENDS ON THE NEW PREFERRED STOCK
Although, as discussed above (see "Tax Consequences to United States
Holders--Dividends on the New Preferred Stock"), distributions on the New
Preferred Stock will only be treated as dividends for United States federal
income tax purposes to the extent of Holdings' current or accumulated
earnings and profits (as determined under United States tax principles),
distributions paid to a Non-United States Holder of New Preferred Stock
generally will be subject to withholding of United States federal income
tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively connected with
the conduct of a trade or business by the Non-United States Holder within
the United States or, if a tax treaty applies, are attributable to a United
States permanent establishment of the Non-United States Holder, are not
subject to the withholding tax, but instead are subject to United States
federal income tax on a net income basis at applicable graduated individual
or corporate rates. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country (unless the payor has knowledge to the contrary) for purposes
of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. Under proposed United States Treasury
regulations not currently in effect, however, in the case of dividends paid
after December 31, 1997 (December 31, 1999 in the case of dividends paid to
-123-
<PAGE>
accounts in existence on or before the date that is 60 days after the
proposed United States Treasury regulations are published as final
regulations), a Non-United States Holder of New Preferred Stock who wishes
to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification and other requirements. Currently, certain
certification and disclosure requirements must be complied with in order to
be exempt from the withholding under the effectively connected income
exemption discussed above.
If it is subsequently determined that some or all of the distribution
on the New Preferred Stock should be treated as a return of capital, a Non-
United States Holder may obtain a refund of some or all of the tax withheld
by filing an appropriate claim for refund with the IRS. A Non-United States
Holder of New Preferred Stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
IRS.
INTEREST AND OID ON NEW NOTES AND EXCHANGE DEBENTURES
Subject to the discussion below concerning backup withholding, no
withholding of United States federal income tax will be required with
respect to the payment by the Company or any paying agent of principal or
interest (which for purposes of this discussion includes OID) on a New Note
or an exchange Debenture owned by a Non-United States Holder, provided (i)
that the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of Holdings
entitled to vote within the meaning of Section 871(h)(3) of the Code and
the regulations thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to Holdings through stock ownership,
(iii) the beneficial owner is not a bank whose receipt of interest on a New
Note or an Exchange Debenture is described in Section 881(c)(3)(A) of the
Code and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in Section 871(h) and Section 881(c)
of the Code and the regulations thereunder.
To satisfy the requirement referred to in (iv) above, the beneficial
owner of such New Note or an Exchange Debenture, or a financial institution
holding the New Note or an Exchange Debenture on behalf of such owner, must
provide, in accordance with specified procedures, Holdings or its paying
agent with a statement to the effect that the beneficial owner is not a
U.S. person. These requirements will be met if (1) the beneficial owner
provides his name and address, and certifies, under penalties of perjury,
that he is not a U.S. person (which certification may be made on an IRS
Form W-8 (or successor form)) or (2) a financial institution holding the
New Note or an Exchange Debenture on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been
received by it and furnishes a paying agent with a copy thereof.
Holdings will not withhold federal income tax on interest paid to a
Non-United States Holder if it receives IRS Form 4224 from that Non-United
States Holder, establishing that such income is effectively connected with
the conduct of a trade or business in the United States, unless Holdings
has knowledge to the contrary. Interest (including OID) or redemption
premium paid to a Non-United States Holder (other than a partnership) that
is effectively connected with the conduct by the holder of a trade or
business in the United States is generally taxed at the graduated rates
that are applicable to United States persons. In the case of a Non-United
States Holder that is a corporation, such effectively connected income may
also be subject to the United States federal branch profits tax (which is
generally imposed on a foreign corporation on the deemed repatriation from
the United States of effectively connected earnings and profits) at a 30%
rate (unless the rate is reduced or eliminated by an applicable income tax
treaty and the holder is a qualified resident of the treaty country). In
the case of a partnership that has foreign partners (i.e., persons who
would be Non-United States Holders if they held the New Notes or Exchange
Debentures directly), such effectively connected income allocable to the
foreign partner would generally be subject to United States federal
withholding tax (regardless of whether such income is, in fact, distributed
to such foreign partner) at a 35% rate, if the foreign partner is a
corporation, or at a 39.6% rate, if the foreign partner is not a
corporation. Any foreign partner of such a partnership would be entitled to
a credit against his United States federal income tax for his share of the
withholding tax paid by the partnership.
-124-
<PAGE>
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION OF NEW NOTES, EXCHANGE
DEBENTURES AND NEW PREFERRED STOCK
A Non-United States Holder will generally not be subject to United
States federal income tax with respect to gain recognized on a sale,
exchange, redemption or other disposition of New Notes, Exchange Debentures
or New Preferred Stock unless (i) the gain is effectively connected with a
trade or business of the Non-United States Holder in the United States,
(ii) in the case of a Non-United States Holder who is an individual and
holds the New Notes Exchange Debentures or New Preferred Stock as a capital
asset, such holder is present in the United States for 183 or more days in
the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-United States Holder is subject to tax
pursuant to certain provisions of the Code applicable to United States
expatriates, or (iv) in the case of the New Preferred Stock, Holdings is or
has been a "U.S. real property holding corporation" for United States
federal income tax purposes at any time within the shorter of the five-year
period preceding such disposition or the period such Non-United States
Holder held the New Preferred Stock. Holdings believes that it has not been
and is not, and it does not anticipate becoming, a "U.S. real property
holding corporation" for United States federal income tax purposes.
Unless shares of a United States corporation are treated as regularly
traded on an established securities market (as defined in applicable
Treasury regulations), or another exemption applies, upon a sale or other
disposition of such shares by a Non-United States Holder, the transferee of
such shares would be required to withhold 10% of the proceeds of such sale
or disposition if the United States corporation does not provide
certification that it is not (and has not been during a specified period) a
"U.S. real property holding corporation" for United States federal income
tax purposes. Amounts withheld with respect to stock of a United States
corporation that is not a "U.S. real property holding corporation" for
United States federal income tax purposes may be refunded to a Non-United
States Holder who files an appropriate claim for refund with the IRS. It is
anticipated that the New Preferred Stock will not be treated as publicly
traded for purposes of applicable Treasury regulations.
Gains derived by a Non-United States Holder (other than a partnership)
from the sale or other disposition of New Notes, Exchange Debentures or New
Preferred Stock that are effectively connected with the conduct by the
holder of a trade or business in the United States are generally taxed at
the graduated rates that are applicable to United States persons. In the
case of a Non-United States Holder that is a corporation, such effectively
connected income may also be subject to the United States branch profits
tax (which is generally imposed on a foreign corporation on the deemed
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate (unless the rate is reduced or eliminated by an
applicable income tax treaty and the holder is a qualified resident of the
treaty country). In the case of a partnership that has foreign partners
(i.e., persons who would be Non-United States Holders if they held the New
Notes, Exchange Debentures or New Preferred Stock, directly), such
effectively connected income allocable to the foreign partner would
generally be subject to United States federal withholding tax (regardless
of whether such income is, in fact, distributed to such foreign partner) at
a 35% rate, if the foreign partner is a corporation, or at a 39.6% rate, if
the foreign partner is not a corporation. Any foreign partner of such a
partnership would be entitled to a credit against his United States federal
income tax for his share of the withholding tax paid by the partnership. If
an individual Non-United States Holder falls under clause (ii) above, he
will be subject to a flat 30% tax on the gain derived from the sale or
other disposition, which may be offset by United States capital losses
recognized within the same taxable year as such sale or other disposition
(notwithstanding the fact that he is not considered a resident of the
United States).
-125-
<PAGE>
FEDERAL ESTATE AND GIFT TAX
New Preferred Stock held by an individual Non-United States Holder at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
A New Note or Exchange Debenture beneficially owned by an individual
who at the time of death is a Non-United States Holder will not be subject
to United States federal estate tax as a result of such individual's death,
provided that such individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of Section 871(h)(3) of the
Code and provided that the interest payments with respect to such New Note
or Exchange Debenture would not have been, if received at the time of such
individual's death, effectively connected with the conduct of a United
States trade or business by such individual.
Any Non-United States Holder will not be subject to United States
federal gift tax on a transfer of New Notes, Exchange Debentures or New
Preferred Stock, unless such person is an individual who is a domiciliary
of the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding will be required with
respect to payments made by Holdings or any paying agent to Non-United
States Holders if a statement described in (iv) under "Tax Consequences to
Non-United States Holders-Interest and OID on New Notes and Exchange
Debentures" has been received and the payor does not have actual knowledge
that the beneficial owner is a United States person. United States
information reporting and backup withholding generally will not apply under
current law to dividends paid to a Non-United States Holder at an address
outside of the United States that is subject to the 30% withholding
discussed above (or that is not so subject because a tax treaty applies
that reduces or eliminates such 30% withholding); provided the payor does
not have definite knowledge that the payee is a United States person.
However, under proposed United States Treasury regulations, in the case of
dividends paid after December 31, 1997 (December 31, 1999 in the case of
dividends paid to accounts in existence on or before the date that is 60
days after the proposed United States Treasury regulations are published as
final regulations), a Non-United States Holder generally would be subject
to backup withholding at a 31% rate, unless certain certification
procedures are complied with, either directly or through an intermediary.
In addition, backup withholding and information reporting will not
apply if payments of interest or OID on a New Note or Exchange Debenture
are paid or collected by a foreign office of a foreign custodian, nominee
or other foreign agent on behalf of the beneficial owner of such New Note
or Exchange Debenture, or if a foreign office of a foreign broker (as
defined in applicable Treasury regulations) pays the proceeds of the sale
of a New Note, an Exchange Debenture or New Preferred Stock to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a U.S. person, a controlled
foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will not be subject to
backup withholding but will be subject to information reporting, unless
(1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a U.S. person and certain
other conditions are met or (2) the beneficial owner otherwise
establishes an exemption. Temporary Treasury regulations provide that
the Treasury is considering whether backup withholding will apply
with respect to such payments of interest or the proceeds of a sale
that are not subject to backup withholding under the current regulations.
Under proposed United States Treasury regulations not currently in effect,
backup withholding will not apply to such payments absent actual knowledge
that the payee is a United States person.
-126-
<PAGE>
The IRS recently proposed regulations (the "Proposed Regulations")
addressing certain withholding, certification, and information rules (some
of which have been mentioned above) which could affect the treatment of the
payment of the amounts described above. The Proposed Regulations would
require, in the case of Exchange Debentures and New Notes held by foreign
partnerships, that (i) the certification described in clause (iv) under
"Interest and OID on New Notes and Exchange Debentures" above be provided
by the partners rather than by the foreign partnership and (ii) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of
tiered partnerships. The Proposed Regulations are proposed to be effective
for payments made after December 31, 1997. There can be no assurance that
the Proposed Regulations will be adopted or as to the provisions they will
include if and when adopted in temporary or final form. Non-United States
Holders should consult their tax advisors regarding the application of
these rules to their particular situations, the availability of an
exemption therefrom, the procedure for obtaining such an exemption, if
available, and the possible application of the proposed United States
Treasury regulations addressing the withholding and information reporting
rules.
Payments of dividends, interest or OID on a New Note, Exchange
Debenture or New Preferred Stock, paid to the beneficial owner of a New
Note, Exchange Debenture or New Preferred Stock by a United States office
of a custodian, nominee or agent, or the payment by the United States
office of a broker of the proceeds of sale of a New Note, Exchange
Debenture or New Preferred Stock will be subject to both backup withholding
and information reporting unless the beneficial owner provides the
statement referred to in (iv) under "Tax Consequences to Non-United States
Holders-Interest and OID on New Notes and Exchange Debentures" and the
payor does not have actual knowledge that the beneficial owner is a United
States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against such Holder's U.S. federal income
tax liability provided the required information is furnished to the IRS.
-127-
<PAGE>
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offers in connection with a distribution of the New Notes or the
New Preferred Stock. Each broker-dealer that receives New Notes or New
Preferred Stock for its own account pursuant to the Exchange Offers must
acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes or New Preferred Stock. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes or New Preferred Stock received in
exchange for Old Notes or Old Preferred Stock where such Old Notes or Old
Preferred Stock were acquired as a result of market-making activities or
other trading activities. The Company has agreed that for a period of 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until ____________ __, 1997 all dealers effecting
transactions in the New Notes or New Preferred Stock may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes
or New Preferred Stock by broker-dealers. New Notes or New Preferred Stock
received by broker-dealers for their own account pursuant to the Exchange
Offers may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or New Preferred Stock or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
New Notes or New Preferred Stock. Any broker-dealer that resells New Notes
that were received by it for its own account pursuant to the Exchange
Offers and any broker or dealer that participates in a distribution of such
New Notes or New Preferred Stock may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale
of New Notes or New Preferred Stock and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange
Offers other than commissions or concessions of any brokers or dealers and
expenses of counsel for the holders of the New Notes or New Preferred Stock
and will indemnify the holders of the New Notes and the New Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes, the New Note Guarantee and the New
Preferred Stock offered hereby will be passed upon by Reid & Priest LLP,
New York, New York.
EXPERTS
The consolidated financial statements of the Company as of September
30, 1995 and 1996 and December 31, 1996, and for each of the years in the
three-year period ended September 30, 1996 and for the three month period
ended December 31, 1996, have been incorporated by reference herein and in
the Registration Statement, in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in
accounting and auditing.
-128-
<PAGE>
The reports of KPMG Peat Marwick LLP relating to the Company's
financial statements as of September 30, 1995 and 1996 and December
31, 1996 and for each of the three years in the three year-period
ended September 30, 1996, and the three-month period ended December
31, 1996, and related schedule, refer to a change in the Company's
method of accounting for long-term telecom services contracts during
the year ended September 30, 1996.
-129-
<PAGE>
===========================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy any securities other than the
securities to which it related or any offer to sell or the solicitation of
an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. 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 or that the information contained herein is correct as of any time
subsequent to its date.
TABLE OF CONTENTS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 2
INFORMATION INCORPORATED BY REFERENCE . . . . . . . . . . . . . . . 2
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
THE EXCHANGE OFFERS . . . . . . . . . . . . . . . . . . . . . . . . 27
DESCRIPTION OF NEW NOTES . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF NEW PREFERRED STOCK . . . . . . . . . . . . . . . . 63
DESCRIPTION OF EXCHANGE DEBENTURES . . . . . . . . . . . . . . . . 87
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 115
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 128
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
==========================================================================
==========================================================================
ICG HOLDINGS, INC.
ICG COMMUNICATIONS, INC.
------------
PROSPECTUS
------------
__________, 1997
======================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 7-3-101.5 of the Colorado Corporation Code
(the "Colorado Code"), Holdings' Second Amended and Restated Articles of
Incorporation provide that Holdings shall indemnify any and all officers,
directors, or employees against expenses incurred by them, in connection
with the defense of any legal proceedings or threatened legal proceedings
to which such persons are made a party because of such positions if:
(I) He conducted himself in good faith;
(II) He reasonably believed;
(A) In the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best
interest; or
(B) In all other cases, that his conduct was at least not
opposed to the corporation's best interests; and
(III) In the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
Holdings' By-laws contain a similar provision requiring
indemnification of Holdings' directors and officers to the fullest extent
authorized by the Colorado Code.
ICG's Certificate of Incorporation provides that ICG will to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time (the "GCL"), indemnify all persons
whom it may indemnify pursuant thereto. ICG's By-laws contain a similar
provision requiring indemnification of ICG's directors and officers to the
fullest extent authorized by the GCL. The GCL 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 believe 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 corporation 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 of such expenses. The GCL
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, ICG's Certificate of Incorporation
contains a provision limiting the personal liability of ICG's directors for
monetary damages for certain breaches of their fiduciary duty. ICG has
indemnification insurance under which directors and officers are insured
against certain liability that may incur in their capacity as such.
See Item 22 of this Registration Statement regarding the position of
the Securities and Exchange Commission on indemnification for liabilities
arising under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Underwriting Agreement. Not Applicable.
----------------------
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
----------------------------------------------------------------
Succession. None
----------
II-1
<PAGE>
(3) Articles of Incorporation.
-------------------------
3.1: Second Amended and Restated Articles of Incorporation of ICG
Holdings, Inc.+
(4) Instruments defining the rights of security holders, including
---------------------------------------------------------------
indentures.
-----------
4.1: Note Purchase Agreement, dated September 16, 1993 [Incorporated
by reference to Annual Report on Form 20-F for the year ended
September 30, 1993, as filed on March 31, 1994].
4.2: Note Purchase Agreement, dated October 27, 1993 [Incorporated by
reference to Annual Report on Form 20-F for the year ended
September 30, 1993, as filed on March 31, 1994].
4.3: Form of Indenture between IntelCom Group Inc. and Bankers Trust
Company for 7% Convertible Subordinated Redeemable Notes due 1998
[Incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-1, File No. 33-75636].
4.4: Form of Indenture between IntelCom Group Inc. and Bankers Trust
Company for 7% Simple Interest Convertible Subordinated
Redeemable Notes due 1998 [Incorporated by reference to Exhibit
4.4 to Registration Statement on Form S-1, File No. 33-75636].
4.5: Note Purchase Agreement, dated as of July 14, 1995, among
IntelCom Group (U.S.A.), Inc., IntelCom Group Inc., Morgan
Stanley Group Inc. ("MS Group") (the "Initial Purchaser"),
Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI
Investments Limited, PGI Sweden AB, and Gregor von Opel
(collectively, together with the Initial Purchaser, the
"Committed Purchasers") and MS Group, as agent for the Purchasers
(as such term is defined therein) [Incorporated by reference to
Exhibit 4.1 to Form 8-K, as filed on August 2, 1995].
4.6: Warrant Agreement, dated as of July 14, 1995, among the
Registrant, the Committed Purchasers, and IntelCom Group
(U.S.A.), Inc., as Warrant Agent [Incorporated by reference to
Exhibit 4.2 to Form 8-K, as filed on August 2, 1995].
4.7: Indenture, dated as of August 8, 1995, among IntelCom Group
(U.S.A.), Inc., IntelCom Group Inc. and Norwest Bank Colorado,
National Association [Incorporated by reference to Exhibit 4.1 to
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, as filed on August 10, 1995].
4.8: Warrant Agreement, dated as of August 8, 1995 between IntelCom
Group Inc. and Norwest Bank Colorado, National Association
[Incorporated by reference to Exhibit 4.3 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, as filed on August
10, 1995].
4.9: Warrant Agreement Amendment, dated as of August 8, 1995 among
IntelCom Group Inc., Morgan Stanley Group, Inc., Princes Gate
Investors, L.P., IntelCom Group (U.S.A.), Inc., and certain
subsidiaries of IntelCom Group (U.S.A.), Inc. [Incorporated by
reference to Exhibit 4.4 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, as filed on August 10, 1995].
4.10: Indenture, dated as of April 30, 1996, among IntelCom Group
(U.S.A.), Inc., IntelCom Group Inc. and Norwest Bank
Colorado, National Association [Incorporated by reference to
Exhibit 4.13 to Registration Statement on Form S-4, File No.
333-04569].
4.11: Registration Rights Agreement, dated April 30, 1996, among
IntelCom Group (U.S.A.), Inc., IntelCom Group Inc. and
Morgan Stanley & Co. Incorporated [Incorporated by reference
to Exhibit 4.14 to Registration Statement on Form S-4, File
No. 333-04569].
4.12: Form of Old Note.+
4.13: Form of New Note.+
4.14: Form of Letter of Transmittal with respect to the Note
Exchange Offer.+
II-2
<PAGE>
4.15: Indenture, dated as of March 11, 1997, among ICG Holdings,
Inc., ICG Communications, Inc. and Norwest Bank Colorado,
National Association.+
4.16: Registration Rights Agreement, dated March 11, 1997, among
ICG Holdings, Inc., ICG Communications, Inc. and Morgan
Stanley & Co. Incorporated with respect to the Senior
Discount Notes.+
4.17: Registration Rights Agreement, dated March 11, 1997, among
ICG Holdings, Inc. and Morgan Stanley & Co. Incorporated
with respect to the Preferred Stock.+
4.18: Form of Old Preferred Stock Certificate.+
4.19: Form of New Preferred Stock Certificate.+
4:20: Form of Letter of Transmittal with respect to the Preferred
Stock Exchange Offer.+
(5) Opinion regarding legality.
---------------------------
5.1: Opinion of Reid & Priest LLP.
(8) Opinion regarding tax matters.
------------------------------
8.1: Opinion of Reid & Priest LLP.+
(10) Material Contracts. Not Applicable.
------------------
(12) Statement re Computation of Ratios. Not Applicable.
----------------------------------
(15) Letter re Unaudited Interim Financial Statements. Not Applicable.
------------------------------------------------
(23) Consents.
--------
23.1: Consent of KPMG Peat Marwick LLP.
23.2: Consent of Reid & Priest LLP (included in Exhibit 5.1).
23.3: Consent of Connecticut Research [Incorporated by reference
to Annual Report on Form 10-K for the year ended September
30, 1994, as filed on December 27, 1994].
(24) Power of Attorney.
-----------------
24.1 Power of Attorney with respect to ICG Holdings, Inc. (included on
the signature page hereto).+
24.2 Power of Attorney with respect to ICG Communications, Inc.
(included on the signature page hereto).+
(25) Statement of Eligibility of Trustee.
------------------------------------
25.1: Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of Norwest Bank Colorado,
National Association.
______________________
+ Previously filed.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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
Company 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.
The undersigned Registrants hereby undertake:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or
13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the
request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
registration statement when it became effective;
(3) 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 of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the 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 the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(5) 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;
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by
reference in the 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver,
State of Colorado, on June 5, 1997.
ICG HOLDINGS, INC.
By: /s/ J. Shelby Bryan
-------------------------------------
J. Shelby Bryan
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
---------- ----- ------
/s/ J. Shelby Bryan
--------------------------- Chairman of the June 5, 1997
J. Shelby Bryan Board, President
and Chief Executive
Officer (Principal
executive officer)
*
-------------------------- Executive Vice June 5, 1997
James D. Grenfell President,
Chief Financial
Officer, Treasurer
and Director
(Principal
financial officer)
*
-------------------------- Vice President and June 5, 1997
Richard Bambach Corporate
Controller
(Principal
accounting officer)
*
-------------------------- Director June 5, 1997
William J. Maxwell
-------------------------- Director
Marc E. Maassen
*
-------------------------- Director June 5, 1997
Mark S. Helwege
* /s/ J. Shelby Bryan
---------------------------------
J. Shelby Bryan, Attorney-in-Fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and
County of Denver, State of Colorado, on June 5, 1997.
ICG COMMUNICATIONS, INC.
By: /s/ J. Shelby Bryan
----------------------------
J. Shelby Bryan
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ------ -----
* Chairman of the
-------------------------------- Board of Directors June 5, 1997
William J. Laggett
/s/ J. Shelby Bryan President, Chief
--------------------------------- Executive Officer June 5, 1997
J. Shelby Bryan and Director
(Principal executive
officer)
*
-------------------------------- Executive Vice
James D. Grenfell President, Chief June 5, 1997
Financial Officer
and Treasurer
(Principal financial
officer)
* Vice President and June 5, 1997
--------------------------------- Corporate Controller
Richard Bambach (Principal
accounting officer)
--------------------------------- Director
Harry R. Herbst
*
--------------------------------- Director June 5, 1997
Jay E. Ricks
*
--------------------------------- Director June 5, 1997
Stan McLelland
*
--------------------------------- Director June 5, 1997
Leontis Teryazos
* /s/ J. Shelby Bryan
---------------------------------
J. Shelby Bryan, Attorney-in-Fact
II-6
<PAGE>
Exhibit Index
-------------
(5) Opinion regarding legality.
--------------------------
5.1: Opinion of Reid & Priest LLP.
(23) Consents.
---------
23.1: Consent of KPMG Peat Marwick LLP.
23.2: Consent of Reid & Priest LLP (included
in Exhibit 5.1).
(25) Statement of Eligibility of Trustee.
-----------------------------------
25.1: Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Norwest
Bank Colorado, National Association.
II-7
EXHIBIT 5.1
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019-4097
Telephone 212 603-2000
Fax 212 603-2001
(212) 603-2000
New York, New York
June 5, 1997
ICG Communications, Inc.
ICG Holdings, Inc.
9605 East Maroon Circle
Englewood, CO 80112
Re: ICG HOLDINGS, INC.; ICG COMMUNICATIONS, INC.
REGISTRATION STATEMENT ON FORM S-4
REGISTRATION NO. 333-24359
--------------------------------------------
Ladies and Gentlemen:
As counsel for ICG Holdings, Inc., a Colorado
corporation ("Holdings"), we have been requested to furnish
our opinion as to matters hereinafter set forth in
connection with the proposed issuance by Holdings of (i)
$176,000,000 in aggregate principal amount of its 11 5/8%
Senior Exchange Discount Notes due 2007 (the "Exchange
Notes"), under an Indenture dated March 11, 1997, among
Holdings, ICG Communications, Inc., a Delaware corporation,
and Norwest Bank Colorado, National Association (the
"Trustee"), in exchange for its outstanding 11 5/8% Senior
Discount Notes due 2007 (the "Note Exchange Offer"), and
(ii) 100,000 shares of New Exchangeable Preferred Stock
(the "New Preferred Stock") in exchange for its outstanding
Exchangeable Preferred Stock (the "Preferred Stock Exchange
Offer"). The issuance of the Exchange Notes pursuant to
the Note Exchange Offer and the issuance of the New
Preferred Stock pursuant to the Preferred Stock Exchange
Offer will be registered under the Securities Act of 1933,
as amended (the "Act"), pursuant to a registration
statement on Form S-4, as amended (Registration No.
333-24359) (the "Registration Statement"), which
Registration Statement sets forth the terms and conditions
of the Note Exchange Offer and the Preferred Stock Exchange
Offer. In connection herewith, we have examined the Second
Amended and Restated Articles of Incorporation and By-Laws
<PAGE>
ICG Communications, Inc.
ICG Holdings, Inc.
June 5, 1997
Page 2
of Holdings and the minutes of the Board of Directors of
Holdings with respect to the registration of the Exchange
Notes and the New Preferred Stock, and the issuance of the
Exchange Notes and the New Preferred Stock. We have also
examined such other documents, records, certificates of
public officials and such matters of law as we have deemed
necessary or appropriate for the purpose of rendering this
opinion.
We are members of the bar of the State of New
York and are not licensed or admitted to practice law in
any other jurisdiction. Accordingly, we have not reviewed
and we express no opinion with respect to the laws of any
jurisdiction other than the State of New York. In
connection with the opinions expressed herein, we have
relied upon, as to matters involving the application of
laws of Colorado, the opinion letter of Sherman & Howard
dated the date hereof.
Based upon the foregoing, we are of the opinion
that:
1. When the Exchange Notes are duly executed by
Holdings and authenticated by the Trustee in accordance
with the terms of the Indenture and issued in accordance
with the terms of the Note Exchange Offer, the Exchange
Notes will be duly authorized and constitute valid and
binding obligations of Holdings.
2. When the New Preferred Stock is issued in
accordance with the terms of the Preferred Stock Exchange
Offer, the New Preferred Stock will be validly issued,
fully paid and non-assessable shares of preferred stock of
Holdings.
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the
reference to this firm appearing in the Prospectus under
the heading "Legal Matters." In giving the foregoing
consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities
and Exchange Commission thereunder.
Very truly yours,
/s/ Reid & Priest LLP
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
ICG COMMUNICATIONS, INC.:
We consent to incorporation by reference in the registration
statement on Form S-4 (No. 333-24359) of ICG Communications,
Inc., of our reports relating to the consolidated balance sheets
of ICG Communications, Inc. and subsidiaries as of September 30,
1995 and 1996 and December 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the three-year period ended
September 30, 1996, and the three-month period ended December 31,
1996, and the related financial statement schedule, and to the
reference to our firm under the heading "Experts" in the
prospectus.
Our report refers to a change during the year ended September 30,
1996 in the Company's method of accounting for long-term telecom
services contracts.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
June 4, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM T - 1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a
Trustee pursuant to Section 305(b)(2)____________
----------------------
NORWEST BANK COLORADO, N.A.
(Exact name of trustee as specified in its charter)
NOT APPLICABLE 84-0187632
(Jurisdiction of incorporation or ------------------
Organization if not a U.S. national (I.R.S. Employer
bank) Identification No.)
1740 BROADWAY
DENVER, COLORADO 80274-8693
(Address of principal executive office) (Zip Code)
NORWEST BANK COLORADO, N.A.
ATTN:: CORPORATE TRUST DEPARTMENT
1740 BROADWAY
DENVER, CO 80274-8693
303-863-6247
(Name, address and telephone number of agent for service)
----------------
ICG HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
COLORADO 84-1158866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9605 E. MAROON CIRCLE
P.O. BOX 6742
ENGLEWOOD, CO 80155-6742
(Address of principal executive office) (Zip Code)
---------------
ICG HOLDINGS, INC. 11 5/8% SENIOR DISCOUNT NOTES DUE MARCH 15, 2007
<PAGE>
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Name Address
---- -------
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Denver Denver, Colorado
Federal Deposit Insurance
Corporation Dallas, Texas
National Bank Examiners -
Western District Denver, Colorado
(b) Whether it is authorized to exercise corporate trust
powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe such
affiliation.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
(a) Furnish the following information as to each class of
voting securities of the trustee.
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B
------ ------
Title of Class Amount Outstanding
-------------- ------------------
Not Applicable
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture.
ICG Holdings, Inc. 13.5% Senior Discount Notes Due
September 15, 2005 and Warrants
ICG Holdings, Inc. 12 1/2% Senior Discount Notes
Due May 1, 2006
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310(b)(1) of the Act arises as a
result of the trusteeship under any such other
indentures, including a statement as to how the
indenture securities will rank as compared with the
securities under such other indentures.
Not applicable, neither bond issue is in default.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE
OBLIGOR OR UNDERWRITERS.
If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person
having any such connection and state the nature of each such
connection.
Not applicable.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
Furnish the following information as to the voting
securities of the trustee owned beneficially by the obligor
and each director, partner and executive officer of the
obligor:
As of May 9, 1997
---------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ----------- ---------- ----------
Percentage of
Voting
Securities
Represented
Amount Owned by Amount Given
Name of Owner Title of Class Beneficially In Col. C
------------- -------------- ------------- ---------------
None
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE UNDERWRITERS
OR THEIR OFFICIALS.
Furnish the following information as to the voting
securities of the trustee owned beneficially by each
underwriter for the obligor and each director, partner, and
executive officer of each such underwriter:
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ---------- ---------- ----------
Percentage
of Voting
Securities
Represented
by Amount
Amount Owned Given
Name of Owner Title of Class Beneficially in Col. C
------------- -------------- ------------ ----------
None
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security
for obligations in default by the trustee:
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ---------- ---------- ----------
Amount Owned
Beneficially or Percentage
Whether the Held as of Class
Securities are Collateral Represented
Voting or Security for by Amount
Title of Nonvoting Obligations in Given in
Class Securities Default Col. C
-------- ------------- -------------- ----------
None
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following
information as to each class of securities of such
underwriter, any of which are so owned or held by the
trustee:
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ---------- ---------- ----------
Amount Owned
Beneficially Percentage
or Held as of Class
Collateral Securities
Name of Security for Represented
Issuer and Obligations by Amount
Title of Amount in Default Given in
Class Outstanding by Trustee Col. C
---------- ----------- ------------ ----------
None
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF
CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral
security for obligations in default any voting securities of
a person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or
(2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting
securities of such person:
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ---------- ---------- ----------
Amount Owned
Beneficially Percentage
or Held as of Class
Collateral Securities
Name of Security for Represented
Issuer and Obligations by Amount
Title of Amount in Default Given in
Class Outstanding by Trustee Col. C
---------- ----------- ------------- ----------
None
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A
PERSON OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF
THE OBLIGOR.
If the Trustee owns beneficially or holds as collateral
security for obligations in default any securities of a
person who, to the knowledge of the trustee, owns 50 percent
or more of the voting securities of the obligor, furnish the
following information as to each class of securities of such
person, any of which are so owned or held by the trustee:
As of May 9, 1997
--------------
(within 31 days)
Col. A Col. B Col. C Col. D
---------- ---------- ---------- ----------
Amount Owned
Beneficially Percentage
or Held as of Class
Collateral Securities
Name of Security for Represented
Issuer and Obligations by Amount
Title of Amount in Default Given in
Class Outstanding by Trustee Col. C
---------- ----------- ------------- ----------
None
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Except as noted in the instructions, if the obligor is
indebted to the trustee, furnish the following information:
Col. A Col. B Col. C
----------- ---------- ---------
Nature of Amount
Indebtedness Outstanding Date Due
------------ ----------- ---------
Standby Letter
of Credit $232,000 December 31, 1997
Standby Letter
of Credit $ 66,500 June 28, 1997
Standby Letter
of Credit $118,000 June 28, 1997
Equipment Finance
Lease $ 84,400 September, 1998
ITEM 13. DEFAULTS BY THE OBLIGOR.
(a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
None.
(b) If the trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the
indenture, state whether there has been a default under
any such indenture or series. identify the indenture or
series affected, and explain the nature of any such
default.
None.
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
If any underwriter is an affiliate of the trustee, describe
each such affiliation.
Not applicable.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under
indentures qualified or to be qualified under the Act.
Not applicable.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as
now in effect.
2. A copy of the authorization of the trustee to exercise
corporate trust powers.
3. A copy of the existing bylaws of the trustee, or
instruments corresponding thereto.
4. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trustee Indenture Act of
1939 the trustee, Norwest Bank Colorado, N.A., organized and existing
under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City and County of
Denver, and State of Colorado on the 9th day of May, 1997.
NORWEST BANK COLORADO, N.A.
By: /s/ Amy E. Buck
-------------------------
Amy E. Buck
Vice President
<PAGE>
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, in connection with the issue of ICG Holdings, Inc. 11
5/8% Senior Discount Notes Due March 15, 2007 we hereby consent that
reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefore.
NORWEST BANK COLORADO, N.A.
By: /s/ Amy E. Buck
------------------------
Amy E. Buck
Vice President
Dated: May 9, 1997
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
FIRST. The title of this Association shall be Norwest Bank
Colorado, National Association; the Association in conjunction
with its said legal name may also use Norwest Bank Colorado, N.A.
SECOND. The main office of this Association shall be in the
City of Denver, County of Denver, State of Colorado. The general
business of the Association shall be conducted at its main office
and its branches, if any.
THIRD. The Board of Directors of this Association shall
consist of not less than five nor more than twenty-five persons,
the exact number to be fixed and determined from time to time by
resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting
thereof.
Each director, during the full term of his or her
directorship, shall own a minimum of $1,000 par value of stock of
this Association or an equivalent interest, as determined by the
Comptroller of the Currency, in any company which has control
over this Association within the meaning of Section 2 of the Bank
Holding Company Act of 1956.
The Board of Directors, by the vote of a majority of the
full Board, may, between annual meetings of shareholders, fill
vacancies created by the death, incapacity or resignation of any
director and by the vote of a majority of the full Board may
also, between annual meetings of shareholders, increase the
membership of the Board by not more than four members and by like
vote appoint qualified persons to fill the vacancies created
thereby; provided, however, that at no time shall there be more
than twenty-five directors of this Association; and provided
further, however, that not more than two members may be added to
the Board of Directors in the event that the total number of
directors last elected by shareholders was fifteen or less.
FOURTH. The annual meeting of the shareholders for the
election of directors and the transaction of whatever other
business may be brought before said meeting shall be held at the
main office, or such other place as the Board of Directors may
designate, on the day of each year specified therefor in the
Bylaws, but if no election is held on that day, it may be held on
any subsequent day according to the provisions of law; and all
elections shall be held according to such lawful regulations as
may be prescribed by the Board of Directors.
<PAGE>
FIFTH. The amount of capital stock of this Association
shall be One Hundred Million Dollars ($100,000,000), divided into
1,000,000 shares of common stock of the par value of One Hundred
Dollars ($100.00) each; but said capital stock may be increased
or decreased from time to time, in accordance with the provisions
of the laws of the United States.
No holder of shares of the capital stock of any class of
this Association shall have any preemptive or preferential right
of subscription to any shares of any class of stock of this
Association, whether now or hereafter authorized, or to any
obligations convertible into stock of this Association, issued or
sold, nor any right of subscription to any thereof other than
such, if any, as the Board of Directors, in its discretion, may
from time to time determine and at such price as the Board of
Directors may from time to time fix.
The Association, at any time and from time to time, may
authorize and issue debt obligations, whether or nor
subordinated, without the approval of the shareholders.
SIXTH. The Board of Directors shall appoint one of its
members President of this Association, who shall act as Chairman
of the Board, unless the Board appoints another director to act
as Chairman. In the event the Board of Directors shall appoint a
President and a Chairman, the Board shall designate which person
shall act as the chief executive officer of this Association. The
Board of Directors shall have the power to appoint one or more
Vice Presidents and to appoint a Cashier and such other officers
and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the
duties of the officers and employees of this Association; to fix
the salaries to be paid to them; to dismiss them; to require
bonds from them and to fix the penalty thereof, to regulate the
manner in which the increase of the capital of this Association
shall be made; to manage and administer the business and affairs
of this Association; to make all Bylaws that it may be lawful for
them to make; and generally to do and perform all acts that it
may be legal for a Board of Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to
change the location of the main office to any other place within
the limits of the City of Denver, without the approval of the
shareholders but subject to the approval of the Comptroller of
the Currency; and shall have the power to establish or change the
location of any branch or branches of this Association to any
other location, without the approval of the shareholders but
subject to the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall
continue until terminated in accordance with the laws of the
United States.
-2-
<PAGE>
NINTH. The Board of Directors, the Chairman, the President,
or any one or more shareholders owning, in the aggregate, not
less than 25 percent of the stock of this Association, may call a
special meeting of shareholders at any time. Unless otherwise
provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the
shareholders shall be given by first-class mail, postage prepaid,
mailed at least ten days prior to the date of such meeting to
each shareholder of record at his or her address as shown upon
the books of this Association. Any action required or permitted
to be taken at an annual or special meeting of the shareholders
of the Association may be taken without prior written notice and
without any meeting if such action is taken by written action,
containing a waiver of notice, signed by all of the shareholders
entitled to vote on that action.
TENTH. To the extent permitted by applicable law and
regulation:
(a) Elimination of Certain Liability of Directors. A
---------------------------------------------
director of the Association shall not be personally liable to the
Association or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Association or
its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived
an improper personal benefit.
(b)(1) Right to Indemnification. Each person who was or is
------------------------
made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a
director or officer of the Association or is or was serving at
the request of the Association as a director, officer, employee
or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action or inaction in an official capacity
as a director, officer, employee, or agent or in any other
capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Association to the
fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such
amendment permits the Association to provide broader
indemnification rights than said law permitted the Association to
provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in
settlement except to the extent prohibited by 12 CFR 7.5217(b))
reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Association shall
indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only
-3-
<PAGE>
if such proceeding (or part thereof) was authorized by the Board
of Directors of the Association. The right to indemnification
conferred in this paragraph (b) shall be a contract right and
shall include the right to be paid by the Association the
expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses
incurred by a director of officer in his or her capacity as a
director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Association
of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be
determined that such director of officer is not entitled to be
indemnified under this paragraph (b) or otherwise. The
Association may, by action of its Board of Directors, provide
indemnification to employees and agents of the Association with
the same scope and effect as the foregoing indemnification of
directors and officers.
(2) Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this paragraph (b)
shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the
Articles of Association, by-law, agreement, vote of shareholders
or disinterested directors or otherwise.
(3) Insurance. Except to the extent prohibited by 12 CFR
---------
7.5217(d), the Association may maintain insurance, at its
expense, to protect itself and any director, officer, employee or
agent of the Association or another corporation, partnership,
joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the Association would
have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
ELEVENTH. These Articles of Association may be amended at
any regular or special meeting of the shareholders by the
affirmative vote of the holders of a majority of the stock of
this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote
of holders of such greater amount.
-4-
<PAGE>
EXHIBIT 2
----------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
----------------------------------------------------------------
Midwestern District Office
2345 Grand Avenue, Suite 700 I hereby certify that this is
Kansas City, Missouri 64108 a True and Correct copy of the
foregoing instrument which is
still in force and effect.
Norwest Bank Colorado, N.A.
January 3, 1994
By: /s/ Amy E. Buck
------------------------
Mr. Terence W. Chase
Manager, External Reporting
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479
Dear Mr. Chase:
This letter is the official certification of the Office of the
Comptroller of the Currency (OCC) to consolidate Norwest Bank
Arapahoe, National Association, Englewood, CO (Charter No.
17017); Norwest Bank Arvada, National Association, Arvada CO
(Charter No. 16747); Norwest Bank Aurora, National Association,
Aurora, CO (Charter No. 21822); Norwest Bank Aurora-City Center,
National Association, Aurora, CO (Charter No. 18034); Norwest
Bank Aurora-South, National Association, Aurora, CO (Charter No.
21824); Norwest Bank Bear Valley, National Association, Denver,
CO (Charter No. 15332); Norwest Bank Broomfield, National
Association, Broomfield, CO (Charter No. 21825); Norwest Bank
Buckingham Square, National Association, Aurora, CO (Charter No.
16244); Norwest Bank Cherry Creek, National Association, Denver,
CO (Charter No. 17361); Norwest Bank Highlands Ranch, National
Association, Highlands Ranch, CO (Charter No. 17887); Norwest
Bank Lakewood, National Association, Lakewood, CO (Charter No.
15079); Norwest Bank Littleton, National Association, Littleton,
CO (Charter No. 21829); Norwest Bank Monaco, National
Association, Denver, CO (Charter No. 16475); Norwest Bank
Northglenn, National Association, Northglenn, CO (Charter No.
15203); Norwest Bank Southglenn, National Association, Littleton,
CO (Charter No. 15433); Norwest Bank Southwest Plaza, National
Association, Littleton, CO (Charter No. 17088) into Norwest Bank
Denver, National Association, Denver, CO, effective January 1,
1994. The resulting bank title is "Norwest Bank Colorado,
National Association" and the Charter Number is 3269.
This letter is also the official OCC certification for Norwest
Bank Colorado, National Association to increase its common stock
to $50,000,000 as of January 1, 1994.
Sincerely,
/s/ Ellen Tanner Shepherd
Ellen Tanner Shepherd
Corporate Manager [SEAL]
<PAGE>
----------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
----------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
-----------
I, Stephen R. Steinbrink, Acting Comptroller of the Currency, do
hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised
Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as
amended, has possession, custody and control of all records
pertaining to the chartering, regulation and supervision of all
National Banking Associations.
2. Effective April 27, 1992 the titles of the attached Thirty
Seven National Banking Associations, located in the State of
Colorado were changed as shown on the attached Exhibit A.
IN TESTIMONY WHEREOF, I have
hereunto subscribed my name and
caused my seal of office to be
affixed to these presents at the
Treasury Department, in the City of
Washington and District of
Columbia, this 14th day of May,
1992.
[SEAL]
/s/ Stephen R. Steinbrink
-----------------------------------
Acting Comptroller of the Currency
I hereby certify that this is a True and
Correct copy of the foregoing instrument
which is still in full force and effect.
Northwest Bank Denver, N.A.
By: /s/ Amy E. Buck
-----------------------------
<PAGE>
Legal Name Prior Legal Name Effective
to April 27, 1982 Charter # April 27, 1992
----------------- --------- --------------------
United Bank of Academy 17891 Norwest Bank of Academy
Place National Association Place, National Association
United Bank of Arapahoe 17017 Norwest Bank of Arapahoe,
National Association National Association
United Bank of Arvada 16747 Norwest Bank of Arvada,
National Association National Association
United Bank of Aurora 21822 Norwest Bank of Aurora,
National Association National Association
United Bank of Aurora-City 18034 Norwest Bank of Aurora-City
Center National Association Center, National Association
United Bank of Aurora-South 21824 Norwest Bank of Aurora-South,
National Association National Association
United Bank of Bear Valley 15332 Norwest Bank of Bear Valley,
National Association National Association
United Bank of Boulder 2355 Norwest Bank of Boulder,
National Association National Association
United Bank of Brighton 21831 Norwest Bank, of Brighton,
National Association National Association
United Bank of Broomfield 21825 Norwest Bank of Broomfield,
National Association National Association
United Bank of Buckingham 16244 Norwest Bank of Buckingham
Square National Association Square, National Association
United Bank of Cherry Creek 17361 Norwest Bank of Cherry Creek,
National Association National Association
United Bank of Colorado 8572 Norwest Bank of Colorado
Springs National Association Springs, National Association
United Bank of Colorado 15378 Norwest Bank of Colorado
Springs-East National Springs-East, National
Association Association
United Bank of Delta 15321 Norwest Bank of Delta,
National Association National Association
United Bank of Denver 3269 Norwest Bank of Denver,
National Association National Association
United Bank of Durango 18761 Norwest Bank of Durango,
National Association National Association
United Bank of Fort Collins 7837 Norwest Bank of Fort Collins,
National Association National Association
United Bank of Fort Collins- 16909 Norwest Bank of Fort Collins-
South National Association South, National Association
United Bank of Garden of the 18762 Norwest Bank of Garden of the
Gods National Association Gods, National Association
United Bank of Grand 15317 Norwest Bank of Grand
Junction National Association Junction, National Association
United Bank of Grand 18749 Norwest Bank of Grand
Junction-Downtown National Junction-Downtown, National
Association Association
United Bank of Greeley 3148 Norwest Bank of Greeley,
National Association National Association
United Bank of Highlands 17887 Norwest Bank of Highlands
Ranch National Association Ranch, National Association
United Bank of Lakewood 15079 Norwest Bank of Lakewood,
National Association National Association
United Bank of LaSalle 15275 Norwest Bank of LaSalle,
National Association National Association
United Bank of Littleton 21829 Norwest Bank of Littleton,
National Association National Association
United Bank of Longmont 17481 Norwest Bank of Longmont,
National Association National Association
United Bank of Monaco 16475 Norwest Bank of Monaco,
National Association National Association
United Bank of Montrose 4007 Norwest Bank of Montrose,
National Association National Association
United Bank of Northglenn 15203 Norwest Bank of Northglenn,
National Association National Association
United Bank of Pueblo 21776 Norwest Bank of Pueblo,
National Association National Association
United Bank of Southglenn 15433 Norwest Bank of Southglenn,
National Association National Association
United Bank of Southwest 17088 Norwest Bank of Southwest
Plaza National Association Plaza, National Association
United Bank of Steamboat 14400 Norwest Bank of Steamboat
Springs National Association Springs, National Association
United Bank of Sterling 21827 Norwest Bank of Sterling,
National Association National Association
United Bank of Sunset Park 15003 Norwest Bank of Sunset Park,
National Association National Association
<PAGE>
----------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
----------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATION OF FIDUCIARY POWERS
---------------------------------
I, Dean E. Miller, Deputy Comptroller for Trust and
Securities, do hereby certify that the records in this Office
evidence that the United Bank of Denver National Association,
Denver, Colorado, was granted, under the hand and seal of the
Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of the Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 USC 92a. I further certify
that the authority so granted remains in full force and effect.
IN TESTIMONY WHEREOF, I have
hereunto subscribed my name and
caused the seal of Office of the
Comptroller of the Currency to be
affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia
this second day of October, 1984.
[SEAL] /s/ Dean E. Miller
Dean E. Miller
Deputy Comptroller
for Trust and Securities
The foregoing is a true and
complete copy of a document which
is in our files.
United Bank of Denver N.A.
<PAGE>
EXHIBIT 3
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
BY-LAWS
-------
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1.1 ANNUAL MEETING. The regular annual meeting of
--------------
the shareholders for the election of directors and the
transaction of whatever other business may properly come before
the meeting shall be held on the third thursday of January of
each year at such time and place as the Board of Directors may
designate. If for any cause the annual meeting of shareholders
for the election of directors is not held on the date fixed in
this by-law, such meeting may be held on some other day, notice
thereof having been given in accordance with the requirements of
Section 5149, United States Revised Statutes, and the meeting
conducted according to the provisions of these by-laws.
SECTION 1.2 SPECIAL MEETING. Except as otherwise
---------------
specifically provided by statute, special meetings of
shareholders may be called for any purpose at any time by the
Board of Directors, by the Chief Executive Officer, by the
President, or by any one or more shareholders owning in the
aggregate not less than 25 percent of the then outstanding
shares, as provided in Article Ninth of the Articles of
Association.
SECTION 1.3 NOTICE OF MEETINGS. A notice of each annual or
------------------
special shareholders' meeting, setting forth the time, place, and
purpose of the meeting, shall be given, by first-class mail,
postage prepaid, to each shareholder of record at least ten days
prior to the date on which such meeting is to be held; but any
failure to mail such notice of any annual meeting, or any
irregularity therein, shall not affect the validity of such
annual meeting or of any of the proceedings thereat.
Notwithstanding anything in these by-laws to the contrary, a
valid shareholders' meeting may be held without notice whenever
notice thereof shall be waived in writing by all shareholders, or
whenever all shareholders shall be present or represented at the
meeting.
SECTION 1.4 QUORUM. The holders of a majority of the stock
------
issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all
meetings of the shareholders for the transaction of business, and
may transact any business except such as may, under the
provisions of law, the Articles of Association, or these by-laws,
require the vote of holders of a greater number of shares. If,
however, such majority shall not be present or represented at any
meeting of the shareholders, the shareholders entitled to vote
thereat, present in person or by proxy, shall have power to
<PAGE>
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until such time as the Board of
Directors may determine.
SECTION 1.5 PROXIES AND VOTING RIGHTS. At each meeting of
-------------------------
the shareholders each shareholder having the right to vote shall
be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such shareholder, which proxy
shall be valid for that meeting or any adjournments thereof,
shall be dated, and shall be filed with the records of the
meeting. No officer or employee of this Association may act as
proxy. Each shareholder shall have one vote for each share of
stock having voting power which is registered in his name on the
books of the Association. Voting for the election of directors
and voting upon any other matter which may be brought before any
shareholders' meeting may, but need not, be by ballot, unless
voting by ballot be requested by shareholder present at the
meeting.
SECTION 1.6 PROCEEDINGS AND RECORDS. The Chairman of the
-----------------------
Board shall preside at all meetings of the shareholders or, in
case of his absence or inability to act, the President or, in
case of the absence or inability to act of both of them, any
Executive Vice President may preside at any such meeting. The
presiding officer shall appoint a person to act as secretary of
each shareholders' meeting; provided, however, that the
shareholders may appoint some other person to preside at their
meetings or to act as secretary thereof. A record of all
business transacted shall be made of each shareholders' meeting
showing, among other things, the names of the shareholders
present and the number of shares of stock held by each, the names
of the shareholders represented by proxy and the number of shares
held by each, the names of the proxies, the number of shares
voted on each motion or resolution and the number of shares voted
for each candidate for director. This record shall be entered in
the minute book of the Association and shall be subscribed by the
secretary of the meeting.
ARTICLE II
----------
DIRECTORS
---------
SECTION 2.1 BOARD OF DIRECTORS. The Board of Directors
------------------
(hereinafter referred to as the "Board") shall have power to
manage and administer the business and affairs of the
Association. Except as expressly limited by law, all corporate
powers of the Association shall be vested in and may be exercised
by the Board.
SECTION 2.2 NUMBER AND QUALIFICATIONS. The Board shall
-------------------------
consist of not less than five nor more than twenty-five persons,
the exact number within such minimum and maximum limits to be
fixed and determined from time to time by resolution of a
majority of the full Board or by resolution of the shareholders
at any meeting thereof; provided, however, that a majority of the
full Board may not increase the number of directors to a number
-2-
<PAGE>
which (i) exceeds by more than two the number of directors last
elected by shareholders where such number was fifteen or less;
and (ii) exceeds by more than four the number of directors last
elected by shareholders where such number was sixteen or more,
but in no event shall the number of directors exceed twenty-five.
Each director shall, during the full term of his
directorship, be a citizen of the United States, and at least
two-thirds of the directors shall have resided in the State of
Colorado, or within one hundred miles of the location of the
office of the Association, for at least one year immediately
preceding their election, and shall be residents of such state or
within a one-hundred-mile territory of the location of the
Association during their continuance in office. Each director,
during the full term of his directorship, shall own a minimum of
$1,000 par value of stock of this Association or an equivalent
interest, as determined by the Comptroller of the Currency, in
any company which has control over this Association within the
meaning of Section 2 of the Bank Holding Company Act of 1956, as
amended.
SECTION 2.3 ORGANIZATION MEETING. A meeting of the newly
--------------------
elected Board shall be held at the main office of this
Association, without notice, immediately following the
adjournment of the annual meeting of the shareholders, or at such
other time and at such other place to which said meeting may be
adjourned. No business shall be transacted at any such meeting
until a majority of the directors elected shall have taken an
oath of office as prescribed by law, and no director elected
shall participate in the business transacted at any such meeting
of the Board until he shall have taken said oath. If at any such
meeting there is not a quorum of the directors present who shall
have taken the oath of office, the members present may adjourn
the meeting from time to time until a quorum is secured. At such
meeting of the newly elected Board, if a quorum is present, the
directors may elect officers for the ensuing year and transact
any and all business which may be brought before them.
SECTION 2.4 REGULAR MEETINGS. The regular meetings of the
----------------
Board shall be held, without notice other than by this by-law, on
the third Thursday of ever other month, at such time and place as
the Board may designate. If the day fixed for a regular meeting
falls upon a bank or legal holiday, the meeting shall be held on
the next succeeding banking business day or on such other date
specified by the Board, in which case notice shall be given to
each director as provided in Section 2.6.
SECTION 2.5 SPECIAL MEETINGS. Special meetings of the
----------------
Board may be called by the Chairman of the Board, the President,
or the Secretary, and shall be called at the request of one-third
or more of the directors.
SECTION 2.6 NOTICE OF MEETINGS. Each member of the Board
------------------
shall be given not less than one day's notice by telephone,
telegram, letter, or in person, stating the time and place of any
regular or special meeting; such notice may, but need not, state
the purpose of said meeting. Notwithstanding anything in these
by-laws to the contrary, a valid directors' meeting may be held
-3-
<PAGE>
without notice whenever notice thereof shall be waived in writing
by all of the directors, or whenever all of the directors are
present at the meeting.
SECTION 2.7 QUORUM AND VOTING. A majority of the directors
-----------------
shall constitute a quorum at all directors' meetings. Except
where the vote of a greater number of directors is required by
the Articles of Association, these by-laws or under provisions of
law, the vote of a majority of the directors at a meeting at
which a quorum is present shall be sufficient to transact
business.
SECTION 2.8 PROCEEDINGS AND RECORD. The Chairman of the
----------------------
Board, if such officer shall have been designated by the Board,
shall preside at all meetings thereof, and in his absence or
inability to act (or if there shall be no Chairman of the Board)
the President, and in his absence or inability to act, any other
director appointed chairman of the meeting pro tempore, shall
preside at meetings of the directors. The Secretary, any
Assistant Secretary, or any other person appointed by the Board,
shall act as secretary of the Board and shall keep accurate
minutes of all meetings.
SECTION 2.9 VACANCIES. Any vacancy in the Board may be
---------
filled by appointment at any regular or special meeting of the
Board by the remaining directors in accordance with the laws of
the United States, and any director so appointed shall hold his
place until the next election.
ARTICLE III
-----------
COMMITTEES OF THE BOARD
-----------------------
SECTION 3.1 EXECUTIVE COMMITTEE. The Board may appoint
-------------------
annually or more often an Executive Committee consisting of three
or more directors. In the event an Executive Committee is
appointed, the Executive Committee shall have the power to
approve, review, and delegate authority to make loans and
otherwise extend credit and to purchase and sell bills, notes,
bonds, debentures and other legal investments and to establish
and review general loan and investment policies. In addition,
when the Board is not in session, the Executive Committee shall
have the power to exercise all powers of the Board, except those
that cannot legally be delegated by the Board. The Executive
Committee shall keep minutes of its meetings, and such minutes
shall be submitted at the next regular meeting of the Board at
which a quorum is present.
SECTION 3.2 TRUST COMMITTEES. The Board shall appoint a
----------------
Trust Audit Committee, whose members shall be directors of the
Association who have no direct or indirect responsibility for the
trust function. This Committee shall, at least once during each
calendar year and within fifteen months of the last such audit,
make suitable audits of the Trust Department or cause suitable
audits to be made by auditors responsible only to the Board and
-4-
<PAGE>
at such time shall ascertain and report to the Board whether said
Department has been administered in accordance with applicable
laws and regulations and sound fiduciary principles. Every
report to the Board under this section, together with the action
taken thereon, shall be noted in the minutes of the Board. The
Board shall from time to time appoint such other committees of
such membership and with such powers and duties as it is required
to appoint under the provisions of Regulation 9 issued by the
Comptroller of the Currency relating to the trust powers of
national banks, or any amendments thereto, and may appoint such
other committees of such membership and with such powers and
duties as the Board may provide and as are permitted by said
Regulation 9, or any amendments thereto.
SECTION 3.3 OTHER COMMITTEES. The Board, by a majority
----------------
vote of the whole Board, may create from its own members or (to
the extent permitted by applicable statutes, laws and
regulations) from its own members and/or officers or employees of
the Association such other committees as it may from time to time
deem necessary, and may designate the name and term of existence
and prescribe the duties thereof.
SECTION 3.4 PROCEEDINGS AND RECORD. Each committee
----------------------
appointed by the Board may hold regular meetings at such time or
times as may be fixed by the Board or by the committee itself.
Special meetings of any committee may be called by the chairman
or vice chairman or any two members thereof. The Board may, at
the time of the appointment of any committee, designate alternate
or advisory members, designate its chairman, vice chairman, and
secretary, or any one or more thereof, and the committee itself
may appoint such of said officers as have not been so designated
by the Board if they deem such appointment necessary or
advisable. The secretary may but need not be a member of the
committee. The Board may at any time prescribe or change the
number of members whose presence is required to constitute a
quorum at any or all meetings of a committee. The quorum so
prescribed need not be a majority of the members of the
committee. If no quorum is prescribed by the Board, the presence
of a majority of the members of the committee shall be required
to constitute a quorum. Each committee shall keep such records
of its meetings and proceedings as may be required by law or
applicable regulations and may keep such additional records of
its meetings and proceedings as it deems necessary or advisable,
and each committee may make such rules of procedure for the
conduct of its own meetings and the method of discharge of its
duties as it deems advisable. Each committee appointed by the
Board may appoint subcommittees composed of its own members or
other persons and may rely on information furnished to it by such
subcommittees or by statistical or other fact-finding departments
or employees of this Association, provided that final action
shall be taken in each case by the committee.
ARTICLE IV
----------
OFFICERS AND EMPLOYEES
----------------------
-5-
<PAGE>
SECTION 4.1 APPOINTMENT OF OFFICERS. The Board shall
-----------------------
appoint a President, one or more Executive Vice Presidents, one
or more office Presidents, one or more Senior Vice Presidents,
one or more Vice Presidents, and a Secretary, and may appoint a
Chairman of the Board and such other officers as from time to
time may appear to the Board to be required or desirable to
transact the business of the Association. Only directors shall
be eligible for appointment as President or Chairman of the
Board. If a director other than the President is appointed
Chairman of the Board, the Board shall designate either of these
two officers as the chief executive officer of this Association.
The chief executive officer may appoint other officers below the
rank of Vice President by filing a written notice of such officer
appointments with the Secretary.
SECTION 4.2 TENURE OF OFFICE. Officers shall hold their
----------------
respective offices for the current year for which they are
appointed unless they resign, become disqualified or are removed.
Any officer appointed by the Board may be removed at any time by
the affirmative vote of a majority of the full Board or in
accordance with authority granted by the Board. During the year
between its organization meetings, the Board may appoint
additional officers and shall promptly fill any vacancy occurring
in any office required to be filled.
SECTION 4.3 CHIEF EXECUTIVE OFFICER. The chief executive
-----------------------
officer shall supervise the carrying out of policies adopted or
approved by the Board, shall have general executive powers as
well as the specific powers conferred by these by-laws; and shall
also have and may exercise such further powers and duties as from
time to time may be conferred upon or assigned to him by the
Board.
SECTION 4.4 SECRETARY OR ASSISTANT SECRETARY. The
--------------------------------
Secretary or any Assistant Secretary shall attend to the giving
of all notices required by these by-laws to be given; shall be
custodian of the corporate seal, records, documents and papers of
the Association; shall provide for the keeping of proper records
of all transactions of the Association; shall have and may
exercise any and all other powers and duties pertaining by law,
regulation or practice, to the Office of Secretary, or imposed by
these by-laws; and shall also perform such other duties as may be
assigned from time to time by the Board.
SECTION 4.5 GENERAL AUTHORITY AND DUTIES. Officers shall
----------------------------
have the general powers and duties customarily vested in the
office of such officers of a corporation and shall also exercise
such powers and perform such duties as may be prescribed by the
Articles of Association, by these by-laws, or by the laws or
regulations governing the conduct of the business of national
banking associations, and shall exercise such other powers and
perform such other duties not inconsistent with the Articles of
Association, these by-laws or laws or regulations as may be
conferred upon or assigned to them by the Board or the chief
executive officer.
-6-
<PAGE>
SECTION 4.6 EMPLOYEES AND AGENTS. Subject to the authority
--------------------
of the Board, the chief executive officer, or any other officer
of the Association authorized by him, may appoint or dismiss all
or any employees and agents and prescribe their duties and the
conditions of their employment, and from time to time fix their
compensation.
SECTION 4.7 BONDS OF OFFICERS AND EMPLOYEES. The officers
-------------------------------
and employees of this Association shall give bond with security
to be approved by the Board in such penal sum as the Board shall
require, conditioned for the faithful and honest discharge of
their respective duties and for the faithful application and
accounting of all monies, funds and other property which may come
into their possession or may be entrusted to their care or placed
in their hands. In the discretion of the Board in lieu of having
individual bonds for each officer and employee, there may be
substituted for the bonds provided for herein a blanket bond
covering all officers and employees providing coverage in such
amounts and containing such conditions and stipulations as shall
be approved by the chief executive officer of this Association
but subject to the supervision and control of the Board.
ARTICLE V
---------
STOCK AND STOCK CERTIFICATES
----------------------------
SECTION 5.1 TRANSFERS. Shares of stock shall be
---------
transferable only on the books of the Association upon surrender
of the certificate for cancellation, and a transfer book shall be
kept in which all transfers of stock shall be recorded.
SECTION 5.2 STOCK CERTIFICATES. Certificates of stock
------------------
shall be signed by the chief executive officer, the President, or
any Executive Vice President and the Secretary, or any Assistant
Secretary, or any other officer appointed by the Board for that
purpose, and shall be sealed with the corporate seal. Each
certificate shall recite on its face that the stock represented
thereby is transferable only upon the books of the Association
properly endorsed, and shall meet the requirements of Section
5139, United States Revised Statutes, as amended.
SECTION 5.3 DIVIDENDS. Transfers of stock shall not be
---------
suspended preparatory to the declaration of dividends and, unless
an agreement to the contrary shall be expressed in the
assignments, dividends shall be paid to the shareholders in whose
name the stock shall stand at the time of the declaration of the
dividends or on such record date as may be fixed by the Board.
SECTION 5.4 LOST CERTIFICATES. In the event of loss or
-----------------
destruction of a certificate of stock, a new certificate may be
issued in its place upon proof of such loss or destruction and
upon receipt of an acceptable bond or agreement of indemnity as
maybe required by the Board.
-7-
<PAGE>
ARTICLE VI
----------
CORPORATE SEAL
--------------
SECTION 6.1 FORM. The corporate seal of the Association
----
shall have inscribed thereon the name of the Association.
SECTION 6.2 AUTHORITY TO IMPRESS. The chief executive
---------------------
officer, the President, the Secretary, any Assistant Secretary,
or other officer designated by the Board, shall have authority to
impress or affix the corporate seal to any document requiring
such seal, and to attest the same.
ARTICLE VII
-----------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 7.1 BANKING HOURS. The days and hours during which
--------------
this Association shall be open for business shall be fixed from
time to time by the Board, the chief executive officer, or the
President, consistent with national and state laws governing
banking and business transactions.
SECTION 7.2 EXECUTION OF WRITTEN INSTRUMENTS. All
---------------------------------
instruments, documents, or agreements relating to or affecting
the property or business and affairs of this Association, or of
this Association when acting in any representative or fiduciary
capacity, shall be executed, acknowledged, verified, delivered or
accepted in behalf of this Association by the chief executive
officer, the President, any Executive Vice President, any office
President, any Senior Vice President, any Vice President, the
Secretary, any Assistant Vice President, any Assistant
Secretary,or by such other officer, officers, employees, or
designated signers, as the Board may from time to time direct.
SECTION 7.3 RECORDS. The Articles of Association, these
-------
by-laws, and any amendments thereto, and the proceedings of all
regular and special meetings of the directors and of the
shareholders shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be
signed by the person appointed to act as secretary of the
meeting.
SECTION 7.4 FISCAL YEAR. The fiscal year of the
------------
Association shall be the calendar year.
-8-
<PAGE>
ARTICLE VIII
------------
BY-LAWS
-------
SECTION 8.1 INSPECTION. A copy of these by-laws, with all
-----------
amendments thereto, shall at all times be kept in a convenient
place at the main office of the Association, and shall be open
for inspection to all shareholders during banking hours.
SECTION 8.2 AMENDMENTS. These by-laws may be changed or
-----------
amended at any regular or special meeting of the Board by a vote
of a majority of the full Board or at any regular or special
meeting of shareholders by the vote of the holders of a majority
of the stock issued and outstanding and entitled to vote thereat.
-9-
<PAGE>
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
MARCH 16, 1995 MEETING OF THE BOARD OF DIRECTORS
ACTION: APPROVE AMENDMENT TO BYLAWS
-----------------------------------
ARTICLE II
----------
DIRECTORS
---------
SECTION 2.10 MEETINGS BY TELEPHONE. Unless otherwise
---------------------
provided by the articles of association, one or more members of
the board of directors may participate in a meeting of the board
by teleconference or by similar communications equipment by which
all persons participating in the meeting can hear each other at
the same time. Such participation shall constitute presence in
person at the meeting.
SECTION 2.11 ACTION WITHOUT A MEETING. Any action required
------------------------
or permitted to be taken at a meeting of the directors may be
taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors.
Such consent (which may be signed in counterparts) shall have the
same force and effect as a unanimous vote of the directors and
may be stated as such in any document. Unless the consent
specifies a different effective date, action taken herein is
effective when all directors have signed the consent. All
consents signed pursuant to this Section 2.11 shall be delivered
to the secretary of the bank for inclusion in the minutes or for
filing with the bank records.
<PAGE>
EXHIBIT 4
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-
DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI--INCOME STATEMENT
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Interest income:
a. Interest and fee income on loans:
(1) In domestic offices:
(a) Loans secured by real estate . . . . . . . . $120,996
(b) Loans to depository institutions . . . . . . 8,479
(c) Loans to finance agricultural production and 7,915
other loans to farmers . . . . . . . . . . .
(d) Commercial and industrial loans . . . . . . 77,275
(e) Acceptances of other banks . . . . . . . . . 36
(f) Loans to individuals for household, family,
and other personal expenditures:
(1) Credit cards and related plans . . . . . . 11,192
(2) Other . . . . . . . . . . . . . . . . . . 68,113
(g) Loans to foreign governments and official
institutions . . . . . . . . . . . . . . . . 2
(h) Obligations (other than securities and leases)
of states and political subdivisions in the
U.S.:
(1) Taxable obligations . . . . . . . . . . . 0
(2) Tax-exempt obligations . . . . . . . . . . 1,238
(i) All other loans in domestic offices . . . . 65
(2) In foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . 0
b. Income from lease financing receivables:
(1) Taxable leases . . . . . . . . . . . . . . . . 39
(2) Tax-exempt leases . . . . . . . . . . . . . . . 0
c. Interest income on balances due from depository
institutions:(1) 13
(1) In domestic offices . . . . . . . . . . . . . .
(2) In foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . 0
d. Interest and dividend income on securities:
(1) U.S. Treasury securities and U.S. Government
agency and corporation obligations . . . . . . 188,396
(2) Securities issued by states and political
subdivisions in the U.S.:
(a) Taxable securities . . . . . . . . . . . . . 251
(b) Tax-exempt securities . . . . . . . . . . . 2,647
(3) Other domestic debt securities . . . . . . . . 711
(4) Foreign debt securities . . . . . . . . . . . . 0
(5) Equity securities (including investments in
mutual funds) . . . . . . . . . . . . . . . . . 553
----------------------------
(1) Includes interest income on time certificates of deposit not
held for trading.
<PAGE>
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
e. Interest income from trading assets . . . . . . . 0
f. Interest income on federal funds sold and
securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs . . . . . . . 17,342
g. Total interest income (sum of items 1.a through
1.f) . . . . . . . . . . . . . . . . . . . . . . 505,263
2. Interest expense:
a. Interest on deposits:
(1) Interest on deposits in domestic offices:
(a) Transaction accounts (NOW accounts, ATS
accounts, and telephone and preauthorized
transfer accounts) . . . . . . . . . . . . . 16,426
(b) Nontransaction accounts:
(1) Money market deposit accounts (MMDAs) . . 39,044
(2) Other savings deposits . . . . . . . . . . 26,254
(3) Time certificates of deposit of $100,000 or
more . . . . . . . . . . . . . . . . . . . 15,319
(4) All other time deposits . . . . . . . . . 58,784
(2) Interest on deposits in foreign offices, edge
and agreement subsidiaries, and IBFS . . . . . 3,769
b. Expense of federal funds purchased and securities
sold under agreements to repurchase in domestic
offices of the bank and of its edge and agreement
subsidiaries, and in IBFs . . . . . . . . . . . . 5,723
c. Interest on demand notes issued to the U.S.
Treasury, trading liabilities, and other borrowed
money . . . . . . . . . . . . . . . . . . . . . . 0
d. Interest on mortgage indebtedness and obligations
under capitalized leases . . . . . . . . . . . . 122
e. Interest on subordinated notes and debentures . . 687
-------
f. Total interest expense (sum of items 2.a through
2.e) . . . . . . . . . . . . . . . . . . . . . . 166,128
========
3. Net interest income (item 1.g minus 2.f) . . . . . . 339,135
========
4. Provisions:
a. Provision for loan and lease losses . . . . . . . 8,946
b. Provision for allocated transfer risk . . . . . . 0
5. Noninterest income:
a. Income from fiduciary activities . . . . . . . . 29,116
b. Service charges on deposit accounts in domestic
offices . . . . . . . . . . . . . . . . . . . . . 55,743
c. Trading revenue (must equal Schedule RI, sum of
Memorandum items 8.a through 8.d) . . . . . . . . 1
d. Other foreign transaction gains (losses) . . . . 281
e. Not applicable . . . . . . . . . . . . . . . . . --
f. Other noninterest income:
(1) Other fee income . . . . . . . . . . . . . . . 28,672
(2) All other noninterest income . . . . . . . . . 9,569
g. Total noninterest income (sum of items 5.a through
5.f) . . . . . . . . . . . . . . . . . . . . . . 123,382
6. a. Realized gains (losses) on held-to maturity
securities . . . . . . . . . . . . . . . . . . (10)
-----------------------------
* Describe on Schedule RI-E Explanations.
-2-
<PAGE>
SCHEDULE RI--INCOME STATEMENT (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
b. Realized gains (losses) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . 11,887
7. Noninterest expense:
a. Salaries and employee benefits . . . . . . . . . 131,069
b. Expenses of premises and fixed assets (net of
rental income) (excluding salaries and employee
benefits and mortgage interest) . . . . . . . . . 49,541
c. Other noninterest expense* . . . . . . . . . . . 150,314
--------
d. Total noninterest expense (sum of items 7.a through
7.c) . . . . . . . . . . . . . . . . . . . . . . 330,924
========
8. Income (loss) before income taxes and extraordinary
items and other adjustments (item 3 plus or minus
items 4.a, 4.b, 5.g, 6.a., 6.b, and 7.d) . . . . . . 134,524
9. Applicable income taxes (on item 8) . . . . . . . . 46,715
--------
10. Income (loss) before extraordinary items and other
adjustments (item 8 minus 9) . . . . . . . . . . . . 87,809
========
11. Extraordinary items and other adjustments:
a. Extraordinary items and other adjustments, gross of
income taxes* . . . . . . . . . . . . . . . . . . 0
b. Applicable income taxes (on item 11.a)* . . . . . 0
c. Extraordinary items and other adjustments, net of
income taxes (item 11.a minus 11.b) . . . . . . . 0
--------
12. Net income (loss) (sum of items 10 and 11.c) . . . . 87,809
========
Memoranda
---------------------------------------------------------
1. Interest expense incurred to carry tax-exempt
securities, loans, and leases acquired after August
7, 1986, that is not deductible for federal income
tax purposes . . . . . . . . . . . . . . . . . . . . 171
2. Income from the sale and servicing of mutual funds
and annuities in domestic offices (included in
Schedule RI, item 8) . . . . . . . . . . . . . . . . 424
3.-4. Not applicable . . . . . . . . . . . . . . . . . . --
5. Number of full-time equivalent employees on payroll (Number)
at end of current period (round to nearest whole
number) . . . . . . . . . . . . . . . . . . . . . . 3,607
6. Not applicable . . . . . . . . . . . . . . . . . . . --
7. If the reporting bank has restated its balance sheet
as a result of applying push down accounting this
calendar year, report the date of the bank's MM DD YY
acquisition . . . . . . . . . . . . . . . . . . . . 00/00/00
8. Trading revenue (from cash instruments and off-
balance sheet derivative instruments) (sum of
Memorandum items 8.a through 8.d must equal Schedule
RI, item 5.c):
a. Interest rate exposures . . . . . . . . . . . . . 0
b. Foreign exchange exposures . . . . . . . . . . . 1
c. Equity security and index exposures . . . . . . . 0
d. Commodity and other exposures . . . . . . . . . . 0
-----------------------------
* Describe on Schedule RI-E Explanations.
-3-
<PAGE>
SCHEDULE RI--INCOME STATEMENTS (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
9. Impact on income of off-balance sheet derivatives
held for purposes other than trading:
a. Net increase (decrease) to interest income . . . 0
b. Net (increase) decrease to interest expense . . . (10,336)
c. Other (noninterest) allocations . . . . . . . . . 0
10. Credit losses on off-balance sheet derivatives (see
instructions) . . . . . . . . . . . . . . . . . . . 0
-4-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-
DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-A--CHANGES IN EQUITY CAPITAL
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
Indicate decreases and losses in parentheses.
1. Total equity capital originally reported in the
December 31, 1995, Reports of Condition and Income . $375,906
2. Equity capital adjustments from amended Reports of
Income, net* . . . . . . . . . . . . . . . . . . . . 0
3. Amended balance end of previous calendar year (sum of
items 1 and 2) . . . . . . . . . . . . . . . . . . . 375,906
4. Net income (loss) (must equal Schedule RI, item 12) 87,809
5. Sale, conversion, acquisition, or retirement of
capital stock, net . . . . . . . . . . . . . . . . . 4,479
6. Changes incident to business combinations, net . . . 5,448
7. LESS: Cash dividends declared on preferred stock . 0
8. LESS: Cash dividends declared on common stock . . . 59,000
9. Cumulative effect of changes in accounting principles
from prior years* (see instructions for this
schedule) . . . . . . . . . . . . . . . . . . . . . 0
10. Corrections of material accounting errors from prior
years* (see instructions for this schedule) . . . . 0
11. Change in net unrealized holding gains (losses) on
available-for-sale securities . . . . . . . . . . . (17,202)
12. Foreign currency translation adjustments . . . . . . 0
13. Other transactions with parent holding company* (not
included in items 5, 7, or 8 above) . . . . . . . . 0
--------
14. Total equity capital end of current period (sum of
items 3 through 13) (must equal Schedule RC, item 28) $397,440
========
-----------------------------
* Describe on Schedule RI-E--Explanations.
-5-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND
CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES
Part I excludes charge-offs and recoveries through the allocated transfer
risk reserve.
(COLUMN A) (COLUMN B)
CHARGE-OFFS RECOVERIES
----------- ----------
(Calendar year-to-date)
------------------------
1. Loans secured by real estate:
a. To U.S. addresses (domicile) . . . . . $1,355 $2,705
b. To non-U.S. addresses (domicile) . . . 0 0
2. Loans to depository institutions and
acceptances of other banks:
a. To U.S. banks and other U.S. depository
institutions . . . . . . . . . . . . . 0 0
b. To foreign banks . . . . . . . . . . . 0 0
3. Loans to finance agricultural production
and other loans to farmers . . . . . . . . 153 90
4. Commercial and industrial loans:
a. To U.S. addresses (domicile) . . . . . 4,176 2,160
b. To non-U.S. addresses (domicile) . . . 0 0
5. Loans to individuals for household, family,
and other personal expenditures:
a. Credit cards and related plans . . . . 0 0
b. Other (includes single payment,
installment, and all student loans) . . 15,608 2,432
6. Loans to foreign governments and official
institutions . . . . . . . . . . . . . . . 0 0
7. All other loans . . . . . . . . . . . . . 1,446 456
8. Lease financing receivables:
a. Of U.S. addresses (domicile) . . . . . 0 0
b. Of non-U.S. addresses (domicile) . . . 0 0
-------- --------
9. Total (sum of items 1 through 8) . . . . . $22,738 $7,892
======== ========
-6-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-B--CONTINUED
PART I. CONTINUED
(COLUMN A) (COLUMN B)
CHARGE-OFFS RECOVERIES
----------- ----------
(Calendar year-to-date)
-----------------------
Memoranda
-----------------------------------------------
1.-3. Not applicable . . . . . . . . . . . . . $-- $--
4. Loans to finance commercial real estate,
construction, and land development
activities (not secured by real estate)
included in Schedule RI-B, part I, items 4
and 7, above . . . . . . . . . . . . . . . 0 0
5. Loans secured by real estate in domestic
offices (included in Schedule RI-B, part I,
item 1 above):
a. Construction and land development . . . 211 499
b. Secured by farmland . . . . . . . . . . 0 48
c. Secured by 1-4 family residential
properties:
(1) Revolving, open-end loans secured by
1-4 family residential properties and
extended under lines of credit . . . 294 44
(2) All other loans secured by 1-4 family
residential properties . . . . . . . 1688 938
d. Secured by multifamily (5 or more) 0 0
residential properties . . . . . . . .
e. Secured by nonfarm nonresidential
properties . . . . . . . . . . . . . . 162 1,176
PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Balance originally reported in the December 31, 1995,
Reports of Condition and Income . . . . . . . . . . $81,711
2. Recoveries (must equal part I, item 9, column B
above) . . . . . . . . . . . . . . . . . . . . . . . 7,892
3. LESS: Charge-offs (must equal part I, item 9, column
A above) . . . . . . . . . . . . . . . . . . . . . . 22,738
4. Provision for loan and lease losses (must equal
Schedule RI, item 4.a) . . . . . . . . . . . . . . . 8,946
5. Adjustments* (see instructions for this 7,275
schedule) . . . . . . . . . . . . . . . . . . . . . --------
6. Balance end of current period (sum of items 1 through
5) (must equal Schedule RC, item 4.b) . . . . . . . $83,086
========
SCHEDULE RI-C--APPLICABLE INCOME TAXES BY TAXING AUTHORITY
1. Federal . . . . . . . . . . . . . . . . . . . . . . 46,715
2. State and local . . . . . . . . . . . . . . . . . . 0
3. Foreign . . . . . . . . . . . . . . . . . . . . . . 0
4. Total (sum of items 1 through 3) (must equal sum of
Schedule RI, items 9 and 11.b) . . . . . . . . . . . 46,715
5. Deferred portion of item 4 . . . . . . . . . . . . . 17,874
-----------------------------
* Describe on Schedule RI-E--Explanations.
-7-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-D--INCOME FROM INTERNATIONAL OPERATIONS
PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Interest income and expense booked at foreign
offices, Edge and Agreement subsidiaries, and IBFs:
a. Interest income booked . . . . . . . . . . . . . N/A
b. Interest expense booked . . . . . . . . . . . . . N/A
c. Net interest income booked at foreign offices, Edge
and Agreement subsidiaries, and IBFs (item 1.a
minus 1.b) . . . . . . . . . . . . . . . . . . . N/A
2. Adjustments for booking location of international
operations:
a. Net interest income attributable to international
operations booked at domestic offices . . . . . . N/A
b. Net interest income attributable to domestic
business booked at foreign offices . . . . . . . N/A
c. Net booking location adjustment (item 2.a minus
2.b) . . . . . . . . . . . . . . . . . . . . . . N/A
3. Noninterest income and expense attributable to
international operations:
a. Noninterest income attributable to international
operations . . . . . . . . . . . . . . . . . . . N/A
b. Provision for loan and lease losses attributable to
international operations . . . . . . . . . . . . N/A
c. Other noninterest expense attributable to
international operations . . . . . . . . . . . . N/A
d. Net noninterest income (expense) attributable to
international operations (item 3.a minus 3.b and
3.c) . . . . . . . . . . . . . . . . . . . . . . N/A
4. Estimated pretax income attributable to international
operations before capital allocation adjustment (sum
of items 1.c, 2.c, and 3.d) . . . . . . . . . . . . N/A
5. Adjusted to pretax income for internal allocations to
international operations to reflect the effects of
equity capital on overall bank funding costs . . . . N/A
6. Estimated pretax income attributable to international
operations after capital allocation adjustment (sum
of items 4 and 5) . . . . . . . . . . . . . . . . . N/A
7. Income taxes attributable to income from
international operations as estimated in item 6 . . N/A
8. Estimated net income attributable to international
operations (item 6 minus 7) . . . . . . . . . . . . N/A
Memorandum
---------------------------------------------------------
1. Intracompany interest income included in item 1.a
above . . . . . . . . . . . . . . . . . . . . . . . N/A
2. Intracompany interest expense included in item 1.b
above . . . . . . . . . . . . . . . . . . . . . . . N/A
-8-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-D--CONTINUED
PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS
REQUIRED BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE
U.S. INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT
ACCOUNTS
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Interest income booked at IBFs . . . . . . . . . . . N/A
2. Interest expense booked at IBFs . . . . . . . . . . N/A
3. Noninterest income attributable to international
operations booked at domestic offices (excluding
IBFs):
a. Gains (losses) and extraordinary items . . . . . N/A
b. Fees and other noninterest income . . . . . . . . N/A
4. Provision for loan and lease losses attributable to
international operations booked at domestic offices
(excluding IBFs) . . . . . . . . . . . . . . . . . . N/A
5. Other noninterest expense attributable to
international operations booked at domestic offices
(excluding IBFs) . . . . . . . . . . . . . . . . . . N/A
-9-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI-E--EXPLANATIONS
Schedule RI-E is to be completed each quarter on a calendar year-to-date
basis.
Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items
and other adjustments in Schedule RI, and all significant items of other
noninterest income and other noninterest expense in Schedule RI. (See
instructions for details.)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. All other noninterest income (from Schedule RI, item
5.f.(2))
Report amounts that exceed 10% of Schedule RI, item
5.f.(2):
a. Net gains on other real estate owned . . . . . . $ 0
b. Net gains on sales of loans . . . . . . . . . . . 0
c. Net gains on sales of premises and fixed assets . 0
d. ATM Processing Revenue . . . . . . . . . . . . . 2,672
e.
f.
2. Other noninterest expense (from Schedule RI, item
7.c):
a. Amortization expense of intangible assets . . . . 0
Report amounts that exceed 10% of Schedule RI, item 7.c:
b. Net losses on other real estate owned . . . . . . 0
c. Net losses on sales of loans . . . . . . . . . . 0
d. Net losses on sales of premises and fixed assets 0
Itemize and describe the three largest other amounts
that exceed 10% of Schedule RI, item 7.c:
e. Computer Processing Fees . . . . . . . . . . . . 12,237
f. Forward Contracting Fees . . . . . . . . . . . . 10,336
g.
3. Extraordinary items and other adjustments (from
Schedule RI, item 11.a) and applicable income tax
effect (from Schedule RI, item 11.b) (itemize and
describe all extraordinary items and other
adjustments):
a. (1)
(2) Applicable income tax effect
b. (1)
(2) Applicable income tax effect
c. (1)
(2) Applicable income tax effect
4. Equity capital adjustments from amended Reports of
Income (from Schedule RI-A, item 2)
(itemize and describe all adjustments):
a.
b.
-10-
<PAGE>
SCHEDULE RI-E--EXPLANATIONS (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
5. Cumulative effect of changes in accounting principles
from prior years (from Schedule RI-A, item 9)
(itemize and describe all changes in accounting
principles):
a.
b.
6. Corrections of material accounting errors from prior
years (from Schedule RI-A, item 10)
(itemize and describe all corrections):
a.
b.
7. Other transactions with parent holding company (from
Schedule RI-A, item 13)
(itemize and describe all such transactions):
a.
b.
8. Adjustments to allowance for loan and lease losses
(from Schedule RI-B, part II, item 5) (itemize and
describe all such transactions):
a. Merge of assets from affiliate 1/96 and 7/96 . . 7,275
b.
9. Other explanations (the space below is provided for
the bank to briefly describe, at its option, any
other significant items affecting the Report of
Income):
No comment
Other explanations (please type or print clearly):
-11-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-C--BALANCE SHEET
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
ASSETS
1. Cash and balances due from depository institutions
(from Schedule RC-A):
a. Noninterest-bearing balances and currency and
coin (1) . . . . . . . . . . . . . . . . . . . . $ 911,301
b. Interest-bearing balances (2) . . . . . . . . . . 250
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B,
column A) . . . . . . . . . . . . . . . . . . . . 0
b. Available-for-sale securities (from Schedule RC-B,
column D) . . . . . . . . . . . . . . . . . . . . 2,242,845
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries, and in
IBFs:
a. Federal funds sold . . . . . . . . . . . . . . . 570,505
b. Securities purchased under agreements to resell . 0
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from
Schedule RC-C) . . . . . . . . . . . . . . . . . 3,949,963
b. LESS: Allowance for loan and lease losses . . . 83,086
c. LESS: Allocated transfer risk reserve . . . . . 0
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b
and 4.c) . . . . . . . . . . . . . . . . . . . . 3,866,877
5. Trading assets (from Schedule RC-D) . . . . . . . . 4
6. Premises and fixed assets (including capitalized
leases) . . . . . . . . . . . . . . . . . . . . . . 111,612
7. Other real estate owned (from Schedule RC-M) . . . . 428
8. Investments in unconsolidated subsidiaries and
associated companies (from Schedule RC-M) . . . . . 0
9. Customers' liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . 2,367
10. Intangible assets (from Schedule RC-M) . . . . . . . 119
11. Other assets (from Schedule RC-F) . . . . . . . . . 150,031
--------
12. Total assets (sum of items 1 through 11) . . . . . . $7,856,335
========
-----------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
-12-
<PAGE>
SCHEDULE RC-C--BALANCE SHHET (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
------------
(Year-to-
date)
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and
C from Schedule RC-E, part I) . . . . . . . . . . $7,041,294
(1) Noninterest-bearing (1) . . . . . . . . . . . . 2,291,735
(2) Interest-bearing . . . . . . . . . . . . . . . 4,749,559
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule RC-E,
part II) . . . . . . . . . . . . . . . . . . . . 145,559
(1) Noninterest-bearing . . . . . . . . . . . . . . 0
(2) Interest-bearing . . . . . . . . . . . . . . . 145,559
14. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its Edge and Agreement subsidiaries, and
in IBFs:
a. Federal funds purchased . . . . . . . . . . . . . 77,435
b. Securities sold under agreements to repurchase . 21,240
15.a. Demand notes issued to the U.S. Treasury . . . . 0
b. Trading liabilities (from Schedule RC-D) . . . . 3
16. Other borrowed money:
a. With a remaining maturity of one year or less . . 12,918
b. With a remaining maturity of more than one year . 0
17. Mortgage indebtedness and obligations under
capitalized leases . . . . . . . . . . . . . . . . . 194
18. Bank's liability on acceptances executed and
outstanding . . . . . . . . . . . . . . . . . . . . 2,367
19. Subordinated notes and debentures . . . . . . . . . 42,000
20. Other liabilities (from Schedule RC-G) . . . . . . . 115,885
----------
21. Total liabilities (sum of items 13 through 20) . . . $7,458,895
==========
22. Limited-life preferred stock and related surplus . . $ 0
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus . . . 0
24. Common stock . . . . . . . . . . . . . . . . . . . . 100,000
25. Surplus (exclude all surplus related to preferred
stock) . . . . . . . . . . . . . . . . . . . . . . . 204,057
26.a. Undivided profits and capital reserves . . . . . 89,762
b. Net unrealized holding gains (losses) on available-
for-sale securities . . . . . . . . . . . . . . . 3,621
27. Cumulative foreign currency translation adjustments 0
----------
28. Total equity capital (sum of items 23 through 27) . 397,440
==========
29. Total liabilities, limited-life preferred stock, and
equity capital (sum of items 21, 22, and 28) . . . . $7,856,335
==========
-----------------------------
(1) Includes total demand deposits and noninterest-bearing time and
savings deposits.
-13-
<PAGE>
SCHEDULE RC-C--BALANCE SHEET (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
Memorandum
---------------------------------------------------------
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the Number
statement below that best describes the most N/A
comprehensive level of auditing work performed for
the bank by independent external auditors as of any
date during 1995 . . . . . . . . . . . . . . . . . .
1 = Independent audit of the bank 4 = Directors' examination of
conducted in accordance with the bank performed by other
generally accepted auditing external auditors (may be
standards by a certified required by state
public accounting firm which chartering authority)
submits a report on the bank
2 = Independent audit of the 5 = Review of the bank's
bank's parent holding company financial statements by
conducted in accordance with external auditors
generally accepted auditing
standards by a certified 6 = Compilation of the bank's
public accounting firm which financial statements by
submits a report on the external auditors
consolidated holding company
(but not on the bank
separately)
3 = Directors' examination of the 7 = Other audit procedures
bank conducted in accordance (excluding tax
with generally accepted preparation work)
auditing standards by a
certified public accounting 8 = No external audit work
firm (may be required by
state chartering authority)
-14-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-A--CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading.
(COLUMN A) (COLUMN B)
CONSOLIDATED DOMESTIC
BANK OFFICES
-------- --------
(Calendar year-to-date)
------------------------
1. Cash items in process of collection,
unposted debits, and currency and coin . . $847,914 $ --
a. Cash items in process of collection and
unposted debits . . . . . . . . . . . . -- 701,786
b. Currency and coin . . . . . . . . . . . -- 146,128
2. Balances due from depository institutions
in the U.S. . . . . . . . . . . . . . . . -- 24,662
a. U.S. branches and agencies of foreign
banks (including their IBFs) . . . . . 0 --
b. Other commercial banks in the U.S. and
other depository institutions in the U.S.
(including their IBFs) . . . . . . . . 24,662 --
3. Balances due from banks in foreign
countries and foreign central banks . . . -- 252
a. Foreign branches of other U.S. banks . 0 --
b. Other banks in foreign countries and
foreign central banks . . . . . . . . . 252 --
4. Balances due from Federal Reserve Banks . 38,723 38,723
-------- --------
5. Total (sum of items 1 through 4) (total of
column A must equal Schedule RC, sum of
items 1.a and 1.b) . . . . . . . . . . . . $911,551 $911,551
======== ========
Memorandum
-----------------------------------------------
1. Noninterest-bearing balances due from commercial banks in
the U.S. (included in item 2, column B above) . . . . . 24,662
-15-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-B--SECURITIES
Exclude assets held for trading.
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------- ------------------
(COLUMN A) (COLUMN C) (COLUMN D)
AMORTIZED (COLUMN B) AMORTIZED FAIR
COST FAIR VALUE COST VALUE(1)
-------- -------- -------- --------
(Calendar year-to-date)
----------------------------------------
1. U.S. Treasury
securities . . . . . $0 $0 $ 36,745 $ 36,903
2. U.S. Government
agency and
corporation
obligations (exclude
mortgage-backed
securities):
a. Issued by U.S.
Government
agencies(2) . . . 0 0 68 69
b. Issued by U.S.
Government-
sponsored
agencies(3) . . . 0 0 10,333 10,235
3. Securities issued by
states and political
subdivisions in the
U.S.:
a. General
obligations . . . 0 0 22,247 22,810
b. Revenue
obligations . . . 0 0 14,229 14,531
c. Industrial
development and
similar
obligations . . . 0 0 0 0
4. Mortgage-backed securities (MBS):
a. Pass-through securities:
(1) Guaranteed by
GNMA . . . . . 0 0 127,509 129,224
(2) Issued by FNMA
and FHLMC . . . 0 0 2,004,422 2,007,345
(3) Other pass-
through 0 0 3,353 3,353
securities . .
b. Other mortgage-
backed securities
(include CMOs,
REMICs, and
stripped MBS):
-----------------------------
(1) Includes equity securities without readily determinable fair
values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool
Certificates," U.S. Maritime Administration obligations for
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities)
issued by the Farm Credit System, the Federal Home Loan Bank
System, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Financing Corporation,
Resolution Funding Corporation, the Student Loan Marketing
Association, and the Tennessee Valley Authority.
-16-
<PAGE>
SCHEDULE RC-B--SECURITIES (continued)
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------- ------------------
(COLUMN A) (COLUMN C) (COLUMN D)
AMORTIZED (COLUMN B) AMORTIZED FAIR
COST FAIR VALUE COST VALUE(1)
-------- -------- -------- --------
(1) Issued or
guaranteed by
FNMA, FHLMC, or
GNMA . . . . . 0 0 2,667 2,640
(2) Collateralized
by MBS issued
or guaranteed
by FNMA, FHLMC,
or GNMA . . . . 0 0 989 1,028
(3) All other
mortgage-backed
securities . . 0 0 1,268 1,268
5. Other debt
securities:
a. Other domestic
debt securities . 0 0 3,529 3,528
b. Foreign debt
securities . . . 0 0 0 0
6. Equity securities:
a. Investments in
mutual funds . . -- -- 0 0
b. Other equity
securities with
readily
determinable fair
values . . . . . -- -- 822 818
c. All other equity
securities . . . -- -- 9,093 9,093
-------- -------- -------- --------
7. Total (sum of items
1 through 6) (total
of column A must
equal Schedule RC,
item 2.a) (total of
column D must equal
Schedule RC, item
2.b) . . . . . . . . $0 $0 $2,237,274 $2,242,345
======== ======== ========== ==========
-----------------------------
(1) Includes equity securities without readily determinable
fair values at historical cost in item 6.c, column D.
-17-
<PAGE>
SCHEDULE RC-B--SECURITIES (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
------------
(Year-to-
date)
Memoranda
-----------------------------------------------
1. Pledged securities(2) . . . . . . . . . . $ 98,425
2. Maturity and repricing data for debt
securities (2), (3), (4) (excluding
those in nonaccrual status):
a. Fixed rate debt securities with a 5,813
remaining maturity of:
(1) Three months or less . . . . . . . .
(2) Over three months through 12 months . 38,935
(3) Over one year through five years . . 32,664
(4) Over five years . . . . . . . . . . . 1,957,803
(5) Total fixed rate debt securities (sum
of Memorandum items 2.a.(1) through 2,035,215
2.a.(4) . . . . . . . . . . . . . . .
b. Floating rate debt securities with a
repricing frequency of: 128,815
(1) Quarterly or more frequently . . . .
(2) Annually or more frequently, but less 68,904
frequently than quarterly . . . . . .
(3) Every five years or more frequently, 0
but less frequently than annually . .
(4) Less frequently than every five years 0
(5) Total floating rate debt securities
(sum of Memorandum items 2.b.(1) 197,719
through 2.b.(4)) . . . . . . . . . . ---------
c. Total debt securities (sum of Memorandum
items 2.a.(5) and 2.b.(5)) (must equal
total debt securities from Schedule RC-B,
sum of items 1 through 5, columns A and
D, minus nonaccrual debt securities
included in Schedule RC-N, item 9, 2,232,934
column C) . . . . . . . . . . . . . . . =========
3. Not applicable . . . . . . . . . . . . . . --
4. Held-to-maturity debt securities
restructured and in compliance with
modified terms (included in Schedule RC-B,
items 3 through 5, column A, above) . . . 0
5. Not applicable . . . . . . . . . . . . . . --
6. Floating rate debt securities with a
remaining maturity of one year or less (2),
(4) (included in Memorandum items 2.b.(1)
through 2.b.(4) above) . . . . . . . . . . 1,504
7. Amortized cost of held-to-maturity
securities sold or transferred to
available-for-sale or trading securities
during the calendar year-to-date (report
the amortized cost at date of sale or
transfer) . . . . . . . . . . . . . . . . 0
8. High-risk mortgage securities (included in
the held-to-maturity and available-for-sale
accounts in Schedule RC-B, item 4.b):
a. Amortized cost . . . . . . . . . . . . 996
b. Fair value . . . . . . . . . . . . . . 1,001
9. Structured notes (included in the held-to-
maturity and available-for-sale accounts in
Schedule RC-B, items 2, 3 and 5):
a. Amortized cost . . . . . . . . . . . . 2,631
b. Fair value . . . . . . . . . . . . . . 2,598
-----------------------------
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds,
Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks
that must complete supplemental Schedule RC-J.
-18-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES
PART I. LOANS AND LEASES
Do not deduct the allowance for loan and lease losses from amounts reported
in this schedule. Report total loans and leases, net of unearned income.
Exclude assets held for trading.
(COLUMN A) (COLUMN B)
CONSOLIDATED DOMESTIC
BANK OFFICES
-------- --------
(Calendar year-to-date)
-----------------------
1. Loans secured by real estate . . . . . . . $1,750,477 --
a. Construction and land development . . . -- 167,237
b. Secured by farmland (including farm
residential and other improvements) . . -- 25,866
c. Secured by 1-4 family residential
properties:
(1) Revolving, open-end loans secured by
1-4 family residential properties and
extended under lines of credit . . . -- 141,692
(2) All other loans secured by 1-4 family
residential properties:
(a) Secured by first liens . . . . . . -- 489,929
(b) Secured by junior liens . . . . . -- 447,308
d. Secured by multifamily (5 or more)
residential properties . . . . . . . . -- 25,882
e. Secured by nonfarm nonresidential
properties . . . . . . . . . . . . . . -- 452,563
2. Loans to depository institutions:
a. To commercial banks in the U.S. . . . . -- 100,320
(1) To U.S. branches and agencies of
foreign banks . . . . . . . . . . . . 0 --
(2) To other commercial banks in the U.S. 100,320 --
b. To other depository institutions in the
U.S. . . . . . . . . . . . . . . . . . 8,251 8,251
c. To banks in foreign countries . . . . . -- 463
(1) To foreign branches of other U.S.
banks . . . . . . . . . . . . . . . . 0 --
(2) To other banks in foreign countries . 463 --
3. Loans to finance agricultural production
and other loans to farmers . . . . . . . . 88,278 88,278
4. Commercial and industrial loans:
a. To U.S. addresses (domicile) . . . . . 617,664 617,664
b. To non-U.S. addresses (domicile) . . . 24 24
5. Acceptances of other banks:
a. Of U.S. banks . . . . . . . . . . . . . 0 0
b. Of foreign banks . . . . . . . . . . . 0 0
6. Loans to individuals for household, family,
and other personal expenditures (i.e.,
consumer loans) (includes purchased paper) -- 1,254,581
a. Credit cards and related plans (includes
check credit and other revolving credit
plans) . . . . . . . . . . . . . . . . 95,825 --
b. Other (includes single payment,
installment, and all student loans) . . 1,158,756 --
-19-
<PAGE>
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES (continued)
(COLUMN A) (COLUMN B)
CONSOLIDATED DOMESTIC
BANK OFFICES
-------- --------
(Calendar year-to-date)
-----------------------
7. Loans to foreign governments and official
institutions (including foreign central
banks) . . . . . . . . . . . . . . . . . . 0 0
8. Obligations (other than securities and
leases) of states and political
subdivisions in the U.S. (includes nonrated
industrial development obligations) . . . 12,776 12,776
9. Other loans . . . . . . . . . . . . . . . 118,302 --
a. Loans for purchasing or carrying
securities (secured and unsecured) . . -- 10,481
b. All other loans (exclude consumer loans) -- 107,821
10. Lease financing receivables (net of
unearned income) . . . . . . . . . . . . . -- 193
a. Of U.S. addressees (domicile) . . . . . 193 --
b. Of non-U.S. addressees (domicile) . . . 0 --
-------- --------
11. LESS: Any unearned income on loans
reflected in items 1-9 above . . . . . . . 1,366 1,366
-------- --------
12. Total loans and leases, net of unearned
income (sum of items 1 through 10 minus
item 11) (total of column A must equal
Schedule RC, item 4.a) . . . . . . . . . . $3,949,963 $3,949,963
======== ========
Memorandum
-----------------------------------------------
1. Commercial paper included in Schedule RC-C,
part I, above . . . . . . . . . . . . . . $ 0 $ 0
2. Loans and leases restructured and in
compliance with modified terms (included in
Schedule RC-C, part I, above and not
reported as past due or nonaccrual in
Schedule RC-N, Memorandum item 1):
a. Loans secured by real estate:
(1) To U.S. addressees (domicile) . . . . 0
(2) To non-U.S. addressees (domicile) . . 0
b. All other loans and all lease financing
receivables (exclude loans to individuals
for household, family, and other personal
expenditures) . . . . . . . . . . . . . 0
c. Commercial and industrial loans to and
lease financing receivables of non-U.S.
addressees (domicile) included in
Memorandum item 2.b above . . . . . . . 0
3. Maturity and repricing data for loans and
leases (1) (excluding those in nonaccrual
status):
a. Fixed rate loans and leases with a $ 769,266
remaining maturity of:
(1) Three months or less . . . . . . . .
(2) Over three months through 12 months . 142,075
(3) Over one year through five years . . 1,075,154
(4) Over five years . . . . . . . . . . . 774,263
--------
-----------------------------
(1) Memorandum item 3 is not applicable to savings banks that must
complete supplemental Schedule RC-J.
-20-
<PAGE>
SCHEDULE RC-C--LOANS AND LEASE FINANCING RECEIVABLES (continued)
(COLUMN A) (COLUMN B)
CONSOLIDATED DOMESTIC
BANK OFFICES
-------- --------
(Calendar year-to-date)
-----------------------
(5) Total fixed rate loans and leases (sum
of Memorandum items 3.a.(1) through $2,760,758
3.a.(4)) . . . . . . . . . . . . . . ========
b. Floating rate loans with a repricing
frequency of:
(1) Quarterly or more frequently . . . . $1,075,758
(2) Annually or more frequently, but less
frequently than quarterly . . . . . . 19,195
(3) Every five years or more frequently,
but less frequently than annually . . 0
(4) Less frequently than every five years 0
--------
(5) Total floating rate loans (sum of
Memorandum items 3.b.(1) through
3.b.(4)) . . . . . . . . . . . . . . $1,094,987
========
c. Total loans and leases (sum of Memorandum
items 3.a.(5) and 3.b.(5)) (must equal
the sum of total loans and leases, net,
from Schedule RC-C, part I, item 12, plus
unearned income from Schedule RC-C, part
I, item 11 minus total nonaccrual loans
and leases from Schedule RC-N, sum of
items 1 through 8, column C) . . . . . $3,855,745
========
d. Floating rate loans with a remaining
maturity of one year or less (included in
Memorandum items 3.b.(1) through 3.b.(4)
above) . . . . . . . . . . . . . . . . $ 0
========
4. Loans to finance commercial real estate,
construction, and land development
activities (not secured by real estate)
included in Schedule RC-C, part I, items 4
and 9, column A, page RC-6 (2) . . . . . . $ 0
5. Loans and leases held for sale (included in
Schedule RC-C, part I, above) . . . . . . 0
6. Adjustable rate closed-end loans secured by
first liens on 1-4 family residential
properties (included in Schedule RC-C, part
I, item 1.c.(2)(a), column B, page RC-6) . $ 190,730
========
-----------------------------
(2) Exclude loans secured by real estate that are included in
Schedule RC-C, part I, item 1, column A.
-21-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES
Schedule RC-D is to be completed only by banks with $1 billion or more in
total assets or with $2 billion or more in par/notional amount of off-
balance sheet derivative contracts (as reported in Schedule RC-L, items
14.a through 14.e, columns A through D).
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
ASSETS
1. U.S. Treasury securities in domestic offices . . . . $0
2. U.S. Government agency and corporation obligations in
domestic offices (exclude mortgage-backed securities) 0
3. Securities issued by states and political
subdivisions in the U.S. in domestic offices . . . . 0
4. Mortgage-backed securities (MBS) in domestic offices:
a. Pass-through securities issued or guaranteed by
FNMA, FHLMC, or GNMA . . . . . . . . . . . . . . 0
b. Other mortgage-backed securities issued or
guaranteed by FNMA, FHLMC, or GNMA (include CMOs, 0
REMICs, and stripped MBS) . . . . . . . . . . . .
c. All other mortgage-backed securities . . . . . . 0
5. Other debt securities in domestic offices . . . . . 0
6. Certificates of deposit in domestic offices . . . . 0
7. Commercial paper in domestic offices . . . . . . . . 0
8. Bankers acceptances in domestic offices . . . . . . 0
9. Other trading assets in domestic offices . . . . . . 0
10. Trading assets in foreign offices . . . . . . . . . 0
11. Revaluation gains on interest rate, foreign exchange
rate, and other commodity and equity contracts:
a. In domestic offices . . . . . . . . . . . . . . . 0
b. In foreign offices . . . . . . . . . . . . . . . 0
12. Total trading assets (sum of items 1 through 11)
(must equal Schedule RC, item 5) . . . . . . . . . . $0
==
LIABILITIES
13. Liability for short positions . . . . . . . . . . . 0
14. Revaluation losses on interest rate, foreign exchange
rate, and other commodity and equity contracts . . . 3
--
15. Total trading liabilities (sum of items 13 and 14)
(must equal Schedule RC, item 15.b) . . . . . . . . $3
==
-22-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-E--DEPOSIT LIABILITIES
PART I. DEPOSITS IN DOMESTIC OFFICES
NONTRANSACTION
TRANSACTION ACCOUNTS ACCOUNTS
------------------------ --------------
(COLUMN A)
TOTAL (COLUMN B) (COLUMN C)
TRANSACTION MEMO: TOTAL TOTAL NON-
ACCOUNTS DEMAND TRANSACTION
(INCLUDING DEPOSITS ACCOUNTS
TOTAL DEMAND (INCLUDED IN (INCLUDING
DEPOSITS) COLUMN A) MMDAS)
-------- -------- --------
(Calendar year-to-date)
-------------------------------------
Deposits of:
1. Individuals,
partnerships, and
corporations . . . .$2,487,964 $1,877,697 $3,851,993
2. U.S. Government . . 17,805 17,805 0
3. States and political
subdivisions in the
U.S. . . . . . . . . 207,814 131,622 62,246
4. Commercial banks in
the U.S. . . . . . . 172,390 172,390 0
5. Other depository
institutions in the
U.S. . . . . . . . . 7,490 7,490 0
6. Banks in foreign
countries . . . . . 29,119 29,199 0
7. Foreign governments
and official
institutions
(including foreign
central banks) . . . 0 0 141,861
8. Certified and
official checks . . 55,612 55,612 --
-------- -------- --------
9. Total (sum of items
1 through 8) (sum of
columns A and C must
equal Schedule RC,
item 13.a) . . . . .$2,978,194 $2,291,735 $4,063,100
========== ========== ==========
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Calendar
Memorandum year-to-date)
--------------------------------------------------------
1. Selected components of total deposits (i.e., sum of
item 9, columns A and C):
a. Total Individual Retirement Accounts (IRAs) and
Keogh Plan Accounts . . . . . . . . . . . . . . . 228,106
b. Total brokered deposits . . . . . . . . . . . . . 0
c. Fully insured brokered deposits (included in
Memorandum item 1.b above):
(1) Issued in denominations of less than $100,000 . 0
(2) Issued either in denominations of $100,000 or in
denominations greater than $100,000 and
participated out by the broker in share of
$100,000 or less . . . . . . . . . . . . . . . 0
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of
less than $100,000 with a remaining maturity of
one year or less (included in Memorandum item
1.c.(1) above . . . . . . . . . . . . . . . . . 0
-23-
<PAGE>
SCHEDULE RC-E--DEPOSIT LIABILITIES (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Calendar
year-to-date)
Memorandum
----------------------------------------------------
(2) Brokered deposits issued in denominations of
$100,000 or more with a remaining maturity of
one year or less (included in Memorandum item
1.b above) . . . . . . . . . . . . . . . . . . 0
e. Preferred deposits (uninsured deposits of states
and political subdivisions in the U.S. reported in
item 3 above which are secured or collateralized as
required under state law) . . . . . . . . . . . . 235,982
2. Components of total nontransaction accounts (sum of
Memorandum items 2.a through 2.d must equal item 9,
column C above):
a. Savings deposits:
(1) Money market deposit accounts (MMDAs) . . . . . 1,612,646
(2) Other savings deposits (excludes MMDAs) . . . . 1,049,547
b. Total time deposits of less than $100,000 . . . . 1,021,287
c. Time certificates of $100,000 or more . . . . . . 237,759
d. Open-account time deposits of $100,000 or more . 141,861
3. All NOW accounts (included in column A above) . . . 675,004
4. Not applicable . . . . . . . . . . . . . . . . . . . --
5. Maturity and repricing data for time deposits of less
than $100,000 (sum of Memorandum items 5.a.(1)
through 5.b.(3) must equal Memorandum item 2.b
above):(1)
a. Fixed rate time deposits of less than $100,000 with
a remaining maturity of:
(1) Three months or less . . . . . . . . . . . . . 245,097
(2) Over three months through 12 months . . . . . . 507,418
(3) Over one year . . . . . . . . . . . . . . . . . 268,772
b. Floating rate time deposits of less than $100,000
with a repricing frequency of:
(1) Quarterly or more frequently . . . . . . . . . 0
(2) Annually or more frequently, but less frequently 0
than quarterly . . . . . . . . . . . . . . . .
(3) Less frequently than annually . . . . . . . . . 0
c. Floating rate time deposits of less than $100,000
with a remaining maturity of one year or less
(included in Memorandum items 5.b.(1) through
5.b.(3) above) . . . . . . . . . . . . . . . . . 0
6. Maturity and repricing data for time deposits of
$100,000 or more (i.e., time certificate of deposit
of $100,000 or more and open-account time deposits of
$100,000 or more) (sum of Memorandum items 6.a.(1)
through 6.b.(4) must equal the sum of Memorandum
items 2.c and 2.d above):(1)
a. Fixed rate time deposits of $100,000 or more with a
remaining maturity of:
(1) Three months or less . . . . . . . . . . . . . 253,192
(2) Over three months through 12 months . . . . . . 98,004
(3) Over one year through five years . . . . . . . 27,961
(4) Over five years . . . . . . . . . . . . . . . . 463
-----------------------------
(1) Memorandum items 5 and 6 are not applicable to savings banks
that must complete supplemental Schedule RC-J.
-24-
<PAGE>
SCHEDULE RC-E--DEPOSIT LIABILITIES (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Calendar
Memorandum year-to-date)
---------------------------------------------------------
b. Floating rate time deposits of $100,000 or more
with a repricing frequency of:
(1) Quarterly or more frequently . . . . . . . . . 0
(2) Annually or more frequently, but less frequently
than quarterly . . . . . . . . . . . . . . . . 0
(3) Every five years or more frequently, but less
frequently than
annually . . . . . . . . . . . . . . . . . . . . 0
(4) Less frequently than every five years . . . . . 0
c. Floating rate time deposits of $100,000 ore more
with a remaining maturity of one year or less
(included in Memorandum items 6.b.(1) through
6.b.(4) above) . . . . . . . . . . . . . . . . . 0
-25-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-E--DEPOSIT LIABILITIES
PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND AGREEMENT
SUBSIDIARIES AND IBFS)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Individuals, partnerships, and corporations . . . . $145,559
2. U.S. banks (including IBFs and foreign branches of
U.S. banks) . . . . . . . . . . . . . . . . . . . . 0
3. Foreign banks (including U.S. branches and agencies
of foreign banks, including their IBFs) . . . . . . 0
4. Foreign governments and official institutions 0
(including foreign central banks) . . . . . . . . .
5. Certified and official checks . . . . . . . . . . . 0
6. All other deposits . . . . . . . . . . . . . . . . . 0
--------
7. Total (sum of items 1 through 6) (must equal Schedule
RC, item 13.b) . . . . . . . . . . . . . . . . . . . $145,559
========
Memorandum
---------------------------------------------------------
1. Time deposits with a remaining maturity of one year
or less (included in Part II, item 7 above) . . . . 10,052
SCHEDULE RC-F--OTHER ASSETS
1. Income earned, not collected on loans . . . . . . . $ 22,256
2. Net deferred tax assets(1) . . . . . . . . . . . . . 39,036
3. Excess residential mortgage servicing fees receivable 0
4. Other (itemize and describe amounts that exceed 25%
of this item) . . . . . . . . . . . . . . . . . . . 88,739
--------
a. Accrued Inc Rec Pass-thru Securities . . . . . . 12,504
b. Accrued Inc Rec Pass-thru Securities . . . . . . 9,460
c.
5. Total (sum of items 1 through 4) (must equal Schedule
RC, item 11) . . . . . . . . . . . . . . . . . . . . $150,031
========
Memorandum
---------------------------------------------------------
1. Deferred tax assets disallowed for regulatory capital
purposes . . . . . . . . . . . . . . . . . . . . . . 0
SCHEDULE RC-G--OTHER LIABILITIES
1. a. Interest accrued and unpaid on deposits in
domestic offices(2) . . . . . . . . . . . . . . . $ 18,281
b. Other expenses accrued and unpaid (includes accrued
income taxes payable) . . . . . . . . . . . . . . 79,337
2. Net deferred tax liabilities(2) . . . . . . . . . . 0
3. Minority interest in consolidated subsidiaries . . . 0
-----------------------------
(1) See discussion of deferred income taxes in Glossary entry on
"income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on
deposits.
-26-
<PAGE>
4. Other (itemize and describe amounts that exceed 25%
of this item) . . . . . . . . . . . . . . . . . . . 18,267
a. Accrued PostRetirement Medical . . . . . . . . . $ 6,675
--------
b.
c.
5. Total (sum of items 1 through 4) (must equal Schedule
RC, item 20) . . . . . . . . . . . . . . . . . . . . $115,885
========
-27-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Customers' liability to this bank on acceptances
outstanding . . . . . . . . . . . . . . . . . . . . 2,367
2. Bank's liability on acceptances executed and
outstanding . . . . . . . . . . . . . . . . . . . . 2,367
3. Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . 570,505
4. Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . 98,675
5. Other borrowed money . . . . . . . . . . . . . . . . 12,913
EITHER
6. Net due from own foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . . . . N/A
OR
7. Net due to own foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . . . . 145,559
----------
8. Total assets (excludes net due from foreign offices,
Edge and Agreement subsidiaries, and IBFs) . . . . . $7,856,335
==========
9. Total liabilities (excludes net due to foreign
offices, Edge and Agreement subsidiaries, and IBFs) $6,891,407
==========
ITEMS 10-17 INCLUDE HELD-TO-MATURITY AND AVAILABLE-FOR-
SALE SECURITIES IN DOMESTIC OFFICES.
10. U.S. Treasury securities . . . . . . . . . . . . . . 36,903
11. U.S. Government agency and corporation obligations
(exclude mortgage-backed securities) . . . . . . . . 10,304
12. Securities issued by states and political
subdivisions in the U.S. . . . . . . . . . . . . . . 37,341
13. Mortgage-backed securities (MBS):
a. Pass-through securities:
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA . 2,136,569
(2) Other pass-through securities . . . . . . . . . 3,353
b. Other mortgage-backed securities (include CMOs,
REMICs, and stripped MBS):
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA . 2,640
(2) All other mortgage-backed securities . . . . . 2,296
14. Other domestic debt securities . . . . . . . . . . . 3,528
15. Foreign debt securities . . . . . . . . . . . . . . 0
16. Equity securities:
a. Investments in mutual funds . . . . . . . . . . . 0
b. Other equity securities with readily determinable
fair values . . . . . . . . . . . . . . . . . . . 818
c. All other equity securities . . . . . . . . . . . 9,093
----------
17. Total held-to-maturity and available-for-sale
securities (sum of items 10 through 16) . . . . . . $2,242,845
==========
Memorandum (to be completed only by banks with IBFs and
other "foreign" offices)
---------------------------------------------------------
EITHER
1. Net due from the IBF of the domestic offices of the
reporting bank . . . . . . . . . . . . . . . . . . . 397
-28-
<PAGE>
OR
2. Net due to the IBF of the domestic offices of the
reporting bank . . . . . . . . . . . . . . . . . . . N/A
-29-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFS
To be completed only by banks with IBFs and other "foreign" offices.
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Total IBF assets of the consolidated bank (component
of Schedule RC, item 12) . . . . . . . . . . . . . . 397
2. Total IBF loans and lease financing receivables
(component of Schedule RC-C, part I, item 12, column
A) . . . . . . . . . . . . . . . . . . . . . . . . . 0
3. IBF commercial and industrial loans (component of
Schedule RC-C, part I, item 4, column A) . . . . . . 0
4. Total IBF liabilities (component of Schedule RC, item
21) . . . . . . . . . . . . . . . . . . . . . . . . 0
5. IBF deposit liabilities due to banks, including other
IBFs (component of Schedule RC-E, part II, items 2
and 3) . . . . . . . . . . . . . . . . . . . . . . . 0
6. Other IBF deposit liabilities (component of Schedule
RC-E, part II, items 1, 4, 5, and 6) . . . . . . . . 0
SCHEDULE RC-K--QUARTERLY AVERAGES(1)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Interest-bearing balances due from depository
institutions . . . . . . . . . . . . . . . . . . . . $ 1,248
2. U.S. Treasury securities and U.S. Government agency
and corporation obligations(2) . . . . . . . . . . . 2,541,237
3. Securities issued by states and political
subdivisions in the U.S.(2) . . . . . . . . . . . . 46,790
4. a. Other debt securities(2) . . . . . . . . . . . . 9,556
b. Equity securities(3) (includes investments in
mutual funds and Federal Reserve stock) . . . . . 9,969
5. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries, and in
IBFs . . . . . . . . . . . . . . . . . . . . . . . . 581,458
6. Loans:
a. Loans in domestic offices:
(1) Total loans . . . . . . . . . . . . . . . . . . 3,505,468
(2) Loans secured by real estate . . . . . . . . . 1,697,938
(3) Loans to finance agricultural production and 81,950
other loans to farmers . . . . . . . . . . . .
(4) Commercial and industrial loans . . . . . . . . 704,741
(5) Loans to individuals for household, family, and
other personal expenditures . . . . . . . . . . 645,138
-----------------------------
(1) For all items, banks have the option of reporting either (1) an
average of daily figures for the quarter, or (2) an average of
weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on
amortized cost.
(3) Quarterly averages for all equity securities should be based on
historical cost.
-30-
<PAGE>
SCHEDULE RC-K--QUARTERLY AVERAGES (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 1,
1996
----------
(Year-to-
date)
b. Total loans in foreign offices, Edge and Agreement
subsidiaries, and IBFs . . . . . . . . . . . . . 0
7. Trading assets . . . . . . . . . . . . . . . . . . . 0
8. Lease financing receivables (net of unearned income) 187
----------
9. Total assets(4) . . . . . . . . . . . . . . . . . . $7,413,858
==========
LIABILITIES
10. Interest-bearing transaction accounts in domestic
offices (NOW accounts, ATS accounts, and telephone
and preauthorized transfer accounts) (exclude demand
deposits) . . . . . . . . . . . . . . . . . . . . . 547,903
11. Nontransaction accounts in domestic offices:
a. Money market deposit accounts (MMDAs) . . . . . . 1,577,003
b. Other savings deposits . . . . . . . . . . . . . 1,082,527
c. Time certificates of deposits of $100,000 or more 311,937
d. All other time deposits . . . . . . . . . . . . . 1,211,162
12. Interest-bearing deposits in foreign offices, Edge
and Agreement subsidiaries, and IBFs . . . . . . . . 114,287
13. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its Edge and Agreement subsidiaries, and
in IBFs . . . . . . . . . . . . . . . . . . . . . . 116,357
14. Other borrowed money . . . . . . . . . . . . . . . . 11,229
-----------------------------
(4) The quarterly average for total assets should reflect all debt
securities (not held for trading) at amortized cost, equity
securities with readily determinable fair values at the lower
of cost or fair value, and equity securities without readily
determinable fair values at historical cost.
-31-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-L--OFF-BALANCE SHEET ITEMS
Please read carefully the instructions for the preparation of Schedule RC-
L. Some of the amounts reported in Schedule RC-L are regarded as volume
indicators and not necessarily as measures of risk.
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Unused comments:
a. Revolving, open-end lines secured by 1-4 family
residential properties, e.g., home equity lines . 188,786
b. Credit card lines . . . . . . . . . . . . . . . . 0
c. Commercial real estate, construction, and land
development:
(1) Commitments to fund loans secured by real estate 138,457
(2) Commitments to fund loans not secured by real
estate . . . . . . . . . . . . . . . . . . . . 76
d. Securities underwriting . . . . . . . . . . . . . 0
e. Other unused commitments . . . . . . . . . . . . 1,479,818
2. Financial standby letters of credit and foreign
office guarantees . . . . . . . . . . . . . . . . . 37,671
a. Amount of financial standby letters of credit
conveyed to others . . . . . . . . . . . . . . . 0
3. Performance standby letters of credit and foreign
office guarantees . . . . . . . . . . . . . . . . . 7,735
a. Amount of performance standby letters of credit
conveyed to others . . . . . . . . . . . . . . . 0
4. Commercial and similar letters of credit . . . . . . 120
5. Participations in acceptances (as described in the
instructions) conveyed to others by the reporting
bank . . . . . . . . . . . . . . . . . . . . . . . . 0
6. Participations in acceptances (as described in the
instructions) acquired by the reporting
(nonaccepting) bank . . . . . . . . . . . . . . . . 0
7. Securities borrowed . . . . . . . . . . . . . . . . 139,149
8. Securities lent (including customers' securities lent
where the customer is indemnified against loss by the
reporting bank) . . . . . . . . . . . . . . . . . . 1,059,277
9. Loans transferred (i.e., sold or swapped) with
recourse that have been treated as sold for Call
Report purposes:
a. FNMA and FHLMC residential mortgage loan pools:
(1) Outstanding principal balance of mortgages
transferred as of the report date . . . . . . . 0
(2) Amount of recourse exposure on these mortgages
as of the report date . . . . . . . . . . . . . 0
b. Private (nongovernment-issued or -guaranteed)
residential mortgage loan pools:
(1) Outstanding principal balance of mortgages
transferred as of the report date . . . . . . . 0
(2) Amount of recourse exposure on these mortgages
as of the report date . . . . . . . . . . . . . 0
c. Farmer Mac agricultural mortgage loan pools:
(1) Outstanding principal balance of mortgages
transferred as of the report date . . . . . . . 0
(2) Amount of recourse exposure on these mortgages
as of the report date . . . . . . . . . . . . . 0
d. Small business obligations transferred with
recourse under Section 208 of the Riegle Community
Development and Regulatory Improvement Act of 1994:
(1) Outstanding principal balance of small business
obligations transferred as of the report date . 0
(2) Amount of retained recourse on these obligations
as of the report date . . . . . . . . . . . . . 0
-32-
<PAGE>
SCHEDULE RC-L--OFF-BALANCE SHEET ITEMS (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
10. When-issued securities:
a. Gross commitments to purchase . . . . . . . . . . 0
b. Gross commitments to sell . . . . . . . . . . . . 0
11. Spot foreign exchange contracts . . . . . . . . . . 32
12. All other off-balance sheet liabilities (exclude off-
balance sheet derivatives) (itemize and describe each
component of this item over 25% of Schedule RC, item
28, "Total equity capital") . . . . . . . . . . . . 0
a.
b.
c.
d.
13. All other off-balance sheet assets (exclude off-
balance sheet derivatives) (itemize and describe each
component of this item over 25% of Schedule RC, item
28, "Total equity capital") . . . . . . . . . . . . 0
a.
b.
c.
d.
(COLUMN A)(COLUMN B) (COLUMN C) (COLUMN D)
INTEREST FOREIGN EQUITY COMMODITY
RATE EXCHANGE DERIVATIVE AND OTHER
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
-------- -------- -------- --------
Off-balance Sheet (Calendar year-to-date)
Derivatives ----------------------------------------
Position Indicators
------------------------
14. Gross amounts (e.g.,
notional amounts)
(for each column,
sum of items 14.a
through 14.e must
equal sum of items
15, 16.a, and 16.b):
a. Futures contracts 0 0 0 0
b. Forward contracts 0 260 0 0
c. Exchange-traded
option contracts:
(1) Written options 0 0 0 0
(2) Purchased
options . . . . 0 0 0 0
d. Over-the-counter
option contracts:
(1) Written options 0 0 0 0
(2) Purchased
options . . . . 0 0 0 0
e. Swaps . . . . . . 0 0 0 0
---- ---- ---- ----
15. Total gross notional
amount of derivative
contracts held for
trading . . . . . . 0 260 0 0
==== ==== ==== ====
16. Total gross notional
amount of derivative
contracts held for
purposes other than
trading:
a. Contracts marked
to market . . . . 0 0 0 0
==== ==== ==== ====
b. Contracts not
marked to market 0 0 0 0
==== ==== ==== ====
-33-
<PAGE>
SCHEDULE RC-L--OFF-BALANCE SHEET ITEMS (continued)
(COLUMN A)(COLUMN B) (COLUMN C) (COLUMN D)
INTEREST FOREIGN EQUITY COMMODITY
RATE EXCHANGE DERIVATIVE AND OTHER
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
-------- -------- -------- --------
Off-balance Sheet (Calendar year-to-date)
Derivatives ----------------------------------------
Position Indicators
------------------------
17. Gross fair values of
derivative
contracts:
a. Contracts held
for trading:
(1) Gross positive
fair value . . 0 0 0 0
(2) Gross negative
fair value . . 0 3 0 0
b. Contracts held
for purposes
other than
trading that are
marked to market:
(1) Gross positive
fair value . . 0 0 0 0
(2) Gross negative
fair value . . 0 0 0 0
c. Contracts held
for purposes
other than
trading that are
not marked to
market:
(1) Gross positive
fair value . . 0 0 0 0
(2) Gross negative
fair value . . 0 0 0 0
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
Memoranda
---------------------------------------------------------
1.-2. Not applicable . . . . . . . . . . . . . . . . . . --
3. Unused commitments with an original maturity
exceeding one year that are reported in Schedule RC-
L, items 1.a through 1.e, above (report only the
unused portions of commitments that are fee paid or
otherwise legally binding) . . . . . . . . . . . . . 1,044,892
a. Participations in commitments with an original
maturity exceeding one year conveyed to others . 211,022
4. To be completed only by banks with $1 billion or more
in total assets:
Standby letters of credit and foreign office guarantees
(both financial and performance) issued to non-U.S.
addressees (domicile) included in Schedule RC-L, items 2
and 3, above . . . . . . . . . . . . . . . . . . . . . 0
5. Installment loans to individuals for household,
family, and other personal expenditures that have
been securitized and sold without recourse (with
servicing retained), amounts outstanding by type of
loan:
a. Loans to purchase private passenger automobiles (to
be completed for the September report only) . . . N/A
b. Credit cards and related plans (TO BE COMPLETED
QUARTERLY) . . . . . . . . . . . . . . . . . . . 74,949
c. All other consumer installment credit (including
mobile home loans) (to be completed for the
September report only) . . . . . . . . . . . . . N/A
-39-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-M--MEMORANDA
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Extensions of credit by the reporting bank to its
executive officers, directors, principal
shareholders, and their related interests as of the
report date:
a. Aggregate amount of all extensions of credit to all
executive officers, directors, principal
shareholders, and their related interests . . . . $ 1,399
b. Number of executive officers, directors, and
principal shareholders to whom the amount of all
extensions of credit by the reporting bank
(including extensions of credit to related
interests) equals or exceeds the lesser of $500,000
or 5 percent of total capital as defined for this Number
purpose in agency regulations . . . . . . . . . . 2
2. Federal funds sold and securities purchased under
agreements to resell with U.S. branches and agencies
of foreign banks(1) (included in Schedule RC, items
3.a and 3.b) . . . . . . . . . . . . . . . . . . . . 0
3. Not applicable . . . . . . . . . . . . . . . . . . . --
4. Outstanding principal balance of 1-4 family
residential mortgage loans serviced for others
(include both retained servicing and purchased
servicing):
a. Mortgages serviced under a GNMA contract . . . . 0
b. Mortgages serviced under a FHLMC contract:
(1) Serviced with recourse to servicer . . . . . . 0
(2) Serviced without recourse to servicer . . . . . 0
c. Mortgages serviced under a FNMA contract:
(1) Serviced under a regular option contract . . . 0
(2) Serviced under a special option contract . . . 0
d. Mortgages serviced under other servicing contracts 0
5. To be completed only by banks with $1 billion or more
in total assets:
Customers' liability to this bank on acceptances
outstanding (sum of items 5.a and 5.b must equal
Schedule RC, item 9):
a. U.S. addressees (domicile) . . . . . . . . . . . 2,367
b. Non-U.S. addressees (domicile) . . . . . . . . . 0
6. Intangible assets:
a. Mortgage servicing rights . . . . . . . . . . . . 0
b. Other identifiable intangible assets:
(1) Purchased credit card relationships . . . . . . 0
(2) All other identifiable intangible assets . . . 0
c. Goodwill . . . . . . . . . . . . . . . . . . . . 119
--------
d. Total (sum of items 6.a through 6.c ) (must equal
Schedule RC, item 10) . . . . . . . . . . . . . . 119
========
e. Amount of intangible assets (included in
item 6.b.(2) above) that have been grandfathered or
are otherwise qualifying for regulatory capital
purposes . . . . . . . . . . . . . . . . . . . . 0
-----------------------------
(1) Do not report federal funds sold and securities purchased under
agreements to resell with other commercial banks in the U.S. in
this item.
-35-
<PAGE>
SCHEDULE RC-M (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
7. Mandatory convertible debt, net of common or
perpetual preferred stock dedicated to redeem the
debt . . . . . . . . . . . . . . . . . . . . . . . . 0
8. a. Other real estate owned:
(1) Direct and indirect investments in real estate
ventures . . . . . . . . . . . . . . . . . . . 0
(2) All other real estate owned:
(a) Construction and land development in domestic
offices . . . . . . . . . . . . . . . . . . 0
(b) Farmland in domestic offices . . . . . . . . 0
(c) 1-4 family residential properties in domestic
offices . . . . . . . . . . . . . . . . . . 428
(d) Multifamily (5 or more) residential properties
in domestic offices . . . . . . . . . . . . 0
(e) Nonfarm nonresidential properties in domestic
office . . . . . . . . . . . . . . . . . . . 0
(f) In foreign offices . . . . . . . . . . . . . 0
--------
(3) Total (sum of items 8.a.(1) and 8.a.(2) (must
equal Schedule RC, item 7) . . . . . . . . . . 428
========
b. Investments in unconsolidated subsidiaries and
associated companies:
(1) Direct and indirect investments in real estate
ventures . . . . . . . . . . . . . . . . . . . 0
(2) All other investments in unconsolidated
subsidiaries and associated companies . . . . . 0
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must
equal Schedule RC, item 8) . . . . . . . . . . 0
--------
c. Total assets of unconsolidated subsidiaries and
associated companies . . . . . . . . . . . . . . 0
========
9. Noncumulative perpetual preferred stock and related
surplus included in Schedule RC, item 23, "Perpetual
preferred stock and related surplus" . . . . . . . . 0
10. Mutual fund and annuity sales in domestic offices
during the quarter (include proprietary, private
label, and third party products):
a. Money market funds . . . . . . . . . . . . . . . 1,367,503
b. Equity securities funds . . . . . . . . . . . . . 0
c. Debt securities funds . . . . . . . . . . . . . . 0
d. Other mutual funds . . . . . . . . . . . . . . . 24,701
e. Annuities . . . . . . . . . . . . . . . . . . . . 13,015
f. Sales of proprietary mutual funds and annuities
(included in items 10.a through 10.e above) . . . 987,124
Memorandum
---------------------------------------------------------
1. Interbank holdings of capital instruments (to be
completed for the December report only):
a. Reciprocal holdings of banking organizations'
capital instruments . . . . . . . . . . . . . . . 0
b. Nonreciprocal holdings of banking organizations'
capital instruments . . . . . . . . . . . . . . . 0
-36-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS
The FFIEC regards the information reported in all of Memorandum item 1, in
items 1 through 10, column A, and in Memorandum items 2 through 4, column
A, as confidential.
(COLUMN A) (COLUMN B)
PAST DUE PAST DUE 90
30 THROUGH DAYS OR
89 DAYS AND MORE AND
STILL STILL (COLUMN C)
ACCRUING ACCRUING NONACCRUAL
----------- -------- ----------
(Calendar year-to-date)
------------------------------------
1. Loans secured by
real estate:
a. To U.S.
addressees
(domicile) . . $15,587 $564 $2,516
b. To non-U.S.
addressees
(domicile) . . 0 0 0
2. Loans to depository
institutions and
acceptance of other
banks:
a. To U.S. banks
and other U.S.
depository
institutions . 0 0 0
b. To foreign banks 0 0 0
3. Loans to finance
agricultural
production and
other loans to
farmers . . . . . 1,156 797 7
4. Commercial and
industrial loans:
a. To U.S.
addressees
(domicile) . . 12,299 1,815 1,549
b. To non-U.S.
addressees
(domicile) . . 0 0 0
5. Loans to
individuals for
household, family,
and other personal
expenditures:
a. Credit cards and
related plans . 1,566 472 0
b. Other (includes
single payment,
installment, and
all student
loans) . . . . 15,406 5,173 14
6. Loans to foreign
governments and
official
institutions . . . 0 0 0
7. All other loans . 98 555 1,498
8. Lease financing
receivables:
a. Of U.S.
addressees
(domicile) . . 0 0 0
b. Of non-U.S.
addressees
(domicile) . . 0 0 0
9. Debt securities and
other assets
(exclude other real
estate owned and
other repossessed
assets) . . . . . 0 0 0
-----------------------------------------------------------------------
Amounts reported in items 1 through 8 above include guaranteed
and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and
leases that have already been included in the amounts reported
in items 1 through 8.
10. Loans and leases
reported in items 1
through 8 above
which are wholly or
partially
guaranteed by the
U.S. Government . 0 0 0
-37-
<PAGE>
(COLUMN A) (COLUMN B)
PAST DUE PAST DUE 90
30 THROUGH DAYS OR
89 DAYS AND MORE AND
STILL STILL (COLUMN C)
ACCRUING ACCRUING NONACCRUAL
----------- -------- ----------
(Calendar year-to-date)
------------------------------------
a. Guaranteed
portion of loans
and leases
included in
item 10 above . 0 0 0
Memoranda
-----------------------
1. Restructured loans
and leases included
in Schedule RC-N,
items 1 through 8,
above (and not
reported in
Schedule RC-C,
part I, Memorandum
item 2) . . . . . 0 0 0
2. Loans to finance
commercial real
estate,
construction, and
land development
activities (not
secured by real
estate) included in
Schedule RCN,
items 4 and 7,
above . . . . . . 0 0 0
3. Loans secured by
real estate in
domestic offices
(included in
Schedule RCN,
item 1 above):
a. Construction and
land development 3,908 7 1,138
b. Secured by
farmland . . . 531 0 0
c. Secured by 1-4
family
residential
properties:
(1) Revolving,
open-end loans
secured by 1-4
family
residential
properties and
extended under
lines of
credit . . . 1,109 116 29
(2) All other
loans secured
by 1-4 family
residential
properties . 4,998 441 392
d. Secured by
multifamily (5
or more)
residential
properties . . 0 0 58
e. Secured by
nonfarm
nonresidential
properties . . 5,041 0 899
(COLUMN A) (COLUMN B)
PAST DUE 30 PAST DUE 90
THROUGH 89 DAYS OR
DAYS MORE
-------- --------
(Calendar year-to-date)
-----------------------
4. Interest rate,
foreign exchange
rate, and other
commodity and
equity contracts:
a. Book value of
amounts carried
as assets . . . 0 0
b. Replacement cost
of contracts
with a positive
replacement cost 0 0
-38-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-O--OTHER DATA FOR DEPOSIT INSURANCE ASSESSMENTS
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
1. Unposted debits (see instructions):
a. Actual amount of all unposted debits . . . . . . N/A
OR
b. Separate amount of unposted debits:
(1) Actual amount of unposted debits to demand
deposits . . . . . . . . . . . . . . . . . . . 25,425
(2) Actual amount of unposted debits to time and
savings deposits(1) . . . . . . . . . . . . . . 0
2. Unposted credits (see instructions):
a. Actual amount of all unposted credits . . . . . . 0
OR
b. Separate amount of unposted credits:
(1) Actual amount of unposted debits to demand
deposits . . . . . . . . . . . . . . . . . . . N/A
(2) Actual amount of unposted credits to time and
savings deposits(1) . . . . . . . . . . . . . . N/A
3. Uninvested trust funds (cash) held in bank's own
trust department (not included in total deposits in
domestic offices . . . . . . . . . . . . . . . . . . 0
4. Deposits of consolidated subsidiaries in domestic
offices and in insured branches in Puerto Rico and
U.S. territories and possessions (not included in
total deposits:
a. Demand deposits of consolidated subsidiaries . . 6,860
b. Time and savings deposits(1) of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . 0
c. Interest accrued and unpaid on deposits of
consolidated subsidiaries . . . . . . . . . . . . 0
5. Deposits in insured branches in Puerto Rico and U.S.
territories and possessions:
a. Demand deposits in insured branches (included in
Schedule RCE, Part II) . . . . . . . . . . . . . 0
b. Time and savings deposits(1) in insured branches
(included in Schedule RCE, Part II) . . . . . . . 0
c. Interest accrued and unpaid on deposits in insured
branches (included in Schedule RC-G, item 1.b) . 0
Item 6 is not applicable to state nonmember banks that
have not been authorized by the Federal Reserve to act as
pass-through correspondents.
6. Reserve balances actually passed through to the
Federal Reserve by the reporting bank on behalf of
its respondent depository institutions that are also
reflected as deposit liabilities of the reporting
bank:
a. Amount reflected in demand deposits (included in
Schedule RC-E, item 4 or 5, column B . . . . . . 0
b. Amount reflected in time and savings deposits(1)
(included in Schedule RCE, item 4 or 5, column A or
C, but not column B) . . . . . . . . . . . . . . 0
7. Unamortized premiums and discounts on time and
savings deposits:(1)
a. Unamortized premiums . . . . . . . . . . . . . . 0
b. Unamortized discounts . . . . . . . . . . . . . . 0
--------
-----------------------------
(1) For FDIC insurance assessment purposes, "time and savings
deposits" consists of nontransaction accounts and all
transaction accounts other than demand deposits.
-39-
<PAGE>
SCHEDULE RC-O (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
8. To be completed by banks with "Oakar deposits."
Total "Adjusted Attributable Deposits" of all
institutions acquired under Section 5(d)(3) of the
Federal Deposit Insurance Act (from most recent FDIC
Oakar Transaction Worksheet(s)) . . . . . . . . . . 807,172
========
9. Deposits in lifeline accounts . . . . . . . . . . . --
10. Benefit-responsive "Depository Institution Investment
Contracts" (included in total deposits in domestic
offices) . . . . . . . . . . . . . . . . . . . . . . 0
11. Adjustments to demand deposits in domestic offices
reported in Schedule RCE for certain reciprocal
demand balances:
a. Amount by which demand deposits would be reduced if
reciprocal demand balances between the reporting
bank and savings associations were reported on a
net basis rather than a gross basis in Schedule RCE 0
b. Amount by which demand deposits would be increased
if reciprocal demand balances between the reporting
bank and U.S. branches and agencies of foreign
banks were reported on a gross basis rather than a
net basis in Schedule RCE . . . . . . . . . . . . 0
c. Amount by which demand deposits would be reduced if
cash items in process of collection were included
in the calculation of net reciprocal demand
balances between the reporting bank and the
domestic offices of U.S. banks and savings
associations in Schedule RCE . . . . . . . . . . 0
Memoranda (to be completed each quarter except as noted)
---------------------------------------------------------
1. Total deposits in domestic offices of the bank (sum
of Memorandum items 1.a.(1) and 1.b.(1) must equal
Schedule RC, item 13.a):
a. Deposit accounts of $100,000 or less:
(1) Amount of deposit accounts of $100,000 or less 4,242,160
(2) Number of deposit accounts of $100,000 or less Number
(to be completed for the June report only) . . N/A
b. Deposit accounts of more than $100,000:
(1) Amount of deposit accounts of more than $100,000 2,799,134
Number
(2) Number of deposit accounts of more than $100,000 7,671
2. Estimated amount of uninsured deposits in domestic
offices of the bank:
a. An estimate of your bank's uninsured deposits can
be determined by multiplying the number of deposit
accounts of more than $100,000 reported in
Memorandum item 1.b.(2) above by $100,000 and
subtracting the result from the amount of deposit
accounts of more than $100,000 reported in
Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether
your bank has a method or procedure for determining a YES NO
better estimate of uninsured deposits than the
estimate described above . . . . . . . . . . . . . . [X]
b. If the box marked YES has been checked, report the
estimate of uninsured deposits determined by using
your bank's method or procedures . . . . . . . . N/A
-40-
<PAGE>
CONSOLIDATED REPORT OF INCOME
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED
ON A CALENDAR YEAR-TO-DATE BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RC-R--REGULATORY CAPITAL
This schedule must be completed by all banks as follows: Banks that
reported total assets of $1 billion or more in Schedule RC, item 12, for
June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2.
Banks with assets of less than $1 billion must complete items 1 through 3
below or Schedule RCR in its entirety, depending on their response to
item 1 below.
1. Test for determining the extent to which Schedule RCR must be
completed. To be completed only by banks with total assets of less
than $1 billion. Indicate in the appropriate box at the right whether
the bank has total capital greater than or equal to eight percent of
adjusted total assets
For purposes of this test, adjusted total assets equals total
assets less cash, U.S. Treasuries, U.S. Government agency obligations,
and 80 percent of U.S. Government-sponsored agency obligations plus
the allowance for loan and lease losses and selected off-balance
sheet items as reported on Schedule RCL (see instructions).
If the box marked YES has been checked, then the bank only has to
complete items 2 and 3 below. If the box marked NO has been checked,
the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's
actual risk-based capital ratio is less than eight percent or that
the bank is not in compliance with the risk-based capital guidelines.
NOTE: ALL BANKS ARE REQUIRED TO COMPLETE ITEMS 2 AND 3 BELOW. SEE OPTIONAL
WORKSHEET FOR ITEMS 3.A THROUGH 3.F.
(COLUMN A)
SUBORDINATED (COLUMN B)
DEBT(1) AND OTHER
INTERMEDIATE LIMITED-
TERM LIFE
PREFERRED CAPITAL
STOCK INSTRUMENTS
-------- --------
(Calendar year-to-date)
-----------------------
2. Subordinated debt(1) and other
limited-life capital instruments
(original weighted average maturity
of at least vie years) with a
remaining maturity of:
a. One year or less . . . . . . . . 0 0
b. Over one year through two years . 0 0
c. Over two years through three
years . . . . . . . . . . . . . . 0 0
d. Over three years through four
years . . . . . . . . . . . . . . 0 0
e. Over four years through five
years . . . . . . . . . . . . . . 0 0
f. Over five years . . . . . . . . . 42,000 0
3. Amounts used in calculating
regulatory capital ratios (report
amounts determined by the bank for
its own internal regulatory capital
analyses):
a. Tier 1 capital . . . . . . . . . -- 393,700
b. Tier 2 capital . . . . . . . . . -- 102,638
c. Total risk-based capital . . . . -- 496,338
d. Excess allowance for loan and
lease losses . . . . . . . . . . -- 22,453
e. Risk-weighted assets (net of all
deductions, including
excess allowance) . . . . . . . . . -- 4,828,573
f. "Average total assets" (net of
all assets deducted from
Tier L capital) (2) . . . . . . . -- 7,413,837
-----------------------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M,
item 7.
(2) Do not deduct excess allowance for loan and lease losses.
-41-
<PAGE>
SCHEDULE RC-R--REGULATORY CAPITAL (continued)
(COLUMN B)
CREDIT
(COLUMN A) EQUIVALENT
ASSETS AMOUNT OF
Items 4-9 and Memoranda items 1 and 2 are RECORDED ON OFF-BALANCE
to be completed by banks that answered NO THE BALANCE SHEET
to item 1 above and by banks with total SHEET ITEMS(3)
assets of $1 billion or more. -------- --------
(Calendar year-to-date)
-----------------------
4. Assets and credit equivalent amounts
of off-balance sheet items assigned
to the Zero percent risk category:
a. Assets recorded on the balance
sheet:
(1) Securities issued by, other
claims on, and claims
unconditionally guaranteed by,
the U.S. Government and its
agencies and other OECD central
governments . . . . . . . . . . 173,377 --
(2) All other . . . . . . . . . . . 184,851 --
b. Credit equivalent amount of off-
balance sheet items . . . . . . . -- 0
-----------------------------
(3) Do not report in column B the risk-weighted amount of assets
reported in column A.
-42-
<PAGE>
SCHEDULE RC-C--REGULATORY CAPITAL (continued)
(COLUMN B)
CREDIT
(COLUMN A) EQUIVALENT
ASSETS AMOUNT OF
RECORDED ON OFF-BALANCE
THE BALANCE SHEET
SHEET ITEMS(1)
----------- ---------
(Calandar-year-to-date)
------------------------
5. Assets and credit equivalent amounts
of off-balance sheet items assigned
to the 20 percent risk category:
a. Assets recorded on the balance
sheet:
(1) Claims conditionally guaranteed
by the U.S. Government and its
agencies and other OECD central
governments . . . . . . . . . . 541,677 --
(2) Claims collateralized by
securities issued by the U.S.
Government and its agencies and
other OECD central governments;
by securities issued by U.S.
Government-sponsored agencies;
and by cash on deposit . . . . 40,282 --
(3) All other . . . . . . . . . . . 3,449,336 --
b. Credit equivalent amount of off-
balance sheet items . . . . . . . -- 1,099,194
6. Assets and credit equivalent amounts
of off-balance sheet items assigned
to the 50 percent risk category:
a. Assets recorded on the balance
sheet . . . . . . . . . . . . . . 525,891 --
b. Credit equivalent amount of off-
balance sheet items . . . . . . . -- 17,032
7. Assets and credit equivalent amounts
of off-balance sheet items assigned
to the 100 percent risk category:
a. Assets recorded on the balance
sheet . . . . . . . . . . . . . . 3,018,436 --
b. Credit equivalent amoutn fo off-
balance sheet items . . . . . . . -- 535,505
8. On-balance sheet asset values
excluded from the calculation of the
risk-based capital ratio(2) . . . . 5,571 --
-------- --------
9. Total assets recorded on the balance
sheet (sum of items 4.a, 5.a, 6.a,
7.a, and 8, column (A) (must equal
Schedule RC, item 12 plus items 4.b
and 4.c) . . . . . . . . . . . . . . 7,939,421 --
========= ========
-----------------------------
(1) Do not report in column B the risk-weighted amount of assets reported
in column A.
(2) Include the difference between the fair value and the amortized cost
of available-for-sale securities in item 8 and report the amortized
cost of these securities in items 4 through 7 above. Item 8 also
includes on-balance sheet asset values portions thereof) of off-
balance sheet interest rate, foreign exchange rate, and commodity
contracts and those contract futures contracts) not subject to risk-
based capital. Exclude from item 8 margin accounts and accrued
receivables as of any portion of the allowance for loan and lease
losses in excess of the amount that may be included in Tier 2
capital.
-43-
<PAGE>
SCHEDULE RC-R--REGULATORY CAPITAL (continued)
FOR THE
PERIOD
JANUARY 1,
1996 TO
DECEMBER 31,
1996
--------
(Year-to-
date)
Memoranda
---------------------------------------------------------
1. Current credit exposure across all off-balance sheet
derivative contracts covered by the risk-based
capital standards . . . . . . . . . . . . . . . . . 0
WITH A REMAINING MATURITY OF
----------------------------
(COLUMN B)
OVER ONE
(COLUMN A) YEAR (COLUMN C)
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS
-------- -------- --------
(Calendar year-to-date)
-------------------------------
2. Notional principal
amounts of off-
balance sheet
derivative
contracts:
a. Interest rate
contracts(3) . 0 0 0
b. Foreign exchange
contracts . . . 0 0 0
c. Gold contracts 0 0 0
d. Other precious
metals contracts 0 0 0
e. Other commodity
contracts . . . 0 0 0
f. Equity
derivative
contracts . . . 0 0 0
------------------------------
(3) Exclude foreign exchange contracts with an original maturity of 14
days or less and all futures contracts.
-44-
